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West needs East for sustainable profitable growth

Essay Topic: Much of contemporary management theory and practice has been borne
out of developed/western economies. In an era of globalization, is this sustainable? If so,
why? If not, what can the West learn from society and business in emerging markets?

Title: WEST needs change in innovative mindset to penetrate “BOTTOM OF PYRAMID” in


emerging markets for growth in exciting & intriguing EAST – An Analytical Assessment
of Business and culture of East

It is beyond doubt that much of the contemporary management theory and practices has been borne out
of the developed/western economies. However, as the world is increasingly being interlinked through
deregulation of markets and free trade, and as globalisation process is rapidly enveloping different parts
of the world, adequacy of the past theory and practices in meeting challenges of current times is often put
into question. As economies or markets or even developmental dimensions are being viewed with a
global perspective, the diverse and divergent demographic patterns, cultures, political structures, living
standards and market patterns demand a relook into our knowledge space in management. If the unique
innovations in sustaining high growth rates in emerging markets are any indication, need for exchanging
and integrating knowledge systems of management in the advanced and emerging markets is self
evident. Hence, I subscribe to the view that advanced economies can learn a lot in this era of
globalisation from the societies and businesses of emerging markets. I will be enlisting examples
below to substantiate my stand.

First, the fast growing economies especially India and China have a few lessons to offer for the western
economies about surviving financial turmoil through disciplined and prudent fiscal management. Many of
the Asian countries that endured financial crises in 1998 learned the dangers of over-borrowing and
over-leverage, and have since accumulated cash reserves as a form of self-insurance against future
trouble. Even as industrialized countries mortgaged themselves to the core to escape the financial crisis,
blindly ignoring that they have to pay off those debts in future course of time, many emerging markets
handled the situation with low debt levels and prudent economic management. As a result, while the U.S.
debt-to-GDP level is fast-approaching 100%, China’s should soon stabilize at 46% and Brazil at 65%.[6]
With the depreciation of the dollar and the high US budget deficit we see lots of dollars being locked in
sovereign wealth funds which could change the landscape of corporate structures in the years to come.

Second, globalisation is inevitable and is already manifested with more and more companies doing
business across the borders in search of growth opportunities. The BRIC countries provide a wide range
of growth potential for European and US companies whose economies are stagnating. We live today in a
borderless world - a world where a product labelled “Made in China” may have parts from Italy, India, and
Vietnam, but is just assembled in China [2]. In this era of globalisation there is not only integration of
business and economy but also integration of ideas, values and cultures. Thus in order to be successful

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West needs East for sustainable profitable growth

in today’s business climate it is all the more important for Western Companies to understand and
embrace cultures, societal values and way of doing business in East where the growth opportunities lie.
As pointed out by Professor Anil K. Gupta, a professor of Strategy and organisation at the University of
Maryland’s Smith Business School, “ if you look at action in terms of where the sources of revenue will be,
they’re not going to be just in US or Europe; increasingly they will be in China and India”[3]. In a nutshell,
business reality has transformed from “West Leads East” to “West Meets East.” [1]. This also
emphasises the fact that western companies need to understand the innovation or reverse
engineering happening in the low cost base countries to provide products and services to the bottom of
pyramid. The examples such as “Nano” Car by Tata for $ 2500 in India or a water filter for $24 made of
rice husk in India for rural community in Tamil Nadu state with a recurring cost of $4 every month for
change of filter or the mobile banking in Africa, or open heart surgery at Bangalore by Narayana
Hrudayalaya a hospital run by Dr Devi Shetty applying the principles of mass production techniques
providing open heart surgery for $ 2000 or a fridge for $ 70 that runs on batteries known as “Little Cool”
invented by Godrej & Boyce India illustrate this. All these examples point to the need for western
companies to learn from these frugal innovations serving the “BOTTOM OF PYRAMID” of emerging
markets [15]. The same point is echoed by Mr. Ahmed Bozer, President Coca Cola Eurasia and Africa. Mr
Bozer feels in many countries we see innovation modernising the local taste in ways that make people
proud of their local roots but at the same time make them feel connected to the world by using the
universal brand. [4]

Third, over the years western companies have been successful in creating wealth for its shareholders
through their belief that economic value is concentrated in knowledge. This approach has made the
western companies to focus on developing proprietary knowledge that they aggressively protected and
built scale to exploit. What we are facing now is a world where knowledge depreciates in value very
quickly because of changing environment. The opportunity lies in more diverse and relevant
knowledge flows and constantly updating it. It’s a very different mindset required and that is what
western companies need to learn from some of the Indian companies who are going abroad through
acquisition and empowering management in key decision making [8].

