The Asian Manager, June 1990 Issue

A PUBUCATION OFTHE ALUMNI REIJTIONS

AND PLACEMENT OFFICESAND OF THE FEDERATION OF

THE ASIAN INSTITUTEOF MANAGEME�TT

ALUMNI ASSOCIATIONS

vol ilr No. 2 / JUNE 1990

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THE ASTAN MANAGER r JUNE 1990 3

fumtlueditry-.

Fond Farewells; lllhrm Felicitations

fhe Asian Institute of Management began June 1 an unex-I pected transition in its administration. Despite the risk,

AIM dean Gaston Z. Ortigas has for the past two and a halfyears - following his recovery from a near fatal heart attack- maintained a relentless pace. Noq that pace, and the in-tensity with which Gasty lives life, have taken their toll, andthe "Conscience of AIM"635 lssigned as dean uponthe insistence of his phy-srcrans.

An academic andbusinessman act ive inpolitical and developmentgircles in the Philippines,Gasty is a "non-typical"

l eade r , who seems toapply the case method tol i fe as wel l as the caseroom. Typically for Gasty,for our first meeting hecame to me. . . the dean.calling on the hired help instead of summqningthe newmanfor a formal get acquainted session. As many of you know,he has also been known to act as a porter for new, unsuspect-ing students; for his latest meeting with the President of thePhilippines, he put on his best pair of sandals. And in all ofthese instances, Gasty's actions were those of respect - andconfidence.

And so life at AIM with Gasty goes. He backstops hisfaculty without their knowing it; praises behind their backsthose with whom he has his most heated arguments; sup-ports champions of new initiatives without their ever know-ing that he is there - in the background - practicespatience when his younger charges sometimes have nopatience left.

His tenure has seen the introduction of a plethora of newprograms such as the Master in Development Managementprogram - the only one of its kind anywhere in the world.The Institute began publishing this magazine in L988, apotentially costly venture with high risk in the fiercely com-petitive Asian publishing industry; AIM reached out to itsalurnni as never before, and assured them that they remainpart of its community.

The Institute's facultyhas also becomeverydirectly and in-tenselyinvolved in public issues such as agrarian reform andsocial and economic development, and AIM conductsworkshops and seminars for a wide range of governmentagencies, from provincial organizations to the Congress ofthe Philippines to various departments in the Executive.

AIM launched an increasing number of programs over-seas during Gasty's tenure, and undertook action researchh unexplored realms: women in development, intra-Asian

jo int ventures and fami ly-owned corporat ions; andstrengthened its interest in 66mmuni$r empowerment, ruraldevelopment and sinall- and medium-scale industry.

At Homecoming last month, flvl nlumni presented a pla-que to the departing dean which read in part, "... he hasshown that one man can truly make a difference." Indeed, hehas. And will continue to do so: Gasty will remain with theInstitute as a senior professor - to enjoy the fruits of his

labors - and providecontinuing inspiration.To t ry to f i l l Gas ty 's

shoes, the AIM facultyand trustees have electedassociate dean Felipe B.Alfonso president, andformer associate deanand professor FranciscoP. Bernardo, Jr., dean.Both Fi l and Jun havebeen with AIM since itsfounding, like Gasty. Onbehalf of the AIM family,our congratulations and

best wishes to Fil and Jun as they assume responsibility forthe Institute in its third decade educating Asian managers.

The Global 90shis issue of THE ASIAN MANAGER presents the

I proceedings of THE GLOBAL 90s: A Focus on theAsian Managerconference held duringAlM's annual Boardof Governors andTrustees meeting. Therewas some debateamong the editors as towhetherwe would publish the entireproceedings, including the open fora. This was, however, ashort debate.

We continued - after several readings - to find theproceedings fascinating. Although we had been present atthe conference, new insights seemed to emerge each timewe read the copy. In reproducing the proceedings in theirentirety, we have attempted therefore to serve the best inter-ests of our readers. We hope you agree.

Acknowledgement

fhe acknowledgement following Dean Michael Maher'sI article titled. "Business Education in Canada: Business

Should Be Concerned" in our December 1989 issue was tohave read, "Reprinted with.permission from the Spring 1989issue of Busrn ess Quotterly. Copyright by the University ofWestern Ontario, London, Canada." It did not due to anoversight on my part, for which I apologize. I would also liketo express again our appreciation to Andrew Grindlay forpermission to publish Dean Maher's article.

_MAH

4 THE ASIAN MANAGER o JUNE 1990

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THE ASIAN MANAGER o Jtft{E 1990 5

The Global 90s: A Focus on theAslan Manager

Recent Developments in EasternEurope: The Proepects for AsianBusinessby David K NewbigingOpportunities in Eastern Europe mustbe financed and financed heavily byWestern and Asian business accordi.gtoAIM governor David Newbiggiog.Neubisging former Taipan of JardineDavies Hong Kong and current chair-man of Rentokil Group PLC notes thelimited size of the Eastern Europeanmarket and its revenue consumptionrather than revenue generation char-acter. These and other factors s 'ggestthat there will not be a substantial shiftin investment focus from Asia toliberated Europe in the 90s. JournalistDavid Tinnin and AIM governor andThe Bank of East Asia chief David Lireact to Newbiggingis remarks.

24Inta-Asian Trade and Inv$tmentbyWasWngnn SyCipAIM chairman Washington SyCipagrees that substantial credit will be re-quired to develop Eastern Europe, andsuggests that return on investment willbe much greater in Asia in the Pan-Pacific Era. SyCip notes that the over-seas Chinese will play a major role inmaking and leading newinvestmentsalong with the Japanese, and predictsthat the Western omership of manycorporations will be bought out byAsian managers in the 90s. Reactionsby Asiaweek's Hari Bedi and AIMgovernor and Bangkok Bank chairmanAmnuay Viravan follow SyCip's obser-vations.

Editorial

and Warm

Articles

T

Fond FarewellsFelicitations

35Management: Japanese Styleby Prof.Rene T. DorninpTo compete with the Japanese, Asianbu-inesses must be prepared to matchtheir enthusiasm and dedication to thecorporation and its mission accordingto Rene.

40Strategies for Person Marketing:The case otthe PoliticalCandidateby Prof.Eduardo L. RobertoAsia's foremost marketing researchguru provides insights into how a can-

didate can smoothen the campaigntrail. Understanding the intensity ofthe issues and "being the right kind ofperson" are key success factors for in-cumbent as well as aspiring politicians.

48The Spirit of Capitralism Revisitedby Prof.Leonardo R Silos MBM'71Nards relates whyorrc are vfiat we are,according to MaxWeber.

THE ASIAN MANAGERAPuuicalion calh.Alumri R.btionsard Pl&.msilOfiicmd lhc Fcdcnlion of lhs Asim Insthutc ot MtragcmcnlAlumniAssialions

PublisherF€lio6 B. Afonso

Editor-in-ChiefMichael A Hamlin

EditorsPia Jesusa T. Arroyo

Anita E. Pundol. Salome A. Flores

Design EditorAlfonso G. Ballesca

Marketing DhectorDelia Gutienez

EditorialBmrdCraston Z. Ortigas, Gabino A. Mendoza

Horacio M. Borromeo, Jr.Sonnv Coloma

Assocrate EditorsEffie Goh (Malaysia, MBM'78)

lshtiaq Qureshi (Pakistan, BMP 77)Gan Cheong Eng (Singapore, MBM '82)

Teerachai Chemnasid (Ihailand, MBM'73)Pashupati Singh (lndia, MM 75)

Christina F. Ferreros (lndonssia, ABMP'82)

Copyright 199o by Th. Ads lr/hnagar. Al dgh|3 rc$rucd.Beprod$tim in my mmncr in rNhob or in part in English qoth€r languag€ FohibitGd. Thc Adm tvlanagpr is publish-od qutrtedy bylhGAumni FLlationsand PlacmontOfiic6of lhc Ade lGlitutc ot i,lanagpm.nt.Edldi.l.nd Adrrl-lng Oik- AlM, 123 Pas dc Roxas,Makati, M.M., Philippin sT.t (63-a 87{o-lr FAx (8e2) 817-etrc


What the future will bring:from shadow to realitY

-Cast a shac low ' t t t t thc wa l l . T r1 ' to t t luch i t . anc l a l l you l ' cc l i s thc

ual l . Thc shaclow is a c1ark. I ' lat rcprcset l t i t t i t l t l t l l 'a rcal i ty.

Such arc our c l rearns . Unrea l i zed . thc l 'a rc l i ke shadows. But thcy

ncccl nOt rcrni t in so. We can t l lakc our clrcanls a real i ty.

I t i s th is rea l i t v we seek as we w 'ork to l ' u t f i l l our v is ion - o f 'abr ight tol t torrow fbr our chi ldren.

So that ourclreants do not remain as shadows on the wal l .

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THE ASIAN MANAGER o JUNE 1990 7

SZ sAN M'GU€L coRPoRA.oN

STORY

Thc Glful !h: A f,ms on tlu '4siot Moager - Fint kssiot

Recent Developments inEastern Europe: TheProspects For AsianBusiness

B;f1f "",-J;f tt;:,:ff ::l'J?lEastern Europe, it is important to es-

by David K NewbigingChairman, Rentokil Group PLCGovemor, Asian Institute ofManagement

Introduction

guesses" at this time. It is a constantlymoving target, but one thing for sure isthat Europe in the year 2000 will be averydifferent place fromthat to whichwe have become accustomed sinceWorld War II. These changes will notbe confined to Europe but will have animpact on the world as a whole.

ome basics ta t i s t i cs

prepared by the Financial Times willhelp put the six countries in perspec-tive.

o The total area is iust underone million sq. kios.

o The total population is about112 million'

o The gross domestic product(cDP) in L988 was $533 bil-lion.

o The total net debt was $73 bil-lion.

Within this, the countries themselvesvary enormously - Poland has thelargest area (305,000 sq. kms.), thehighest population (38 million) andby far the largest net debt at $35 bil-lion. Romania, which hit the head-

linesin such dramatic fashion with thefall of Ceausescu, has the second

largest area(87,ffi sq. kms.), thesecond largest population (23 mil-lion) but net debt of only $L billion(the lowest of the six).

At first blush, therefore, itcou ld be assumed tha tRomania is in the best posi-tion to develop economical-lybut this would be an over-

simplification; it will probablyhave the most dif-ficulty in restoringpolitical institutionsand stability. Some-where in the middlein te rms o f a rea .population and netdebt is the GDR butit will probably bethe most important

of the six in terms of develop-ment, opportunity and the fearsand concerns engendered by the

Backgroundtabl ish what we mean bv Eastern,Europe. For the purposes of this ar-t ic le I wi l l concentrate on the six"satel l i te" countr ies of Bulgaria,Czechoslovakia, East Germany (theGerman Democratic Republic), Hun-gary, PolandandRomania. Before theevents of the last s ix months fewpeople in Western Europe - and Isuspect even fewer inAsia -had more than a hazy idea ofwhat these six countries rep-resented in terms of popula-tion, foreign exchange reser-ves or deficits, trade balan-ces and the like. We tendedto think of them, with jus-t i f icat ion, as communistcountr ies dominated by theUSSR which cont ro l led a l laspects of politics, economics andsocietv.

Mr. Gorbachet's policies of glas-nosf (openn ess) and perestroika(restructuring) have changed alltha t d ramat ica l l y and w i th arapidity which few in all honestycan claim to have forecast. The netresult will undoubtedlybe a majorres t ruc tur ing o f Europe, theresults of which can onlv be "best

8 THE ASIAN MANAGER r JUNE 1990

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THE ASIAN MANAGER e JUNE 1990 9

prospect of a reunilied Germany. Toput these statistics in perspectiveslongside the USSR, that countryhasan area of 22 ni l l ion sq. kms., apopulation of nearly 300 million andforeign debt about the same asPoland's (f35 billion net).

Recent Political Events; n general terms thc dramatic eventsI of the past year have been well ven-t i lated in the world media -Gorbachev's major domest icproblems, both pol i t ical andecononic, within the USSR whichhave led (perhaps he had little option)to a major loosening of the Russiangrip on Eastern Europe. Like manyothers, I sat glued alnost unbelieving-ly to my TV set as one conmunistleader after another, and the regimehe represented bit the dust. But thesedramatic changes have catapulted thecountries of Eastern Europe into the1990s out of authoritarian rule into akind of limbo. The administrationswhich are hying to hold the countriestogether have neither the previouspower of state communism, nor amandate from their people via freeelect ions. President Havel ofCzechoslovakia and Prime MinisterMazowiecki of Poland were installedin office by the power of popularmovements. The others in general are"reform communists" of varyingdegrees but all walk the tightrope ofcontemporary East European politics.Each could be dumped at any time bydemands for freedom, food or - as inRomania - blood.But perhaps the most visible and

emotive political dimension is that ofGerman reunif icat ion. Germannationalism runs deep onbothsides ofthe border and despite al l theproblems of linking the ostmark withthe deutschemark, integrating 16 mil-lion East Germans with 60 nillionWest Germans and comparativegrossnational products (GNPs) of DM400and DM2,?55 billion respectively, Isuspect some form of unification willcome quicker than most people think.A brief chronology of recent eventshelps to demonstrate the rate ofchange

o 18 October 1989 - Honeckerlssigrs and Egon Krenzbe-comes the new GeneralSecretary.

o 7 November - GDR govern-ment resigns.

o 9 Novenber - Borders withWest Germany are opened toall GDR citizens.

o lji November - [Jans Modrowis elected prime minister.

o 18 November - A newgovern-ment is sworn in-

o 28 November - ChancellorHelmut Kohl of West Ger-many proposes lGpoint planfor Deutschlandoolitik.

o 3 December - The GDR Polit-buro and Central Committeeresign unanimously.

Even over the past month, eventshave continued to move apace withKrenzbeing out ofajob and reduced16 5slling his story to the media.The specter of a Europe dominated

by a reunified Germany causes greatoon@rn in both Western and EasternEurope, and indeed in the USSR.Inpractice formal union is unlikely in thevery near term but esensive financialsupport is likely to continue to beforthcoming for the GDR from theFederal Republic and economic [nkswill increase further. Crucially theGDR is already, in importantrespects, a beneficiary ofEuropeanComnunity trading arrangementssince i ts trade with the FederalRepublic is classified as intra-Germanand consequent ly not subject toregulation. The Federal Republicprovides the equivalent of DM850 mil-lioninterest-free credit to the GDR tohelp finance total German trade.

ln a nutshe[ therefore, recent politi-cal events - and I suspect there couldbe equally dramatic developments inthe future - will create an environ-ment providing challenges, oppor-tunities and risks for trade and invest-ment, and this applies to Asian busi-ness also. My caution, therefore,would be not to get carried away by'hone5moon euphoria" but carefullyassess the realities of the systems andpolitical structures - such as they are- and consider where the finance isgsming from. Hasten slowly, and as-sess the downside as well as the upside.

Current EconomicRealities

s the excitement and euphoria ofthe past year of change in Eastern

Europe moves into a cold appraisal,several if not all the countries may findthat political revolution was easierthan the restructuring and transfor-mation of their fragile economies.Each newleade6hip faces a differentsetofproblems andeach no doubthasa different view on how fast to movetowards a more capitalistic system.Each country has a requirement forWestern finance and the capability ofeach to attract such finance differs.My earlier data on the level of foreigndebt alone 6"-o*631es this.Abasic assumption nustbe that the

systen in each ofthe six countries has

11...several

if not all thecountries may

find that politicalrevolution waseasier than the

restructuring andtransformationof their fragileeconomt"".l

It t

been inefficient, bureaucratic, out-dated, cumbersome, probably cor-rupt, over-borrowed, ulsgmpetitiveand consequentlyunable to competeon equal terms in the Free World.Overhanging this is the requirementfor massive emounts of foreign moneyand, while comparisons have beendrawn between the Marshall Plan atthe end of World War II and currentWestern plans to transform EasternEurope, the fundanental differenc€ isthat the Marshal l Plan basical lyprovided grant aid from the US whilemost Western f inancial supportpledged thus far to Eastern Europehas been by way of loans. The pos-sibility of a new debt crisis for EasternEurope and the potential for anotherinternational debt crisis in the 1990s

10 THE ASIAN MANAGER o JUNE leeo

are obvious. The Western banting sp-temhas proved itself tobe remarkablyaccident-prone in this regard to thee*ent that private sector shareholdersmust wonder what roles bankingboards 41d rnarragement see themsel-ves as occupying on behalf of theirowners and depositors.The key, therefore, must be'olVho is

going to pay for it dl?' Realistically,direcf financial assistance should onlycome on a large scale from govern-ments and institutions such as theWorld Bank rather than throughprivate companies or financial institu-

straint on further foreign borrowingand any additiond lendingwill requirevery careful consideration. Both thesecountries are members of the IMF andWorld Bank as is Romania (only thesethree are) which has no technical debtproblem and indeed could bedescribed as under-leveraged. How-ever, Romania's problem is not somuch one of its technical borrowingability as that of a complete dearth ofdecision-makers and infrastructure asa legacy of the Ceausescu regime.Bulgaria's debt is high and it is heavilydependent on trade with Eastern

sixbut more so because of the directinterest of West Gernany.

So what does all this mean in terms ofavailable finance? In late Februarythe president of the World Bank an-nounced that 35 billion wouldbe lentto Eastern Europe over the next fiiveyears. The Japanese government hasdecided to grant $2 billion in aid, in-cluding government- guaranteedloang and there is ofcourse the finan-cial support for the GDR from WestGermany which I have alreadydescribed. Links are being establishedwith the Organization for Economic

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tions. If the latter do make financeavailable it should onlybe for soundcommercial reasons rather than anysense ofpru bono publico.The requirements of each country

will differ. Poland is in greatest needand seems to have been first on thereceiving line with over US$1 billion ingrants and loans from industrializedcountries following a standby creditfacility of f725 million from the Inter-national Monetary Fund. Hungary'sexisting foreign debt will place a con-

Europe. Czechoslovakia has com-paratively low debt and is regarded -together with the GDR - as havingthe best ingredients for success. Itsworkforce is reasonably well edu-cated, its geographical location rela-tive to West Germany and Austria ishelpful and it has an infrastructurewhich could give it a head start over itsneighbors. The GDR, despite its highdebt burdeq is something of a specialcase not simply because its industrialstructure is the most advanced of the

Cooperation and Development andinstitutions such as the European In-vestment Bank will probably come tothe party.

Trade and InvestmentChallenqes andOpportu-nitiesl.herapidpace of political reform inI Eastern Europe has created anew

challenge for corporate strategic plan-ners in the West. Will this market of

THEASIAN MANAGER o JUNE 1990 11

over 100 million consumers (or 400million.including the USSR) become aprosperous region of growth in the19909 or will the attempts at economicreform fail leaving investment thereunprofitable compared with funds in-vested in more dynanic regions? Thisis the dilemma facing compenigs wfosmust formulate strategies for tradingrelat ionships, jo int ventures andstrategic alliances.

So far East-West trade provides fewanswers. Volume has grown over thepast two years or so after a period ofstagnation but exports to the Easternbloc in 1988 of around $50 billion ac-counted for less than2Vo of world ex-ports. To put this in anAsian perspec-tive, these figures are less than a thirdo;lslalimports toJapan which itself isnot exactly the easiest of markets forforeipers to penetrate.

Nonetheless business is being done,joint ventures are being establishedand investment is taking place. Someof the higher profile examples havebeen General Electric's acquisition inHungary of Tungsram, i ts lampproducer, or GM's deal worth $100millioq - also in Hungary - withtheir Reba truck and engine manufac-turer to produce vehicles and enginesin ajoint venture 67Vo controlled bythe US company.

Hoare Govett , a London-basedbrokerage house cont ro l led bySecuri ty Pacif ic Bank, recent lyproduced a survey ofjoint ventures es-tablished between West Europeancountries (Britain excluded) andEastern Europe (USSR included).Many of the big names in Europe areshown - Siemens, Krupp, VW andDresdner Bank (going back to its rootsin Dresden); Credit Lyonnais, Elf andLVMH; EM, Fiat, Olivetti and Pirelli;AKZO, Philips and Royal DutchShell; and, manyothers. Hoare Govetthave traced 116 joint ventures in allwith the highest number (35) beingmade by ltaly. On the receiving end,72are in the USSR and25 in Hungarywith the remaining five countries ac-counting for less than 20 combined.Against this background, what are

the prospects for Asian business? TheJapanese - as might be expected -are already there and Prime MinisterKaifuwas recentlyin Poland and Hun-gary. Japanese trade with non-USSREastern Europe currently runs atabout $1.5 billion annuallywhic\ put

into perspective, represents less than0.SVo of Iapan's trade worldwide.Nonetheless, the Japanese have beentrading in Eastern Europe Ior 20years; longer than most Westernbusinessmen. At least tensop sosha(trading companies) have had officesin each East European country sincethe 1960s. The recently announced$2 bi l l ion aid package wi l l causeJapanese companies to take theprospects seriouslybut I doubt if therewill be a stampede to catch the nextJALfltht.

