Strategic Lessons from the Asian Crisis

Kulwant Singh is Associate

Professor of Business Policy at

NUS Business School, National

University of Singapore,

Singapore 117591. E-mail:

[email protected]

George S. Yip is the Beckwith

Professor of Management

Studies at the Judge Institute,

University of Cambridge,

Trumpington Street, Cambridge

CB2 1AG, UK. E-mail:

[email protected]

0024-6301/00/$ - see front matter qc 2000 Published by Elsevier Science Ltd.PII:S0 0 24 - 63 0 1 (0 0 ) 0 0 0 7 8 - 9

Long Range Planning 33 (2000) 706-729 www.elsevier.com/locate/lrp

Strategic Lessons from theAsian Crisis

Kulwant Singh and George S. Yip

This article looks to the strategic opportunities provided by the recent Asian economiccrisis. It suggests that whilst the crisis did require immediate responses, the longer-termissues were equally important. The authors look at different reactions to the crisis. Theydiscuss a variety of strategies, including bargain hunting for assets and makingstrategic purchases whilst prices are low, forming new alliances to augment or supplantthose that already exist, and expanding whilst competitors are weak. They embed theirideas into traditional strategic thinking, touching on issues of competenceenhancement, competitor awareness and customer focus. They use topical examples toillustrate their points. Crises will reappear unexpectedly in countries and markets,demanding that firms revisit their strategies. This article provides a framework forthinking about these issues. qc 2000 Published by Elsevier Science Ltd.

The crisis that struck Southeast and East Asia in 1997 was, formost countries in the region, the most severe of the last 50 years.Coming after more than two decades of high growth and numer-ous claims of impending Asian economic dominance,1 the crisiswas a major shock to the region and firms operating there. Themacroeconomic causes and consequences of the crisis have beenwidely discussed, as have the national-level prescriptions forrecovery and reform.2 While there continues to be some disagree-ment as to the precise causes of the crisis and the specific correc-tive actions required, there appears to be growing agreement onits macroeconomic lessons. The rapid recovery of many of thecrisis-struck countries also suggests that some of these lessonshave been learnt.

While macroeconomic discussions of the causes, consequencesand recovery courses for countries are important, they do notoffer adequate prescriptions for firms or multinational corpora-tions (MNCs) in the region, nor to those now considering entry.Few attempts have been made to draw specific lessons for firms,

particularly regarding the strategic responses MNCs should adoptin economic crises and the ways in which they should prepare forfuture crises.3 Though it appears that the Asian crisis is over—inthe sense that the region has recovered from the sharp economicdownturn and is now growing again—we believe that the recov-ery is not. It is timely to identify the strategic lessons of the crisisfor firms, so that they can take better advantage of the recoveryand be better prepared when the next crisis strikes—as it surelywill in Asia and elsewhere.

In this article, we focus on MNCs, especially those from NorthAmerica and Europe, which have already committed to theregion or which are considering significant new investments.Though we base our article on the Asian crisis, our aim is tooffer strategies and ideas for firms that will have to grapple withthe challenges of various major and unforeseen economic crises.We offer our prescriptions in terms of four strategic lessons,deriving these lessons from our analysis of the problems MNCsfaced during the Asian crisis. We believe that MNCs that learnand build on these lessons will be better prepared to deal withand profit from future economic crises.

Strategic actions during crisesWhat should MNCs do during a major economic crisis? Whatoperational actions have to be taken to preserve strategic success?How can firms that have significant investments in a crisis regionpreserve or increase the value of their assets, whilst preparing forthe eventual recovery of the region? What opportunities for anew entrant exist in the midst of a downturn? What commit-ments can a firm make during a crisis that will not entangle itin a quagmire, and that will pay off significantly in the future?What should firms do during the recovery? What can MNCs donow to prepare for the next major economic crisis?

These questions suggest the need for firms to take both stra-tegic and operational actions during a crisis, and to consider boththe short- and long-term implications of these actions. Figure 1organises these actions into a framework of activities that firms

Figure 1. Dealing with crises

Long Range Planning, vol 33 2000 707

crisis management is

an incomplete

response to a crisis

Strategic Lessons from the Asian Crisis708

have to focus on during crises. This framework suggests that dur-ing crises, both operational and strategic actions can have short-and long-term horizons, and that both short- and long-termactions can have operational and strategic consequences. Thoughcrisis management is essential, and often an immediate priority,firms that do not explore other options miss out on majoropportunities. As even actions dealing with the immediate conse-quences of a crisis have the potential to significantly impact long-term strategic performance, it is essential that firms consider thebroad set of available options when fashioning their response toa crisis.

Figure 1 also summarises actions that firms can take duringcrises. Short-term operational issues are the typical focus of crisismanagement actions. However, other short-term actions can bestrategic in nature. These largely relate to acquiring undervaluedassets, and therefore are termed bargain hunting. Actions withlong-term strategic impact are termed strategic investments.Though these actions can cover a broad range of activities includ-ing, conceivably, reducing operations in a country, they ofteninvolve increased commitments. Finally, we term as operationalmanagement those actions focusing on long-term, non-strategicissues. These may relate to issues such as ensuring that plant andequipment are preserved during the crisis, and that supplier anddistribution chains are maintained.

This framework highlights the focus of our article, whichprimarily concerns lessons relating to strategic actions for dealingwith crises. However, rather than focusing directly on theseactions, we present them in the context of four key strategic les-sons from the Asian crisis. We primarily elaborate on strategicbargains and investments while briefly illustrating crisis andoperations management actions.

Balancing crisis management and strategicresponsesThe first lesson follows directly from Figure 1, which suggeststhat crisis management is an incomplete response to a crisis. Itis essential to consider both operational and strategic issues andto ensure appropriate responses to both sets of factors.

A crisis in our present context is a poorly structured or unex-pected, rapidly occurring, high risk event that threatens the safetyof MNCs’ personnel, stakeholders and assets, and the continuedsuccess of operations.4 It is essential, when hit by a major uncer-tain event, that firms adopt a crisis management mode that focuseson immediate and effective responses. Many MNCs found them-selves facing collapsing currencies, rapidly failing operations andthe need to urgently evacuate staff from riots during the Asiancrisis. Many of these firms, however, were unprepared to deal withsuch problems. We believe that some MNCs’ failure to preparewas due more to the belief that crises would not occur, than toa lack of knowledge of crisis management. The swift occurrenceof the crisis in what was believed to be a stable region reinforces

the need for MNCs to establish crisis management procedures fora range of contingencies, including financial and strategic events.These crisis management plans, however, must always be basedon the strategic interests of the MNC.

In the midst of a severe crisis, many firms naturally focus onminimising losses through asset conservation and cost contain-ment measures.5 Cost reduction is necessary, particularly if rapidgrowth prior to the crisis (a not uncommon occurrence in thecrises that have struck Asia and Latin America in recent years)may have masked inefficiencies within firms. As markets decline,it is important to address these inefficiencies. But it is equallyessential that firms use the crisis to prepare for the recovery. Thekey trade-off firms face is between maintaining present perform-ance and building for future performance. MNCs must balancecrisis and strategic management during crises. It is essential thatin dealing with crises, MNCs remain aware of the potential forlong-term gain, and the danger of long-term harm from short-term actions.

