BUSINESS: Asia's competitive companies

June 1997

Aiming High

A groundbreaking survey by Asia, Inc. and Arthur D. Little names Asia's 50 most competitive companies*


Sony Corp. is hardly Asia’s biggest company, nor has it been particularly fast-growing or profitable in recent years, as it struggles to sort out problems in its Hollywood entertainment business and develop new generations of blockbuster products. Yet the Japanese electronics giant boasts such an impressive arsenal of strengths that it emerged at the top of Asia, Inc.’s first ranking of the region’s most competitive companies.

This groundbreaking project - conducted in partnership with the Singapore office of U.S.-based Arthur D. Little Inc., the world’s oldest management consultancy - sought to determine which Asian companies are best prepared to excel in the global marketplace of the 21st century. To do that, we surveyed 4,500 listed companies from 14 countries and ranked the best overall competitive performers (for the results, see the Top 50 list, pages 34-37). Previous surveys, like Asia, Inc.’s annual Growth 88 list, rank companies based on sales growth, while others measure sales volume, profits and even name recognition. But all those reflect past performance, while this analysis was intended to identify which companies have the ability to remain at the top. And in the long term, what keeps companies ahead are competitive advantages such as cost leadership or product differentiation, usually underpinned by a strong strategic focus.

Competitive advantage is becoming more important as regional and global trade agreements chip away at trade barriers. Indeed, the writing is on the wall: Asian executives will not be able to rely much longer on government support or time-tested guanxi (connections) alone to assure their success. Says Sree Kumar, an independent regional strategic-management consultant in Singapore: “Many Asian firms have political wisdom which is exploitable locally and makes them competitive at home, but which cannot cross the border.”

For top-ranked Sony, the most powerful advantage may well be its name, a 50-year-old brand that’s internationally recognized and respected. Thanks to its products and its world-class marketing skills, Sony’s brand ranks on par with elites such as McDonald’s, IBM and Coca-Cola. Renowned for its innovative product-development and precision-manufacturing skills, the company has a unique ability to bring technology from the digital world of computers and chips into the mainstream consumer audiovisual markets. Sony had remarkable success in years past with products like Trinitron televisions, Walkman stereos and handheld camcorders. While its latest hits have been less dramatic, recent sales of its Playstation video games and direct-broadcast satellite receivers have been surprisingly strong. In another year, it hopes to do even better with digital videodisk players.

“Sony should do well in those [electronics] businesses. It knows that industry and there are few brands as well-known internationally as Sony,” says U.S. marketing guru Philip Kotler of Northwestern University’s Kellogg School of Management.

But there’s more to competitiveness than savvy marketing and a well-known brand. To select the companies for our list of Asia’s 50 Most Competitive Companies, Asia, Inc. and Arthur D. Little started by analyzing companies’ sales, profitability and asset growth, as well as their overall financial efficiency, to arrive at a preliminary list of 600 outstanding companies. (Banks and financial-services companies were excluded, because regulations for the banking sector differ so widely across the region.) We then tested these for their relative strengths in eight strategic and tactical areas, an approach based on the concepts pioneered by Harvard Professor Michael Porter in his classic book Competitive Strategy.

Porter has identified several key factors related to competitiveness. Those factors, and a few of the companies that emerged from our survey at the top of each category, are:

Strategic


COST LEADERSHIP Ð ability to control costs and prices: Acer Inc., Giordano International Inc., Samsung Electronics Co.

DIFFERENTIATION Ð a company’s ability to distinguish itself from rivals: Shangri-La Asia Ltd., Sony, Taiwan Semiconductor Manufacturing Co. (TSMC).


ENTRY BARRIERS Ð ability to prevent competitors from entering the business: Keppel Land Ltd., Sundram Fasteners Ltd.


STRATEGIC FOCUS Ð the ability to focus on a well-defined business strategy: Canon Inc., Ranbaxy Laboratories Ltd., Television Broadcasts Ltd. (TVB)

Tactical


COMPETITIVE ENVIRONMENT Ð the ability to thrive in an intensely competitive industry: Evergreen Marine Corp., Fuji Photo Film Co., Toyota Motor Corp.


ECONOMIES OF SCALE Ð efficiency gained from a high-volume operation: Arvind Mills Ltd., Charoen Pokphand Feedmill PCL, Reliance Industries Ltd.