31So,

hasten slowly,be realistic,

but takeEastern Europe,

and IndeedEurope as a whole,

seriouslyin the1990s.

, ,

Most of the current trade is straightbulog and selling - Czechhops areused in Kirin beer, the Poles supplysalted herrings from the Baltic, andJapanbuys Romanian oil products. Inthe other direction, Poland's popula-tion and its network of dollar storeshold some attraction but the countryalready owes $1.9 bill ion to Japan.Poland's joint venture laws are said tobe complicated, and so far, it seemsthat the only Japanesejoint venturesof note have been signed upwithHun-ctry.

Suzuki reccntly concluded the big-gest, a $1,10 million carmaking deal.Not much has happened in the othercountries and jointventure laws are intheir infancy, but the Japanese may beperceived in the five countries (ex-cluding the GDR) as attract ive

counterweights to the Germans.The Japanese may face competition

from Korea which is energetically es-tablishing relationships with Polandand Hungary in particular, where $4{X)million and $300 million of credits andloan guarantees have been granted.Not huge sums, but a start and I wouldexpect the Korean presence to grow.The remainder of East and SoutheastAsia may find opportunities for trade(subiect to bei"g paid) and barter, andopportunities exist. For example, agsmpanywith which I am associatedrecently concluded a contract to sellChinese textile products to Poland.Inmany cases, however, Eastern Europewith its cheap but potentially skillfullabor may become a competitor toSoutheast Asia in the light industrialfield and, without government finan-cial support, direct investment or jointventures will need to be carefully,realistically and commercially as-sessed.

Having said this, the Asia-Pacificregion has gone through a period ofdynamic growth in the 1970s and1980s. Europe maywell be the regionof the 1990s with the Single Marketcoming into the EC in 192 and the in-triguing but uncertain prospects forEastern Europe over the next decade.With the dynamism and enterprisewhich exist in Asia, I would besurprised if those opportunities whichemerged lvere not grasped by Asianbusinesses. There wi l l be oppor-tunities and challenges but my advicewould be to hasten slowly; researchcarefully howyou will get paid or reim-bursed; and establish Eastern Europerealistically in your list of prioritiesrelative to the other regions in whichyou either are or expect to be tradingor investing. Don't get carried awaybyhoneymoon euphoria, and ifyou havenot been there, go. I myselfam head-ingfor the USSR next weekinordertotry to see for myself.

ConclusionE astern Europe is a constantly andE rapidly chan'ging scene. In this ar-ticle I have tried to sketch - and I em-phasize sketch - some of thedramatic changes of the past fewmonths. These have been mainlypolitically driven and the futureeconomic and social implications arefar from clear. Changes will continue


THE ASIAN MANAGER r JUNE 1990 13

to take place with almost alarmingspeed and the aspirations of those 1fi)m i l l ion or so peop le in the s ixcountries may not be easily satisfied.The new political structures are far

from solid. The economic and finan-cial systems and infrastructure aregenerally incompetent and uncom-petitive. Bul within the social systemthere is a clear desire to throw off theyoke o f communism, wh ich hasdemonstrably failed, and to move eachcountry towards a freer society and afreer economic environment where anindividual can be rewarded for his ef-forts.For businesses in Asia - or indeed

Western Europe or the USA - therewill be opportunities. Finance will be amajor constraint and this can onlybesolved at a government or internation-al level. At a business level, boards andcorporate planners will have to care-fully and realistically assess the riskand opportunities in this region ofnearly one million sq. kms. with apopulation of over 1fi) million people.

For the region itself, I wish themevery success but it will not be easy.Howeyer, I do believe it is in the inter-ests of the Free World that they shouldsucceed - which is where govern-ments and international institutionslike the World Bank must play theirpart - since for Eastern Europe to berolled back under a carpet of com-munist domination would be a majorretrograde step and an internationaldisaster.So, hasten slowly, be realistic, but

take Eastern Europe, and indeedEurope as a whole, seriously in the1990s.

First Reactor:David B. finninEditor-in-Chdf Billion Magazine

1 would like to commend Mr. New-f bisging for a very realistic appraisalof a very, very complicated situation.In covering world politics, especiallyin Europe, Eastern Europe and theSoviet Union for about three decades,I think that there are two immutablerules that I can state with a fair degreeof confidence. The first is, that any at-tempt to create a paradise turns into ahell. The second is that any series ofevents that besins with euphoria, endsin tears. This is not a very huppythought, but it happens to be very verytrue. The recent developments inEastern Europe can onlybejudged asextremely positive, extremely en-courag"'g and any human $sing has toapplaud what has happened there inthe cause of freedom and human dig-nity.At the same time, we also have to

face the reality that Europe is in a verydestabilized situation. A destabiliza-tion that really has no parallel, exceptback in the 1930s. Even the immediatepost-war period was quite stable in thesense tha t there were two superpowers - one of which was worn outand the othcr rapidly ds6sbilizing-faging one another. Andyet, there was

a balance of power and a stability andthat lasted.

Now Europe is changing drastically.The changes are really quite unbeliev-able. We are returning to a strongunited Germany, and Europe is shift-ing away from the At lant ic to theheartland of Central Europe. We aregoing to."s 2 gfuange ofprofound dif-ference. IfI understand the Chinesecharacters for "opportunity'' correct-ly, the word is composed of both thecharacters for "risk" and "oppor-

tunity" and I think this is what onefaces in Eastern Europe today and Ithink Mr. Ne*bigging pointed that outvery commendably.

One great question is, why didn't weknow any of these things? Or why didyou not know any of these things be-cause, with all due immodesty, I didknow a great deal of it and e4pected itto happen. I brought along ClarenceDa Gamma Pinto, my principal aide,to attest to the fact that I have beensaying that this was going to happenforsome time. gas thing thatis sure is,President Gorbachev knew, the KGBknew; probably, most of thebureaucracy or the h igherbureaucracy in the Soviet Union knew.

I had the great privilege of being aTime correspondent. I was the senioreditor for foreign affairs and seniorwriter for a number of ye ars and Imoved between those jobs to be ableto travel a great deal. As a correspon-dent, I had a very sobering and enno-bling experience of becoming a con-fidante of Aleksandr Solzhenitsvn


3(economics...is the area

Asia is going toand can playand probablyshould play

a very importantrole.

r,when he came out and was expelledfrom the Soviet Union.It was simplyaseries of accidents that took place butSolzhenitsyn took me into his con-fidence. I did a series of stories inTime, several of whichwere helpful tohim because theywarned the KGB offhis trail.

The KGB had a great plot againstSolzhenitsyn going at that time. AndSolzhenitsp used to tell me,lookingme right in the eye, "You know 10years from now, I' l l be back in theSoviet Union. There won't be a Sovietgovernment an)nnore. It will be an or-thodox country and God will havesaved it and everything will be fine."And I would think, "We[ that is veryfine to say, but that is just not going tohappen."

But as it turnedout, he wasonlyafewyears off. And what's going to happenin the Soviet Union over the next 10years is probably very very profound.So a lot of people did know. Certainly,one of the things that brought aboutthe change has been economics. And Ithink that is the area where Asia isgoing to and can play and probablyshould play a very important role.The "Prague Spring" ofAlexander

Dubcek began in the fertile imagina-tion of a pint-sized economist namedOtto Sikh who decided that there hadto be a better way to do things anddevised a scheme for a limited amountof entrepreneurial initiative in state-controlled Czech firms. He presentedthis to a number of his confidants, oneof whom was Alexander Dubcek. Theytalked informally with the Russianswho told them to go ahead and try out

the scheme. It may turn out to be agood idea, they said, similar to whatKruschev dubbed "Hungar iangoulash communism." But do not gotoo fast, 1ls f,us5ians warned.

Of course, it did go too fast, and weknow what the solution was. We alsoknowthat in a very very short time, theman came back. He was back in 20years, a short time in a historicalframework.

Now, whydidwe not knowwhat wasgoing to happen? If Gorbachev knewit, if Solzenitsyn knew it, if hundredsand hundreds of people knew it, whydid we not see that sort of story in thepress?

I think it is probably important foryou all as senior m:rnagers and seniormanagers-to-be to know why thesethings do not get in the press. The firstthing is that access to information iscont ro l led . I t i s d i f f i cu l t to be areporter in Eastern Europe. You havea government looking over yourshoulder, you have people followingyou, you have to register with whomyou want to speak, you have to put in a

request first, and so forth and so on.The bureaucracy keeps you at bay veryeffectively. Some reporters who arestationed in the area fear for their ownlives or for their own safety. Perhapsevon more so for that of their familiesbecause the harrassment is not fun.

I have knoum too many people whosewives have had nervouJbreakdoumssimply because they knew that everyroom in the flat was bugged. TheAmerican embassy would send outsweep teams every yoar and if youwanted to, you could have a couple ofguys come by and sweep your apart-ment.In Moscow, they found 35 bugsin the apartm ent of a LI FE correslnn-dent. That is quite a fewbugs.The next thing that happens is that

you have the visiting fireman, underwhich category I fell for many years-the important man from New York,jetting out, followed by some subservient researcher carrying his attachecase and announcing himself as editoro f th is o r sen io r wr i te r o f tha tmagazine or newspaper. This endedme up in wonderful state banquets

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.a .aL E

- -The only time Time magazine was ever outsold by Newsweek on the

newstands was when yours truly, with all due immodesty, did a very finecover story on the problems of the Soviet leadership.

And Newsweek did one on the 'hotpants' trend.

, ,

where I usually got indigestion, butalso some verynice reviews at the RedSquare where editors were put on thestand ofhonor and reporters were allhuddleddovm at the other end, practi-cally under the clubs of the KGB.So, you do have these people coming

in and theywant an interview, and veryoften the local guy can not get it. Mos-cow was always a scandal in that afo re ign ed i to r o r the ed i to r o f amagazine or newspaper could come inand get an interview with some veryhigh official on the condition that hedid not bring his local correspondentwith him. I never did that, but otherpeople did, including that newspaperthat has the slogan, "All the newsthat's fit to print," except that theyun-dercut their own correspondent. In-credible.The worst thing, however, is that the

powerful editors sitting behind theirdesks in Frankfurt, Brussels, London,New York, Manila, and so forth, feelthat their readers are not interested inEastern Europe or in anyplace that isproducing bad news. Therefore, theysimply ignore the stories.The correspondent can write the

best articles in the world. He can getall sorts of information that is new, thatis enlightening, but it simply will notappear because the editors wouldthink, "We[ it is not going to sell, thereaders won't want i t . " And at theback of the editors'minds, they see thepubl ishers who would be saying,"Good God, the advertisers don'twant this kind of stuff! We've just lostthree pages."

The only timeTime magazine wasever outsoldbyNewsweek on thenewstands was when yours truly, withall due immodesty, did a very finecover story on the problems of the

Soviet leader shrp. And Newsweek didone on the "hot pants" trend.

But let us go back to our subject ofEas tern Europe and As ia . DoesSoutheast Asia, does Asia in general,the fastest growing and the mostdynamic economic area in the world,have anything to fear from EasternEurope? I think the answer on balanceis, not really. There mayte some com-petition for foreign investment buttheAsia-Pacific area is becoming verymuch a self-driven area-

What does the Asia-Pacific regionhave to offer to Eastern Europe? Iwould say, great caution. The peoplewho aregoingto make the strategicin-vestments, where one is willing towrite-off a few hundred millions, aregoing to be the Western Europeansand those are, on balance, sounddecisions because it's much better tohave a prospering, huppy EasternEurope onyourborder thantohave anunhappy Eastern Europe. I wouldrather spend half of theWest Germandefense allocation on soft loans to theSoviet Union than have to fight theSoviet Union in five years because it isa war you are not going to win or evenif you do, God help you after it is over.So the type of things that drive theEuropeans are considerations totallyapart f rom what should dr ive theAsians.

Now, what can you bring? Whatshould you do? Probably very limiledmeasures, but very, very importantones. Perhaps, the mostlmportant isto help to recreate the entrepreneurialspir i t , t raining, technological ex-change that brings training alongwithit, that shows where human initiativeplays a role. That probably is the very,very best thing that you can do. Andthese should not entail huge mam-

moth undertakiogs such as building anew steel mill some place in southernPoland.It is probablymore in the areaof medium to high technology with agreat deal of human endeavor andhuman intelligence added. That iswhere you have excelled and I thinkthat is where you can help EasternEurope.

Second Reactor:David KP UDirector and Chief Executive, The Bankof EastAsia, Ltd

1 share the view of thi two speakersI before me. So it is very easyfor me tosay that I agree with both of them, par-ticularly with Mr. Newbigging. Heh imse l f i s a very success fu lbusinessman in Hong Kong and in theUnited Kingdom, and can also be car-ried awaybythe "flavor of the month."Eastern Europe seems to be the flavorof the month in much the same waythat last year, before June, China wasthe flavor of the month.

Businessmen, particularly bankers,seem to be easily swept by the flavor ofthe month symdrome. I think we haveto be very careful not to be caught inthat. What you see in Eastern Europewhenyou lift the Iron Curtain are theireconomies . They are very deadeconomies.

I was speaking to Rudy Murdockre cent ly in London. He had jus treturned from an extensive tour ofEastetn Europe with his wife andsome of his colleagues. We talked forabout an hour and a half about variouscountries in Eastern Europe and heagreedwithme that one is dealingwithdead economies there. He said thatwith China, you maybe dealing on the



ground level but in Eastern Europeyou are dealingsixfeet under. You arebasically crawling up, and he said thatit is very difficult to crawl up.

Another thing you are dealing with,are countries that have no system, nolaw and order the waywe understandlaw and order. Andyouwill payaveryhigh price for democracy. As we allknow, democracy is very e4pensive. Itwill be very expensive because of twothings: the people are not used toworking - people are used to sub-sidies- and where people have no in-i t iat ive, you have to recreateentrepreneurship, create a new sys-tem.

Ithink it is allverywellto saythatyouwill be selling to 1110 million people.But are these people wealthy enoughto buy the goods that you produce?Are they trained enough to have dis-cipline? To work in factories? Theyare not. So basically,I do not think thecurtain has fallen on the Pacific Cen-tury as otr Time correspondent said.I basically think that the Pacific Basinis still the dymamo for the 21st century.And I still believe that if we can find away of harmsnizing people's.energiestowards prdductive work rather thanhaving politics divide people, I thinkwe can lead the way in reforming notonly ourselves but Eastern Europe aswell.

I also think that when you talk aboutinvestment, you must distinguish be-tween investment and aid. It is all verywell to throw a few speculative milliondollars into a venture in an EasternEuropean country. This is not invest-ment; I would consider it aid. It is agamble to see whether it pays off ornot. You are referring to real invest-dent if you are thinking of sinkingpeople's money and time in it.

I do not think people in Asia areprepared to do that. And I do not thinkpeople in America are prepared to dothat either. I reckon that most of theventures that the Americans are goinginto in Eastern Europe are real ly"peanuts" compared to the sizes oftheir own organizations. I think whatthey do not want is to miss oppor-tunities in those countries in'case itdoes work. They also want to show theworld that they are leading.Murdochtold me that he just spent US$4 millionnbuyng 50% of a newspaper in Hun-gary. I asked, "Why did you do thatafter what you just told me?" He said,

"It's peanuts. I have to make a gestureto the people.'And I reckon all thoseinvestments from corporations likeGM, are basicallyjust gestures to showthese countries that the Americans arebehind them.

I think what one shouldnotice in the1990s is that the whole investmentscene is changing. We are dealing withreal investments. People are looking atyou, people are looking at bottom-lines. People want much more returnon investment. We are nowseeing dif-ferent types of managers because ofinformation technolog;t. We are basi-cally much more competitive.

I was in China recently for a basic lawmeet ing and one o f the Ch inese

a a- -t t- -

| thinkit ls all very

well to say thatyos will be selling to140 mil l ion people.But are these peoplewealthy enough to

buy the goodsthat you produce?

, ,

leaders told me thatwe have to changethe Joint Venturc Law. I asked why."Well," he said,"because of what ishappening." He did not saybecause ofwhatwas happeningin Europebut be-cause o f wha t was happen ing i ngeneral.

I asked , "Wha t do we have tochange?" Hc said we will no longerstipulate that a Chinese national mustbe chairman of a joiht venture. Wemust lower our tax rate. We must givetaxholidays. He saidwewill have to dothese thi"gs to be competitive.

I think ths whole Asia-Pacific isreacting to Eastern Europe. All thecountries in the Asia-Pacific are tryingto be competitive although they do notsayso. But I think everyone is trying tobe competit ive to increase invest-ments in their own country.

I alsothink that sincethe ColdWar is

ending, you will see a shift in invest-ment from armaments toresearch anddevelopment, to basical ly moreproductive industries that add to thequality of life. And I think, that forse1[ain, companies willgo for more re-search anddevelopment, not inthe ar-mament field but in the fields of hightechnology, information technologyand pharmaceuticals.

I think that the whole world is beingimpactedbyEastern Europe and eachone of us has seen that we all lovedemocracy. However, we have not ac-tually calculated how much we are allgoing to pay for democracy, howdemocracy is going to influence notonly our own country but the wholeAsia-Pacific basin. And I think thatChina will definitely have 1s gfuange. Ithink China, despite the leaders'saying that they are not going togfien$e, are already changing in reac-tion to reality.

Open ForumQuestion:lwouldlik to addrcss this

questionto Mr. Tinnin. I amwondeingif you think that there will be a trend inEastern Europe towards a moreegalitarian kind of capitalism becauseof the interaction between what theEastern Europeans think are ad-vantages of socialism and disad-vant age s of capitali sm ?

Tinnin: I thinkthat inEast Germany,for example, one finds a "purer Ger-man" than what qne finds in West Ger-many. West Germans are incrediblymaterialistic. There is very often verygood human relations prevailing inEastern Europe that are not charac-ter ist ic of a highly industr ial izedWestern society. No doubt there issomething to be said for a harder andmore rustic way of life. I think that a lotof the people in Eastern Europe, espe-ciallythe youth, are a bit more idealis-tic and are a bit more inspired by no-tions, by philosophy, than our youth inthe West. I think that there will be aconscious effort to take the best ofcap i ta l i sm and keep cer ta inegalitarian type of ideals that havecome up. If you look, for example, atthe record of Solidarity, you will seethat the workers were able to keep theparticipation of a very big number ofpeop le in the dec is ion-mak ingprocess. One finds that very, very en-couraging. Certainly the way events



thev will do so.

, ,

are going in Czechoslovakia is alsovery eircouraling. I think there is aconscious effort in Eastern Europenot to take all of the corrupting ele-ments of Western capitalism, but to tryand marry the best of the egalitariansociety with the advantages of a moreefficient, technologically-orientedsociety.

Nervbigging: If you had been able towatch the television coverage of someof the events in Eastern Europetowards the end of last year, you wouldhave been amazed to note the dif-ference in the attitudes of the peoplein, say Poland, who had had the ex-perience of Solidarity and Romaniawhich had not benefited from anythingunder Ceausescu. I think one mustbea little careful not to generalize aboutEastern Europe or even the sixcountries I have mentioned, for theyare very di f ferent. One of theproblems, I suspect, is that none ofthose countries really had any per-sonal freedom and when people getthe taste of personal freedom, thatfeeling can gather a momentum of itsown which just surges ahead like atidal wave and subsequently, theymayfind that it is very difficult to get theiract together on the economic front.They may find political revolution agreat deal easier than the economicevolution in the years ahead.

Question: Re latingto the case paclcs, Inoticed that 25 out of 54 joint ventureswere in Hungary. I would like to knowwhat factors are responsible forHungary's greater attraction to jointventures as compared to the othercounties?

Newbigging: You are stil l talkingabout quite small numbers. Out ofthe se joint ventures only 25 weretaken. Hungary has many obvious at-tractions. For instance, it has hadmuch more commercial contact withWestern Europe and the rest of thewor ld than some o f the o thercountries. Take the extreme case ofRomania for example, which has hadno commercial contact, or Poland,which has had some. Or you take EastGermany which has tended to focusmore on West Germany. But I think,David Li's comment was a very validone. These joint ventures are more ofgestures.ThebigUS hrms do notwantto miss out, they want to be there. Oneof them, in fact, was given the oppor-tunity of controlling over 60Vo of a

joint venture. Normally, it is the otherway around: if you go in as a foreignparty, you have to take the minorityposition.