Fourth, emerging market multinationals also thrive on the fact that they are much more willing to use
global talent. For example Indian companies are not hung up about having an Indian person running
every subsidiary around the world. This is also one area where Western companies needs to have
flexible corporate structures to make sure they have the right people in right countries. Also
because many of these emerging market multinational companies are family-run, they have a different
view on investment cycles. Western companies tend to be very driven by quarterly investment cycles

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West needs East for sustainable profitable growth

whereas Indian and Chinese companies often have a longer-term investment approach. Therefore,
they are often willing to stick in markets for longer before seeing the returns [7].

Fifth, some entrepreneurial companies in both China and India have mastered the management
techniques to build scalable networks which the western companies need to learn. We are talking about
networks of thousands of partners and relationships, not just the few key partners in supply chain or
distribution channels. They have mastered a technique to do a much broader and more diverse set of
relationships than most Western companies would ever be able to attempt [8]. It is because these
companies know how to transform challenges of lack of financial resources into opportunities wherein
they connect to as many companies as possible to leverage these capabilities. Let’s take the example of
Li & Fung which has become a pioneer in supply chain management because of its distinctive
business model of “off shoring” and “outsourcing”. The business model is based on “dispersed
manufacturing” which works on the best place approach and then bring all the elements of
manufacturing together through supply chain very different from the Detroit Model where the suppliers are
clustered around the production. Li & Fung are the proponents of “Made by China”- a shift from the low
cost base Model “Made in China” [2].

Sixth, M&A (Mergers & Acquisitions) has been synonymous with Western Companies taking over assets
in emerging markets but over the past five years, companies from emerging markets have increasingly
acquired assets in developed economies and they have invested in building capabilities and talent in
these markets. In the age of M&A, almost all the Indian companies view integrating their acquisitions as a
“go-slow, high-touch” operation whereas the more traditional “American” approach is taking over the
target completely and putting in place the standard operating procedures of the parent. This approach
has not really worked for Americans. Firstly, because of the knowledge hungry and adapting emerging
market companies there is an acknowledgment that successful integration is an evolving process and that
a “one-approach-fits-all” mindset can lead to a failed acquisition. At the same time, emerging market
companies often adopt a slower, more flexible, and customized approach to integration. Finally, there is
an intense focus on empowering management of the acquired company and creating a larger
opportunity [9]. One of the issues that is very important from M&A point of view is negotiating a
contract.In contract law it is important to note that the Chinese view is situational as compared to
western. In west a contract is setting out rights and obligation to parties whereas Chinese view contract
as a list of expected rights and obligations as long as the situation remains same [12].

Having mentioned about few of the business practices which West can learn from East, it is also
important to highlight some of the cultural issues which West needs to learn from East in order to do
business in East. The importance of religion in societies, culture, values in the eastern society is worth

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West needs East for sustainable profitable growth

noting. Religion here not only creates a self discipline approach but also teaches patience, endurance
and that humanity is above all and all these ingredients emanates from religious teachings that
emphasizes humility, social harmony and patience which is in contrast to individualism of fast paced
western business culture[12]. It is important to note that individuals in India and China are loyal to their
mentors, bosses whom they trust and not necessarily to companies. It more of a relationship driven
culture as oppose to goal driven western culture. Trust comes before business in these countries and it
takes time to come and so business takes time and cannot be rushed. Unlike western societies, in East
religion, fatalism and collectivism are all components of daily life and they need to be respected for
healthy and successful business relationships. Eastern cultures are conflict averse, seek harmony, avoid
confrontation where western culture sees immediate resolution to issues. In this context western
companies needs to remember that receiving immediate agreement to business terms and conditions in
East is unrealistic as the executives from eastern society will seek consensus within their own
organisation before completing any business. You may also find hierarchical structure of business
practices and decision-making. There is a strong sense of tradition tied into daily business practices [11],
Because of the hierarchical nature of these cultures, communication flows top down which makes it
difficult for any matrix organisation to survive in these cultures without adaptation.