General Motors (GM) faced a major problem in Taiwan whenits dealer network collapsed during the crisis, depriving it ofaccess to most of its markets. To deal with the immediate chal-lenge of re-establishing its distribution network, GM acquiredsome of its failed dealer outlets in the major cities, ensuring thatoperations could continue in major markets. However, the failureof its dealer network represented a long-term strategic challenge.Recognising that the failure of the existing distributor providedit with the opportunity to build an entirely new network, GMdid precisely this, via the Internet. In July 1998, GM introducedits online sales systems to complement its much reduced physicaldistribution network. This system has proved to be so successfulthat online sales are expected to account for 30 per cent of totalGM sales in Taiwan by the end of 2000, and it is being examinedas a model for global adoption by the GM. GM’s response illus-trates that an appropriate balance between crisis management andstrategic management can help firms deal with the immediatecrisis, while setting the stage for long-term success.

It is also clear that many firms failed to treat the crisis withthe urgency and importance that it warranted. Some failed totreat the crisis as the major strategic challenge it represented.Our observations suggest that the reaction most commonamongst MNCs during the Asian crisis was, essentially, to donothing more than reduce short-term costs while waiting for thecrisis to pass. Many firms adopted an easy, but highly inefficientresponse: cutting all budgets and operations by a fixed amount,possibly to ensure the equitable sharing of pain. In essence, theydid not handle it as a crisis but more as a long-term operationalor efficiency problem (see Figure 1). An alternative option evalu-ated and adopted by some firms was to leave the region, in somecases with the intention returning after the resumption ofgrowth.

Other firms did not treat the crisis as a strategic challenge. Inour conversations with managers, we regularly raised the ques-


many firms failed to

treat the crisis with

the urgency and

importance that it

warranted

approaches that

worked well before a

major crisis are not

likely to work as well

during the crisis or in

the early recovery

stages


tion, ‘How did you alter your firm’s strategy to deal with theAsian Crisis?’ We have been astounded by the answer offered bya majority of the respondents in our informal survey: ‘We havenot altered our strategy at all.’ Our follow-up question, ‘Did yourfirm re-evaluate its strategy to confirm that no changes were nee-ded?’ commonly brings another surprising answer: ‘No.’ Theseresponses appear to challenge a fundamental precept of strategy,that as the environment in which a business operates changes,so its strategy must be optimised for the new environment. Ourposition on this is fairly simple: MNCs and their managers haveeither adapted their strategies without formalising such changes,or they were too optimistic about the state of the region, or theywere simply wrong. We believe that approaches that worked wellbefore a major crisis are not likely to work as well during thecrisis or in the early recovery stages. Those that did not workbefore the crisis will almost certainly not do so afterwards. It istherefore essential for firms to alter, or at least to question, theirbasic strategic posture during crises. In doing this, they muststrike a balance between responding to the immediate challengesof the crisis and facilitating the long-term strategic success ofthe firm by flexibly adapting to the new environment. Researchsuggests that there is often a tendency for firms to react to threatsrigidly, by restricting information processing or by restrictingcontrol to higher levels within the organisation.6 These tend-encies might be particularly great when the crisis is felt by adistant foreign subsidiary. The subsidiary might react byrestricting information flow to the corporate headquarters, whilethe headquarters might react by limiting the options available tothe subsidiary. These tendencies, together with managerial andstructural inertia, may prevent firms from reacting flexibly to crisesor to adapting to ensure strategic interests.7 These firms may getlocked into reacting in the operations management framework,with actions that are designed to deal with neither immediate norstrategic issues. Again, the ‘solutions’ for dealing with these prob-lems are easily specified, though much more difficult toimplement: ensure communications channels remain open, thatthe interests of the corporation are made clear, that action is coor-dinated and flexibility is provided to country subsidiaries.

It is difficult, when crises strike, to avoid reacting to immediateconcerns and to focus on longer-term interests. After all, failureto survive the immediate threat renders the future concerns irrel-evant. But in reacting to any crisis, MNCs must not lose sight ofthe longer-term rewards that will surely come for firms that pre-pare for the re-emergence of growth. The key lesson is that in acrisis, MNCs must adopt proper crisis management procedures,but must balance all crisis actions with strategic interests.

Regions don’t have economic crisesThe second lesson that the Asian crisis offers is one which is wellknown but, paradoxically, has not been adequately recognised. Ref-erences to ‘the Asian Crisis’, though clearly intended as a simplifi-

cation, have often been taken as indicating that the entire regionwas in crisis, and from the same causes. That this is obviouslyuntrue did not prevent some firms from taking major strategicdecisions on the inappropriate assumption that all countries andindustries in the region were in the midst of a uniformly severerecession. Almost all countries in Southeast and East Asia, a diverseand difficult to define region, did in fact experience significanteconomic slowdown, though the severity of the slowdown rangedfrom catastrophic (in Indonesia) to relatively mild (in Taiwan).Some countries at the fringe of the crisis were hardly affected(China, India), continued to grow (Australia), or continued to suf-fer from pre-existing causes (Japan). Equally important, countrieswere differently affected by the crisis, dealt with it differently, andhave recovered at varying rates and in different ways.

For the countries most affected by the crisis, sales will notrecover to pre-crisis levels for some time and may not return topre-crisis growth rates for many years. Even if growth rateseventually recover, the sales lost during the crisis may not berecouped for many years, as illustrated in Figure 2. Investmentdecisions that assumed the continuation of pre-crisis growth ratesare unlikely to be rewarded for some time. For the less badlyaffected countries, the decline in market size is less significant,and the recovery much more rapid, with less of a lasting impact.

Even if an economic crisis strikes a region broadly, the causes

Figure 2. Loss of markets. This figure demonstrates that even if crisis-struck economies recover rapidly, the lost growth may not be reco-vered for some time. Many firms had assumed that the pre-crisisgrowth AB would continue, so that markets would grow to size D bytime t. In fact, markets declined along BC during the crisis. An optimis-tic view is that economies will return to their pre-crisis growth (CE),in which case a market size of DE would have been lost at time t. Itis more likely that growth will be slower (along CF), so that marketsize DF will have been lost. To fulfill expectations of pre-crisis marketsizes, economies must grow even faster than pre-crisis rates (alongCD), which is clearly unachievable.



and consequences of the crisis will differ between countries. Itis essential for firms to recognise these differences, so that theycan deal with specific causes and consequences as they affectoperations in each country. This will allow firms to focus on theappropriate strategic or operational issues.

The varying consequences of the Asian crisis for differentcountries are illustrated in Figure 3, which offers a simple frame-work for evaluating the components and depth of the crisis indifferent countries. We identify the major components of thecrisis as comprising sub-crises in banking, politics, economic pol-icy, national confidence, currencies, demand, supply and corpor-ate effectiveness. In Figure 3 we offer our personal interpretationof how severely major economies were affected in each of theseareas, and the state of their recovery in mid-2000. Our evaluationis based on an extensive review of published and current infor-mation, and discussions with many managers and officials in theregion. We do not intend this evaluation to be a definitive reporton the state of these countries—indeed it is may well be datedsoon after this article is published. Instead, we offer this frame-work as a simple means for organising the complex task of evalu-ating the immense data on the status of very different countriesthat have been affected differently by major economic crises.

