Docstoc

China ASIA ASEAN AM

Document Sample
China ASIA ASEAN AM Powered By Docstoc
					Judge Business School

    Reshaping the Map of Asia:
(name)

    China and ASEAN
(date)


   ABFI Institute Perbanas Programme
   3rd May 2010

   Professor Peter Williamson
Time To Re-Think ASEAN’s Regional and Global
Role?


                                        PPP                              Japan
                                                       Korea
                                       China

                                                       HK
                    PPP                                 Taiwan
                                                                      Philippines
         India
                                                  Singapore
                                 Thailand

                                  Malaysia

                                             Indonesia
                 = US$ 200 Billion                               Australia


 Data Source: Asian Development Bank
                                              Page 2
The View From Singapore:


“We must redouble our efforts in cooperation projects and
  implement key programmes to retain the region’s strategic
  influence.
At stake is maintaining ASEAN’s centrality in the regional
   architecture”
                         Lee Hsien Loong, Prime Minister of Singapore
                                 ASEAN Summit, Hanoi, 8th April 2010




                                Page 3
… Especially Given the Potential For A Different
World in 2050
(Large economies excluding China, US, India)
GDP
$ Bill*




* Real terms, 2006 base   Data Source: Goldman Sachs 2007
                                      Page 4
Has the World Passed a “Tipping Point”
Towards Emerging Markets?
(Even by 2005 They Had Surpassed The Developed Markets)




                          Developed                                  Emerging
   * Purchasing power parity   Data Source: International Monetary Fund

                                            Page 5
  … The Gap is Widening With Differential Real
  Growth Rates

% Real
 GDP
Growth




   Data Source: International Monetary Fund
                                              Page 6
Because US And European Growth Will Be
Constrained by Debt Burden and Higher Saving:
Net Borrowing and Lending as a % of Global GDP

                                                   Lending




    Borrowing




     Source: IMF World Economic Outlook                * Forecast

                                          Page 7
So Export Growth Will Likely Come From More
Trade With Emerging Economies
     Emerging Economies Exports as a % of GDP




                           Page 8
Particularly Growth in Asian Intra-Regional
Trade:
         Share Of Intra-Asian Trade in Total Trade

  70.0
  60.0                                                       China
  50.0                                                       Hong Kong
  40.0                                                       Indonesia
                                                             Korea
  30.0
                                                             Malaysia
  20.0                                                       Philippines
  10.0                                                       Singapore
                                                             Taiwan
   0.0
                                                             Thailand


                       Data Source: Asian Development Bank


                                   Page 9
… And Capturing a Larger Share of East Asia’s
Emerging Value Network
                     Share of Intraregional Trade              Malaysia
100%                                                           5.9% -> 6.8%
 90%                                                           Indonesia
 80%                                                           5.1% -> 3.5%
 70%
 60%                                                               Thailand
 50%                                                               Philippines
                                                                   Malaysia
 40%
                                                                   Indonesia
 30%
                                                                   NIEs
 20%
                                                                   Japan
 10%
                                                                   China
  0%
   1985               1990              1995         2000   2005
       Source: Asian Development Bank

                                           Page 10
   Meanwhile, Intra-Asian M&A Now Accounts
   for the Bulk of Deals
                   1999   2000   2001   2002     2003   2004   2005    2006    2007   2008

     US$m

    250000


    200000


    150000


    100000


     50000


          0
                   Asia to US    US to Asia    Asia to Europe Europe to Asia   Intra- Asia


Source: M&A Asia
Unavoidably Succeeding in This New World
Means Having a Clear Corporate Strategy in
Respect of China’s Rise

China as the pivotal player in:
 •   Re-export trade
 •   Benchmark for productivity growth
 •   Energy demand
 •   M&A Activity
 •   Growth in domestic consumption




                                  Page 12
In Re-export China’s Network Has Dominated
Eg: Growth in Asia’s Electronics Exports (Much for re-export)




