The Asia-Pacific region is quickly attaining greater strategic importance for global technology companies. Once a place where corporations were content to field a mid-level sales executive, an R&D branch and a local procurement office, Asia is now becoming a hub for very senior executives —and even the headquarters of global business units.
Consider these actions by leading technology companies: Cisco Systems Inc. has established a globalization centre in Bangalore and relocated its chief globalization officer, who reports directly to the chairman and chief executive officer, to manage it. The company is also planning to relocate more senior executives to China to implement its latest corporate strategy for the country. International Business Machines Corp. has established its procurement headquarters in Shenzhen, the first time the company has placed a key function outside the US as it becomes more globally integrated. Fairchild Semiconductor Inc. has positioned two direct reports of its CEO in Singapore. And Air Products and Chemicals, Inc. has moved its $1 billion-plus (about Rs4,880 crore) Global Electronics division to Asia.
Illustration: Jayachandran / Mint
In the past, the only reasons to focus on Asia were low-cost manufacturing or local sales and marketing. Moving business management to Asia is a relatively new thing. A recent Spencer Stuart survey of C-level executives in technology companies confirmed observations regarding the region’s growing strategic importance and the talent issues faced by companies expanding their presence there.
Key drivers
While only 16% of respondents to the survey said their companies earn at least 30% of revenue from Asia today, 40% expect Asia to account for at least 30% of revenue within three years. According to Owen Chan, president of Asia-Pacific for Cisco, based on current growth rates, China, India and the US will be the three largest economies in the world by 2050. This is driving the company’s strategic investment in Asia over the next 10 years. Cisco has invested heavily in its Asia presence, announcing in 2005 a plan to spend at least $1 billion over three years to expand its India operations, and in 2007, a $16 billion investment plan for China.
Less than half the respondents in the survey said that Asia is important to their company’s cost-reduction initiatives, while at least 80% said the region is very important for driving revenue growth. Thus, while Asia-Pacific may still be viewed as a low-cost option for manufacturing, when business functions move to Asia, it is done primarily for proximity to customers and suppliers, not to control costs.
Retaining talent