This framework of eight sub-crises obviously simplifies major

Figure 3. Components of the Asian crisis

and complex components, but provides a useful basis for evaluat-ing the depth of the crisis and recovery for each country. Forexample, most countries were successful in stabilising their cur-rencies by 1999. Malaysia made significant progress in dealingwith its banking crisis, though it had not, by mid-2000, fullyovercome its political crisis. Indonesia is particularly mired in itspolitical crises but also suffers on all other fronts. South Korea’sconfidence was badly hit, though its major problems continueto be related to the need to improve corporate effectiveness,restructure its banks and chaebols, and to reduce excess capacityin several major industries. In Thailand, many MNC producersexperienced significant disruptions from suppliers. For Singa-pore, the primary problem was insufficient demand from itsmajor Asian trading partners, though it continues to face thechallenges of corporate restructuring. Japan’s economic policiesstill cannot stimulate sufficient domestic consumption. A moredetailed analysis will demonstrate that while significant progresshas been made in several areas, major problems remain, so thatthe effects of the crisis will continue to be felt in the region forsome time. We believe that this illustration demonstrates thatthis simple framework is useful for providing an overview ofregions, countries or states that are experiencing economic crises.

For MNCs, the key benefit of this analysis is to highlight thefact that significant differences exist between countries, a fact notaccorded sufficient importance by many MNCs during or sincethe crisis. Many MNCs continue to attribute uniformity to thevery different countries of the region, and thus fail to developappropriate strategies for each country during or outside of crises.In a recent book, Asian Advantage, we provide a systematic frame-work for analysing how the 14 most important economies in theregion differ, and the kinds of opportunities provided to MNCs.8

MNCs must recognise that economic crises occur at countryand industry levels, not at the regional level. Though contagioneffects can quickly drag neighbouring countries into a ‘regionalcrisis’, firms must distinguish between the causes, consequencesand recoveries of different countries. The widespread applica-bility of this lesson is clear from other recent ‘regional crises’,such as the Latin American crisis during which different econom-ies were also affected differently.

The importance of distinguishing between countries is reinforcedby the fact that the economies in a region can partially substitutefor each other and can play different roles in an MNC’s portfolioof investments and activities. Crisis effects and opportunities willalso differ for MNCs, depending on the nature and size of theiractual or prospective commitments. This poses unique challengesand opportunities for MNCs, which will have to recognise thesedifferences and implement varied responses across operations indifferent countries. Though difficult, the need to recognise country-level distinctions within regional and global operations representsone of the original imperatives for successful multinational oper-ations.9 The methods for doing so are relatively well established—balancing autonomy, centralisation and localisation, the use of


significant differences

exist between

countries, a fact not

accorded sufficient

importance by many

MNCs during or since

the crisis


regional headquarters, matrix structures, adopting global and coun-try strategies, and so on. Yet, in our discussions with managers onthe Asian crisis, we have been surprised by the frequency of thecomplaint that corporate headquarters made no allowances for dif-ferences between countries during the crisis, or even for the factthat some countries were in the midst of a severe crisis at all. Thefailure to recognise these differences and to allow differentiatedaction can cause MNCs to make inappropriate choices, such ascutting back in all countries in a region when this course may bewarranted in only some of the countries. All MNCs must recognisethat, regardless of the breadth of a crisis, they must identify theproblems faced—though as discussed below, not necessarily the sol-utions—at the level of operations within each country. The failureto adopt this approach will reduce the effectiveness of responses andresult in missed opportunities, the strategic lesson we discuss next.

Exhibit 1. Impact of the crisis on MNCsThe major consequences of the Asian crisis for MNCs were typicalof most economic crises. MNCs must, therefore, expect and dealwith the following in future crises.

Loss of marketsThe most direct consequence of the Asian crisis was that withvery few exceptions, sales declined significantly as purchasingpower and confidence declined. A striking example of the col-lapse is provided by personal computer markets, which shrankgreatly in most Southeast Asian countries (Table 1). The magni-tude of these declines is even greater, when viewed against 1997projections of 15 per cent future growth rates for most of thesemarkets. Auto manufacturer BMW suffered an average decline of22 per cent in sales to Asia, with some markets declining bymuch more. No firm, irrespective of its flexibility and theefficiency of its operations, can routinely deal with such declines.

Disruption of supplier and buyer chainsEven firms that avoided the worst effects of the crisis faced majorproblems from the loss of intermediaries. Many local enterprisesfailed or lacked the resources to operate reliably. The disruptionto small and medium enterprises which supplied components,provided services or undertook logistics functions was great, dis-rupting established buyer and supplier chains. As many of theemerging economies had relatively weak and thin supplier andlogistics industries, MNCs faced difficulties replacing these net-works. Consequently, even profitable MNCs and those thatgained from favourable cost trends were not spared from thecrisis. For example, the collapse of the Indonesian Rupiah causeda collapse in imports, leading to a large shortage of shippingcontainers. Exporters from Indonesia faced difficulties securingcontainers and had to bear the increased costs of having toimport empty containers.

Collapse of local partnersMany MNCs entered the region with cooperative ventures, rely-ing on the widely accepted wisdom that their partners’ connec-tions or expertise would facilitate their local operations. Manylocal partners in fact proved to be valuable, providing MNCs withlocal knowledge or resources, or access to business and politicaldecision makers. However, the costs of such dependencebecame apparent during the crisis, as the failure of local partnersleft some MNCs stranded.16 Chrysler attracted adverse publicityin Thailand because of its unwillingness to absorb the losses ofa failed local partner. Negative consequences have been parti-cularly great for those MNCs which lost the advantages offeredby politically connected firms and individuals. Businesses part-nering firms or individuals linked to the former Indonesian Presi-dent, Suharto, for example, suffered major reverses with hisdeparture from office.

Increased financial risksFirms operating in the region faced significant financial risksbecause of uncertainties in exchange rates, inflation, interest ratesand the availability of funds. The value of income streams fromthe region consequently became less reliable.

Disruption of cost structuresThe swings in financial costs and risks and the loss of sales andmarkets contributed to major disruptions in cost structures,requiring MNCs to re-think business models. Though most firmsfaced increased costs, some gained from favourable movementin costs and exchange rates. While many imports became morecostly, wage and property costs declined in most countries inthe region. Government actions also reduced some costs signifi-cantly.

Greater political riskPolitical instability was one of the earliest consequences of thecrisis, with Indonesia, Japan, South Korea and Thailand undergo-ing unscheduled or unexpected changes in political leadership.MNCs had to factor much greater political risk into their evalu-ation of this region. This reduced one of the major advantagesthat the region had enjoyed for many years, namely political stab-ility.