                    % Growth 2001-2007
 Source: DBS
                              Page 13
  China is Setting the Benchmark Pace For
  Productivity Improvement
   Total Factor Productivity, Avg. Annual Growth 1990-2008




Source: UBS, Malaysia Productivity Commission
                                                Page 14
So Rapid Productivity Increases Are Required to
Maintain Competitiveness

• 4%+ p.a. improvement in Total Factor Productivity (TFP) just to
  maintain relative competitiveness versus China is a challenging
  target
    China TPF growth is running at almost twice as fast as that of
     Japan and South Korea during their peak economic growth


• TFP increases depend on:
    Rate of adoption of existing leading-edge and new technologies
    Pace of domestic innovation
    Improvements in organisation and efficiency of the activity chain



                                 Page 15
China’s Growth in Energy Demand is the Single
Largest Driver of World Energy Balance
Total World Energy Demand (Quadrillion Btu)
700.0
            Doubling Between
            1990 and 2030                                          Other
600.0
                                                                   Latin America
500.0                                                              Other Asia
                                                                   India
400.0
                                                                   China
300.0

200.0
                                                                   OECD

100.0
     1990    2005      2010       2015        2020        2025   2030
                Data Source: Energy Information Administration
                                          Page 16
GDP Growth is Becoming Less Energy Intensive,
But Too Slowly To Stem Pressure on Prices




             Data Source: Energy Information Administration



                               Page 17
China is a Rapidly Growing Player in M&A

         By Deal Value ( $ Billion)




                              Source: Dealogic
Helping Chinese Competitors rapidly Upgrade
Technology, Brands and Experience

                              Zhejiang Geely
                              Holding
                              Buys Volvo from
                              Ford
                              for $1.8 billion on
                              29th March 2010




                   Page 19
China’s Race To The Future:

                 Traditional Global    New Global
                 Success Factors       Success Factors

                  Original             INNOVATION
   Established    Endowment            GAPS
   MNEs           +                    • Cost innovation
                  Accumulated          • Combinative
                  Global Learning      • Dynamic



                  ASSET                Chinese
   Emerging       ACCUMULATION         Endowment
   Chinese        GAPS                 +
   MNEs           • Intangibles        Accumulated
                  • Networks           China Learning
                  • Experience




                             Page 20
Future Growth in Chinese Domestic
Consumption
"China’s annual consumption will increase more than six times by 2027
   to as much as $10 trillion annually and already is an engine of world
   economic growth.”
                                   Jim O’Neill, Chief Economist, Goldman Sachs

"Retail sales in China ... this year ... may rise $409 billion to almost $2.25
   trillion, outstripping a $165 billion increase in the U.S. to $4.29
   trillion.”
                                                      SJS Markets, Hong Kong

“China will take ‘vigorous’ steps to boost household spending and
   reduce a reliance on investment and exports”
                                                     President Hu Jintao, 2010



                                    Page 21
Potential Roles for ASEAN Companies in the
China Value Network:
   China as a market

   Supplier into the Chinese value network
     • Raw materials and energy
     • Manufactured components
     • Services

   Partner with Chinese for the ASEAN market

   Partner with Chinese for the global market



                            Page 22
So What Strategies Can Help ASEAN Companies
To Win in This Environment?
 1   “Value for Money” strategies through “cost innovation”
       •   Not “cheap and nasty”
       •   Re-writing the value-cost equation
       •   Bringing new technology, variety and differentiation into the
           volume market quickly

 2   Improving the impact/cost ratio of your marketing
       •   No room for scatterguns or special interest
           campaigns

 3   Gaining Pan-ASEAN/Global economies of scale and scope
       •   Participation in industry consolidation

 4   Learning from the world
       •   Tapping into the experience you need

                                Page 23
      First, Moving Beyond “Cost Cutting” To
                 “Cost Innovation”
Cost Innovation means:
         “Focusing innovation on delivering a step-change
                       in value-for-money”
      Better effectiveness – more with fewer resources
       Better efficiency – the same with fewer resources
       Better economy – less, but with less resources