I think one other interesting angle inthe US interest in Eastern Europe isthat there are quite a number of sig-ni f icant communit ies within theUnited States from Eastern Europeancountries. Manyof these people speakthe language a great deal better thanpeople in Western Europe do. So theemotional desire to reforge linl$ withtheir homelands now that this has be-come possible might, in some cases,relegate hard commercial sense to thebackeat. The heart might actuallyberul ing the head! When you look

11People

inevitablywill look backto their original

homelandand if they

think they canget involved there,

around, thc same even appl iesinAustralia as Sir Gordon Jackson canconf i rm. Severa l o f the lead ingbusinessmen in Australia today arewhat I would describe as ex-Hun-garians. And there is more of this inthe United States. People inevitablywi l l look back to their or iginalhomeland and if they think they canget involved there, theywill do so.

Li: Ifyou go to Chicago, about halfamillion people there are of Hungarianorlgn.

Question:lcually I wE goingto saYthat perhaps the 25 ioiit ventures in-volve ethnic Hungarians and I wasgoingto sugest that perhaps one of thethings that the Eastern EuroPeancountries should do is to institute someki n d of a balikbayanp rograrn.Balik-bayanare Filipinos from the UnitedStates or sotne olher part of the world

who come back to the Philippines.People likc these te prob&ly the morcIogical sources of technologlt,entrepreneurship and capital for theEastern European countries thanpeople from Asia or even WesternEurope.

Question:I'd lil<e to focas on the trodeangle. Frorn my point of view, theforeign investment policies of theUnited States are undergoing sertouschanges and rethinking because of therecent developments in EasternEurope. These seem to imply thot therewill be a shift away from the PhiliYpines. Is there a basis for this implica-tion oris this just amediahypothesis?

finnin: Well as the media expert,Isay that I would really want to see thechanges in the United States first. ThePhi l ippines from the Americanstandpoint is in an extremely impor-tant strategic area and these decisionsare not going to be made in the nextmonthor so. I thinkwhat oneisgettingnow is a great deal of speculatioq withpeople having to f i l l up a certainam ount of space in the magazines or inthe newspapers. I would not take anyof these seriously r ight now. Theamounts involved in Eastern Europeso far are so small and essentially youare going to have to loan the EasternEuropeans money before they can doanything themselves. This contrastssharply with Asia which is basically aself-sustaining capital-creating en-vironment so that the commercialequation - which at the end of the dayis the more important one than whatthe US Senate does or does not do orthinks about or does not think about- is simply so tilted in favor of theAsia-Pacific area that although therewill be some investment and some in-terest in Eastern Europe, they are notgoing to be 6vsrwfielming factors thatwould change the face of the earth. Ithink that it is very important to keepthis in perspective, that it is, so far,much more a political event than it isan economic event and will 16pain 5sfor the forseeable future.

Newbigging: I agree with that verymuch. I do not think anybody shouldassume that a group of six countrieswith a population of only ll2millionisgoing to transform the world's busi-ness and economy overnight. I thinksse 6f1[s things people are up againstat the moment is that very few PeoPleknow much about Eastern EuroPe.

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a ar LI I

I I- -Let us say a lot of things do not work and that is a pgggibility_ because

the Eastern Europeans-do not know how to organize things, they do notknow how to work since they have been living for many years in

Never-Never Land.

, ,

Earlier this week in London, I washaving lunch with a colleague of minewho is on the board of one of ourmajor banks and I told him I waspreparing a paper on Eastern Europe.As a matter of interest I asked himwhat he thinks is the population ofthose six countries. His first reactionwas, "I don't know." When I told himto take a guess, he said it must be atleast 250 million people. 11sld him hewas wrong by a wide margln.

So I think it is very important to getthe facts right as towhatwe are talkingabout. You have a potential marketthere of 112 million people. What doesthat mean in 1e1ms of Asia? There arecountries in Asia which have popula-tions a great deal more than that. Iremember what they were saying whenChina started opening up. Theyweresalng that ifyou could sell one razorblade to every Chinese male once amonth, think of what that would do toGillette's profits. Well, I have notnoticed Gillette's profit doubling tri-pling or quadrupling as a result. So,one has to be realistic.

Question:'Will the vacuum followingthe removal of strong-man rule causeeconomic chaos and bring back the oldsystem, bearing in mind that it waspovefty that in large measure helped toinstall the old system in the early 1900s?

Newbigging: I will counter that ques-tion with a question: How old is old?What do you mean by the old sYstem?Is it the early system after World WarII or the turn of the century? How oldis old?

finnin: If it is communism You arereferring to, I will be glad to answeryour question. I think the overwheLn-ing danger is in the Soviet Union, thatGorbachev will [ose, that the militarywill comebacktopower or that acom-

bination of the hard line party plus thehardline mili1xry, which maymean allsorts of schisms within the military it-self (the Soviet military is no moreunited than the Chinese military) willtake over. There is alwaYs a greatdanger of inter-military rivalry. I thinlqthe worst case scenario, which is notan unlikely scenario, is that Gor-bachev and the reformers will lose, thehardliners will come back in with thesupport of the military and then theywill try to roll back the clock. Well, thef i rst thing you do is fo occuPYLithuania and shoot 10,000 PeoPle.Then you look at Poland, send bacttroops that went out, rearm theirtanki, and send them in again andagain whenever you have PoPularupnsrngs.

The possibility of the hardliners at-tempting to re-establish themselves is,I think, very very real. I used to know anumber of Soviet diPlomats underKhrushchev and under Breshnev.Gromyko's son was in the embassY inWashington for a number of years andI helped him with a book he was writ-ing, called Through Russian EYes,-about the United States. I always hadaccess to Gromyko but on an off-the-record basis. He used to say, "We lost20 million pcople in that war and wewill never live Uack that land." Andthe Russians used to joke about theold Bismarckian saying that there area lot of things you can do with thebayonet but you cannot sit on it. TheRussianswould say, "Yes, butyou canpick your teeth with it."- Thire is a possibility of a backlash

but you would get economic chaos.Let us say a lot of things do not workand that is a possibility because theEastern Europeans do not know howto organize things, theY do not know

how to work since theY have beenliving for many years in Never-NeverLand. If things do not work, then Youare going to get a backlash and thenwhat sort ofthings do You get? Youprobablywill have the Russians tryingIo protect themselves and holdingtheir own country together. Gor-bachev is taking an enormous risk. Thereason the Soviet Union has been sorepressive is that i t needs to holdtogether such a non-cohesive country.So when you have thiugs breakingapart, anything can haPPen. Yes, themilitary circumstances brought com-munism into being since you needed tohave obedient governments in place.That was the basically what happened.That can happen again, yes, definitely.

Question: If that scenario that Youdescibed ever happens, and if by thattime, one of the countries, namefi EastGermany, has become a member ofNATO, how would the geo-Politicswork out then? How wouldYou thinkthe US would resolve that dilemma?

Tinnin: We are now in the area ofpolitical speculation, of course, butthat sounds like the making of WorldWar III. The great danger in East Ger-many has always been that Germanswould start shooting Germans or thatGermans would not shoot Germans.That is whyyou always have the Britishtroops or the American trooPs uPfront. That is why we always have thevery heavy patrols. It was to preventthai situation from ever happening'That iswhy the size of Berlinwas neverchanged. So when showdowns came atCheclpoint Charlie, they have alwaysinvolved Russians against Americans'The two powers have been very wise inkeeping the Germans out of those ex-ploiive situations. The same thingLappened at the Wall when that young

22 THEASIAN MANAGER r JUNE 1990

only when the message got aroundpretty rapidly that Gorbachev wasprepared to loosen up that th ingsbegan to change . And he wasprepared to loosen up, not because hehad suddenlybecome a nice chap, be-cause I do not think he is a nice chap.You do not get where you are in Rus-sia if you are a nice chap. It was be-cause he does not have many alterna-tives. He has major problems internal-ly in Russia which have simply made itimpossible for Russia to continue todominate Eastern Euiope as it hasdone in the past. Whenyou get to lookat the demographic make-up of Rus-sia, it has the largest population in theworld. Less than 50Vo of the popula-tion is Russian and all those problems,political and economic at home, leftGorbachev with virtually no alterna-t i ve and as soon as t he wo rd go taround, that is when the move started.

Question: Because of the massivecapital infusion needed to upgrade theeconomies of Eastem Europe, would itbe reasonable to expect thst the 1990swill be a peiod of high interest rates?

Li: I think "high" or "low" are rela-tive terms. In the past few weeks wesaw the German foreign market fallbasically because people expectedconsumerism fever to sweep East Ger-many, with the West Germans havingto pay for the modernization of EastGermany. Such a situation will keepinterest rates h igh and, I th ink, i f

man died. f , t was an Americanlieutenant who unstrapped his pistoland walked towards the young man.The Germans were kept back to keepthe emotional factor from brildingup.If Russian troops start rolling intoEast Germany, as they did when theYput down the first two revolts inBerlinin 1953, and the West Germans starthringback with their flat bore 120-mil-limeter cannon from the Leopard II,the Germans are going to blow to hellevery Russian tank around. The Rus-sians know this. It is very dangerousand there is no doubt about that. Sambthing goes in Czechoslovakia.

Newbigging: I think you would dowell to look at Mrs. Thatcher's at-titude towards what is happening inEastern Europe. Many people regardher as being over-hawkish, calling herthe Iron Lady, etc., but she has beenfirm in her belief that, now is not themoment to withdraw forces frommainland Europe and for NATO toget weaker and so on. Not, I suspect,because she fears that the Russiansare going to come rolling over intoWesteru Europe but precisely be-cause ofthe sort ofscenario that mighthappen.

I think what one has to realize is thatwithin Eastern Europe, among ordi-nary people, it has been their desire toget rid sf ssmmunism for quite some-time. But the Russian bear has beensitting on them very firmly and it was

David NewbiggingFormerlardine Davies head" Mr.Newbigingis the Chairman ofthe Rentokil Group PLC and is amember of the Hong Kong Execu-tive and Legislative Council. Heis also Chairman of the HongKong Touist Association, Direc-tor of Bitish Coal Corporationand is sn AIM govemor.

people e4pect this to happen, then thatiswhat may happen.I personally thinkthat interest rates around the worldwill stay high. When I say "high" Imean roughly abott9Vo or more and Ithink Japan may have to move up itsinterest rates as the yen continues todrift downwards vis-a-vis the US dol-lar. Also, the Anericans are very con-scious ofthe fact that the Japanese areenjoying low interest rates so that theirindustries can expand and they f,ave acompetitive edge over US manufac-turers and companies. So, they havebeen forcing the Japanese to adjusttheir rates upwards. I think interestrates are now becoming a very politi-cal issue.

Newbigging: Let me add onePoint tothat. I think it is a basic assumption inEurope at the moment whether Youtalk to bankers or, perhaps more so, tothose who have to uso money' that in-terest rates in Germany are going torise. And they are already rising, fort he reasons tha t Dav id L i hasdescribed. Whatever happens in Ger-many is bound to have an effect onwhatever else hapPens in WesternEurope. That, in turn, is going to havesome effect on whatever happens inthe United States andso on. I don'tthink anybody should assume if theyhave a heavy loan that interest cost isgoing to go down. I would work on theassumption that they are going to stayabout the same.

# . * v -

David IC P. LiA member of the AIM Board ofGovemors, Dr. Li is the Directorand Chief Executive of the Bankof East Asia" Ltd. He also serYesH ong Kon g's I aw -making b odY,the Executive Council, and is theExecutive Chairman of the HongKong M an agement As s oci ation.


nc GIfuI9h: A f,Mts m tu ,4siol Mowger - kcmd kssiot

lntra-Asian Trade and lnvestment

byMr.Woshingan SyCipChairma4 SGVGrutpCh airman, Asian Institute ofManagement

; nthe lastZ)yearg I havespent quiteI a bit of my time in East Asia. ByEasAsia, I am referring to the countriesfrom Japan in the north to Australiaand New Zealand in the south. I'm notsurewhether I am correct or not in in-cluding Australia and New Tnalandbut I think these two countries areoriginally a part ofthis region, at least,spiritually.

In January of this year, I had the goodfortune of visiting alnost all the othercountries in this region except forthree. Up-to-date figures on intra-Asian trade and investment are notthat readily available so what I will giveare largely my impressions. Some ofthe indicators I have seen are quiteclear. One, is that intra-Asian tradeand investment are increasing muchfaster than US and European tradeand investment in the reglon. Second

if oil and gas investments are ex-cluded, new investments from the USand the rest of the Western world inthe region are rather small, I em-phasized "investments' because thereare many existing large investmentsfrom Europe and the United States inthis region. These companies are stillcontinuing to expand their regionaloperations.

The new companies from theWestern world are mainly going toHong Kong and Singapore. I suspectthat quite a bit of these will be in thefinancial area and in certain high+echindustries, particularly in Singapore,while newinvestments in Hong Kongwillbe mainly for monitoring activitiesin China.

Meanrvhile, large US companiss ar't6akin! major investments in Europeto establish themselves before L992.LatelS there are some indications ofUS companies, aswas mentionedbyDavid Newbigging showing interest inEastern Europe. Even before theremarkable political developments ofthe past sixmonthsin Eastern Europe,we in East Asia were already con-

cerned whether or not Europe wouldbecome more inward-looking after1992, would become more busyform-ing what is termed'Fortrqss Europe."My European friends tell me thatFortress Europe will not take placeand that Europe depends very muchon international trade. However,some of the rules that they have formu-lated, particularly the rules on localcontent for the car industry certainlydo not reflect global thinking.

I think many of us in Asia are familiarwith the word "local content" becausethese are the two words we use toprotect small domestic industries toallow them to grow before we openour doors to foreign competition. Sowhen Europe, the most mature anddeveloped area ofthe world" uses theword "local contentr" I cannot helpbut think that this is indicative of themove towards Fortress Europe.With the opening of Eastern Europe,

and possibly, the Soviet Union, largeamounts of capital credit wi l l beneeded to develop these differentcountries. For instance, one early es-timate says that US$10 billion will be


required for East Germanyalone. Butthis estimate ftas latelybeen increasedto US$40 billion or US$50 billion justfor East Germanywith its 17 millionpeople, notrrithstanding the fact thatthis country already is supposed tohave the highest standard of living inEastern Europe.

Whatever is needed in EasternEuropewill naturallybe a concern forWestern Europe, particularly forWest Germany. Eastern Europe also- and this is where it may affect EastAsia - may lure away WesternEuropean companies which want tosource products at lower costs. AEuropean businessman can fly backand forth to Eastern Europe withinone day, as many of the Asianbusinessmen are finding out that,within this region, they can fly to onecountry and come back in a day.

But with regard to the unification ofEurope, I think the German monetaryunion will probably precede the estab-lishment of the European monetaryuruon.

Japan's RoleTurning to intra-Asian trade, JapanI is now the largest investor in this

region, having surpassed investorsfrom the Western world. The increasein Japanese investments was greatlyaccelerated following the meeting thattook place at the Plaza Hotel in 1985

Southeast Asiawill supplylower cost

components toJapan so Japanese

end-products

when the finance ministers of thedeveloped countries agteedthat theyen had to be revalued. And as manyof you know after that meeting Japanin its very logical and cohesive way,(almost'agfeed.

In order to bring down the cost oftheir end-productswhichwent up as aresult of the yen revaluation, theJapanese decided to source com-ponent parts from " lower-cost"

countries. This was the beginning ofthe flood of Japanese investments thatwent into Southeast Asia, pafiicularlyThailand. The flood of Japanese in-vestments into Southeast Asia furtherintensified when, under strong pres-sure from the United States, theTaiwan dollar and the South Koreanwon were revalued, greatly increas-ing costs in these two countries. Themove o f the US to remove GSPpreferences from the four NICs -South Koreq Taiwan" Hong Kong andSingapore - combined with laborshortages and increased labor costsprompted a very rapid transfer of in-dustries from these MCs to SoutheastAsia where costs are lower andpopulations larger.

I would like to bring up one point atthis time. If we were to define "over-

seas Chinese" as all ethnic Chineseliving outside Mainland Chin4 invest-ments of these groups of peoplewithin East Asia may even exceed thatof the Japanese. In other words, if wecombine all ethnic Chinese invest-ments flowing out from Taiwan, HongKong, Singapore, Thai land, In-donesiq the Philippines and Malaysia,the total maybe even larger than thatof Japan. Actual figures, however,would be difficult to determine espe-cially since the largest chunk of theseinvestments now come from Taiwan.

I remember oncewe sent a partner ofour firm in Taiwan to Johannesburg(Taiwan has excellent relations withSouth Afr ica). According to therecords of the Taiwanese governmentat that particular time, there were fourcompanies from Taiwan withreq is te red inves tments in Southefiica. When our partfier arrived inJohannesburg, however, the figuresthere showed that there were 92Taiwanese companies with invest-ments in South Africa. Taiwan also hasa very logical policy of permittingcompanies that export to automat-ically set aside a c€rtain amount for ex-

port promotion. These amounts couldbe in Hong Kong, so the companyinJohannesburg could actuallybe a sub-sidiary of the Hong Kong operations.And the Hong Kong operations maynot be listed anywhere. So, to try totrace how much noney or how muchof the investments originally camefrom Taiwan may not be easy.

For instance, the outflow of Taiwaninvestments to Fujian province, rightacross the straits 25 minutes by air be-tween Taipei andAmoy (if any airlineis flying that route), continues evenafter the incident on TiananmenSquare in June 1989. This is to be ex-pected because the dialect spoken inthese two areas is the same, in muchthe same way that investments fromHong Kong tend to go more to theneighboring areas where the languageis the same.

The ne* point on intra-Asian invest-ment I would like to raise is that SouthKorean capital is another major fac-tor, although many South Korean in-vestments are in resource-basedcountries such as Australia and theUnited States. Labor-intensive in-dustries that frnd South Korean laborcost to be too high, particularly theshoe, textile and appliance industries,have gone to SoutheastAsia, mainly toIndonesia, where labor cost is lowerthan that in the Philippines, Thailandor Malaysia.

The future seems to indicate the fol-lowing scenario: the harmonization ofmany of the economies of this regionunder Japanese leadership. SoutheastAsia wi l l supply lower cost com-ponents to Japan so Japanese end-products can be exported to theWestern world at lower cost.

I have been asked often byWesterners who do not know thisregion wel l i f Southeast Asiancountries would readily accept invest-ments from Japan. I always answer,"Of course, they would. How couldany country object to such invest-ments?" Technology is transferred,capital is transferre4 and as a result,exports take place. So there is technol-ogy, there arejobs, there is inflow ofcapital, and no one uses up what insome countr ies is considered ascarce resource, namely foreign ex-change. So, these investments are ofoourse, very much welcome.Japan's advantages are technology,

capital and I must emphasize,

1a

can be exportedto the Western

world atlower cost.

, ,


management used to working abroad.In addition, Japanese companies havea worldwide export market, andbeyond that, Japan, as a nation, is thelargest aid donor now throughout theregion.These are great advantages forJapan and theq ofcourse, you have toconsider the increasing importance ofJapanese financial institutions. As youknow, the 10 largest banks in the worldnow in terms of assets are JaPanesebanfs.

I f Europe focuses on EasternEurope and becomes more inward-looking after 1992,and if the UnitedStates and Canada establish their owncornmon rnarket, workittg more close-lywith Mexico as their low-labor-costally, and if L,atin Anerica succeeds ingett ing over some of. i ts currentproblems and takas its rightful place inthe North-South America Partner-ship, it becomes even more inportantfoiJapan to become a leader in thispart of the world East Asia.

Overseas ChineselnvestorsI et us now take a look at the "over-

Lseas Chinese." One advantageworking for these people is their verygood nose for profit. They also can-[akevery quick actionbecause a lot oftheir managements are familY-oriented and they are willing to takerisks. They are also less concernedabout political factors. For instance,about three weeks ago I was in Taipeitalking with one of the major textilegroups there with 3,600 people whichwanted to trensfer their operations tothe Philippines. When somebodYmentioned the attempted coup d'etallast December, the head of the com-panysaid" "Then this is the time whenwe should go in, because things maYnot be as expensive as it would be ifeverything is in good shape." Thesepeople, as I said, are willing to take-iiski. another advantage of many ofthe overseas Chinsse Susintsses is tlatthey are often many smal l- andmedium-scale industries which fitreadily into the economies of many ofthe countries in the region.The weakness of the overseas

Chinese, however, is management. Aslong as the busi1s551e6ains smalt it isall right. But if it should become amajoitype of businesq it is usuallydif-ficult to find management that can ad-

iust to a different cultural environ--ment. If the cultural environment is

again Chinese, there is no Problem;but if it is a different type of culturalenvironment, then it becomes a prob-lem. For instance, there are manYgood Chinese engineers. But they doiot know how to deal with laborers inanother country.

