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.
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.
Illustration: Jayachandran / Mint
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.
A January 2007 Economist Intelligence Unit corporate network survey of 600 chief executives of multinational companies found that a shortage of qualified staff ranked as their biggest concern in Asia. Moving global functions and business units to Asia can help companies attract, retain and develop better talent in the region over both the short and long terms.
Companies with direct reports to the CEO in the region are at a distinct advantage since they can offer a potentially more promising career path to employees. John Paterson, chief procurement officer for IBM, who heads the company’s global procurement operations from Shenzhen in China, says this is important because if an employee thinks that his/her career will cap out because all the senior jobs will go to expats, there is much less motivation to stay around. Having decision makers in the region also gives local employees the opportunity to assume greater responsibility—and companies a chance to better develop local talent.
At the same time, companies want to groom indigenous executives who understand Asia but have a global view in order to run a global business unit. International experience can be just as important for Asian employees as it is for their stateside counterparts and is a big retention benefit.
A strong local presence inspires loyalty from more than just employees: When a company moves a global business unit to the region, customers and vendors recognize its long-term dedication to the region and are more likely to commit in return.
IBM has seen the benefits of its Asia strategy on its vendor relationships. Since the company made a visible commitment by moving its headquarters to Asia and invested serious time, energy and money with suppliers, it has seen the acceleration of vendors’ willingness and readiness to support the company on a truly global basis. This is critical as IBM transforms into a globally integrated enterprise doing business where it makes sense based on costs, economies and skills.
Companies such as Cisco are even teaming up with governmental and educational institutions to prepare the next generation of workers. In China, Cisco is working with educational institutions to set up at least 300 networking academies. Students who attend them will get networking training and be prepared for CCNA (Cisco certified network associate) certification so that they’ll be ready for IT jobs when they graduate.
One thing is clear: Placing senior leadership in the Asia-Pacific region offers a competitive advantage for many companies. The region is too complex, is changing too fast and has too much potential to manage from a distant headquarters. But that does not mean it makes sense to move to Asia because it’s a trend. And it does not make sense to move a business function to Asia for cost reasons alone either.
The true drivers should be to move closer to customers and employees who are making those decisions and to respond more effectively and rapidly to the market.
For those companies that see their future growth coming from the economies of China and India, putting a wide array of resources under a senior leader in those markets may be a necessity. Developing truly global suppliers in Asia might require placing the leadership of the procurement organization right there beside them. And if the customers have moved to Asia, the organizations that design, build and sell products to them must be there too.
As a result, companies dedicated to succeeding in Asia may need to fundamentally change the structure of their organizations. There is a window right now for companies who get in and offer really meaningful positions that will attract top-notch talent. And those unprepared to seize the moment may find themselves at a competitive disadvantage in this high-growth region.
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This article draws from a recent Spencer Stuart white paper, The C-Suite Moves East: Asia’s New Place in the Corporate World.