This will be key to:
    • Unlocking growth in emerging markets
    • Serving the growing segment of economisers in developed
      markets
    • Improved Total Factor Productivity and energy efficiency


                                Page 24
The Three Faces of Cost Innovation

      Challenging existing business models:

   Conventional Wisdom                        Cost Innovation Challenge

   High technology for high-end               Technology rapidly applied to
   products and segments                      mainstream markets

   Variety and customisation comes            Variety at low cost penalty
   at a price premium


   Niche products are low volume,             Niche products re-engineered for
   high price                                 the mass market




                                    Page 25
Technology for the Mainstream
Zhongxing Medical (X-Ray)
    Digital Direct X-ray Equipment (DDX)

    • Global market dominated by GE and Philips
      who use DDX for high-end applications (eg
      heart scans)

    • Foreign machines cost $400,000

    • Zhongxing obtained the base technology from
      its parent: Beijing Aerospace

    • Decided to apply the DDX technology to
      every-day applications like chest X-rays



                 Page 26
           Technology for the Mainstream:
           Zhongxing Medical (Continued)
By re-engineering the technology and ancillary equipment, Zhongxing’s
machine cost just $20,000 to build
• Plug compatible with hospitals’ existing IT systems
• Functionality optimised for mainstream applications
• Compared to $150,000 for GE and Philips models

Zhongxing took 50% of Chinese market
• Philips withdrew from segment
• GE cut prices by 50%

Zhongxing now aggressively expanding into overseas markets,
already largest in Asia

                               Page 27
BYD Brings Lithium-Ion Batteries to the Mass
Market
In the late 1990s Lithium-ion batteries offered much better
    performance (longer time between charges, quicker charging time,
    no “memory effect” etc)
But they were much more expensive and so equipment manufacturers
  only used them in high-end products
BYD’s cost innovation:
  • Worked out how to replace expensive raw materials with cheaper
    substitutes
  • Learn how to manufacture at ambient temperature and humidity,
    eliminating the need for expensive “dry-cool” rooms
  • Cost was reduced from $40 per unit to under $12

Became a world-leader by bringing high technology
  to the mass market
                                 Page 28
 Today BYD is Bringing Advanced Batteries to the
 Electric-Hybrid Car
BYD‟s E6 Using “Lithium Iron Phosphate” Battery
has a Range of 300 km




                             Page 29
Cost Innovation is Leading To Ramp Up of
Patenting
Chinese Invention Patents „000s




Source: State Intellectual Property Office China

                                                   Page 30
                    Variety and Customization
                    at Low Cost: ZPMC
Started by assembly (Initially half of the components were
imported)
Re-engineered the design process and hired 800 design
engineers

Launched a wider and more customized product line than
any global competitor
• GPS system for RTG auto-steering and container management,
  failure displaying and monitoring system, intelligent spreader,
  automatic positioning system and anti-collision systems

52% of the world market in harbour cranes!
                             Page 31
              Variety at Low Cost: Goodbaby


Started making strollers in 1989 by schoolteachers in an attempt to
finance their bankrupt school

Product line of 1,600 types of strollers, car seats, bassinets, playpens,
etc
• Four times the range of the nearest competitor

220 R&D and design staff

Sales of $300 million last year, 70% outside China, across 40 countries
• 40% share of the US market


                                  Page 32
Exploding Niches: Haier’s Wine Coolers vs
           Niche Competitors
                                         Haier
    La Sommelière
                                         $704
        $1,600




         Haier grew market 10,000% over two years
         and has 60% of US Market (by value)!

                          Page 33
Are Your Taking Your Innovation Quickly Into
The Mass Market?