Opportunities exist in every crisisThe third lesson follows closely from the first two, namely thatopportunities exist even in a severe crisis. Opportunities will beparticularly great when the crisis strikes suddenly and a wholeregion falls into crisis, or is widely believed to be in crisis. Anobvious analogy of the opportunities available is that of stockmarket corrections, during which some stocks that are otherwisefairly valued are re-rated because of overall market declines. Con-


MNCs typically have

two types of

opportunity during

crises: short-term

bargain hunting and

long-term strategic

investments


Table 1. Growth in personal computer sales in Asia: 1998 vs. 1997 (%)

First quarter Year on year

Indonesia 286 281.1Thailand 275 240.5

South Korea 273 234.3

Malaysia 249 226.4Philippines 248 219.8

Singapore 215 210.2

Hong Kong 215 20.1New Zealand 23 4.7

Australia 0 11.8Taiwan 2 8.0

China 2 29.5

India 4 31.5

trarians and others with longer-term horizons often make sig-nificant gains by selectively picking up stocks in these times. Thesame holds during economic crises that strike regions. MNCstypically have two types of opportunity during crises: short-termbargain hunting and long-term strategic investments.

Bargain huntingMajor buying opportunities emerged during the Asian crisis asasset values collapsed. In terms of US dollars, some asset andequity prices fell to as little as 20 per cent of their mid-1997levels. Assets that were rare, difficult to acquire or which werepreviously not for sale, suddenly became available, generally atfar below their pre-crisis prices. Firms making portfolio invest-ments or those simply seeking to ‘fish the bottom’ found attract-ive purchases. These opportunities are common during majoreconomic crises, offering the opportunity for significant capitalgains when asset values recover.

Several cautions are in order, however. Firms that adopt a bot-tom-fishing approach risk being labelled exploitative, with thereal possibility that their long-term reputation or operations willbe harmed. Buyers must not require or expect unrealistically highreturns from all acquisitions simply because they are in a crisis-struck country or because the purchase is made in the midst ofa crisis. Careful acquisitions, and the commitment to turn theseassets around rather than to raid them, will be recognised bygovernments, unions and employees, and will smooth sub-sequent operations. Buyers must, therefore, not merely be seento be sources of capital, but as sources of management skills andcompetencies, and as long-term investors.

Strategic investmentsAn alternative approach, and one that offers a broader range ofoptions, is to focus on strategic investments. These investmentscan take the form of acquisitions, alliances, the expansion orrestructuring of existing operations, or new market entries. With

all of these options, firms should particularly focus on ‘architec-tural assets’ such as storage and distributon networks, large fran-chises, collections of property, networks of efficient plants, orwell established families of brand names. These assets are muchmore difficult to acquire in times of growth and typically recovertheir value much faster with economic recovery.

AcquisitionsStrategic acquisitions differ from bargain hunting in that theyfocus on the beneficial impact of the target on the buyer’s long-term performance. Though often prompted by asset values, theseacquisitions are driven more by long-term commitments to oper-ations in a specific country or industry than by short-term capitalgains. The availability of assets, however, should not blind firmsto the difficulties of strategic acquisitions. Though many assetsmay appear cheap relative to pre-crisis prices, those valuationswere grossly inflated. More fundamentally, many assets werecheap because they had not been performing well, while otherswere in industries suffering from chronic over-capacity. It ispossible to overpay for any asset, and the availability or relativecheapness of targets does not negate the need for appropriatevaluation. As in all acquisitions, deals must be based on funda-mental value, realistic prices and good timing. DBS Bank of Sin-gapore appeared to have overpaid for Thailand’s Thai Danu Bankin early 1998, rushing the acquisition when larger, wealthier andmore experienced banks such as Citicorp balked in the face ofhigh prices. DBS Bank had to absorb heavy and unexpected lossesfrom Thai Danu for the following two years, affecting overallcorporate results. Meanwhile more astute investors such as ABNAmro and Standard Chartered waited a few months and obtainedbetter banks, for better prices on better terms.

Many sellers are typically unwilling or unable to acceptreduced valuations of their assets during crises, and balk at con-firming deals that would result in large write-offs for themselvesor their creditors. As a consequence, many of the higher qualityassets are not available for sale. Another problem experiencedduring the Asian crisis was that lack of transparency, andaccounting and business practices which depart from Westernnorms, made valuation difficult and time consuming. Thisrequired buyers to proceed on the basis of good faith or opti-mism, qualities that were sharply reduced in the wake of disclos-ures of rampant mismanagement, cronyism and corruption inseveral countries in the region.10 The wealth of opportunitiestypically available during major crises requires that MNCs exer-cise discipline to channel resources where they will have the gre-atest strategic benefit, rather than into fire sales that provide one-off gains.

In any event, the many difficulties of managing acquisitionsare sure to arise after purchases are made. Some of these diffi-culties will be made even more severe by the circumstances ofthe sale. It would be wrong of MNCs to assume that these pro-cesses will be easier simply because they believe their acquisition


Though many assets

may appear cheap

relative to pre-crisis

prices, those

valuations were

grossly inflated

too much has been

made of the

importance of

relationships in Asia


rescued the acquired firm from crisis or imminent failure. Thewidely offered proposition that the majority of acquisitions donot deliver the expected value is likely to hold in Asia.11 Despiteits Asian origins and a pre-existing relationship, Singapore’s DBSBank was concerned enough about the difficulties of managingthe newly acquired Thai Danu Bank that it left the entire Thaisenior management team in place. While this approach will helpin some regards, it will handicap restructuring and integrationefforts. MNCs will face greater difficulties and will have to payparticular attention to managing the acquisition and integrationprocesses and to managing the acquired assets.

AlliancesStrategic partnerships or alliances are an alternative to acqui-sitions. Firms that are unwilling to be acquired by MNCs areoften willing to establish alliances with them. Partnerships withlocal firms or government corporations that are fundamentallysound but that are temporarily handicapped may be valuable inthe long run. Alliances offer a bundle of advantages that are simi-lar to (but weaker than) those offered by acquisitions. However,alliances are not cost free, having risks and costs similar to butlower than those of acquisitions. MNCs must be careful to forgealliances that are consistent with their strategy, and that willdeliver value greater than their costs. The careful selection ofpartners and structuring of relationships can provide strategiclong-term benefits.

Relationships with existing suppliers and buyers represent oneparticularly important class of alliances. While we feel that toomuch has been made of the importance of relationships inAsia—though useful for providing opportunities, astute Asianbusinesses are unlikely to establish or maintain relationships thatdo not benefit them—they are nevertheless important. Some ofthis importance is simply due to inefficient markets in parts ofAsia, where inadequate infrastructure, limited competition, inad-equate information and unreliable logistics make the mainte-nance of effective relationships important. MNCs must, there-fore, maintain important relationships and build new ones intimes of crisis. This may even require compromising short-termprofitability to facilitate the survival of allies, through channellingsales or resources to key partners, providing greater or more gen-erous credit or long-term loans, and investing in partners. Steel-case International of the United States, for example, acquired25 per cent of its Thai distributor, Modernform Group, and itsSingapore distributor during the Asian crisis. Though Steelcasehad other options, it chose to invest in Modernform with whichit had a well-established relationship that it could strengthen andexpand to undertake regional distribution. Other MNCs mayhave a different rationale for similar action, exploiting lowervaluations to buy out ineffective local partners or distributors orto gain better control. Though the costs of these efforts will besignificant, they are likely to be less expensive than having tobuild new networks to replace failed partners. While we are not

certain that investing in partners will offer large returns, we aresure that the failure to support them during crises will be remem-bered and will be costly in the future. Investing in partners is anoption that all firms committed to a crisis country or regionshould evaluate.12