MARKETING SKILLS Ð the ability to attract and keep profitable customers: Nintendo Co., Shangri-La, Singapore Airlines Ltd. (SIA), Sony.


TECHNOLOGY LEADERSHIP Ð the ability to develop, acquire and exploit leading-edge technology: Broken Hill Proprietary Co., Honda Motor Co., Rohm Co.

To minimize bias toward established industries, extra weight was given to the tactical scores of companies in embryonic or growing industries, and somewhat less to those in mature or declining industries. The resulting strategic and tactical scores were then combined to give each company an overall competitive ranking.

(For a full explanation of the methodology used, see Asia, Inc. Online’s Internet site at: www.asia-inc.com).

The members of the Top 50 list offer a telling indicator of corporate Asia’s real competitive strengths, which for many companies lie in adapting technology, improving processes and perfecting the mass production of goods the world wants, at attractive prices.

Manufacturers account for more than two-thirds of the list and all 10 of the top spots. The electronics sector is particularly dominant, with 17 companies included. Also well-represented are auto makers and auto-parts suppliers, with 7 companies on the overall list and four - Honda, Toyota, Suzuki Motor Corp. and Hyundai Motor Corp. - ranked in the top 10.

Of the electronics firms, No. 2-ranked Acer has made some of the most impressive strides, transforming itself in barely a decade from a little-known maker of IBM-clone computers to an innovator with one of its industry’s strongest brand identities. Says Chairman Stan Shih, who founded the company in 1976: “We want to be among the top-five PC brand names in the world by 2000.”

Another technology innovator is auto maker Honda, whose engineering skills helped it edge into the No. 3 spot, just ahead of rival Toyota. Honda is famed for its product innovation, particularly in its engines. Says Managing Director Fukatsu Kensuke: “Our ultimate corporate goal is to constantly improve our ability to respond quickly to change.”

No. 4-ranked Toyota is no slouch either. Taguchi Toshiaki, a Toyota director and board member, credits much of his company’s competitiveness to its swift product development. “We took our Ipsum minivan from design to production in 15 months - possibly the shortest development time in the industry,” he notes.

Considering Japan’s sheer size and well-developed manufacturing sector, it’s not surprising its companies dominate the rankings, grabbing six of the top 10 spots and 13 places in all. Not far behind, though, is Hong Kong, with seven companies in the Top 50, followed by Singapore with six, Taiwan and India with five each, the Philippines, Korea and Indonesia with three each and Thailand with two. Malaysia, Australia and New Zealand each had one.

Hong Kong’s companies are among the list’s most diverse, with interests ranging from hotels (No. 12 Shangri-La) to retail (No. 14 Giordano International Ltd.) to media (No. 23 TVB), while just one manufacturer (No. 31 Gold Peak Industries) made the list.

Shangri-La, the territory’s top-ranked company, has set itself apart in Asia’s fiercely competitive hotel industry. Not only do guests praise its top-notch service, but management was quick to identify a market for no-frills Asian business hotels, resulting in the successful Traders chain. Tycoon Robert Kuok, who retains management control of the hotels, has impeccable connections, which open doors across the region.

Giordano, however, has suffered from an ongoing dispute with Beijing officials, angered by disparaging remarks made by founder Jimmy Lai, who has since left the company (see “The Willing Target,” Asia, Inc., February 1996). Despite Giordano’s political problems, its chain of casual-clothing stores is one of Asia’s most innovative, known for its inventory control and customer service. “Our vision is to become the best-managed company in Asia, if not the world,” says Chairman Peter Lau.

Food and agribusiness companies make up the Top 50’s third-largest industry category, with five companies. Jollibee Foods Corp. (No. 15) leads the group, and also is the top-ranked Philippines company. For a decade this fast-growing restaurant chain has fought off challenges from U.S. giant McDonald’s Corp., and remains the Philippines’ most popular fast-food choice. Says Jay Visco, Jollibee’s marketing director: “Our success has forced McDonald’s to introduce products they don’t offer elsewhere, like spaghetti and dough-burgers. We still lead them two to one.” Meanwhile, Jollibee has expanded into five Southeast Asian countries, plus the Middle East, and most recently to California.