                                With a strong and
                                 innovative value
                              proposition of “quality
                            coffee quickly, easily and
                            without mess”, backed by
                             strong communications,
                                 Nestle’s sales of
                             Nespresso have reached
                                 $1.7 billion, up a
                            recession-busting 30% on
                                       2007


                      Page 34
Cost Innovation is Also Becoming Important as
Developed Markets Polarise Between Economisers
and High Rollers
Index
1980 = 100




  Data Source: Piketty & Saez

                                Page 35
Second, Improving the Impact/Cost Ratio of
Your Marketing




                     Page 36
  Third, Gaining Pan-ASEAN/Global economies
    of scale and scope
                                           Attractiveness of
                                           Existing Location
                                       +
                  Good location,           Good location,
                  weak players             strong players
Competitive
Advantage     -                                                +
of Existing
Players
                  Poor location,           Poor location,
                  weak players             strong players


                                   -
   Demanding Proactive Role in ASEAN
   Consolidation To Survive and Prosper
                                        Attractiveness of
                                    +   Existing Location


                     New
                  Competition           Expansion

Competitive
Advantage
of Existing
              -                                             +
Players

                  Bankruptcy            Re-location
                     Risk


                                -
Of Course, Cross-Border Synergies Must
Balance Local Adaptation and Global
Integration

Global



Product
            Different National
            Products &
National    Marketing


               National               Global
                          Marketing
                          Page 39
In Which M&A Will Play Key Roles

        Acquiring a “POSITION”
          • Strengthening our existing position in the
            business/market; or
          • Diversification

        • Acquiring a “PLATFORM”
          • To develop a new business
          • To develop expand into a new geography
          • To catalyse the development of a new market/business
            model
            (e.g. digital distribution)

        • Acquiring a “COMPETENCE”

        • Acquiring an “OPTION”

                           Page 40
Fourth, Looking for Innovative Ideas Everywhere
in the World


                            Global           Global
                 Global    Projector
                                             Learner
  Supply chain




                            Myopic             National
                            National           Learner
                  Local


                          Local             Global

                          Innovation Process
                                  Page 41
Let’s Take A Simple Example:


                    Creating A New
                   Financial Product:
                   an internet-based
                  investment product
                for wealthy individuals
                   around the world




                      Page 42
… This Requires Three Types of
  Knowledge:

        K1 = Knowledge about financial markets,
             shares, bonds, options, …


        K2 = Internet banking technology and skills



        K3 = Understanding the needs of wealthy
              individuals from around the world


                        Page 43
You Can Create the Product Locally:

            K2

       K1        K3




                      Page 44
Where is the Relevant Knowledge?

    Knowledge          New York           São Paulo   Geneva




 K1 (financial         Excellent            Fair        Fair
 markets)



 K2 (internet            Fair             Excellent     Fair
 banking)



 K3 (understanding       Fair               Fair      Excellent
 rich, international
 individuals




                                Page 45
Learning From The World Should Win!

              K2
                                       K2

                                  K1        K3
         K1        K3




                        Page 46
This Requires a New Mindset



                   SHARE OF RELEVANT KNOWLEDGE




                        SHARE OF INNOVATION




                          SHARE OF MARKET




                     Page 47
.. And A Decision About How to Get There:


                                 Global        Global
                   Global       Projector
                                               Winner
    Supply chain




                                                National
                                                Learner
                   National



                              National       Global

                               Innovation Process

                                   Page 48
In Summary:

 1   “Value for Money” strategies through “cost innovation”
       •   Not “cheap and nasty”
       •   Re-writing the value-cost equation
       •   Bringing new technology, variety and differentiation into the
           volume market quickly

 2   Improving the impact/cost ratio of your marketing
       •   No room for scatterguns or special interest
           campaigns

 3   Gaining Pan-ASEAN/Global economies of scale and scope
       •   Participation in industry consolidation

 4   Learning from the world
       •   Tapping into the experience you need

                                Page 49

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:11
posted:6/29/2010
language:English
pages:49