Expansion or restructuring of existing operationsThe opportunities available extend well beyond the acquisitionof under-priced assets. Many firms gain during crises by reco-gnising and exploiting opportunities that arise during or becauseof the economic turmoil. Others take the opportunity to expandor restructure their activities at relatively low cost. Althoughalmost all industries suffered major declines in market size andoverall demand during the Asian crisis, some segments werestable or grew. Many firms in Indonesia, Thailand and Malaysiathat operated in raw materials or natural resources, or thatundertook assembly work for export, became more cost competi-tive during the crisis. Many of these businesses shared the charac-teristics of sourcing and paying for materials and services locally,while selling and receiving payment from abroad. For these firms,cost and currency swings were highly favourable, leading toexpanded exports and profitability. In fact, the crisis countriesenjoyed export booms after the initial shocks of the crisis woreoff. Increased exports and hold-ups in regular export channelsmay have accounted for some logistics firms, particularly theexpress delivery firms, enjoying major increases in rates, salesand profits in Indonesia, the worst hit economy. Though theretail industry in Indonesia was very badly affected, several largeurban retailers continued to enjoy significant sales, partly as aresult of the failure of the smaller ‘mom and pop’ stores, the exitof some firms, and the failure of distributors in the more remotelocations. Carrefour and Promodes, the European hypermarkets,both commenced operations in Indonesia in 1998 at what waspossibly the low point of the crisis, but their formula of appealingto the large middle class with wide varieties of goods at priceslower than at traditional outlets was immediately successful. Thissuccess allowed them to expand from two to five stores in asingle year, with plans being finalised for further expansion toeight stores.

The rapid recovery of Southeast and East Asia from the crisishas surprised most observers, just as the onset crisis did. MNCsthat failed to look for or exploit opportunities during the crisismay well have suffered a second blow in having missed out onthe opportunities available during the rapid recovery.

Market entryA different opportunity arose for MNCs that did not have oper-ations in the region or in particular countries in the region. Forfirms that had missed out on investing in Asia in the past, thecrisis offered a second opportunity to participate in the region,with much lower entry costs than at any other time in recentyears. As entry costs declined significantly, the viability of many


While we are not

certain that investing

in partners will offer

large returns, we are

sure that the failure

to support them

during crises will be

remembered

Firms with a view to

long-term strategic

investments have

been acquiring assets

that will yield

significant pay-offs

after the region

recovers


new ventures improved, even with the increased risk premiumsrequired. MNCs must be careful, however, to ensure that all newventures into crisis countries are fundamentally sound and donot rest on transient cost advantages, if they are to succeed inthe long run.

The potential rewards for new market entrants can be parti-cularly great when a major economic crisis forces regulators toease restrictions on foreign participation in previously closedindustries. Most foreign firms have found it difficult to makeinvestments in Japan and South Korea, or in protected industriessuch as banking and finance, telecommunications or property inother countries. The crisis forced governments and firms in thesecountries to accept, if not necessarily welcome, foreign investors.At the same time, many highly diversified Asian firms were sell-ing assets and businesses to reduce the scope of their operations.Firms with a view to long-term strategic investments have beenacquiring assets that will yield significant pay-offs after the regionrecovers. Among the most astute acquirers is GE Capital, whichhas made high quality acquisitions in Hong Kong, India, Indone-sia, Thailand, Japan and other countries. Its acquisition of theUS$6.5 billion auto and equipment leasing business from JapanLeasing Corporation is the largest foreign entry into Japan’s fin-ancial sector, and has provided it with a large, broad and diffi-cult-to-replicate base of clients in one of the largest economiesin the world. British Telecom, which already had some oper-ations in the region, made a string of investments to significantlyexpand its presence. Opportunities for the entry of firms werenot limited to newer or higher technology industries, butincluded mature industries. The cement industry, for example,saw a number of firms from Europe (Blue Circle Industries, Hei-delberger Zement, Holderbank Financiere Glaris, Italcement andLafarge), Latin America (Cemex) and Australia (PioneerInternational) making a string of investments, costing approxi-mately US$2 billion, to enter into in several countries in theregion. As a consequence, several Japanese firms merged to meetthe competitive challenge of these entrants, as did major cementmanufacturers in the Philippines.

Clearly, not all of these investments will succeed, and not allnew entrants will be able to overcome the disadvantages associa-ted with late entry. It is also clear that whilst opportunities existin all crises, they are not necessarily widespread, easily identifiedor available to all firms. Nevertheless, the lesson for MNCs isthat opportunities do exist in crises, and that searches for theseopportunities must be undertaken in times of crisis. All firmsmust re-think their strategies when a crisis strikes, to adjust tothe new, difficult environment they have to operate in. Enlight-ened firms recognise that amid difficulties there exist opport-unities from which a careful firm can benefit.

A strategic response is essentialIt is essential that all crisis responses be guided by strategic con-siderations. The lesson is, therefore, that MNCs must react to

crises strategically, in line with their corporate and business stra-tegies, to ensure that the strategic intent continues to be the focusof their action. This is not the trivial lesson it may appear to be.Each MNC must develop its strategy for dealing with an econ-omic crisis in the context of its overall global, regional and coun-try strategies. Actions taken must be consistent with these stra-tegies, rather than being ad hoc or local in focus. At the sametime, strategies must be flexible enough to allow for crisis man-agement actions and changed environments. Getting thesebroader strategies right is a prerequisite for developing appropri-ate country strategies and operations for dealing with crises.

So, what do we recommend as an appropriate strategicresponse to a crisis? By strategic we mean corporate-wide, com-petence-enhancing, competitor-aware, customer-focused andlong-term. In addition, as discussed above, a strategic responsemust be opportunity-driven. We will discuss each of theseelements in turn. This discussion represents the core of our rec-ommendations on how firms can deal strategically with econ-omic crises. Our recommendations cover several types of strat-egy—corporate-wide, competence-enhancing, competitor-awareand customer-focused—as well as taking a long-term view.

Corporate-wide strategiesMany MNCs reacted to the Asian crisis as if it was a local matter,with little impact on their global operations, competitors andmarkets. Many continued to react this way even after it becomeclear that the crisis had a broader impact than originally thought,with many industries and several non-Asian economies sufferingfrom slower growth through contagion. Several firms sufferedsignificant corporate-wide effects from shocks to their Asianoperations. Motorola, for example, delayed construction of aUS$3 billion chip manufacturing plant in Richmond, Virginia,because of the Asian crisis. Some MNCs had to absorb majorlosses from their Asian subsidiaries, impacting their overall per-formance.

Each MNC must develop its own strategy for dealing withcrises in the context of global, regional and country strategies.Actions taken must be consistent with these strategies, ratherthan being ad hoc, local or short-term in focus. Will the crisisalter corporate strategy, core business strategies and competitiveobjectives? Will it be beneficial for some businesses to move outof or into crisis countries? Should the firm exit some productsor businesses, and enter others? Questions of this nature mustprovide the overall framework within which specific issues aredealt with in any crisis.