There is no doubt that the west and Japan a developed country in east has been the founders of the
contemporary theories of management such as TQM, Matrix organisation, Balance score card for strategy
focussed organisation and as a result have been able to establish some of the best companies in the
world such as IBM, Apple, Microsoft, Google, Ford, Toyota etc,. However, with the rise of the emerging
markets as can be envisaged with 70 of the top 500 fortune 500 companies are from the developing world
now, it is felt that in the years to come the proportion of companies from emerging countries featuring in
Fortune 500 list will surely increase. This shows that the management control and practices followed by
them is also worth noting and learning. According to Jim O’ Neil MD Goldman Sachs, Global Economic
Research feels that China will overtake US as the biggest economy by 2027 in terms of GDP. India,
Brazil, South Africa will also become formidable players in the geo political arena in the years to come.

Finally, the western companies looking for growth in emerging countries needs to make these countries
their second home. They need to have these countries in the centre of their growth strategy must study
the culture, both historic and present. Study it, respect it and, as far as possible, live it. Having said that
emerging countries also needs to understand and learn some of the best practices of the western word as
they go global and set up operations in the developed world. For any global company in future, it needs to
have balanced strategy incorporating the best management theories and practices arising out of their
culture amid society whether east or west.

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West needs East for sustainable profitable growth

In the entire human history, last few centuries had seen unprecedented changes in geopolitical
environment and phenomenal impacts of advances in science and technology. The human race is also
intensely made aware of the fragility of the entire planet due to any irresponsible behavior in terms of
overexploitation of natural environment and large scale wars involving weapons of mass destruction.
Thus we stand at the threshold of great opportunity to evolve sustainable development and prosperity
through harmonious blend of our knowledge with action and setting goals for inclusive development. At
the same time, cost of wrong choice is also heavy since globalization is a process which is not reversible.

REFERENCES

[1] - West Meets East: Toward an Ambicultural Approach to Management- Ming-Jer Chen,Darden
Graduate School of Business, University of Virginia, Danny Miller HEC Montreal and University of Alberta,
August 31, 2010

[2]- Globalisation and Asian Business – Chapter 2 – Learning from leaders in Asia – The lessons of
experience – edited by Steven J.DeKrey with Kathy Griffin, Reprint 2010
[3] – A winning Global Strategy- Karen Chao- www.knowledge.insead.edu/strategy-China-and-India
[4]- Exploring Emerging Markets -The Emerging markets: exploring the consequences – By Grace
Segran, London- www.knowledge.insead.edu
[5]- China Strategy- Rural Markets- Foreign Firms eye China’s rural markets –
www.knowledge.insead.edu

[6]- Why Even Debt Looks Better In Emerging Markets by Tony Daltorio, Investment U Research
Wednesday, January 6, 2010

[7]- How ‘Western’ Multinationals can learn from their Emerging Market Counterparts- Critical eye
forum – Friday 20 june 2008

[8]- What West can learn from east- Interview with John Hagel-Author and former Mckensie consultant

[9] KPMG Report on Emerging Market acquisitions in Developed Economies – 2010

[10]- Why the West craves materialism & why the East sticks to religion - By Imran Khan

[11]-www.buyusa.gov- US commercial service – Doing Business in India

[12]- IIC Partners- Doing Business in China

[13]- Indian Management- BS publication- Volume 49, ISSUE 10 – October 2010

[14]-IIM Ahmadabad- Business Books- Strategies for growth-Chapter 5 – Growth through Disruptive
Innovations

[15]- The Economist - First break all the rules- The charms of frugal innovation- April 15 2010

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