I would like to submit this observa-tion to you and some of You maY dis-agree with me: while many of tle over-seas Chinese have been very success-ful in industries, in storeg and in dif-ferent kinds of activities, the postWorldWar II period has seen the riseof very successful Chinese financial in-stitutions. If you were to look at thelarsebanls inthis areathat are of eth-nic-Chinese origin, you will see thatmost of them are Pre-World War IIbanks, like David Li's Bank of EastAsia. If you look at the major S!n-gaporean banks that are successfultit<-e the OCBC, the Overseas UnionBanlq the United Overseas Ban\ Youwill find that these are all bank withore-war orisins. The bank that is mostiucce'ssful-after the Second WorldWar, the Development Banb is a Sin-qaDorean Government-owned bank.the exception to this, is probably, theBangkok-Bank in Thailand (actuallyits eisential structure evolved afterWorld War II).

But against that there have beenmany Chinese-organized banks thathave failed. These include banks inHong Kong and in MalaYsia' I am surethat with the great increase in thenumber of banks in Indonesia in thelast few years, following relaxation ofIndonesian banking regulations, therewillbe failures of banks ownedbyeth-nic Chinese.

I find that in manY cases, a Person ofChinese background who is in a hotel,in an insurance company, in a tradingcompany, or in a bank, cannot distin-guisL other people's money from hisown mooey. And this is where thefailures stem time and time again.

Recent Trendsow, let us look at the other trends

lUi" tne region. For instance, milYlarge regional and multinatiory! com;puii". ire now going Public. Here, Iihink we will [s 5esing an increasinglylarge number of Indonesian com-pa i ies tha t w i l l be sPread ing

1a... I think

we will see anincreasingly

large number oflndonesiancompaniesthat will bespreadingthroughoutthe region.

, ,

ft1srrg&out the region. Indonesia has alarge population bTg' Mor-e than halfott-ne totat ASEAN population is inIndonesia. And therefore, quite cor-rect ly, ASEAN cannot make anYdecision without the concurrence ofIndonesia with its population base ofabout 180 million.

Indonesia is also the onlY countrythat has a lot of surplus agriculturalland. Everyone thinks of Indonesia'sJava, a densely PoPulated area, butthere are still a lot of open spaces inSumatra, in Sulawesi, in Kalimantan.

Indonesia will play an increasinglyimportant role and even now, we dosee that some of the large Indonesiangroups are already moving around theiegion. The one that has moved mostaggressively, of course, is the SalimGrbup. The Astra Group is also start-ing to move and in the latest report Iteld, it will be raising, if I have mYfisures correct, about US$240 millionaJan addition to its capital base. Thisis iust for one major Indonesian group'Y-ou can see that its size could dwarfmany companies within the region'-

ThLn you have, of course, comPaniestike Sime Darby from MalaYsia, SanMisuel f rom the Phi l iPPines, theKw6k Group, which is from MalaYsia,or Hong Kong, or SingaPore; i t iseverywhere. The Hongliong GrouP,whiih is in both Malaysia and Sin-gapore, maY be two separate groupsiow. You also have the Bangkok BankGroup which is also found throughoutthe region, the Siam Cement GrouP,Formosa Plastic GrouP from Taiwan,

26 THE ASIAN MANAGER o JUNE 1ee0

Far Eastern Group from Taiwan" notto mention the large Japanese andAustralian companies that are also ac-tive throughout this region. With theincreasing labor cost in South KoreqKorean companies can be expected tomove to the south and to China.The areas to watch are China and

Vietnam. Right now, the British andFrench oil companies are already inVietnam. Japanese and French com-panies are there for various types ofactivities and even without diplomaticrelations, missions from South Koreaand Taiwan are visiting Vietnam withthe intention, of course, of startingbusiness activities there. Western in-vestments, in my view would probablybe very much concentrated in oil andgas, chemicals, pharmaceuticals, com-puters and software, plus services anddistribution.The region will also see a lot of chan-

ges in corporate ownerships fromAmerican to other nationalities as aresult of a lot of these leveraged buy-outs. Firestone is now Bridgestone.Goodrich has been split apart. In thePhilippines, Goodrich is Sime Darby.Hilton is Livebrook. Intercontinentalis now omed by Xavier. CPC, a largeUS food products company, is nowhalf-oumed by Ajinomoto. Del Monteis in the stage of passing through dif-ferent groups, one of which will beKikkoman. Manufacturer's Bank ofthe US is novt 5.1Vo owned by DaichiBank. Even Hong Kong Bank (this iswhat you have to watch closely) where

shareholders are not permitted tohold more than lVo of.totalshareg hasnot been spared. In the Past fewmonths, three Japanese life insurancecompanies each picked uplVo ofHong Kong Bank. So if you have 10companies, you can havel0Vo of thebank.

The nelc point I want to emphasize isthat US political influence, which isstill very strong in the region, maydiminish as the American militarypresence is reduced following thedecline of the Soviet militarypresenceand the discrediting of communism asan alternative political and economicsystem for the region. At the presenttime, we allrealizn that the prevailingeconomic influence is Japanese, butthe dominant political influence is stillthe US. But as time goes on, when theRussian threat wanes, US political in-fluence may, tomymind" alsoweaken.Of course, much depends on the fu-ture political direction China takes.

Conclusion11 gainst all these developments,

Atherefore, what should the Asianmanager be thinking o[ in the yearsahead? Here are some of my sugges-tions:

o Travel more e:Censivelyaround the region (withyourfamily preferably, so they willalso get to know the regionwell). At present mostFilipinos still travel to the US.

Other Southeast Asians alsotravel to their former colonialrulers. I think there should beand probably will be muchmore regional g'xYsling.

o Learn about the history andculture of the countries in theregion. A lot of Filipinosknow everythingAbout the USbut know very little aboutThailan4 Malaysia or In-donesia. Of course, the otherway around is true, too.

o Have your children studyJapanese or Chinese asidefrom your native language andEnglish.

o Consider studying in thegraduate schools in the region,particularly in Japan. Unfor-tunatelyfor the MBA side,Japanese universities are juststarting to put up graduateschools because companieshave been llnining Japanesebachelor degtee graduates soefficiently.

o Get your children to acquirework experience in the region.Arrange for an exchange ofstaff with companies withinthe region.

o With due apologies to Mr. Tin-nin, t ead, As iarryedlr instead ofTlme. Readmore of the otherregional publications.

o Finally, and this is something Iwould like to see, enoourageregional news in television sta-


these emerging professional Asianmanagers are facing. Thenews and thetelevision agencies that supplynews tothe newspapers and television stationsin the region are all foreign-owned.They tell the youth daily how to look atevents in their own homes, in their ownregioq in their own countries. And itcould be said that perhaps in theminds of our young people, Boston iscloser than Bangkok. A trashy bitabout Ivana and Donald Trump'sdivorce enjoys a better chance ofbeingincluded in the evening news than theopening up of Vietnam and Kam-puchea.

One leading Asian correspondent

My second point concerns patternsof manufacturing. Mr. SyCip did go61e this. He talked about banks, but itseems that Asian manufacturers havefound it more expedient to producegoods which are meant only to meetthe demand outside the region. Somuch of the region's manufacturingtalents and expertise is crying out tobeshared with one another that onewonders about the continuing lure ofjoint ventures with foreign investors.Old patterns of trade enjoy more at-tention than regional cooperation inmodern manufacturing proj ects.

One seems to take note of eachother's potential onlywhen foreign in-

against US$147 billion in the previousyear, or an increase of about DVo.Bycomparison, Asia's trade with NorthAmerica, though still larger at $258billioq grew o nly by ta% n 1987. Over4OVo of. Asia's imports come fromwithin the region. These statistics arestaggering considering that economiccoopera t ion in the As ia -Pac i f i cstarted relatively late compared withother regions.

This brings me to my third and lastpoint. Are we ready for a dramaticshift in world trade and investment?The emergence of tradingblocs else-where or a sudden wave of protec-tionism could make intra-Asian trade

for a Europeanmagazine that sellsabout two mil l ioncopies was heart-broken. He spentseveral hours withHun Sen" prime mini-ste r of Kampuchea,travellingwithhim inaprivate plane, and hethought he had an in-credibly interestingexclusive interview.He filed his'interviewbut his magazine didnot use it. His friend,who is also a jour-nalist, tried to consolehim and said, "Well,

I'll tell you what, if youwant such a storytobepubl ished by yourmagazine next time,why don't you try andsend a picture of HunSen in abikini."

3aAsia simply

does not existin the consciousness of the

average Japanese. _ _

, ,

andinvestmentamat-ter of survival, not achoice. But it seemsto me that NorthAmerica and Europehave built a greatercultural infrastruc-ture for themselves inAsiathanAsians havebeen able to do forthemselves. LearningEuropean languages,as was mentioned, iss t i l l more popu larthan learning Asianlanguages. One needsto do many things tomake up for the pastand Mr. SyCip hasmentioned many ofthese - suchastravel3nd exchange.

One possible thingthat business coulddo is to have cross-

The problem is that that perception"to a very large extent, affects mediacoverage in the region. The sameproblem seems to apply in Japan. Asiasimply does not exist in the concious-ness of the average Japanese.

In a letter to thefapan Times, aTaiwanese recently pointed out thatmanyJapanese were surprised that hecould use chopsticks so well, and theyexpected him to speak in Korean."Why do they think Taiwan's nativelanguage is Korean?" he cried in an-guish, adding that i t is t ime theJapanese understand their neighborsbetter. Australia is probably worse,having just started to emerge from itslong-held illusion that it is really partofEurope.

vestors begin to express their recogni-tion of the potential of the region.Much of Asia is interpreted to Asiansby foreigners. If it were not for thevisiting dignitaries daily declaring thedawn of the Pacific century or remind-ing Asians about the emergence ofASEAN members as the rising neweconomic powers or pointing out thatintra-Asian trade now accounts forllVo of world trade and that it willeventually surpass the level of tradebetweenAsia and NorthAmerica bythe turn of the decade, most Asianswould stillbe livingin a state ofblissfultgnorance.

Of course, the statistics are impres-sive: intra-Asian trade, lngluding thatwith Japan, is est imated to havereached US$1.89 bi l l ion in 1987

shareholdings by leading businesscompanies in Asia. That could be onestep which would go a long way increating an Asian managerial con-sciousness. Another positive step is tocreate a number of Asian institutescovering a wide range of subjects suchas science, technolog5l, art, architec-ture, accountin& communications andmedicine, with each Asian countryhosting at least one Asian institute.One could go on. There would be nodearth of such ideas if one activelypromotes a concept thatAsia must getready for a level of intra-regional tradeand investment, the likes of whic\ wecould never dream of. This is the firsttime that Asia has the freedom todream. Demand that media, par-ticularly television, stop relying on


frivolous news and programs fromabroad. One's own region shouldreceive, if not priority in the overallsoverage, at least equal time.

Dr. Annuay MravanChairman of the Executive Boar[BotglcokBu* Limited

1 share the two previous speakers'I enthusiasn and optimism regardingthe prospects and future of the Asianregion. The only question whichcomes to mind is howwill the people "tn

the the sixASEAN countries react tothis prospect, to these opportunities?

Often we have discussed the pos-sibilities of the Pacific comnunity,Asian and Pacific economic coopera-tion which is nowbeing spearheadedby many nations, especially Australiaand Japan. React ions from manybureaucrats in the ASEAN nationsseem to center on whether this wouldundermine regional economiccooperation which has been nurturedand developed for the past 14 years.Ever since the first ASEAN $rrmmi[ i1Bali in 1976 and ever since the firstASEAN Economic Minister Meetingin 197 inKuala Lumpur, tle questionthat continues to fascinate is that, ifone were to step outside the regionjust for a minute and look back, wouldthe countries of ASEAN have movedas far economical ly and social lywithout the ASEANumbrella? This isa question for all of you here. Theanswer probably is yes. There wouldnot be much difference because whatwe have conceived in terms of ASEANpreferential tariff arrangements orASEAN industr ial projects orASEAN industrial joint ventures orASEAN industrial complementationprograms, have l i t t le impact oneconomic activities within the region.

However, I have witnessed somedevelopments during the past year orso which have encouraged many, manypeople. I have always looked atregional economic cooperation assomething that would be dictated bythe slowest moving part of the ele-ments. You may have heard of thesaying that some parts are greater thanallthe parts combined.That is not truein terms of regional economiccooperation.The speed of regional economic

cooperation will be dictated by the

slowest moving part in the formula.And in this case, we are all heartenedthat Indonesia, which is the biggestbrother in ASEAN in terms of size,has nore than 50Vo of the totalASEAN population and has all thepotentials and resources that canpropel the region to greater heights.lndonesia has initiated the process ofderegulation and economic reform.The country has become more andmore active as an ASEAN Partneran4 to that efent, onecan seeabetterfuture and better prosPects forASEAN.

However, the political and economicenvironment, in and outside theregion, has changed significantlYduringthe past decade.Whatwe haveconceived in the'70s mighl 1et !s asrelevant today. Do we st i l l needASEAN economic cooperation forour development? For our prosperity?Or have our economiesbecome so in-terdependent that the globalizationphenomenon will force us to lookmore towards the widest bases in thePacific or the world at large?

We have fears that EuroPe and theUS nightbe more protectionist in the'90s, while Japan probably night bemore open, relatively speaking com-pared to the'80s. CertainlY, Asia-Pacific is under the threat of FortressEurope and free-trade America. Allthese probably force us to review ourposition. We no longer have to look interms of ASEAN in the narrow scoPeof regional economic cooperation. Weall know that within ASEAN, oureconomies, because of the realign-ment of currencies and because of therelocation of industries from Japanand the other East Asian nations, arebecoming more e$ernal related. Thisdevelopment is nationally driven' thatis, bronghl about by the count4/s ownentrepreneurs or driven by overseasChinese entrepreneurs.The movement has been verY con-

structive and evident. The multina-tionals from both Europe and the USare also significant parties to thisprocess. Therefore, weprobably haveI momentum going on that in itselfwould create intra-Asiantrade and in-vestment much more rapidly than anymachinery which the region's govern-ments themselves can Put in Place.What I am saying is that PerhaPs In-donesia mighl Ss Slazing a trail - thatby giving the opportunit ies, the

economic freedom, and the comPeti-tive environmcnt within cacheconomy, ASEAN enterpreneurs whoare very quick to grab opportu"itiesand assess and take risks' canbe@methe real driving forces with or withoutthe government umbrella in terms ofpreferential arrangement. TheseLntrepreneurs can be the economicand business forces which will makeus move nore rapidly towardsdevelopment and greater trade and in-vestnent.

Before ending,I would likc to em-phasize the need to look at our neigh-bors in the north: Vietnarn, Burma andother Indochina states. Nothing wouldmake us feel better than to have apeaceful region with peaceful neigb-bors, and a peaceful sharing of ourborders. This is something that thecountries of Southeast Asia wouldgreatly benefit from, not just becaEeof the stability it would create and itsindirect impact on the socio'economiccondition within the Southeast Asiannations, but the economic oppor-tunities that might present themselvesthrough the process of economicrehabi l i tat ion and economicreconstruction of Burma and thestates oflndochina.

Comment from the Audience: Twoof the speakers have said that weAustralians are a bit confused aboutwhere we live. I should point out thatmore than one out of everY fourAustralians were born outside thecountry. And what it means to beAustralian is a very mixed so6 ef thingthese days. We do have more Viet-namese than we do have Hungarians,but it is a fact that the teaching ofAsian languages in Australia is reallyquite highly developed both in theschools and universities, and it is veryco--on for children to be taking oneor more Asian languages. In NewSouth Wales, the state premier who isa Hungarian announced that it wouldbe compulsory fs1 all high school stu-dents to take at least one Asian lan-guage as a second language.

I would like to take uP the Pointabout moves between governments tofoster trade and investment in theregion. I think the outstanding thingthat has not been mentioned is that nomatter how you define the Asianregion or the Asia-Pacific region,trade in the region is growing muchfaster than world trade. That is the


outstanding fhing we have to focus on.It is a curious thing that moves to

build institutions on a wide scaleacross the region have been pushedveryhardbybusiness people for a longtime. We have the PBEC that hasbeen going on for more than 25 years.After a while, that organization whichwas initially made up totally by busi-ness people was joined, to some ex-tent, by academics and then very ten-tatively by governments. And it is onlyvery recently, that there has been theidea of formal meetings betweengovernments across the region.Foreign ministers met last November,I believe for the first time, in a very low

wouldprefer not tobe involved politi-cally. They would prefer to retainlawyers on both sides of the fence.This is not only a Chinese trait. Iremember Tom Watson and Vic Wat-son, the two brothers of IBM fame.Tom was a staunch Republican whileVic was a Denocrat. This is usuallydone where the business is identifiedwith the family to ensure tlat the busi-ness does not fall apart if there is achange in administration.

I em not aware of rallies that were or-ganized supporting the President, butI do think that, at least, in terms ofsympathies, the people of ethnicChinese background were for her as

crcte aanples of what yu termed the"frozen pattern" of overseas Chinesebusiness utivities?

Bedi: I am afraid not, because to beconcrete I would have to give youn.mes. But I can explain rvhat I mean.It is a pattern where,businessmen ex-pand their businesses along a familiarline. They have to feel comfortablewith their investment. They investwhere their relatives are. Ifyou look atthe history of Southeast Asi4 you willsee that is how investments weremade. They may have started in onecountry and expanded to anothercountry. The point I am trying tomake is that Asia is much bigger now

key style to discusswhat could be done. Ido think this is a his-toric and quite sig-nificant development.There were 12countries present andof course, aseverybody knowsthere are a lot morecountriesinthe regionthan that. Nothingmuch came of themeeting ofterthan toarrive at a commonfeeling that it will beusefulfor foreign nin-isters to cont inuemeeting once a year.4 6sstingwas set forThailand at the end of1990 and the most in-portant topic on theagendawill be low-keydiscussions to identi$barriers to trade and

('The point I am trying to make

is that Asia is much bigger nowand there are great opportunities

right on its doorstep

,,

and there are greatopportunities righton its doorstep. Sowhy not take a freshlook? I am quiteaware ofthe fact thatthere are daunt ingrules and regulationsin the emergingdeveloping countriesof Asia and perhaps,I em more consciousof thefactthatthereissuch a thing as SouthAsia than most of thespeakers here. Wehave limited oursel-ves to Southeast Asia.We have not beenreferring to the vastcountr ies of SouthAsialike Pakistan, SriLanka Burma, India.I am aware that thereare rules and regula-tions but it seems to

investment in the region. There arequite a few, and very likely, by discuss-ing some of those they might be over-come. I think that is quite important.

Question: Regarding ri sk4aking byChinese businessmery there seems to beaperception inthe Philippines that thque osafe" investon. They orc thereforeperciived by some as investmentleoderc. An intercstingnote herc is thatat the time of the snap election cam-paign, PresidentAquino was said tohave won wer many fence-sitten whenChinatown started to organize ralliessupportingher. Would Mn SyCip cuzto comntent on this seemingcontadic-tion?

SyCip: My general observation hereis that the ethnic Chinese-Filipino

were most businessmen at that time,mainly because Marcos, by favoringcertain "cronies," demotivated theother businessmen whether they wereChinese, Filipinos, Japanese or what.Motivationfor themwas just not therebecause only a few were favored. Ihave always pointed out, with dueapologies to my Thai friends, that thegood part about Thailand is that itpractices "democratic corruption." Inother words, if something costs somuch, whoever is willing to pay theprice, gets it. In the Philippines underMarcos, you could only get somethingif you were a crony. And that is theworst demotivation for business - aplalng field that is not level.

Question: Can you please give con-

me that if we are talking about Asia,we have totake intoaccount the open-ing up of these countries eventually.But as far as giving names of com-panies is concerned, I do not think thatwould be proper.

SyCip: We see a lot of businesses ofethnic Chinese background from dif-ferent countries establishing opera-tions abroad. Let's see what kind ofbusinesses they usuallyput up. Hotels,yes, because you can hire a managerand there are a lot of internationalhotel managers. The Japanese havebeen very successful in establishingmanufacturing operations abroad.The ethnic Qhinsss, sysa 1ftsrrgh tleymay have been successful in manufac-turing, let us say in Taiwan, have not


been so successful abroad unless it isin manufactirring where the endproduct is suppliedtotheir factories inTaiwan.

Recently, a company in Taiwan pur-chased trro large plans in the US. Oneof the conditions was for the oldmanagement of those two plants tostay because although the Taiwanesehad the technical men they could sendto the US to run the plants, they didnot have the people to do the market-ing andhandle labor relationswith theunion there.

Most Chinese businesses have beehable to cross national boundaries inthe region because every Chinese inSoutheast Asia has a relative some-.where. I have found people with thesame surname as I have in almost allthe Southeast Asian countries. If youask them from what village in Chinathey came from, you will find that theyoften came from the same village. Sofor the Chinese cornmon relationshipis not just a joke but is actually a factand many of them are in some way re-lated. But if you do not have relativesto rely on, how do you manage? ThatiswhereAlM comes into play. But forany company, if you have to manageand establish operations in anothercountry, the most important thing torememberis not to manage inyou owncultural conterd only. You must knowthe other countr/s cultural context.This is a problem that we encounter atthe present time with the Chinese.The Japanese have already overcomethis problem, and the Koreans, withtheir large group companies pat-terned after the Japanese models, aregradually overcoming it althoughthere is still a fairly large gap betweenthe two of them.