Identifying optimal corporate-wide response is difficult forfirms with complex operations in different countries in a region.For example, firms such as IBM, Seagate, ABB and Philips havespread their value chains in many businesses across the countriesin Southeast and East Asia to take advantage of varying countrycharacteristics. The varied impact of the Asian crisis on differentcountries (see Figure 3, discussed above) made it difficult to


By strategic we mean

corporate-wide,

competence-

enhancing,

competitor-aware,

customer-focused and

long-term

The famously long

memories of Asians

may work against

MNCs seeking to

return to the same

locations in the

future, if departure in

a time of crisis is

perceived as

abandonment


establish the specific impact on particular products or businesses,and made choices even more difficult. Decisions of this kind arenot possible at the country level since corporate-wide interestsare often unclear. This requires the direct intervention of regionalor corporate headquarters.

Some firms reacted to the Asian crisis by transferring pro-duction from higher cost centres to Asian operations, as excesscapacity, lower costs, favourable currency movements and lowertransportation costs made it effective to redistribute productionto the region. Other firms faced a related situation, transferringproduction within the region to more attractive locations. How-ever, particular caution should be exercised in this respect asthere may be a measure of irreversibility. The famously longmemories of Asians may work against MNCs seeking to returnto the same locations in the future, if departure in a time of crisisis perceived as abandonment. In this context, the withdrawal ofJ. C. Penney and Wal-Mart from Indonesia in recent years (forreasons only partly related to the crisis) may be costly in the longterm. The cost of these withdrawals will be particularly highwhen viewed against the commitment and success of competitorssuch as Carrefour and Promodes, as discussed above. Similarforces are likely to exist in other regions.

MNCs must collate and transfer to crisis-hit operations therelevant knowledge for crisis management. During the Asiancrisis, some firms discovered that their Latin American subsidi-aries possessed valuable experience that they could share ondealing with sudden, broad and deep economic slowdowns.Realising that the Mexican crisis of 1995 was its closest experi-ence to the Asian crisis, Tricon, the parent of KFC, Pizza Hutand Taco Bell, launched an effort to transfer knowledge fromMexican to Asian subsidiaries of how to offer and deliver valueto more cost-conscious customers, with apparently promis-ing results.

Corporations with the greatest commitments in a regionoften suffer the most and experience the greatest corporate-wide impact when a crisis strikes. For example, even temporarydeferment of investments in Asia, a common business decision,could adversely affect corporate activities in other markets, inaddition to impacting Asian operations. Under these con-ditions, corporate headquarters must provide operations in thecrisis countries with greater flexibility and guidance, to allowthem to adapt to the particular circumstances they face withoutharming corporate interests. Despite the widespread acceptanceof globalisation, we were surprised by how many managersexpressed frustration at their inability to convince distant cor-porate headquarters of the need to modify targets or bench-marks in the face of the crisis.

Few MNCs faced as great a challenge as LVMH, the Frenchluxury goods group, which in 1997 drew 26 per cent of its salesfrom the East Asian economies and a further 14 per cent fromJapan. Faced with declining sales, but having garnered signifi-cant experience from dealing with Japan’s decade-long slow-

down, LVMH reacted with a corporate-driven, region-widerestructuring plan designed to close stores, lower overheads,reduce exposure, deal with the cyclical nature of sales, andrefresh its product lines. The difficulties in Asia were animportant catalyst to corporate-wide restructuring, which sawa number of major acquisitions. Though sales from non-JapanAsia only accounted for 18 per cent of corporate sales in 1998,they grew to 23 per cent of total sales by 1999. For LVMH as awhole, restructuring was successful, with 1999 sales and profitsgrowing by more than 20 per cent to record highs. Thoughthis success reflected more than the restructuring of Asianoperations, the failure to adopt a corporate-wide frameworkwould probably have reduced the effectiveness of restructur-ing efforts.

Competence-enhancing strategiesMany firms have sought to increase their size and value byaccumulating assets and by increasing the value of these assets.Many Asian firms have placed too much emphasis on increasingthe value of their assets, rather than on improving the efficiencyand productivity of those assets. In essence, many of these firmshave placed greater emphasis on a strong balance sheet ratherthan on a strong profit and loss account. Some MNCs in Asiaappear to have followed similar patterns.

A focus on balance sheet management, which can be justifiedin times of rapid asset inflation and economic growth, shouldgenerally be replaced by a focus on profit and loss account man-agement, with emphasis on increasing sales and profitability,reducing costs and improving operations. Asset accumulation forits own sake should be discouraged, and firms should aim forthe ‘ideal’ state of being able to undertake operations withoutbeing locked into large asset bases. This requires a renewed focuson competencies and an evaluation of what resources must becommitted to develop the competencies required in the longerterm.

It seems an obvious proposition that in dealing with the crisis,firms should try to enhance their competencies so that they arebetter positioned to grow after the crisis passes. At the very least,MNCs should avoid undermining their competencies. Avoidingdamage to competencies can take the form of retaining key staff,not closing down valuable or difficult-to-establish operations,maintaining relationships with key suppliers and customers, ormaintaining investments in activities that build brand name,market share and mind share. Yet it has been common for firmsintent on reducing costs to adopt broad, ‘across the board’ cost-cutting approaches that have reduced budgets by equal percent-ages in key areas such as marketing and production equipmentmaintenance and replacement, as well as in less important areasof expenditure. It is clear that the impact for a manufacturingfirm of 5 per cent cuts in R and D, marketing or operations islikely to be very different from similar cuts in building mainte-nance or stationery and supplies.


Many Asian firms

have placed too

much emphasis on

increasing the value

of their assets, rather

than on improving

the efficiency and

productivity of those

assets


Exhibit 2. Coca-Cola in Indonesia17

Indonesia was a highly promising market for Coca-Cola before thecrisis, with 11 bottling plants in the country and sales and profitsgrowing annually by about 25 per cent. In 1998, however, salesplunged by about 30 per cent, as the effects of the crisis were feltand disposable incomes collapsed. Coca-Cola’s response to this crisisprovides an example of how MNCs can deal strategically with suchcrises. Coca-Cola’s actions during the Asian crisis were importantlydriven by its experiences during Mexico’s 1994 crisis. The firm con-tinued to invest in Mexico during the crisis, with the result that itsmarket share increased from 55 per cent to 65 per cent in a threeyear period.

Coca-Cola’s initial response was to raise prices by between 40 percent and 45 per cent on average across its entire product range inNovember 1997. Next, the mix of packaging was changed. Theplunge in the Rupiah’s value made aluminium much more expens-ive, making the cost of Coca-Cola in cans prohibitive. As locally madeglass bottles were cheaper and could be reused, Coca-Cola con-verted 75 per cent of its Indonesian production to bottles, up fromapproximately 50 per cent before the crisis. Coca-Cola also consoli-dated its canning operations in one plant in Jakarta, enabling it toreduce the number of shifts required at other bottling plants. Thisprovided labour and overhead cost savings. To reduce foreignexchange exposure risks, the company did not renew office spaceleased in US dollar terms, instead moving its administrative oper-ations to its own bottling plants. These efforts were part of a com-pany-wide effort to reduce costs.