Many of the Top 50 companies have evolved highly focused strategies. One is No. 9-ranked Reliance Industries Ltd. of India, which began as a textile manufacturer before expanding into making its own raw materials and then into petrochemicals. By the end of the century, Reliance aims to be the world’s largest polyester maker, with its own oil refinery. Despite its expansion, says Reliance Joint Managing Director Anil Ambani, the core strategy hasn’t changed: “Our strategy has been to achieve market and cost leadership in all our businesses.”

Although Reliance makes a perfect example for one of Porter’s textbooks on competitiveness, some Asian companies defy conventional theory by succeeding at two strategies - cost and product differentiation - at the same time. That’s one of the surprising findings of the Top 50 survey, says Peter Connell, Arthur D. Little’s Singapore-based vice president. “In classic Porter theory,” he says, “you must either compete as a cost leader or as a truly differentiated niche player. Our rankings show that neither is sufficient for a company to be truly competitive in Asia, and in many cases, world-class companies here excel at both.”

No. 6-ranked Taiwan chipmaker TSMC, for instance, was conceived as both a high-volume cost leader and a differentiator (it was the world’s first pure “foundry” - devoted exclusively to making chips designed by customers). Spun off from a government research lab in 1987, the company has, until the recent semiconductor market slump, recorded some of the highest profit margins and growth rates in its industry.

One reason so many of Asia’s top companies can pursue two strategies simultaneously is the region’s phenomenal boom. However, it is yet to be seen whether they can excel at both cost leadership and differentiation for long periods. As Asian markets develop and new rivals emerge, it seems certain that many will have to choose one strategy over the other.

That’s already happening at Singapore Airlines (No. 13). The company can’t aspire to cost leadership, since it is based in high-cost, labor-scarce Singapore. But SIA differentiates itself by excelling at service. It was the first airline to offer frills like hot towels and free wine to all passengers at a time when other airlines hesitated to pamper their economy class.

India’s Sundram Fasteners Ltd. (No. 16) has capitalized on a similar customer-focused philosophy. “We consistently seek out very demanding customers, which challenges us to perform even better,” says Managing Director Suresh Krishna. Sundram, whose specialty is making auto radiator caps, has racked up nearly 40 percent annual profit growth in the past five years from this seemingly mundane commodity, recently landing a contract to supply General Motors Corp.

The earnings statements of Sundram and many other Top 50 companies may suggest that competitiveness goes hand in hand with profits. But as top-ranked Sony and several others on the list clearly demonstrate, one doesn’t always guarantee the other. “In theory, superior competitiveness does lead to higher profit. But there are a range of things that can make profits rise and fall,” says Douglas Dow, associate professor of business strategy at Australia’s Melbourne Business School. “Some industries are inherently more profitable than others.” He adds that the biggest factor in financial performance is often a company’s industrial environment.

But whether it’s a young, high-growth business or a mature, sunset industry, many of the same principles of competitiveness are likely to apply. As Giordano’s Lau says: “We make only one assumption - we don’t know enough about the markets - so we must continue to take signals from the market.” Just another of the many strategies to remain competitive in the long run.

Additional reporting by Hans Katayama in Tokyo and Sandra Lam in Hong Kong

Asia, Inc., thanks the following schools, companies and individuals, without whom this project would not have been possible:

Prof. Ted Azarmi and the International Univ. of Japan; Prof. Makino Shigefumi and the Chinese Univ. of Hong Kong; Prof. Kulwant Singh and the National Univ. of Singapore; Prof. Bruce Stening and the Australian National Univ.; Prof. Patt Lontoc and the Asian Institute of Management. Thanks also to Abid Naqvi and Taurus Securities in Pakistan, Yogendra Pratap and Equicorp Research in India, Manager Information Services/Alpha Research in Thailand, Financial Times Information and CompuCharts Corp. in Hong Kong, Dharmala Securities Philippines and Citisecurities Inc. in Manila, Thomson Information in Singapore, BZW Asia-International Ltd. in Taipei; and, most particularly, Asia, Inc. Reporter-Researcher Sandra Lam.

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* = Author's note: The Thai baht was floated on July 2, 1997. Asian economies collapsed. This survey stands vindicated; nearly all the companies in this list survived the crisis with head held high. -- ST.