Question: Quite underctandably, thefocus of all the presentations so far hosbeen on the sixASEAN countries. Sincethe theme of the session is intra-Asiontradc and investment, I was wondeingwhether any of the speaken would careto comment on whether there is any roleof relevance for the other countries ruchas India, in the conturt of intra-Asiantradc andinvestment.

SyCip: I have told many friends inIndia that they know I-ondon so we[but know very little about SoutheastAsia. The travellingpattern again is al-ways for large Indian business groupsto go to the West.I think the exceptionis the Berla Group, but the Tartars, for

instance, always look more to theWest. There are a lot of Indianbusinessmen throughout the region inMalapia particularly. I thint there isa very major role for Indian invest-ment in the region except that Indiahas alot of exchange controls, too.Wghad an Indian missionvisit the Philiepines once and I pointed out that thedifficulty is Filipinos do not travel asmuch to India as I rhink they should- Ithink India is a good souroe of laborfor labor-intensive ventures. But un-fortunately the catalogues are printedon newsprint and when you comparethat with a glossyJapanese catalogue,you, more often than not, buyJapanese.Viravan: Indian business con-

mrrnities are quite prominent in otherparts of Asia,with the exception of fewcountries. Perhaps the cultural dif-ference is so great that it makes it dif-ficult for Indians to do business else-where. But even in Japan, they stillhave some sipificant Indian businessexisting. The feeling, however, is thatthere are not many groups like theBerlas who are agressive. Indianstend to shy away from joining withother partners and they seem to preferwholly-owned activities. It is likewisedifficult for the other Asian groups togo into India and invest there becauseof some restrictions and constraints. Ithinkwe need to open up both ways sothat intra-regional economic coopera-tion can really take place.

Question: Both Mr. Bedi andMr.SyCip refened to the lack of news6out otherAsion counties. There hasbeen no attempt to relate this to thelevels of tradc.Ithinkwe needto lookstthe relstionship between mediacoverage and the amount of commer-cial linkages thot exist. It seems to methat there is not enough appreciation ofthis by the commercial interests of par-ticular counties. There is not enoughappreciation of ihe value of e stab lkhinga familiaity with the culture and thehistory of a patticubr country in ordcr tolay the b asis for commercial relations. Itseems tome thatthis is pqrhaps onareathat business might look at. For ex-ample, I could see the Republic ofKorea sponsoring some programsabout South Korea on Philippinetelevision so that a kind of associationmay be established between the tennuKorean" and the products that theywill at present and in the future ry b sell

h the Philippincs. Perlups, therc is ndenough fomard-laking on he put ofAsian business about establishingberchheads andfaholds h the alrcrcountries of Asia to take advomge ofheAsiaPuifucenry.

Bedi: I cannot agreewithyou nore.Ithinh it is not only that we are notdoing too much forward-looting butin some waln we have even gone back-wards. It seems to me that the imagesthat we have of each other are, in manycases, a hundred years old. You arcright in sayrng that we are living withthose images. That is not to say that allthe borders are open inAsia and thereare no cul tural problems. Theproblems are there. But I refuse tobelieve that there is lesser differencebetween an Asian and a Europeanthan among Asians. If we can feelcomfoitable in the US and Europe,Irefuse to believe that we crnnot be asequally comfortable in Bangko( Sin-gapore and New Delhi. It is a mind set,we have been brainwashed.

Question: Mn SyCip mentionedthatone of the distinctive a&antuges of theregion is low labor cost. How long canwe keep up this low laborcost logicforur indtstries ond what will it do for thedevelopment of markets within theregion for industies in the region?Second whotwill happen in the rcgionif China becomes another low laborcost area?

SyCip: First of all" I would like to seethe end of low labor cost. I would liketo see the daywhen you can not get aservant in the Philippines, becausethey are not available. That will be the66s1 thing for the country. From a self-ish viewpoint, I personally am gladthat we are still not at that stage. But Iwould like to see the time when laborcost becomes so high that it would bedifficult to maintain even one or twodomestics.As far as China is concerned, China

is already very very much competitiveas a low labor cost area. The estimateis that the population of HongKong isabout 5.6 million, out of which about800,000 people are in the factories.But the Hong Kong manufacturers areemploying three to four million peoplein China in factories that they have es-tablished there. For every Hong Kongworker, a Hong Kong manufacturere mploys, approximately four areemployed in China. So it is already afactor. Without doubt, the Tiananmen

THE ASIAN MANAGER . JUNE 1990 33

incident did interrupt this, but it isgoing to continue. When I was inTaiwan, I heard about the nunber ofTaiwanese conpanies that have beenestablished in Fujian province cvenafter the Tiananmen incident becauseofthe low labor cost there and the un-availability of labor in Taiwan. China'slabor cost is much lower than that ofthe Philippines or even Indonesia.

That is avery veryimportant factorto consider in terms of the long runeconomy here. The only thing that mayresult from the Tiananmen incident isfor large Western buyers of goodsfrom Hong Kong and for people withfactories in China to diversify. Theywant to open new sources or newfac'tories in other countries in case theWestern world decides to boycott"made in China' products.

Question: Two points ihat I thhk anquite significant in the intra-regionaltrade issue are first, the question ofhiring profes sional s within the Asianregion. We arc now seeing Inbnesiongroups, Singaporean groups, and anumber of other grcuPs beginning tohire pofessionak ondmanagerc quiteextensively.who are not of their ownnationality. I think this most certainlywill influence urd has, in facl begun toinfluence the mind set of a lot of thesecompanies. Examples are many' youcon see them in the Infunesian gnoups,patticululy, and in otlrer group s as well.

Washinglon SycipFoundcr utd Chaiman of theSGVGtoup, Mr. Syipis otod'visor and metnber of the Intema-tiualAdvisory Butd aswell asChairman of the EutAsion Cen'ter. He is also the Chailman oftheAIM BwdolGwemon utdBoadof Trustees.

Thc secottd pohg which is more of utelement of infrastructury inwlves themarkets themselves - the equitYma*ct At a timc wlwn tlu mai or eryitymadccts are tenihty rt rstoble' oE of thehottest eqtity na*cts is Thailan4 witltInbncsb openhgup h abettcr, acit-hg sort of way, whilc Malcysb is doing3firemely we$ to tlu &ent that hves-ton oe beginnhgto look at it as ar, anea

for fusfrutbnal hvestuEnt ryA arytfrom just dircct invcsotPnl.That apinis another element that will go a longway in encouraging capital flows. InTaiwan and the PhiliPPines, we hoveseen that mechanism. So' it is mYopinion that there is a function to beperformed by liberalizing and enob lingannberof tluse brncsticmodccts toac comm ofol e effe ctive$ and fftcie nt -

ly, andwith as liftlebureancraty utlns-sible, the movement of capital flowswithin thatrcgion.

Bedi:I mnot ane4pertinthe equitYand stock markets, but I would say thatthe emergence of the professionalAsian manager in the next twodecadgs, perhaps, would be the mostsingle important factor in the develop-ment of irade and investment in thispart of the world along modern lines. Iihink these emerging managers willnot usc the Adam Smith cliche ofcheap labor. Theywill respect Asia'sambiiions and aspirations to raise it-self and not go back.

Hari BediBomin Delhi Mn Bedi is heAs-s ociate Editor of Asiawer,k ondcontributes a weeklY columncalled "Good CornpanY." Heonce wodcedfor Esor\ ltoldingthe portfolio Manager of Cor-porate Affain for theAsia-Pacificrcgion.

Quecdon: Iust a comment, I keePremembering what GabY Mendozawote h lfte World Executive's Drgestseveml montl$ ap, wherc he soid hatave shanldnotbe afmi4we shanldbeuncfraid" Perhaps, Asions have beencolonized and hary been dor+'nfroMenforsolongthatwe orc scarcQ scuedofbeing exploited again. Therefore, weclose ow doon. We put uP a lot of rules,we build bureutcmcies because of thehiswical qeicnce of hwing been u-pbitedThqtis pastwe ho,e grownuP.The best way to 0ttact copitol is to openup. Asia should grow uP. We shouldtnle anrpbce in the worl4 and rctbeafraid I*tus be competitive, In Hongtrbng 1mt can come iry it daes not mat-terwhat coWltan arc; it fues not mstterwhat coloryour moneY is, You cancome in and compete with everybodY.As a result, you have 4 very vibranteconomy. I would like to invite mYc ounQ to c on sidcr hat. B e unafui{ letus compete with the world We co4 too-

SyCip: I fully agree with the last com'ment ibout free comPetition and Ithink that in manY Asian countries,likethe Philippines, the protection hasbeen more for the families that ownthe companies rather than for thelabor. Ifyou open up your market theemployees benefit more from more ef-ficient management. And this protec-tion of fanilies, to mY mind does notmake sense.


ARTICLE

byPtof. RencT. DonhpSimc Duby @cssuhManufrcurhg

lapanese management took arl hundredyears todevelop.I do notthink I can adequately discuss this sub-ject matter in one brief article. But Iwill trymybest.

I nm sure you have heard of the boohIn Search of Ercellence.After readingthe boobI had mixed feelings.The first feelingwas ad-miration because thebook describes verywell the best-managedcompanies in America.The othcr feeling waspity- pi ty for theauthors because theyhad to search for excel-lence in Anerica. Hadthey written that bookinJapan,theywouldnothave had to do anysear-ching because most6pmpanies there are, inmy opinion, excellent.They would havetumbled and trippeduponthemin any direc-tion they fell.

Infact, everyJapanesecompany that we hearabout seems to be quitesuccessful and a worldleader-Sony, Toyota,Hitachi, etc.Infact manyof t[6 thingswe oxrn and use dailyare made by theJapanese - thewatches wewear, thecars we drive, the TVswe watch.

So why are we interested in Japanesemanagement? Because this seems tobe the cornmon theme, the commondenominator among Japanese com-panies. As you may have read,Japanese-managed companies inAmerica tend to be more successfulthan American companies managedbyAmericans. Goodexamples are the"transplants," the car manufacturers

in America managed by the Japanese.The Americans themsclves admit thisfact. These companies can oPeratewell without unions. The Americansare quite surprised how the Japanesecan manage Anericans withoutunions and come outwith qualitycars.I tend to disagree that i t is theJapanese who are the common suc-cess factor. I would rather think that itis the Japanesc style of nanagement.When you say it is the Japanese, then

there is nothing to talk about. We can-not imitate the Japanese, because wewill never be Japanese. So let us talkabout management.Unfortunately, in spite of the manY

art ic les and books on Japanesemanagement, it is still not understoodvery well. People are curious aboutthisbecauseit seems tobe the secret ofthe Japanese. You alreadyknowaboutthetraits oftheJapanese - theyarehardworking they are loya! theylovetheir employees, they have teamwork,theytend to make decisions in groups.

In this article, I will share with yousome of mypersonal eryeriences andobservations on Japanese manage-ment - the fruits of my four-year stayin Japan, studying in a Japaneseuniversity and working in a Japanesecompany. I thougbt that the best placeto sludy their secret is in theirhomebase. Of course, I experienced alot of culture shock Some people donot like to e:rperience culture shockbut I do, because I believe that the

stronger the shock, themore learning takesplace. Here are some ofthose enl ighteningshocts.

Hl?b*orkinq,,Means to thdJapanese

he Japanese arehardworking. But

that does not mean thatif you work hard, youwill be as successful asthe Japanese. In fact,many people who workhard still fail. So whatdoes i t mean to behardworking in theJapanese context? Letme give you one per-sonal experience.When I was training

with a subsidiary ofToyota in Japan, Ijo ined a group of

manufacturing managers who wereconducting a study ofthe productionline. Late in the afternoon, at aboutfour o'clock, they told me, 'A\ Rene,we are going to study the third shift.We will observe the third shift anddetermine is problems in quality andefficiency and compare it with thesecond shift."As you may know the third shift

works during the wee hours of themorning. But I decided to take thechallenge and join the group. At 5:00p.m.,I asked the team leader if I could

FnliglttstutS sharfrs...

Management: Japanese SUle


go home and rest first. But the teamleader said, "No, no, we will not gohome. We will proceed right away toobserve the second and third shift, andcheck the changeover."

That was my first shock. We went onto study the third shift, the transitionfrom the second to the third, eatingjust a few biscuits to last us until themorning. Finally, we finished our ob-servation.

By the way, when I say "observation"

I do not mean sittirg down on a chairor staying in the office. I mean stand-ing up for eight hours watching thethird shift, taking notes. And this wasdone by all of us, the members and theleader of the team, without exception.Had the members ofmy team not been asexcited as they were,I would have fallenasleep. But I seemedto draw energy fromthem.

At 7 :00 a .m. wefinished the observa-t ion . So I to ld myboss, "Sir, we havebeen working 24hours now,'can I gohome and take arest?" He said, "No,no, I ordered break-fast. We will preparethe report now."

Sowe had breakfastwhich sort of wokeme up a l i t t le . Weprepared the reportin one hour. Then Itold my leader, "Ah,

sir, we ate breakfastand frnished the report, can I go homenow?" t already felt veryweak. But hewas still excited and was still goingstrong. He said, "No, you cannot gohome because we will present thisreport at 9:0Cl a.m. to the directors."We had to give the impression that wewere not sleepy, that we were excitedabout tte report!After a successful presentation at

10:00 a.m., I asked the leader, "Can Igo home no-rv?" And he finally said,"Okay, you can go home now. You cansleep, take your lunch, but pleasecome back at l:fi) p.m." When I cameback that af ternoon I asked thesecretary where my teammates were.She answered,'Oh, they are work-ing." I again asked, "What time did

they come back?" She said, "What doyou mean come back? They did not gohome. They are still working."

Now, that gives you a real perspec-tive of what is "hardworkihg" to theJapanese. Do you think many Asianmanagers, even highly-paid executiveswould do that? And these Japanesewere just ordinary managers in an or-dinarycompany. Ourteam waswhat iscalled a productivity SWAT team.And this happens every day, everyweek in every Japanese company. Nocomplaints, no "buts." Nothing butpure hard work! So you want to be ashardworking as the Japanese? Thinkfirst of what it takes tobe hardworkingin their sense of the word.

family. When he reached his home at5:30 p.m. his wife was shocked. Shesaid, "I am so surprised that you c:rmehome early. You have to come insidebecause our neighbors might see you.They might think that the companydoes not need you anymore so it sentyou home early."

In Japan, ifyou are inefficient, youare not given work. You do not haveovertime. The husband said, "What doyou want me to do - go back to the of-fice? I have no more work to do there."And the wife said, "You cannot stayhere. Just go away, see a movie or playpachinko (pinball). I don't care whatyou do. Just come back later, at 9:00p.m." Do you think other wives would

Working EfficientlyI et me share with you another storyLabout the Japanese working norm..This is one about Japanese salarymenor white-collar employees. In Japan,salarymen do not go home early. Theyusually work overtime. That is whythey have these bars where they candrink and unwind after working verylate. This means they rarely get homeearly enough to have meals with theirwrves.

One day one salaryman decided tosurprise his wife by coming homeearly. He decided to work harder inthe morning and afternoon so he couldfinish hiswork early, leave the office at5:00 p.m. and have dinner with his

treat their husbands that way? InJapan, there is a strong social pressurefor the Japanese to work hard and forhis family to make him work hard.

Product toyalty11 nother t ra i t o f the Japanese is

flloyalty. Many of us may professloyaltyto our companies, but that doesnot mean we understand the meaningof the Japanese type of loyalty. Let megive you a few examples.

Mitsui and Mitsubishi arc archrivalsin Japan, just as Toyota and Nissan orSony and Matsushita are . So if twobrothers are working for differe ntcompanles - say, one $ a manager lnMitsui, one a managcr in Mitsubishi -

^}ilft#t


and they are staying in the same house,they will eat together, they will playtogether, they will talk about manythings, but theywill never talk abouttheir work or about company matters.Theywill never exchange notes abouttheir respective oompanies. Qf course,there isno pressure from the companyfor one not to talk to one's brotherabout his work. How should the com-pany know? But Japanese loyalty tothe company is so strong it transcendsfanily ties.

Here is another case. I was thentraining in Toyota. At the end of theday, there was nobody to take mehome so I requested the guard to cdl ataxi that could take me to mv dor-

companiss. gf course, itis usual, whenyou enter the house of a Sonymanager, to see everything there madeby Sony - f rom the radio to thetelevision to the video cassette re-corder. Having a Matsushita radio is a"crime" for which he could get fued.

Responsibilitv andUltiftate QualitvAssurance11ow, letustalk about averyimpor-I I tant thing - responsibility. TheJapanese take their responsibility veryseriously. People commit suicide orresign after assuming responsibilityfo r cer ta in deeds or d isas ters .Japanese prime ministsl5 1s5ign fromthe highest political post in the landover a simple loss of confidence. Thisseriousness about responsibility is alsofound at the corporate level.

In 1985, a Japan Air Lines 747crashed, ki l l ing more than 500Japanese. It was the worst single-plane disaster in aviation history. TheJapanese are very safety consciousand very nationalistic. They wouldnever fly any plane except JAL. Theonly t ime they wi l l agree to takeanother airline is when JAL is fullybooked. So when their favorite planecrashed, the Japanese were shocked.Management had to think fast..The6151 thing they did was resign - the en-tire management from the chairmandown -before the results of the inves-tigation were completed, or evenbefore an investigation was called.They said, "We are accepting respon-sibility regardless of the investigation'sresults."

Management was changed threetimes because of the incident, but stillthe Japanese passengers did not wantto takeJAL. Theystill didnot trust theaidine.

Finally, the investigation resultscame in. It turned out that the crashwas the fault of Boeing the maker ofthe747 plane. It was the fault of theBoeing technicians who repaired theJAL plane. Actually, the cause of thecrashwas faultyrepair of the fuselage.Boeing admitted the responsibilityand was willing to pay damages. Short-ly af terwards, the newspaporsreported that the JAL employee whocertified the adequacy of the Boeingrepair committed suicide. Every timea Boeing repairman comes, a JAL

counterpart checks his work. Al-though he did not actually repair theplane, this JAL employee felt respon-sible for the crash and so he com-mitted suicide. Of course, this was nota shock to Japanese society. But thesuicide was still not enough to change1[s mind of the public.

Management finally came out with adrastically new set of policies. First, itdecentralized maintenance. Pre-viously, maintenance was central-ized - anybody in the maintenancedepartment could repair any aircraft.Management scrapped this system be-cause it could not pinpoint respon-sibility. Under the new policies there isa dedicated maintenance crew to lookafter each airplane. If a plane en-counters trouble, then it is the respon-sibility of that particular maintenancecr9wSecond, management ordered that

the names of the members of the per-manent maintenance crew be postedin the plane for the passengers to see,rigbt upon boarding, so theywill knowwho to blame in case of trouble. Thethird poljcy wasthe clincher. Afterevery major repair or overhaul of theaircraft, the entire maintenance crewwill board the plane together with thepassengers, regardless of destination.That is the ultimate quality assurance.

With those changes, everybodyregained confidence in JAL. That isresponsibi l i ty, Japanese-style. Inother countries, including the Philippines, manyplanes have crashed, yetno one has resiped and the pilots in-volved are still flying. This situation isdisturbing.

Hands-on LearningI tou have heard of hands-onI management. You have heard of

MBO or management by objective.The Japanese counterpart is MBW-management-by-walking-around. Asynonlml for that is hands-on manage-ment. The Japanese are bottom-upmanagers: they tend to be more in con-tact with front-line operations as op-posed to Western-type managers whoare hands-off managers, who just sit intheir offices and give orders. Youmight think that hands-on manage-ment for the Japanese simply entailsvisiting the factory and then goingback to their airconditioned officesafter 30 minutes. Irt me tell you what

qet fired.Y , ,

mitory, which was about fiveki lometers away.I overheard theguard talking to the taxi companyoverthe phone, "This is Toyota Corpora-tion. We have a passonger here whowants to go to the city. Could youplease send over one Toyota taxi?"True enough, the taxi that arrived

was aToyota. If aNissan carwere sent,it would never be allowed to enter thepremises of Toyota Corporation.When suppliers deliver their goods

to Toyota they also have to use Toyotatrucks. They cannot use any othertruck or they would not be allowed tou"load or even get paid. You could im-agine the expense of the supplier whomust have three or four sets of trucksto transport their supplies to different

1 iHaving a

Matsushitaradio is a"crimg" for

which he could


hands-on management to theJapanese is like.