In spite of these efforts, Coca-Cola did not reduce expenditureson management training, believing this to be key for its future.According to Darryl McDonough, the Jakarta-based finance directorof the Indonesian operations, because tough times demand thatbusinesses ‘work smarter, Coke is still going to need to developand source better people.’ The firm has followed the widely offeredprescription that advertising is even more important in a crisis,increasing resources dedicated to the now cheaper media space.The company has also put more emphasis on targeted, point-of-sale advertising. It continued with its roll out of computer monitor-ing systems around Indonesia, to enable it to better understandcustomers and tailor products their needs. In all, the message was,‘We’re here for the long term.’

Coca-Cola also used the opportunity to buy assets in other coun-tries, being one of the first companies to acquire assets in Asia inthe immediate aftermath of the crisis in late 1997. Coca-Cola raisedits investment in its Thai bottling plant by 5 per cent to 49 percent, acquired its South Korean and Philippines bottling plants andexpanded operations in India, Vietnam and other countries.

Coca-Cola saw the crisis in Asia as an opportunity to invest andbolster market share. With the market having great potential—annual per capita soft drinks consumption in Indonesia was about2 litres, compared to 90 litres in neighbouring Australia—the firmwas unwilling to sacrifice its long-term prospects to boost short-term earnings.

Prioritisation is essential. Exploiting crises to attract anddevelop quality staff and management, to establish or acquireimportant operations, to build new relationships or strengthenexisting ones with major suppliers and customers, and to investin brand reputation and capturing market share can all buildcompetencies that will provide long-term competitive advan-tage. MNCs must ensure that crisis management or perform-ance-maintaining actions do not come at the cost of long-termsuccess. In the midst of the crisis, while many airlines focusedon cost cutting, Singapore Airlines, already widely rated as pro-viding among the best in-flight service in the world, launcheda US$300 million upgrade of its services. Though this invest-ment may not provide the returns it would have done pre-crisis, the benchmark of long-term returns and an unwilling-ness to compromise on fundamental competencies justifiedthe investment.

Competitor-aware strategiesFirms must not lose sight of how their foreign and local com-petitors deal with crises. For every firm that pulls back or cutsdown operations during crisis, there is another laying thegroundwork for recovery and future competitiveness. Whilstalways following competitors is a mistake, ignoring theiractions or presuming their failure are equally faulty strategies.As industries and economies restructure during crises, manyMNCs subsequently face changes in the nature, degree andidentity of competition. In the Asian crisis, as in other recentcrises, governments have generally moved towards greater lib-eralisation of markets, which has resulted in increased compe-tition in most industries. Understanding and preparing forcompetitive actions in a time of major disruptive change willprovide firms with a better understanding of their own optionsand of competitors’ future potential.

An extensive alliance and equity exchange agreed betweenGoodyear of the United States and Sumitomo of Japan in Feb-ruary 1999 was designed, in part, to deal with the Asian andLatin American crises. But in creating the largest tire group inthe world, this alliance posed a major challenge to other lead-ing firms, forcing them to look for similar ventures. As a conse-quence, in early 1999, Michelin of France moved into a ‘stalk-ing mode’ in its search for an Asian partner, approachingseveral Japanese and Korean firms regarding possible alliances.Pirelli and Cooper, who were already partners in Europe andNorth America, sought a partner to extend their existingcooperation to Asia. Similarly, moves by some airlines in theregion to join global airline alliances have been quickly copiedby most airlines in the region. These examples and the cementindustry case discussed above affirm the need for MNCs tocontinually test their strategies against the plans and actionsof their competitors. This proposition, which is probablyaccepted without question outside of crises, is equally appli-cable during crises.


For every firm that

pulls back or cuts

down operations

during crisis, there is

another laying the

groundwork for

recovery

we believe that a

major opportunity

was for the

acquisition of under-

served and under-

appreciated

customers


Customer-focused strategiesThough the Asian crisis afforded opportunities for MNCs toacquire undervalued assets, we believe that a major opportunitywas for the acquisition of under-served and under-appreciatedcustomers. We believe that the reputation Asian firms have forcustomer and market orientation does not extend beyond thetop tier of firms. Most Asian firms have focused on cost andspeed advantages, and have done relatively little to meet orexceed the needs of large segments of industrial and retail cus-tomers in Asia. This provided an opportunity for MNCs which,as a result of possessing greater resources, found that satisfyingkey customers was amongst the most profitable investments theycould make during the crisis.

Individual consumers and firms typically reduce consumptionlevels broadly and adjust consumption patterns during crises.Most customers become more price sensitive and switch to lowercost alternatives. This requires that products and their pricingand positioning be changed to adapt to the new, more price-conscious environment. Firms that offer more competitive priceswhile continuing to deliver value to customers will face fewerchallenges and are likely to attract customers’ attention.13 Despitemajor declines in personal computer markets (see Table 1), Gate-way increased its Asia-Pacific unit sales in the fourth quarter of1998 by 74 per cent over the previous year, while Dell’s marketshare rose by 40 per cent in the same period. Though both firmsentered the region at the time of the crisis and had relativelylimited presence in the region, their model of offering value formoney and lower prices, direct to customers, proved to be viableand appropriate to a region suffering high failure rates amongsuppliers and distributors. Their commitment to the region inspite of the major crises also placed them favourably for thefuture.

For incumbents, the challenge is to develop innovative oper-ations so that they can introduce lower priced products that meetcustomer needs, without compromising their overall corporatestrategy or reputation, and without damaging their long-termsuccess. MNCs must resist the temptation to introduce failed orinferior products or business models from their home countrieson the assumption that crisis-hit and value-conscious customerswill accept lower standards. MNCs must also understand thattheir crisis is not their customers’ crisis. Simply passing on costsor reducing value delivered to customers is a certain prescriptionfor long-term failure. Multinationals have a particular problemin this regard, since their commitment to individual countries isoften questioned. Actions by MNCs that are viewed as opportun-istic, exploitative, unreasonable or simply unfriendly may havelong-term consequences that outweigh immediate benefits. Thebenefits of working with and supporting suppliers and customersare magnified many fold in times of crisis, albeit with greater costand difficulty. Strategic long-term relationships with customersshould not be disrupted for transient pain reduction.

The long-term viewThe impact of the Asian crisis will be felt in the region well intothe next decade. In spite of the rapid recovery and the implemen-tation of corrective measures, we believe that the fundamentalcauses of the crisis remain, making for a difficult businessenvironment long into the future. The massive withdrawal offunds from the region, the large overhang of bad debts, reducedinvestments, more cautious investors and weakened governmentswill restrict the growth of existing opportunities and the emerg-ence of new ones.14 As most existing firms in the region continueto operate and new ones emerge, competition in the region willincrease. Government support and financial assistance, whichwere often significant in the past, cannot be relied on in thefuture. Changes in industry structure will impact upon coststructures and may require new business models. Changes inregulatory structures will impose additional constraints in someareas, though offering greater flexibility in others. These andmany other challenges will make the Southeast and East Asianregion a difficult one to operate in over the next decade. Firmsthat succeed in this environment are likely to be rewarded. Inthe midst of the most severe crisis to strike Asia in decades, deal-ing with the crisis from a strategic and long-term perspective iseven more important.

