By Sandeep Malik, Vishrut Jain and Judith Cruickshank



On the morning of December 8, 2004, many Western executives woke up to two conflicting images coming out of Asia. The first was news confirming that Lenovo, a Beijing-based computer maker largely unknown to Western audiences, was acquiring IBM’s venerable PC business. The second was that Chen Jiulin, the once high-flying chief executive of China Aviation Oil (Singapore), had been arrested in connection with a $550 million derivatives trading scandal – one of Asia’s biggest financial debacles in years.

Interestingly, news of Lenovo’s bid seemed to generate more shock waves than that of the alleged malfeasance. Since the Asian financial crisis of 1997, accounts of corporate misconduct in the region had come to be expected. But the takeover of a major Western brand by an Asian company? That seemed unthinkable. It shouldn’t have been. Lenovo, like other leading Asian manufacturers, had made no secret of its global ambitions. Why then were so many taken by surprise?

Most American and European companies tend to think of Asia¹ as a huge growth opportunity – a market that is home to half the world’s population, with economies growing at 5-10% per year and an insatiable appetite for everything from consumer goods to basic commodities. Relatively few think of the region or its homegrown firms as a serious threat. Part of this underestimation stems from persistent myths about where and how Asian companies choose to compete, how they organize themselves and how well they manage their performance internally. While stories of scandals at CAO Singapore and elsewhere seem to reinforce these myths, a select group of Asian companies has achieved global best practices across multiple dimensions of management and is ready to take on Western competitors.

In this article, we identify nine antiquated myths about Asian businesses and provide examples of how some companies are exploding these myths. We conclude by offering advice on how Western companies can deal with the emerging Asian threat.

Asian Myths and Emerging Realties

Where and How Asian Companies Choose to Compete

• Myth 1: Since Asian companies are only good at low-cost manufacturing, Western companies will retain control of high value-added activities such as innovation and branding. – Conventional wisdom has it that the West innovates, Asia manufactures and then the West markets and brands new products. This alleged control over innovation and marketing allows Western companies to continue capturing the lion’s share of economic profit in the value chain. But some Asian companies don’t seem to be reading from the same script: They are becoming increasingly involved in activities beyond just manufacturing.

  Looking at innovation first, non-Japanese Asian countries have increased their share of global patents from a paltry 0.5% in 1985 to a more respectable 3% in 2000 – a six-fold increase in 15 years. And indications are that this innovation machine is just heating up. Patent applications from Asia are growing at 17% per year, more than four times the Western average.²

  Consider the example of Samsung, which has emerged as a veritable hotbed of product development. The Seoul-based chaebol has upset Intel in the flash memory market, humbled Sony in the LCD market and achieved leadership in consumer electronics like cell phones. It has managed to do this through a customer-driven innovation strategy, coupled with savvy global marketing. Indeed, marketing and branding have risen to the top of many corporate agendas in Asia. To be sure, Asian brands are still small on a global scale when it comes to absolute value – Samsung is the only non-Japanese Asian company to make it onto Interbrand’s/BusinessWeek’s 100 Most Valuable Global Brands list. But homegrown brands are extremely powerful within rapidly growing Asian markets. Local and regional brands account for 60% of top brands in India, 40% in China and 75% in Singapore.³ Western companies in Asia often find that their key competitors are not the brands familiar from home, but local and regional brands.

  Of course, local and regional brand building is not the only way Asian companies are readying for global competition. They’ve also been acquiring established Western trademarks in a range of industries. In addition to IBM’s PC business, other instantly recognizable examples include Laura Ashley and Esprit fashion brands, Lotus cars, Thomson & RCA television brands and Swissôtel, a hospitality brand.

• Myth 2: Asian companies have "unfair" cost advantages because of their access to cheap labor and capital. As Asian markets are deregulated, these advantages will be lost. – For many years, the conventional belief was that Asian companies’ low-cost advantage came from cheap labor and capital driven by government patronage and market distortions. The Asian financial crisis of the late ‘90s seemed to vindicate this view. Since then, some Asian companies have so dramatically improved their total factor productivity⁴ that they are now the lowest economic cost producers of goods globally – all without the benefit of government support or unfair labor practices. This has been achieved through a combination of post-crisis restructuring and internal goal setting.