After graduat ion, my Japaneseclassmates and I parted ways. Theystayed in Japan and I came back toManila to work. After a year I was in-vited to visit some factories in Japan. Itook the oppor tun i ty to v is i t myschool, classmates, and my professor.He arranged for me a visit to the fac-tory where some former classmateswere working - a blg manufacturingcompany that supplies parts to dif-ferent car manufacturers. When I sawmy classmates I was horribly shocked.They were wiping the machines, get-ting rid of the dirt and the oil. Theywere serving the workers, supplyingthemwith parts.I could notbelieve myeyes. And to think thes.e were thehonor students in mybatch!

I asked my guide to ex-plain what was golng on.He said that in Japan,once you enter a com-pany, you have to really" fee l " the s i tua t ionhands-on and shouldknow the people in alldepar tmer i ts . Myformer classmates weremanagement traineesand were supposed to beexposed to problems noton ly in f inance andmarket ing but also inproduct ion. That waswhy they had to knowthe prob lems o f theworkers, the problemsof the machines. But myguide said not to worry.After 20 years, they will become direc-tors and presidents. That eased myshock. He did not say "they might be"but "they will be" directors and presi-dents. That was a guarantee. Then Ijokingly told him that if he promised tomake me company president, I woulda lso be w i l l i ng to c lean a l l themachinbs.

Consol idating Strengrths11 nother important principle of

flJapanese management is team-work. We may define teamwork asworkinghand-in-hand to attain a com-mon objective. But the Japanese havea different concept of teamwork al-together.

+--

When I was in Japan, I worked in anoffice doing paperwork. One day Iheard my boss talking to someone overthe phone and he became very excited.It turned out he was negotiatingwith amanager of one factory who was bor-rowing workers from his factory. InJapan, it is averyfluidsituation. Thereis no such thing as loyalty to a factory.You are loyal to the entire company. Ifone factory needs your workers, thenyou lend them out. No quest ionsasked. The other manager wanted toborrow workers from our factory be-cause demand suddenly picked up andthere was a high rate of absenteeism inhis plant.

I thought the problemwas overwhenthe phone rang again. Another factoryneeded more people. But there were

no more people to send over from ourfactory. All the extra workers had al-readybeen lent out to the first factory.But we had to help this particular fac-,tory. So my boss started calling up themarketing department, the account-ing department and the personneldepartment to borrow people. Therewas no resistance, no angry remarksfrom the different departments. Thechief accountant said, "Okay, I'll lendyou five accouirtants to assemble cars,to run your milling machines." Themarketing manager said "I have fivesalesmen here who are not busy. I'llsend them over to you."And for the sake of knowing what

Japanese teamwork really was, I alsovolunteered. I had no previous ex-

per ience in runn ing spec ia l i zedmachines, but I was given training tobe able to do the job right away. Ithought that was real teamwork.Everybody was loyal to the company.Not to their boss. Not to their section.Not to their function. Not to their ex-pert ise. This type of teamwork isprobably unique to the Japanese.Elsewhere, there is often too muchpolitics, too much intrigue to achieveanything of this sort.

Consensus Buildinqand Responsibility -

I et us focus on another JaPaneseLtrait - consensus-building. This isgroup decision-making or democraticdecision-making, when everybody is

consu l ted regard ing companYdecisions. Let me give you one inci-dent showing Japanese consensus.

One day, a certain bank overpaid acl ient. The cl ient cashed a $1,000check but the teller paid him $10,000instead. When the client left the bank,herealized that he had $9,000 more.Inany other country, that client wouldprobably have just walked away. Butihis was Japan and the client did notwalk away. He went back to the bankand tried to return the money.

But the point here is not the client. Itis how the company dealt with thiskind of situation. The client went backto the bank and tr ied to return themonev to the teller. If that incidenthappined in any other country, the

38 THE ASIAN MANAGER o JUNE 1ee0

teller would have probably acceptedthe money and thanked the client-maybe given him a letter or sometoken of appreciation. But it hap-pened in Japan and so things turnedout rather differently. The teller didnot accept the money right away. Hetold the client, "Could you please waitfor a couple of minutes while we dis,cuss this matter? You hold on to yourmoney. I'll discuss this with myboss."In the backroom" the staff, the super-visors, the branch manager, computeroperator, the signature verifier-everybody involved in releasing themoney - assembled and held a shortmeeting. In other words, the manage-ment, the whole bank, not just theteller, took action. That was why a con-sensus on what to do was needed. Itwas not a simple matter of returningthe money to the bank. It is more thanthat. Releasing the $10,000 was con-sidered a group decision and the tellerjust happened to be the last personwho carried out that decision.

Finally the branch manager went tothe client and told him the bank'sdecision - theycould not accept themoney that he was returning and thatthe money was his. Another cultureshock! The branch manager explainedthat he was giving the money to theclient so there would be a problem inthe bank. If the client returned themoney and the bank accepted it, thenthere would be no problem. The bookswould balance, and the people wouldforget this incident because therewould be no problem. There would beno pressure to inves t iga te , toreprimand, to anaTyzn.

But the bank precisely wanted to in-vestigate sb it wanted to have a prob-lem. The branch manager further ex-plained that $9,000 might be big to theclient but to the bank it was small be-cause the bank was a bill ion-dollarconcern. "We consider it an invest-ment in experience, because if thebank does not discover the cause ofthis mistake, the next mistake maycost$1 million. We want to knowwhether itwas a computer error, an error in pro-cedures, or an error in judgment. Iwould rather lose $9,000 now than $1million later." The client was con-vinced with the explanation and tookthe money home.

Now, who paid for the $9,000 delicitin thebank? In most countries itwouldbe the teller. In Japan it was not the

teller alone. Everybody in the bankwho paid in proportion to his or hersalary. The biggest amount wasshouldered bythe branch manager.

This is group decision-makingJapanese-style. And this is how theJapanese become very efficient. Withthat kind of system, you can be surethere will be no more overpaynent inthe future. Because nobodywants tohave his salary cut, everybody willmake sure the incident will not berepeated.

Inmost societies, there is a tendencyto cover up problems so mistakes areuever corrected. They are repeatedover and over and, in the long run, los-ses become bigger. In Japan, you makeamistake onlyonce and, after that, it isnot repeated. Even ifthe discrepancyis small say the books do not balanceby $1 or one cent, the Japanese willspend $100 to find the cause. Theyin-vest now for the future. This disciplineis partly the reason why the ten biggestbanks in the world are Japanese.

Conclusion

I et me end this article bygoingintoLwhat we can do to improve thewaywemanage our companies. Asyou cansee, many of these Japanese practicesare not really culture-bound. Thereare many we can adapt or copy. This iswhat the Koreans and the Taiwaneseare doing. We do not have to beJapanese to understand their objec-tives and logic. It m4y seem harder tounderstand and copy the Japanesethan the Americans. But it can bedone.Japan adapted European technol-

ogy when it was starting to industrial-ize. The Japanese did not know how tospeak French or German and theyhated and feared the Europeans. Buttheywent to Europe nevertheless andcopied all its technologSl. Theywent toAmerica to copy everything there.And they did not know how to speakEnglish either.

History has shown that there is nocultural or racial barrier to the trans-fer of technology. This is all in themind. It can be done. Unfortunately,very few realize the potential of learn-ing from Japan. All the technolog5r isthere and it is right here in Asia.

Let us learn from the Japanese. Allthe NICs (newly indus t r ia l i zedcountries) are copying from Japan-

South Korea, Singapore, Taiwan, evenThailand. Thailand is fast becomingan NIC partlybecause of the Japaneseinvestments there. We do not have tobeat the Japanese or copy themlDVoif it is not practical to do so. But thefact that we can not copy them I00Vodoes not mean forgetting them.al-together. It is not an all-or-nothingproposition. We can learn many thingsfrom Japan.

Oneway to start is to focus our atten-tion on Japanese business. Let us visitJapanmore often" rather than Paris orNew York. Irt us visit Tokyo and seewhat they are doing there and learn alittle Japanese. That is the only way.They will not learn English for us.Theyare proud of their language. Whyshould they learn English to teach us?We should learn their language if wewant to learn from them.

When I was in Japan, I learned theirlanguage the hard way, adapted totheir society and to their culture. Andthey were open to me, they taught memany secrets. I found out that theJapanese are helpful, not secretive.That they are secretive is nonsense, amisconcept ion . I f you do yourhomework, they will open up to you.They will share what they know just asthey shared their knowledge with theKoreans and the Taiwanese. The in-itiative to learn from the Japaneseshould come from us. The next move isours.

THE ASTAN MANAGER r JUNE 1990 39

How do I ga eleaed..

Strategies for Person Marketing: TheGase Of The Political Gandidate

Eduardo L. Roberto, Ph.D.C oc a- Col a F ounfution Profe s s or ofIntemtional Ma*aing

g111lhat is narketing doing in asUU sacred an inst i tut ion asdemocracy and its popular expressionin the citizens'voting behavior? Thesimple answer is that incumbentelected government officials andpol i t ical candidates have askedmarketing to help them out. Consultedon how to effectively sell a politicalcandidate or how to promote to theirtarget constituencies the incumbents'prograrns, marketing began to under-stand the votlng market and its votingbehavior. To the governing and theirconcern to continue governing, it isthis understanding of the governed'spublicbehavior that is crucial.

Over the past 11 years, I have donesurveys ofvoter attitude and behaviorto help a ruling of6cial assess his or herperformance in the eyes of thegoverned or to assist political can-didates planning their campaignstrategyto get elected or reelected.Five of the 14 studies I have done wereonaprobono basis. I gave myconsult-ing services free with the under-standingthat I could use the data laterfor my publication and teaching. I willuse the data from three of these fivestudies to discuss person marketing asa technolog5l for influencing citizens'political behavior.

I am, of course, aware that politicaland social scientists have long studiedvoting behavior. My work in personnil'ftsting adds to the existi"g pool ofknowledge from these scientists, par-ticularizes some of their more impor-tant findings in the setting of a ThirdWorld democracylike the Philippinss,and, at tines, comes up with somesurprising but practical insights. Thisis my rationale for writing on a subjectthat political oqperts tell me offers lit-tle room for breaking new ground.

I will address two types of politicalperson marketing. One relates to thecase of an aspiring new political can-didate who wants tobe elected. Thereare two variants of this type: 1) wherethe rival candidate is not too strongwith the voting market; and" 2) wherethe rivalcandidate holds adistinct ad-vantage with the voters. The secondt'"eis aboutthe case of anincumbentelected official who, after one or twoyears in offrce, wants to get the pulse ofhis or her constituencies regardingtheir reactions to his or her perfor-mance. The motivation for seekingfeedback is the desire to be reelected.

"How Do I Get Elected?"I n the early 1950s, a social scientistI asked, "Can you sell brotherhoodlike you sell soap?" (Wiebe, 1951). Inthe case of a new aspiring candidate,

the equivalent marketing question is,"Canyou sell a newcandidate like yousell a newbrand of soap?"

I have two contrasting case historiesto provide a qualifred answer. One in-volves a new candidate who won andanother one who lost. The winningcandidate is a wonan who successfullyran as representative of a district inMetro Manila. The losing candidate isanother woman who did not make it inthe mayoralty race in a city in MetroManila.

The plenning for person marketing inboth of these two cases starts from ananalpis of the candidate's keymarket-ing problem. The problem assessmentuses data on the vot ing market 'sdecision-making process. Personmarketing operationalizes this processas a seiluence of voting market respon-ses. One version of this sequence is asimple linear hierarchy that is con-

c""a-ii.I"iH"H,ll"#f"""Til?Hi",

fff,.sT,?mmt"f{**.--ryq r' ol tnose aware who ,ike th"

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40 THE ASIAN TTIANAGER o JUNE 1990

venient to represent as folloun:This sequence refers to the voter

and nottowhat is happen-rlividualvoter. So it shoulding to an individual voter. So it

read thiswayo How many of the total voting

market have been made awareofthe candidate?

o How many of those who areaware elevated their aware-ness to the ne* stage of likingthe candidate?

o flsu/ many of those who likethe candidate, converted theirliking into s[oosing Or prefer-rng the candidate for the elec-tive position?

The responso or responses where acandidate is low def ine thatcandidate's narket ing problem.'Lou/'of course is relative. The com-parison point should be thatcandidate's leading or closest rival.Let us go to concrete survey data to

clarify these concepts. gresswoman candidate together withthose for her rival.4scolding to the data in rhis exhibit,

our congresswoman candidate stoodas having: 1) only 54Vo of.thevoterawareness level that her rival can-didate had attained for this votingmarket response; 2) 9Vo of the voterliking or attitude level that her rivalcandidate had earned in this voterresponse; and,3) 62% of. the voterchoice for a congressman thather rivalcandidate garnered. All these impliedthat just to be at parity with her rivalcandidate, our congresswoman can-didate needed to raise:

o voter awareness for herself bY46Voi

o voter liking for herself bytlVo;and

o voter choice for her by$Vo.Clearly, to win she had to target

beyond parity and therefore do more.Our candidate's person marketing

problem was where she was lowest invoter response versus her rival's. Fromthe exhibit, this was in her voter aware-ness level. The major marketing prob'lem was therefore to get voters to see,hear or read about her and to remem-ber having done so. Tactically speak-ing, the.candidate had to be seen. Sheneeded exposure to her target con-st i tuencies. She needed to movearound and do so repeatedly and con-sistently.What about the qualityof this aware-

ness? What was it that voters should bemade aware of regarding our con-gresswoman candidate? What was itthat they should feel good or like abouther?

When the survey asked voters oPen-endedlywhat they looked for and likedin a political candidate, they indicatedthat they felt good about a candidatefor either or both of two reasons. Oneset ofreasons was about what the can-didate has been able to accomplish.Examples of such "performance"

re:Nons were:o "Mo.ratning natulungan sa dis'

trito niya." (Has helPed a lotof people in his or her district.)

o "Maratning proiects na. nagawengmaganda sa lugar

niya." (Has introduced manYgood projects in his or herplace.)

The other set of candidate expecta-tions was about the kind of a Personthe candidate was like. Voters defined

11Tacticallyspeaking,

the candidatehad to

be seen.

l: The Successfttlresswomanidate

r xhibit l shona the pertinent surveyEduta on the se quence of votermarket responses given to our con-

, ,

Case

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these personal character reasons bysuch descriptions as:

o "Matulungin " (Helpful.)o "Magaling magnlakad. "

(Manages well.)o "Mahusay makisama." (A

good team player.)The elements in these two sets were

related. A pair often just looked liketwo different ways of expressing thes6s thing. A candidate who had hadprojects "that helped a lot ofpeople"might alternatively be characterizedas "a helpful person."Turning now to our congresswoman

candidate, where did she stand in thisregard? For what was she knom andliked? When voters were asked, theygave answers which snggested that tothose who knew and liked her, ourcongresswornan candidate's knownand likeable public contribution wasin the field of recreation includingrecreational facilities and neighbor-hood parks.In terms of influencing voting be-

havior, was this image enough to raisevoter awareness, liking and votingpreference to the targetted winninglevels? The surrey design portion per-tinent to this question took a classicalbehavioral principle as its basis. Theprinciple says that the more a can-didate represents the answer to the

voters' need, or the more that can-didate is able to deliver the felt need ofthe voting comnunity, the more votingprefcrences he or shewillgain. And sothe survey measured this priorityneed.

The surveymeasurement defined thevoters'priority for a need as the multi-plicative product of a felt problem andthe perception that the governmentwas not doing anything about theproblem. Thus, felt problems wereequated with felt needs and theirpriorities were in effect made a func-tion ofhow voters perceived govern-ment neglect of the problems. Themore voters perceived that thegovernment is not doing anythingabout a problem" the higher a priorityproblem or a priorityneed it becomes.The survey measured these two com-ponents. There were 21felt problemsor needs. These were 21 city services.Exhibit 2 presents the obtained surveymeasurements and the computedpriority need inderThe survey resu l ts in Exh ib i t 2

revealed that the voters perceived thefollowing as the top four city servicesneeds: 1) vice control services, 2) low-cost housing, 3) garbage collection;and, 4) flood control. Where did ourcongresswoman candidate and herperformance image f i t into this

priority schedule? It was clear that shewas nowhere in the top four. Accord-ing to E:rhibit 2, recreational centersand neighborhood parks were city ser-vices that voters saw as: 1) about onlyone-fifth as serious a problem as thefirst top priority city service need; and,2) a little over half as unmet as the cityservices need which they perceivedthe city government was not doinganything about. This answered theoriginal question ofwhether her per-formance image was enough of a rally-ing point to push her to a winning level.It obviouslywas not.

So how do we explain her gettingelected? On hindsigbt, there seemedto have been two sets of factors thatworked in her favor. One was what shedid about voter awareness and at-titude. To start with, she used her goodlooks and youthful appearance to ad-vantage. She learned to speak the localdialect well and dressed herselfout ofher upscale status. She visited andrev is i ted prese lec ted barangayseveryday talking the voters' language,eating their food and drinking theirdrinks. She did this without let-upuntil election day. To say the least,those she met, talked to, ate and drankwith were impressed and liked her forthe sincere attention. All these raisedher awareness and attitude standing

ilV J)

M0 0

Exhtblt 3

Hlerarchy of Voter Responset to theLady Mayor Candidatd vs He. Riyat

Sequence of Voter Responses

For tadyMayor For Rival

Candidate CandidatePercent ol total voters who areawareofthecandidate U 94

Percent ol those aware who likethe cardidate 68 z3

Percent ol those who like thecandljate who will vote tor him/her 17 n

t/0\

' 00


Exhibit 4

voters' Satlstaction :j*"tl;,"""u,i[Ti*]"tt?i;;'n"":: **

Definitev notsatisfed I

Generalty not sat'rsned 60

Nenhersatisfied nordissatisfted 26

Generally satisfied 2

IV

00

u

with her ysling constituencies.But did she stand for the voters'

needs? For this particular contest, theindications were that this factor wasinoperative. First of all, voters wereunsure what a congressman wasresponsible for. In fact, most were notonly unsure but ignorant of acongressman's responsibility. ThePhilippine constitution was no help. Itdid not provide any job descriptionfor congressmen. So voters really didnot know what to expect of a con-gressman.

Political scientists characterize thiselection situation as being without an"issue orientation" (Abramson et. al.,1986). It is a condition where there isno question about governnent policywhich divides voters and causes con-f l ic t . I t is a s i tuat ion where " issue

voting is weak." An election that hasno issue orientation is decided bv can-didate image and/or by "retrospictive

voting" (Fiorina, 1981). When voterscast their ballots according to howthey evaluate the performance of theincumbent official, what takes place isretrospective voting. Ifvoters see theincumbent as having done well, theyvote for him or her. If they percievedan inferior performance, then theyvote for the rival. In this case, therewas no incumbent congressman. Theelection came right after the EDSArevolution and Congress hadjust beenrestored. So just one voter behaviordeterminant was operative: candidateimage. Our congresswoman candidateattended to this well. In a sense. it wasa lucky combination of circumsiances.

What lessons for political candidatemarketing does this case highlight? Iwil l address the lessons as if I weredi rect ly advis ing an aspi r ing can-didate.

First, be sure to start with an ac-curate and objective, research-basedunderstanding of your candidacy's keymarketing problem. This may be invo te r awareness , a t t i t ude o rpreference. Focus your campaign ef-forts and attention on solving what thedata from voters will indicate as vourkey marketing problem.

Second, obtain a correct measure-ment of the voters ' cr i t ica l pr ior i tyneeds. Then check ifthe voters con-sider the top priority critical need anelection issue. Ifnot, then the electionis without an issue orientation and youdo not havc to include this considira-

tion as a major element of your c^--paign plan.

Third, check on the voters' percep-tion of the incumbent's performancefor the l ikelihood of retrospectivevoting. If there is no incumbent for theelective position, then you can takeyour strategizing mind away fromretrospective voting and concentrateon other matters.

Fourth andlast, attend toyour imageas a candidate before your targetvoters. Get a quantitative measure of itand as the song admonishes, "accen-

tuate your positive and tone downyour negative."

.- .-

I I... be sure to

start with an accurateand objective,

research-basedunderstanding of

your... key marketingproblem.

, ,

Case ll: Thep-nsuccpssf.ul. LadyMayor Candidate -

I et us now shift to our losing can-Ldidate example and learn otherstrategy insights.

This case was a mavoraltv race. Ourlady mayor candidatL wasi widow ofan "old hand" in city politics. She hada well-known name, and was elderly inboth age and appearance. She wasrunning against an incumbent ap-pointed OIC (of f icer- in-charge)mayor. This was again in a post EDSArevolution setting.