All MNCs must re-evaluate their medium- and long-term tar-gets and strategies during major economic crises. Despite therecent installation of manufacturing and assembly capacity inSoutheast Asia, many automobile manufacturers were forced bygrossly excess capacity and major declines in demand to under-take expensive restructuring. In spite of the immediate costs,long-term interests dictated immediate action. Recognising thefundamental change in the environment as a result of the Asiancrisis, General Motors delayed the completion of its assemblyplant in Thailand and scaled it down from 100,000 vehicles to40,000 vehicles a year. This still represented a major problem forthe firm, as demand collapsed by 65 per cent, to about 150,000units, and capacity utilisation fell to 22 per cent.15 Yet, havinginvested approximately US$5 billion in the region, a strategy ofwithdrawal was not feasible. Instead, General Motors focused onreducing or postponing costs, while continuing to invest in exist-ing and new partners, brand names and other strategic assets. Atthe same time, the long-term potential of the Chinese marketprompted General Motors to commence production on scheduleat its Shanghai plant, the biggest single investment in China byan MNC. MNCs that take the long view will be better able tomake adjustments in the short-term that facilitate long-term suc-cess. There is clearly a balance required between maintainingpresent performance and using the crisis to build for future per-formance, but striking this balance is central to strategy, and isone that firms must grapple with on an ongoing basis, with orwithout a crisis.

Inevitably, despite all the possible strategies suggested above,some firms will have to cutback or withdraw from the region,


There is clearly a

balance required, but

striking this balance

is central to strategy,

and is one that firms

must grapple with on

an ongoing basis,

with or without a

crisis


at least temporarily. Even so, such moves can be done in sucha way as to minimise damage. For example, Motorola has builta reputation in Asia as a good people manager. But in June 1998,Motorola announced a corporate restructuring that would cost10 per cent of its global work force their jobs, or 15,000 people(including in Asia). After the announcement, Motorola gavegroup ‘leaving parties’ for staff who had been let go. The aimwas to say, ‘It’s not your fault,’ and ‘Let’s stay friends.’ It isimportant to note that Motorola continues to make strategicinvestments in Asia even as it cuts costs. For example, the com-pany continued construction on a $750 million high-technologyfactory in Tianjin, China that it claims will outclass any otherMotorola manufacturing site outside the US. And though thecompany has closed factories in North Carolina and California,it is already planning to spend an additional $250 million toupgrade the Tianjin semiconductor wafer fabrication plantbefore it is even completed.

ConclusionThere are, obviously, other lessons and other means of dealingwith the Asian crisis that we have not discussed. These includethe importance of financial hedging; disposing of non-productiveassets; the benefits of reducing the diversity of operations forMNCs with widely diversified operations; organisational restruc-turing; localising activities, staff and costs; adapting to changesin regulations; and many other specific actions. We have focusedon providing a strategic approach to guide the actions that MNCsin Asia have or should have taken. Though we have focused onthe Asian crisis, we believe that the lessons we have identifiedare broadly applicable to all major economic crises, and thatMNCs will gain from adapting these prescriptions to their parti-cular circumstances.

References1. World Bank, East Asian Miracle: Economic Growth and Public

Policy, Oxford University Press, New York (1993).2. See, for example, J. J. Garten, Lessons for the next financial

crisis, Foreign Affairs 78(2), 76–92 (1999); P. Delhaise, AsiaIn Crisis: The Implosion of the Banking and Finance Systems,Wiley, New York (1998); World Bank, East Asia. The Roadto Recovery, World Bank, Washington DC (1998).

3. Some discussions of firm-level issues relating to the crisisinclude S. H. Ang, S. H. Lee, G. H. Lim, K. Singh and K. Y.Tan, Surviving the New Millennium. Lessons from the AsianCrisis, McGraw-Hill, Singapore (2000); M. Backman, AsianEclipse: Exposing the Dark Side of Business in Asia, Wiley, Sin-gapore (1999); M. Clifford and P. Engardio, Meltdown: Asia’sBoom, Bust and Beyond, Prentice-Hall, Paramus, NJ (2000).

4. This definition is derived in part from C. Pearson and J. A.Clair, Reframing crisis management, Academy of Manage-

ment Review 23(1), 59–76 (1998). This source provides atheoretical overview of the literature on crisis management.A more practical example of crisis management set in thecontext of the Asian crisis is B. Wimmer, Cool in a crisis,Asian Business 35(2), 17–19 (1999).

5. B. Staw, L. Sandelands and J. Dutton, Threat rigidity effectsin organizational behavior: a multilevel analysis, Administrat-ive Science Quarterly 26, 501–524 (1981).

6. See Staw, Sandelands and Dulton (1981). (See Reference 5.)7. M. Hannan and J. Freeman, Structural inertia and organiza-

tional change, American Sociological Review 49, 149–164(1984).

8. G. S. Yip Asian Advantage: Key Strategies for Winning in theAsia–Pacific Region, Addison Wesley, Boston, MA (1998)(Perseus Publishing, Cambridge, MA (updated edition2000)).

9. C. A. Bartlett and S. Ghoshal, Managing Across Borders: TheTransnational Solution, Harvard Business School Press, Bos-ton, MA (1989); C. K. Prahalad and Y. Doz, The Multi-National Mission, Free Press, Boston, MA (1987).

10. See Backman (1999); Clifford and Engardio (2000) (see Ref-erence 3); B. Arogyaswamy, The Asian Miracle, Myth andMirage, Quorum Books, London (1998).

11. M. Sirower The Synergy Trap, Free Press, New York (1997).12. For a more detailed discussion of the value and difficulties

of cooperative strategies in the context of the Asian Crisis,see Ang et al. (2000), pp. 103–136 (see Reference 3).

13. For a discussion of crisis marketing strategies set in the Asiancrisis, see S. H. Ang, S. M. Leong and P. Kotler, The Asianapocalypse: crisis marketing for consumers and businesses,Long Range Planning 33(1) 97–119 (2000).

14. Ang et al. (2000) (see Reference 3); World Bank (1998) (seeReference 2).

15. For a discussion of the challenges of dealing with lowcapacity utilisation, see C. Baden-Fuller, Managing ExcessCapacity, Blackwell, Oxford (1990).

16. For a theoretical discussion of the risk of dependence onpartners, see K. Singh and W. Mitchell, Precarious collabor-ation: business survival after partners shut down or formnew partnerships, Strategic Management Journal 17, 99–115(1996).

17. Material for this section was obtained from S. K. Witcher,Coca-Cola Amatil struggles to handle Indonesia woes: bottlertries to keep Coke affordable with cheaper containers,efficiency push; Survival mode, The Asian Wall Street Journal8 September, 7 (1998); R. Brown and R. Washington, Lead-ing drinks manufacturers in Asia: corporate strategies in theface of crisis, The Financial Times, London (1999).


Strategic Lessons from the Asian Crisis

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