Rebecca Norton, vice president of finance, Asia Pacific, for software maker Business Objects (a unit of Germany’s SAP), also feels the push for even higher results. “I get a little nervous that the pressure and expectations [from the home office] are not necessarily in line with actual market conditions out here.”
A Structural Problem?
In part, such misunderstandings can be traced back to corporate structure. During the 1980s and ’90s, the balance in multinational companies tilted toward greater global integration, with an eye toward seizing opportunities across business lines and saving money by doing things in a common way everywhere. One result was the global business unit, an arrangement that in many companies has replaced country-level units. This structure has often led companies to unintentionally shortchange their emerging-markets operations, says David Michael, managing director of Boston Consulting Group’s Greater China practice.
“It gives you a global view on one hand, but when incentives aren’t right, the high-growth markets fall off the radar screen,” he says. The reason is that business-unit managers may be focusing on short-term global-performance indicators, and trying to hit their quarterly, one-year, or two-year targets. If most of the profit is coming from developed markets, it’s tempting to allocate scarce resources to those operations first and neglect emerging markets that boast more potential than actual profit.
Exacerbating this head-office bias is the common practice of putting expatriates in charge of local operations and then shifting them out after just a few years. While there are good reasons for relying on expat managers, the arrangement can encourage short-term thinking. “We have a lot of expats come to China, and since their service period is just three years, they just want to make sure they do a good job for those three years and then return to receive a promotion in the U.S.,” complains the local China CFO. “But I want sustainable growth here, and that means a longer-term focus on people and investment.”
Satish Shankar, a partner with Bain in Singapore, argues that if multinationals are to earn significant profits from their emerging-markets operations, they must stop relegating emerging markets to second-tier status. “Most [multinationals] operating in Asia have built decent positions, but don’t have the same market visibility and sustainability as they have in their home markets,” he says.
Some big companies are indeed making such an effort, pushing responsibility back out to the country operations and building a full set of local business functions. One is General Electric. According to Murali Narayanan, Singapore-based regional finance manager for GE Energy’s repair business, the company is making its Asia-Pacific operations more self-sufficient. To that end, GE is expanding and deepening functions like manufacturing, supply chain and risk management, and talent development. Also, more decisions are being made in Singapore rather than at headquarters. “This enables us to respond to customers and conclude deals faster in the region,” says Narayanan.