The base line survey indicated that ifthe voting were to be held at the timeof the survey, the incumbent wouldwin with 2lVo of the votes in his favorand only 4Vo choosing our lady mayorcand ida te . The re we re ZOVo un -decided and the rest of the votes werescattered among seven other l ikelycandidates. Our lady mayor candidatewas a poor number seven while the

closest rival of the incumbe nt had L6Voof the votes.What was the key person marketing

problem of our lady mayor candidateand what accounted for theincumbent's leading position? Toanswer this question, we used the se-quence- of-voter-responses approachthat we applied in the preceding con-gresswoman example. Exhibi t 3presents the analped survey d6ta forthis response sequence.What was immediately apparent

from Exhibit 3 was how much moresuperior the incumbent's "conversionratios" were compared to our ladymayor cand ida te 's . These ra t iosreferred to the two chains of steps inthe sequence and showed howvoterswho were aware of a candidate trans-lated this awareness into liking, andhow those who liked translated thisinto a voting choice. As shown by thedata in the exhibit, the formidable taskconfronting our lady mayor candidatewas how to match and ultimatelv ex-ceed the incumbent's superiot coou"r-sion ratios. Specifically, just to matchand be at parity with the incumbent,our lady mayor candidate had to raiseby L76% the level of voter awarenessfor her, upbyTVo the liking for heramong those aware of her, and get70Vo more of those liking her to votefor her.

I have said previously that the pointwhere the voter response sequence forthe candidate is lowest is where thekey person marketing problem lies. Inthe foregoing data, this was very con-spicuous in the awarenoss response.That was our lady mayor candidate'skey marketing problem. Her politicalstrategists accepted this. They there-fore made it the primary target of hercampaign plan. Similar to our con-gresswoman candidate, an intensive,rlgorous voter exposure progrem wasset up and scheduled for her.

The response data and conversionrat ios shown in Exhibi t 3 alsoanswered our question on what ac-counted for the incumbent's winningposition. First, voter awareness forhim was close to LffiVo.Hewas muchmore well known. Second, the voters'liking for him was of the type thatvoters implemented this into thefavorable action of voting. His abilityto convert voter awareness into likingwas high but this was not that superiorto our lady mayor candidate's.


Were these incumbent's superioritypoints responsible for our lady mayorcandidate's defeat? They were un-deniably part of the cause but theYwere no t the major par t . Theincumbent's voter awarsness supe-riority was high but not insurmount-able. The planned voter e:rposure pro'gram for our lady mayor candidatewas intense enough to have overcomethis handicap. But as it turned out, ourelderly lady mayor candidate did nothave the physical sleminx to stand ther igors of a f ie ld, house-to-house,seven-days-a-week campaip.

The circumstances surrounding theincumbent's performance and theelection's issue orientatioq two deter-minant factors of voting that we dis-cussed in the previous case, were alsot ipped in favor of the incumbent.When asked how satisfied they werewith the incumbent's performance,the voters surveyed responded asshown in Exhibit 4. The majorityvotersentiment was one of indifference. Tobe exact, 6OVo of the voters felt thatway. Such a rating of the incumbent'sperformance would not influencewhat we called in the previous caseretrospective voting. In other words,voters would not vote the incumbentout of his office because of what hehad or had not done as mayor. In-

cidentally, the dominant incidence ofthe "don't knon/' responsc has charac-terized Philippine political behaviorsurveys (see, for svample, PhilippineSocial Science Councif 1985).

What about the Presence of an issueorientation in this election?

Were the city voters divided over acritical city problem or felt need? Thesurvey asked voters to rate each of 32citv services in terms of how serious aoroblem thev perceived each to be andthen to whai irent they believed thegovernment was doing somethingabout each problem. Once more, weused our previous concept ofa prioritycritical problem: one that voters see asserious and at the same tirne one thatthey be l ieve the government hasneglected. When the multiplicativecombination of these two ratings werecomputed the top three most criticalprioiity problems that the citt's votingpopulation sawwere:

o First, the "garbage collection"problem;

o Second the problem of "hold-

up and theft crime control"tied with the problem of "il-

legal drug trafficking control";an4

o Thir4 the "road and streetrepair and nrintenance" Prob-lem.

None of these problems emerged asan election issue. In fact, the morevocal ofthe voters surveyed explainedthat the reason the city governmentdid aething about the garbage collec-tion problem, the perceived top ratedcritical priority problem, was becausethe city government simply could notdo anything. It did not have the neededhardware for the task. The'MetroManila Commission owned the gar-bage trucks.

S imi la r to the congresswomancandidate's case, this mayoralty con-test was reduced to a candidate imagedetermined election. But what was thewinning candidate's image? To havean objective answer, the survey soughtto measure the winning image bY as-king voters the following question:

"Sa kasalularyang panahon po natinat ayon sa tingin ninyo saktlagayan ngat ing lunsod, al in Po ss mgasumusunod ang sa inyong palagay angnoruapat at bagay na marnuno dito saatinglunsod?

1. Isang pihikan, kilala at subok ngpolitician.

2. Isangbotang leader na maY mgabago at magagandang ideYa Para saikabubuti ng ating lunsod.

3. Isang magaling magPalakad atmatagumpoy na business leafur-

4. Isang mahusaY at matalinong

(\

A1 c

- 4 l , *\-) tr \\oL

o o n 6 o \ \ o(,[ ;:V%E\vt"/ ,w\ \ t l

v t

Exhlbit I

Volsrr' F€odbsck lbout an IncumbentCongressman I Yo8r Atler Electlon

Statistics

% of total votors who kno,v who thgk congressrnan ls 67

* bt tnose wno *no'v who th€lr congr€ssrnan ls, who saldthey know wtEt congr€ssmen are responslbl€ lor 79

% of those who kno\r \rrhat the congrsssman is responsibletor, who b€ll€ve their current congressrnan is dolng:

- definhely wdl 6- gen€rally wdl 21- neither wsll nor poorly 39

% ol those who kno , who their congressrnan ls, whoknow of a prol€ct that thls congrossman ls sponsoring 10

Exhiblt 5

"ff E:l'J;il""[f lJf"?31'o

*.-aru*t-u*nown'prcvenpolitician

o r*.n bader with new and anrac{ive ideas lor tne 25

gciod oflhecttY I

e pertoming,st'ccessful business leader 4

o n"-n*"ut*Uprolessiooal public administrator

A sincerermorally uprigil leaoer tike Pres' Aquino 53

6


nor poorlv.

, ,

professionol ptblic adrninisfrstor.5. Isang sincere at moral na leader

kotulod ni Prcsidcnk AEtirw.(Based on the conditlons of the tlmc

and on howyou see the sltuatlon ofour dty, nho among tte folloying doyou feel ls right and suitablc for thiscityas lts leader?

1. An expcrt rell- knorm and provenpolificlrrn.2. A young leader wlth new and at-

lracdvc ldeas forthe goodof ourctty.3. A pcrformlng and successful busl-

ness leaden4. A good and Intelllgent profes-

sional publlc arlministtator.5. A slncere and morally upright

leader llke Pnesident Aqulno)Exhibit 5 shows the voters' c.hoices.

The clear winning image was'the sin-cere and norally uprrght leader likePresident Aguino." At that time, theincumbent mayor projected himselfright on target. The public saw him asa good persoq religious, sincere who"does his best." In appearalse, somemedia people descr ibed him as"spnrting a hound dog pitiful look." Itwas hard to hate him. While oftencriticized as inefficient he did not suf-fer on this account. Some of thevoterssurveyed said of this: 'We're tired ofintelligent, smart leaders who are like-ly to be crooked. Look at where thattype of leadership brought us. Effi-cient administration can be left to amoral leader's technical supportstaff.'And so he won and our ladymayor candidate loet.

Now to the marketing strategy les-sons of this case for the aspiring newcandidate.

First, if you are running against an in-cumbent, check if you can ride on aretrospective voting possibility be-cause of clear, high v6fsr dissatisfac-tion with the incumbent's perfor-mance. If there is no such voter dis-satisfaction, then shift to some otherstrates/.Second" measure your key marketing

problem accurately. Then, rationallyassess if the incumbent's superiorposition in this voter response is sur-mountable. If it is, then bring yourcampaign focus to this direction.More importantly, be faithful andreligious in implementing this focus.

Thir4 check if the election will or istakingan issue orientation. Followour strategy advice No. 2 in ouranalpis of the previous case.

Fourtb, if thc electionis reduced to acandidate image determined coilesqmake sureyou have acorrect quantita-tive measure of your and your rival""o6i64ers imnges. Build on the posi-tive angle of your image and make surethis angle is distinct from the rivalincumbent's. Remember, a nondis-tinctive positioningwill lead to aume-too' image and in marketing, me-tooproducts have had a disastrous his-tory.

an4 as our oongres$nan himself sai4"shocling and unsettling" voter feed-back. Consider, for example, the firstrow statistic in Exhibit 6. It says that asmany as a third of the district's votingpopulation did not even knowwhotheir current congressman was. Since1rye s'e talkinghere ofjust plain aware-nessof aname' the33Vo unawarerep-resented a large pocket sf ignorant,unknowing voters. In our sequentialstepwise model of voting behavior,awarenass forms the ground base fr omwhich voting behavior in favor of apolitical candidate starts. Low aware-ness basc leads to lowvoting nunbers.All this means something has to bedone about awareness.

Some quarters may not at all besurprised by the 33Vo umiaw arc ratio. Infact, theymay say they expect it in lightof the assumed low turnout of voterson the actual voting day. Politicalscient ists have long debated thecauses and meaning of low electoralpart ic ipat ion (see, for example,Cavanagh, 1981; Ladd, 1978; andDawsonef. a1.,1988). For our pur-poseg it is not necessary to ge1 inls thisissue for two reasons. The view sug-gesting that voters did not know thename of their congressman becausemany of them did not vote during theelection for this congressrnan seemeda remote connection.The other reason challenges the as-

sumption of low voter turnout. ThePhilippine Social Science Council sur-veys indicate that electoral participa-tionin the Philippinas isnot at alllow.It is in fact onthe{)Vo level This con-trastswith theUS figure of abouthalf.In fact, it was 49Vo f.or the 1988presidential election (Dawsonef. c/.,1988). If the low voter turnout was in-deed an invalid assumption, then thelowawareness for the incumbent con-gressman had to be traced to otherfactors.

Returning to Exhibit 6, we can alsosee that among those who claimedthey knew who their district con-gressrnan was, about a fifth could notsay what a district representative toCongress was responsible for. Thosewho said they knewwere, however, notone in defining those responsibilities.The definition ranged over many dif-ferent natters such as:

1. Responsibility for the district'sproblems and its poverty segment.There were26Vo who talked of such

a1... the top opinion

was that ourcongressman was

neither doinghls fob well

'How Do I GetReelected?"fr onsider now the case of an electedlrofficial wishing to assess how hisor her constituents regard his workand perfornanoe a year or so after as-suminghisor her office. Tlpically, thisofficial wants the assessment with aview toward getting reelected.

The specific case for which I havedata is a district oongressman in MetroManila. He is young and aggressivebut has a calm, collected dispositioqespeciallywhen facing his public. Hewas a relat ively successfulbusinessman before turning to a politi-calcareer. It was a po6t EDSA revolu-tion election and hewas therefore notrunning against an incumbent. Elractlyone year after his election, he wantedto obtain through a survey an objectivereading of how his const i tuentsregarded his work and the projects hehad sponsored and undertaken astheir district representative to Con-gess.

Exhibit 6 has the survey data on tledistr ict voters' awareness andknowledge about our incumbent con-gressman. They were eye-openers

THE ASIAN MANAGER o JUNE 1990 4s

responsibilities in this wayo Tingnan, ayusin, asikasuhin

ang mga suliranin ng distrito.(Look at, solve, attend to thedistrict's problems.)

o Asikosuhin angmga mahihirapsa distrito. (Attend to thedistrict's poor.)

2. Responsibility for protecting thedistrict's population and looking aftertheir needs. Here is how 23 Vo spoke of.this:

o Pangalagaan angmga taodito." (To care for the peoplehere.)

o Bigan ng protewon ang mgatao ss distrito. (To give protec-tion to the district's residents.)

o To maintain peace and order.o To take care of the needs of

the district.o Intindihin ong mga kailangan

ng nasasalatpan (To attend tothe needs of the constituents.)

3 . Respons ib i l i t y fo r execut iveprojects. Some t4Vo of the respon-dents concerned expressed this kindof opinion. For example:

o Pag-aayos ngkalye, imbumal.(To maintain roads, sewage.)

t Papapaganda u papapalinisng kalye. (Beautifying andglsaning up streets.)

o Ayusin ongmgabagay no goyangeducation aI housing. (Solveproblems like in educationand housing.)

4. Responsibility for law-making.Only 8Vo referred to this job of a con-gressman. The terms they used were,for example:

o Taga-gawa ngbatas. (Makinglaws.)

o Bumabalanglas ng batas.(Framing of laws.)

c Nagle-legklate. (trgislating.)Plus several other defrnitions.The conclusionwas clear. Voters did

not real ly know what their repre-sentative to Congress should be ac-countable for.Only 4Vo ofthe total dis-trict voting population appeared toknow that their gongressman's job islegislative work.' This indicates poorquality awareness of our incumbentcongressman. If he expects to stay inplace and do wel l in his intended

'"**u,s*nufii@\gerds allhouse to*'-'

. -^ 31 33

a^tlveil invotved in the d'lsvitf s 85

frit'*r"t "aiuit,.t ^ 1g 46

on".i..fV present in the distr'd s 72

lociallife Bg 18 63

-oot",o

O'tOu'" "nd sponsor bills

19 57

t|t?:*,S'3,[t[$'SiiIfo?os'".' -gz

oh

reelection objective, he obviouslyneeds to raise this qual i ty and dosomething about his constituencies'political literacy.

Because of the dilfused character ofvo ter knowledge about our con-gressman and his job responsibilities,it is not surprising to find that amongthose who were awiue and who knew,the ra t ing o f how we l l the i r con-gressman was doing in his position waslacking in intensity. As the third rowstatistic in Exhibit 6 shows, the ratingwas centered at the midpoint. In otherwords, the top opinion was that ourcongressman was neither doinghis jobwell nor poorly.

The next and fourth row statisticssuggest why. Exhibit 6 statistics tell usthat very few of those who knew theircongressman (llVo to be exact) wereaware of a project that their con-gressman was sponsoring. The mes-

voTr

sage of th is feedback is s imple. I fvoters are to appreciate action and ac-compl ishments, they must be to ldwhat is being and has been done. Noone will tell the voters. The media willnot. Doing one's job in government isno news. What this says is that part ofthe congressman's plan for a project isa communication component for dis-seminating to his constituents what isgoing on.

Jus t because mos t vo te rs do no tknow what the primary responsibilityof the congressman is does not meanthat they do not have any idea of whathe shou ld be o r wha t a good con -gressman is. Voters do have expecta-tions. The surveymeasured these ex-pectations by asking respondents whoknew who their congressman is, towhat degree they expect their con-gressman to: 1) attend all House ses-s ions,2) be act ive ly involved in the

00

1 This 4Vo was computed as follows:(8Vo 5g1yngthe jo6 was law-mak ng) x (79Vo claiming knowledge of a congressman's job) x (67% saying they knew

who the incumbent congressman was) -- 4Vo.


district's political activities, 3) bephysically present in the district's so-cial life, 4) be able to prepare andsponsorbills and laws; an4 t be ableto help in the district's economicproblems and programs.

The first colurnn of statistics in Ex-hibit 7 reveals the voter ranking ofthese expectations. The highest expec-tation was the "ability to help in thedistrict's economic problens andprograms.' The legislative ability wasonly the second highsst expectation.According to the data, the voters ex-pected the good congressman to:

o First, help in the district'seconomic problemqandprqgrams;

o Second, prepare and sponsorbills; an4

o Third attend all House ses-sions.

How did our congressman fareagainst these priority expectations?The satisfaction data in E$ibit 7 (the

second and third column statistics) areusefiil for an answer. The "yes-sahsfied'column sapthat the highest satisfactionratingfalls on anaspectv/hich is outsidethe voterd priorityeryectations of whata good congressman is. In addition, andmore ret€ilingly, the percent of votersunable or unwilling to rate their con-gressman on the ftre opectations all ex-ceeded the percent gviog a satisfied16ting. In fact the proportions shonm in-dicate that most of the district voterssimply did not knovwhat was going onwiththeir congreqqrnan with lsspect to:

o Preparation and sponsorshipof bills (63Voofthem);

o Helping out in the district'seconomic problems (57Vo of.them); and,

. Attendance of house sessions(49Vo of them).

So once more, ignorance rears itsugly head.

On thehigbest expectation of helping out in the district's economicproblems and progranrs, the lowvotersatisfaction with their incumbent con-gressman had another source. Thesurvey measured the voters' percep-tion of the district's most criticalproblems. As in the previous ex-amples, this survey also defined thecritical problem as one tlat voters notonlyperceived as serious but also sawas being neglected by the government.The analyzed survey data indicatedthat the district's three most critical

problems in the eyes of its votingpopulation were:

o First, the problem of "hold-up

and theft crime control;"o Second the "squat'ters con-

trol" probleml and,o Third the problem of "con-

hsling indecent bold shovnand prostitution."

These were problens that votersperceived as most serious and at thesame time the most neglected by thegovernment. Tackling then tlereforeholds the mostpotential impact onthecit/s voring residents.

In his first year in office, however,our incumbent congressman focusedhisprojects and sponsored bills on theproblem of "control of illegal drugtrafficking." While no one will arguethat this is a problem worth address-ing it happens to be, at this tine, out-side the voters' priority of perceivedcritical problems. Voters did not seeour oongres$nan's efforts in this areaas being truly responsive. This neanshe ougbt to change direction.

For all the above circumstances oflow awareness, poor knowledge, indif-ference and off-the-mark targeting ofprojects, it becomes understandablewhy, of the voters who knew thepresent conglesbman, only 32Vo sudtheywouldvote for him again. A small7Vo out of this 32Vo were certain ordefinite about their intention.

The strategllessons for an incumbentfrom this case include the following

First, take a regular reading ofyourconstituents' political pulse and learnabout their awareness, knowledge, ex-pectations, satisfaction and voting in-tentions. It pays to feel the pulse ofyour constituency. The datawill he$you define your crucial relationshipproblemwith them, and will lend per-tinence to the direction your projectsare taking or should take.Second, if your constituency or a

good segment of it is politically un-xwars and Tnlmorvledgeable, improveyour public information program.Make it an integral part ofyour projectplan and budget.Third, make sure you are abreast of

your constituents' priority criticalproblems and felt priority needs. If youare not you may fall into the trap that ourincnmbent songressrnan example fellintq namely, picking as the focus of hisprojecfs a problem or a need ufiich is notaroterprbrity.

ReferencesCited$1ams6a, PR., J.H. Aldric\ and

D.W. Rohde (1986), Change ondContinuity in the 19&4 Elections.lryashington, DC: CongressionalQuarterly Press.

Cavanagb, Thomas E. (1981),'Chan-ges in American Voter Turnout,t96L7 6," Politicol ScienceQuaterly, VoL 96 (Spring).

Converse, Philip E. (1988), "Perspec-

tives on the DemocraticProcess;" Mlblr igon QuottertyReview (Spring).

Daunoq M.C., D.R. Kinder andSJ.Rosenstone (1988), "Voter

Registratio4" Institute for SeialResearch Newsletter, Vol. 16: p3

Fiorina, Morris P. (19f31), Rewspec-tive Voting in Anericot NationalEleaions. New Haven, Conn.:Yale UniversityPress.

I-add, Everett Carl (1fi18),lilhereHave All the Voten Gone? TheFracturing of America's Politk alpa.nies, New York Norton.

Philippine Social Science Council(1988), report on the PSSC Na-tional Opinion Suvey of Sep-tember 1985. Quezon City:PSSC.

Wiebe, G.D. (1981), "Merchandising

Commodities and CitizenshiponTelevision " Public OpinionQuoxerly, Vol.15 (Winter): pp.67949r.

THE ASIAN MANAGER o JUNE l99O 47

Classical Writy...

The Spirit of Gapitalism Revisited

by Prof.Leonailo B. Silos MBM'71PLDT Professor of BusinessManagement

7he term..spirit of capitelism" wasI coined by Max Weber, as was the

term "Protestxlt sthig" in his famousstudy, The Protestant Ethic ond TheSpiit of Capitalism.'The terms stoodfor historical concepts, and thereforereferred to unique realitie3 that couldnot be defined in abstract terms butonly through understanding "a com-plex of elements associated in histori-cal reality which we rrnite into a con-ceptual whole." Weber 1" sgfeldng tohis method of "ideal types." We arehere interested in understanding thespirit and the ethic of which he workedout ideal types. Management authors

often refer to these terms with a prideof ownership that accompanies acelebrated heritage but often enoughalso without further elaboration as iftheir meanings were perfectly clear.Some authors like to see the Protes-tant ethic or i ts ersatz at workwherever there is successful economicdevelopment, even in a country likeJapan that is neither Protestant norknom to have anyreligion at all. It isinstructive to know what Weber him-self meant by them. For to Weber, thespirit of capitalism was so irrationaland rrnnatural that its propagation re-quired the help 6f lsligious dogma.

The Spirit of CapitalismED ecause he was dealing with a his-EDtorical concept, Web6r began hisinvestigation with a historical docu-

1 The ter( we shall use is from the I9?n edition: Max Weber, The Protestant Ethic and the Spiit of Capitalism.Translated by Talcott Parsons. New York: Charles Scribner's Sons, 1958.

ment which he believed contained thespirit of capitelism "in almost classicalpurity, and at the same time... freefrom all direct relationship ts rcligion,being thus, for our purposes, free ofpreconceptions." For by that time itsreligious basis had died away. Theauthor of the document was BenjaminFrankl in. Weber quotes famoussayings of Franklin" some of which wereproduce here:

o Rememberthattime is money.He that can earn tsa shillingsa day by his labor, and goesabroad" or sits idle, one half ofthat day, though he spends butsixpence during his diversionor idleness, ought not to reck-onthat the only expense; hehas really spent, or ratherthrown away, five 5hillings.That is what businessmen


todaywould call an oppor-tunity loss.

o Remember this saying, Tftegood paymaster is lord ofanotherman's pune. He thatis known to pay punctuallyand exactly to the time hepromises, may at any time,and on any occasion, raise allthe moneyhis friends canspare. This is sometines ofgreat use. After industry andfrugality, nsthing contributesmore to the raising of a youngman in the world thanpunctuality and justice in allf,is dsalings; therefore neverkeep borrowed money an hourbeyond the time youpromised lest a disappoint-ment shut up your friend'spurse forever.

That is called establishing a goodcredit record.

o The most trifling actions thataffect a man's credit are to beregarded. The sound ofyourhammer at five in the morn-ing, or eight at night, heard bya creditor, makes him s25y sixmonths longer; but if he seesyou at a billiard table, or hearsyour voice at a tavern, whenyou should be at work, hesends for his monev the nextday; demands it, before he canreceive it, in a lump.The above passage and thosefollowing draw the image of agood credit risk against a poorone.

r It shows, besides, that you aremindful of what you owe; itmakes you appear a careful aswell as an honest man, andthat still increases your credit.

r For six pounds a year you mayhave the use ofone hundredpounds, provided you are aman ofknown prudence andhonesty.

MaxWeber went behind the sayingsto capture their "spirit." In no uncer-tain terms, he saw avarice animatingthe passages. But if that was all therewas to it, there would bs n6lhing moreto be said about it. Weber, however,saw something special about thisavarice and made his point.

o ...The peculiarity of thisphilosophy of avarice appearsto be the ideal of the honest

man of recogDized credit, andabove all the idea ofa duty ofthe individual toward the in-crease of his capita[ which isassumed as an end'in itself.Trulywhat is here preached isnot simply a means of makingone's way in tle world, but apeculiar ethic. The infractionofits rules is treated not asfoolishness but as forgetful-ness of duty. That is the es-sence of the matter. It is notmere business astuteness, that.o.1 ef thing is commonenough, it is an Ethos. This isthe quality which interests us.

IIt.to appear honest

was sufficient,then to be honestwas superfluous

and wasteful.

, ,

Weber could not be clearer aboutthe object of this ethos. "To earnmoreand more money," "amass wealthr" ac-cumulate "great mater ia l load ofmoney and goods," are some of theterms he uses. This avarice had severalpecul iar i t ies. F i rs t and above a l l ,making more and more moneyw:rs anend in itself. This is described as amajor deviation from tradition whichhad always considered wealth as but ameans for a variety of ends. Second,this avarice was an expression ofvir-tue, a duty that comes from a calling.Third, it was a rational ordering ofone's life and work, a calling to be pur-sued systematically and methodically.Fourth, it was ascetic, a pursuit ofwealth that was accompanied by self-

denial. Writes Weber: "the surnmumbonum ofthis ethic, the earning ofmore and more money, oombined withthe strict avoidance of all spontaneousenjoyment of life, is above all com-pletely devoid of any eudaemonistic,not to say, hedonistic, admixture." Bythis frugality, the modern capitalistwas able to accumulate capital, so vitalin capitalism.

o He avoids ostentation and un-necessary expenditure, as wellas conscious enjoyment of hispower, and is embarrassed bythe outward siens of the socialrecognition which he receives.His manner of life is... distin-

guished by a certah ascetictendency... It is, namely, by nomenns exceptional, but ratherthe rule, for him to have a sortof modesty... He gets asthingout of his wealth for himself,except the irrational sense ofhaving done his job well.

It was, lastly, strictly utilitarian. Vir-tues required by capitalism such ashonesty , punc tua l i t y , indus t ry ,frugality, were virtues because theywere useful. [Jnnecessary surplus ofvirtue would appear to Franklin as un-product ive waste. "According toFranklin, those virtues, like all others,are only in so far virtues as they are ac-tually useful to the individual, and thesurrogate of mere appearance is al-


wap sufficient when i1 ngcomplishesthe end in vi6r." If to appearhonestwas sufficient, then to be honest wassuperfluous and wasteful.

Briefly, then, as Weber describes thespirit of capitalism, it is avarice be-come methodical and ethical.The most important opponent of this

spirit, "in the sense of a definite stand-ard of life claiming ethical sanction"was the attitude and reaction to newsitr iat ions which Weber cal led"traditionalism." Weber thus distin-

tions is found in all ages. "Absolute

and conscious ruthlessness in acquisi-tion has often stood in the closest con-nection with the strictest conformitywith tradition." But why, having madematerial acquisition an end in itself,the modern capitalist would not be asruthless, Weber does not explain.A profound difference between the

traditional and the modern capitalismwas that in the traditional world,avaricewas still avarice andtle t''ilss-ing of wealth was never for its own

a naive point of view, is evidently asdef ini tely a leading pr inciple ofcapitalism as itis foreign to all peoplesnot under capitalistic influence."

What distinguished the moderncapitalist spirit from the traditionalwas the "attitude that seeks profit ra-tionally and systematicallt'' as shownby the example of Benjamin Franklin.Economic acquisition was rational, as-cetig ordered and disciplined. Thisrat ional character of moderncapitalism is not merely the result of a

,ffiffiuNML J i

,_-t:,-';ilNfs lir:fil\&f, H

ffiffi1t ' ;I i ' r '

a ! : a

ffim:-- ..- ::'-:av-1 -7

hrll f,i :A

guished this spirit of capitalism fromother kinds of capitalism which hesubsumed under a rfuord that we keepmeeting in his writings as the oppositeand opponent of the rational: tradi-tion. Traditioncl capitalism which "ex-

isted in China, India, Babylon, in theclassic world and in the Middle Ages,"was not the same capitalism of Ben-jamin Franklin. For in all these cases,the "particular ethos was lacking."Enterprises by private entrepreneursutilizing capital to make a profit, pur-chasing the means of production andselling the product, in short, a genuinecapitalistic structure, may at the sametime have a traditional character. Thegreedfor gold ofthe adventurer who isnot constrained by ethical considera-

sake. To earn more and more moneyas an end in itself "seems to the pre-capitalistic man so incomprehensibleand mysterious, so unworthy and con-temptible. That anyone should be ableto make it the sole purpose of his life-work, to sink into the grave weigheddown with a great material load ofmoney and goods, seems to him ex-plicable only as the product of a per-verse instinct." The modern capitalist,on the other hand, "is dominated bYthe making of money, by acquisition asthe u l t imate purpose o f h is l i fe .Economic acquisition is no longersubordinated as the means for thesatisfaction of his material needs. Thisreve rsal of what we should call thenatural relationship, so irrational from

general process of rationalization ofWestern economic life. It derives from"the peculiar relationship 6f a man tohis calling as a task." In this idea of acalling, Weber finds the influence ofReformation Christianity.

The Protestant Ethic11 gain, we are dsaling with a histori-

Acal concept. We need not go intothe process by which Weber traces thesource of the Protestant ethic. Weknow that he found it in "ascetic"

Protestantism of the Calvinist tradi-tion, as distinguished from the "sen-

timental" Protestantism, for instance,of Luther. Nor are we interested in theaccuracy ofhis interpretation either of

s0 THE ASIAN MANAGER e JUNE 1990

Protestant doctrine or the influence ofthe Protestant ethic on capitalism. Asin the spirit of capitalism, we are hereinterested in how Weber himself con-ceived this ethic.Weber found the link between the

Protestant ethic and economic activitvin the Protestant concept of a "call-ing." The "rationalization of conductwithin this world, but for the sake ofthe world beyond, was the conse-quence ofthe concept ofcalling ofas-cetic Protestantism." Thus, this spirit

The individual hadnow to reckon with,not his conscience,

but the market.

methodicalnesg to fashion itinto a life in the world, butneither of nor for this world.

The dogmatic foundation of theProtestant ethic in Weberk account isthe doctrine of predestination. Thedoctrine included the statement:"Bvthe decree of God, for the manifesta-tion of His glory some men and angelsare predestinated unto everlastinglife, and others foreordained to ever-lasting death." Since God's decreescennot change, divine graee is "as im-possible for those to whom He hasgranted it to lose as it is unattainablefor those to whom He has denied it."From this doctrine would flow thecharacteristics of the ethic.

It is individualistic. An effect of thedoctrine of predestination was the"deep spiritual isolation" of the in-dividual. No one and nothing couldhelp him, no friend, no family, nopriest, no sacraments, no church, noteven Christ, for his destiny had beenpredetermined from eternity. Sincepeople could not help him and hecould not help them, religion becamean exclusive affair between God andthe individual.

r {n its extreme inhumanitv thisdoctrine must above all 6avehad one sonsequence for theIife of a generation which sur-rendered to its magnificentconsistency. That was n fsslingof unprecedented inner loneli-ness of the single individual.In what was for the man of theage of the Reformation themost inportanl thing in life,his eternal salvation, he wasforced to follow his path aloneto meet a destiny which hadbeen decreed for him frometernity.

The logic of predestination inevitab-ly led to the overriding concern thatmade all others irrelevant: "Am I oneof the elect? How can I be sure of thisstate ofgrace?'It is in this search forcertainty of one's salvation that Webersees the sigrificance of worldlyactivityas a calling and a duty. Since, on theone hand, traditional and emotionallsligious activities are suspect to Cal-vinism, and on the other hand, since"theworld exists to serve the glorifica-t ion of God and for that purposealone," everyday tasks become theforeordained tool to further the gloryof God. "Works" do not cause salva-

tion. Human merit or guilt funs lethingto do with the determination of one'sdestiny. It is an inscrutable God whoda-tts or saves. Everything, includingdamnation and salvation, is meant toserve the glory of God. But to thebeliever, success in worldly commercebecomes a sign if not a cause of elec-tion.

This ethic is thus about everydaytasks, distinguishable from sacramen-tal or ecclesial activity of traditionalChristianity or sentimental Protestan-t ism. Even brotherly love " is ex-pressed in the first place in the fulfil-ment of the daily tasks" and, Weberadds, apparently to show the link withthe impersona l i t y o f modernbureaucracy, "assumes a peculiarlyobj ective and impersonal character,that of service in the interest of the ra-tional organization of our social en-vironment."

It is ascetic, a life of self-denial. Hardwork is d i rec ted no t toward theindividual's wordly comfort but solelytoward an end beyond this world, hissalvation and the glory of God.

It is rational in that it is systematicand methodical. Because aimed solelyat furthering the glory of God, thiswork must be rationalized. "The Godof Ca lv in ism demanded o f h isbelievers not single good works, but alife of good works combined into aunified system."

o For the wonderfully purpose-ful organization an arrange-ment of this cosmos is, accord-ing both to the revelation ofthe Bible and to natural intui-tion, evidently designed byGod to serve the utility of thehuman race. This makes laborin the service of impersonal so-

, ,

o f cap i ta l i sm re fe rs no t even toWestern capitalism at large but to aparticular Western capitalism, whichWeber calls modern, and which heident i f ies more specif ical ly with"Western European and Americancapitalism." Catholic Europe was notthe proper soil for its propagation. Inorder to spread effectively and defini-tively, modern capitalism needed aspecial base for launching. The spiritof modern capitalism was so irrationaland unnatural, it needed a certainfanaticism that only a religion mightprov ide . Ascet ic Pro tes tan t ismprovided the numbers as well as thespirit necessary for modern capitalismto establish a beachhead in a tradition-al world.

o Christian asceticism, at firstfleeing from the world intosolitude, had already ruled theworld which it had renounced{rom the monastery andthrough the Church. But ithad, on the whole,left thenaturally spontaneous charac-ter of daily life in the world un-touched. Now it strode intothe market-place of life,slammed the door of themonastery behind i1, and un-dertook to penetratejust thatdaily routine of life with its


cial usefulness appear topromote the glory of God andhence to be willed by Hin.

It was these characteristics of theProtestant ethic that furthered thecause of modern capitalism. Catholicasceticism filled monasteries with self-effacing monks who, though in theworld, didnotwant tobe of theworld.Modern capitalism could not tbrive insuch an immaterial world. AsceticProtestantism marched out into theworld spurred on "to a restless andsystematic struggle with life." Tb theeyes of Calvinist faith, these were theelect, who were driven to secure inmaterial success inthis life the certain-ty of their election in the next. To theeyes of the world, they were theent repreneurs , the vanguard o fmodern capitalism. They worked formaterial gain as if it were an absoluteend in itself, a calling. "But such an at-titude is by no merns a product of na-ture. It cannot be evoked by low wagesor high wages alone, but can only bethe product of a long and arduousprocess of education." Weber relates,as another example of the slmbiosisof the Protestant ethic with moderncapitalism, how Calvinism opposedpolitically privileged monopoly in-dustries under the Stuarts and advo-cated instead "the individualistic mo-tives of rational legal acquisition byvirtue of one's own ability and initia-tive.'

The spread of modern capitalismdemanded a special personality. It wasreligion that shaped the character thatcap i ta l i sm needed, a ra t iona l l yoriented personality that would pur-sue its objective methodically and sys-temat ica l l y , w i thout emot iona lde tours , s t ra igh t l i ke an ar row.Religion was the primer of moderncapitalism, an inversion of Karl Marx,as has often been noted. Once it hadrewed up, capitalism could cut thereligious connection and proceed onits own power. But in the end, thematerial used the spiritual for its ownends, as in Karl Marx. In more con-temporary terms, the religious wassecularized.

A Secular Ethic

The question has been asked that ifI the capitalist spirit was so irration-

al and unnatural, how could it havesurvival value after the religious basis

disappeared? The question apparent-ly did not occur to Weber. AdamSmith, a contemporary of BenjaminFranklin, explained the matter dif-ferently and more "naturdy," so thatthe quest ion did not even ar ise.Amassingwealth is not an end in itself,even to the modern capitalist. Whatmoves every capitalist ii self-interest.Weber did not disagree, for he wrotethat avarice moved the moderncapitalist. Wealth indeed satisfies in amultitude of ways the interests of theself. What differentiates moderncapitalism from the traditional is not

not save, if they were irrelevant to eter-nal salvation, then worldly activity assuch had nothing to do with religion.The significance for the process ofsecularization was that human activity(as distinct from fait\ which was gracerather than nature, divine rather thanhuman initiativ* was liberated fromreligion by religion. The believer couldnow pursue worldly interests withoutother-worldly scruples. Unfetteredand unboun4 self-interest was free tomotivate the capitalist of Adam Smith.The individual had now to reckonwith, not his conscience, but the

tha t amass ing wea l th in moderncapitalism is an end in itself and intraditional capitalism it was not. Thedifference, as Adam Smith's theorywould have it,l ies in the role thatmarket forces play as the integratingmechanism of the capitalist economy.What Protestantism in general and

not only the Calvinist line, contributedto hasten the transition to the modernsecular society in general, and not onlyto modern capitalism, was its centraldoctrine offides solc. Faith alonesaves, not works, not even ethicalwork. For the other side of the coin ofthis dogma implied that if works did

market. He abandoned the commonweal not to the providence of God butto the invisible hand of economictheory. The process from the Protes-tant ethic to the spirit of capitalismthat Weber described also describesthe secularization process itself.Weber's use of the word "spitit" was

apparantly borrowed from Christianliteratirre which is filled with refer-ences to the divine spirit animating theChristian. Reformation literature wasafter all the basicmaterial of his study.The spirit that animated the Christianalso animated the Protestant ethic.This spirit became in Weber, once the


leligious basis was removed the spiritof capitalism!' gimilsly, when Weberclaimed that this spir i t was not aproduct of nature he was borrowingthe language o f Reformat iontheologians who preached that thespirit was divine grace not a product ofnature. But when Weber said that thespirit was the product of long educa-tion rather than of nature, he hadagain secularized the terminology ofthe theologian. It would have beenheresy for orthodox Reformationtheologians 1o saythat the "spirit" wasa product of a long education. No

lf we were to describea character thatpersonified thiscapitalist ethic,

Ebenezer Scrooge ofCharles Dickens would

qualify well asBenjamin Franklin.

,

human effort could produce the spirit,not even long education, only divinegrace. Having secularized the spirit,Weber also secularized its source.

A word about Webe r's use of theword "e th ic " in descr ib ing thecapitalist spirit maybe in order. TheProtestant ethic had a religious mo-tive. Material success was sought bythe Puritans if not as cause at least assip of election, not for its own sake.But the capitalist ethic is said to havecut the religious connection leavingthe amss5ing of wealth as an end in it-self. So used, the word "ethic" meantno more than a sense of duty, an inter-nalized standard of conduct accom-panied by asceticism. Apparently ithad no inherent connection with whatis generally known as morality. ForWeber described the capitalist ethicas avarice which is not generally con-sidered to be a virtue, even in capitalist

societies, being an inordinate desire,something excessive. A quality ofmoral virtue has always beenin medio,in moderation. But the virtuous ele-ment is finally nullified *vhen virtue isunderstood to be strictly utilitarian.That is to say, the idea is not to be vir-tuous but to appear virtuous. Theimage without the reality is more im-portant than the reality without thelmage.

For as long as we understand what itmeans, there should be no quarrelwith the word, ethic. Avarice wouldthen be as ethical in a capitalist societyas aggression would be ethical in ahead-hunting society. There is also inthe latter a sense of duty and some as-ceticism involved. We might even as-sume a methodical system of search-ing for, captur ing and separat ingheads from their bodies, which wouldneed apprent iceship and form aunified system with the head-huntingculture. As for the asceticism thatWeber attached to this ethic, it doesnot differ essentially from the self-denial that a Jane Fonda requires ofwomen who would stay l ight orJapanese tradi t ion demands of aSumo wrestler who would stay heavy.

If we were to describe a characterthat personified this capitalist ethic,Ebenezer Scrooge of Charles Dickenswould qualify equally we ll as Ben-jamin Franklin. Hewas avaricious, heaccumulated wealth for its own sake,he was hardworking, emotionless, as-cetic, did not enjoy his wealth in anyhedonistic way, and amassed wealthfrom a sense of duty to his profession.Only, Benjamin Franklinwas real andEbenezer Scrooge was fiction. Andyet the fictitious character ofthe "sen-

timental" English author apparentlyremains to this day a lesson to childrenof capitalist families, not because hehad the capitalist ethic but because hegot rid of it in the end and became anormal, human being.As for Benjamin Franklin" he has his

critics, D. H. Lawrence being only oneof the more famous ones. "Now if Mr.Andrew Carnegie," wrote he, "or anyother milli6aaire, had wished to inventa God to suit his ends, he could nothave done better. Benjamin did it forhim in the eigbteenth century. God is

the supreme servant of men who wantto get o4 to produce. Providence. Theprovider. The heavenlystorekeeper.The everlasting Wanamaker. Andthis is all the God the grandson of thePilgrim Fathers $ad left. Aloft on apillar of dollars."o

Ironically, Max Weber himself mighthave initiated such criticism for heconcluded his study rather am-biguously with what could easily beconstrued as a critique. Materialgoods, he wrote, "have gained an in-creasing and finally an inexorablepower over the lives of men as at noprevious period in history. Today thesp i r i t o f re l ig ious ascet ic ism -whether frnally, who knows? - has es-caped from the cage." And what wasthe cage? The original; religious viewwas that "the care for external goodsshould only lie on the shoulders of the'saint like a light cloak, which can bethrown aside at any moment.'But fatedecreed that the cloak should becomean iron cage."Besides an iren gur[ain, then, there is

an iron cage.The next time we read about the

Protestant ethic and the spir i t ofcapitalism it begot, we might alsoremember the iron cage it becarne andthe spirit that flew away - accordingto MaxWeber.

2 D.H.I"ar*ren re, Benjamin Franklin: A Collection of Critical Essays. Ed. Brian M. Barbour, Engiewood Cliffq NewJersey: Prentice-Hall, lnc., 1979, 64.

THE ASIAN MANAGER T JUNE 1990 53

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54 THE ASIAN IIANAGER . JUNE 19st

AIM International Management Conference

Hosted by the Indian Ghapter

october25-27, 1990Bombay,lndia

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The Asian Manager, June 1990 Issue