David Chin: Responses when Asia’s Cost Arbitage No Longer Works

HCLI Research
Published 4 November 2016

A conversation with David Chin, former Chief HR Officer of Biosensors International, reveals that business strategies that used to work for Asia are fast becoming irrelevant. In response, leaders in Asia need to ask questions, learn from developed markets, and coach the new generation. The role of HR is also discussed. Rebecca Siow, HCLI’s Interim Head of Research & Insights, distils the key highlights.

“There is a fundamental shift in our macro business environment today”, Chin stated upfront. While growth is generally anaemic the world over, Asia – and the companies based in this region – are confronted by a particular challenge. Essentially, the days of cost arbitrage are over. Many of the easy cost efficiencies have been wrung out and offshoring to lower-cost locations as a cycle has been completed. While one may argue that there is still potential to move from China to Vietnam or Bangladesh, Chin noted that quantum leap cost savings will be difficult to come by as costs rapidly rise in these markets as well. Beyond tactical approaches, business leaders need to find a bold new way forward.

If there are no obvious answers, make sure you ask the right questions

In the current disruptive and uncertain operating environment, the search for ready solutions is not a straightforward process. Just ask anyone in the financial services, oil and gas, and shipping industries. Chin was quick to point out too that even in the healthcare industry (whose report card carries a healthier glow of growth), a wave of mergers and acquisitions is sweeping through. The industry is consolidating – restructuring, reorganising, and reinventing itself to deal with new market realities.

To find bespoke solutions that fit their organisation, Chin opined that business and HR leaders must come together to have a dynamic and comprehensive dialogue. To find real answers, they must first ask the right questions. For instance, a pertinent question is, “What do we need to do to generate the next set of revenues?”. If businesses in Asia can no longer compete on a low-cost business model, what must be done to lift the top line? Does it lie in product development and service innovation, diversification or entry into new markets at home or abroad?

In the past, the above might have been good questions to ask. Today, these are essential questions that all incumbent and aspiring leaders in Asia must ask – or risk extinction.

Beyond “super sales reps”

Chin drew an analogy with the healthcare industry; specifically, the medical products sector. In the past, country managers in Asia could get away with being “super sales managers”. In a time when most could coast on Asia’s bullish growth, and in a situation where medical products were rapidly evolving, the key to commercial sales in Asia was to cultivate good relationships with the buyers and opinion leaders – the doctors.

Today, the buyers in Asia’s healthcare industry are less driven by the preferences of individual doctors. Instead, there is a trend to institutional purchasing similar to the purchasing patterns in developed markets such as Europe and the US. Large healthcare organisations are emerging that provide healthcare to individuals who make regular payments to it, via hospitals and doctors in their member networks. In a single deal, a healthcare provider, group of hospitals (or its Purchasing Department) may be buying medical products for 100 clinics and hospitals. In stark contrast to striking deals based on personal likes and dislikes, a public tender will be called. There is a process to be followed – this is often very documentation-based – and winners are rewarded for putting forth a convincing business case with regards to product functionality and value for money.

Hence, aspiring leaders in Asia’s medical products sector have to go beyond day-to-day salesmanship; they must develop a more comprehensive skillset. In their armoury of skills, they need to be equipped with the latest clinical data, product and market comparisons and need to cultivate a mind-set that proactively thinks ahead. In this regard, “what will my market look like in 5 years” is often a good question to start with.

Learn from developed markets’ evolution

The silver lining for Asia is that often the answer to that specific question exists. It just lies outside of the region. In the above example, Chin – who himself spent a decade in Europe before returning to Singapore – highlighted that changes in the healthcare markets and their disruptive impact on sales channels began many years ago in Europe.

As Europe and the US corporations have had to adapt to structurally low growth rates, they have learned to respond with sophisticated business models and efficient supply chains. Asia can now take lessons from her Western counterparts. Chin said, “I was in Switzerland, which is a high-cost market. But it still has high-end manufacturing and R&D. So, how does that model continue to thrive?”. He continued, “I learnt from sitting next to people in mature markets – observing, participating, and doing”. It is because of his personal experiences that Chin advocates for international mobility, particularly those of junior Asian talent, to mature markets that are ahead of Asia’s economic trajectory. “They have to see how it is done operationally and translated into daily activities, not just models and theories”, he simply explained.

Unlocking the value of international assignments

Yet, as many business and HR leaders in Asia know, international mobility of Asian high potentials is a challenge. For a variety of reasons, many simply do not wish to leave their home country or region. Chin said half-jokingly, “One reason is that many see overseas assignment as a route to leaving their organisation. In general, companies cannot promise them a job upon return. I myself found it difficult to find a role in Asia after several years away”.

However, it is also here where Chin saw a role for HR to step in and value add. “This is a conversation that HR should be having with senior management. To plan ahead and engineer international assignments better. To create success stories. To be thoughtful about the whole process, in particular specific and tangible goals and deliverables”.

Chin did not advocate large-scale international mobility programmes moving hundreds of employees globally. He called this the “scatter gun” approach. Rather, he suggested targeted investments in selected individuals. Focusing on this group, HR needs to sit with senior management – even members of the Board – to ask questions that would make each international assignment an intentional developmental intervention. The questions, and answers that result can look like this:

Questions & Answers

Why are we sending this individual? What is the developmental objective?
To enable the individual to implement strategies that work for mature markets, upon his/her return to Asia, which would be displaying characteristics of a mature market then.

Will the business/operating environment of the receiving location facilitate this developmental objective?
Yes, the receiving location is Switzerland, which has successfully transitioned to high-end manufacturing and product/service innovation. In addition, the emerging trends spotted in Asia occurred in Switzerland a few years ago.

To the individuals being sent, performance expectations and targets must be clearly communicated. They have to consistently earn the “investment” being put on them.

What about the rest of us?
High performers and high potentials will benefit from their organisation’s select attention. But what about the rest of the workforce? They are no less important.

In fact, an organisation needs every single employee to be thinking and creating solutions, and connecting and aligning with it, in order to have a sustainable competitive advantage.

Chin did not overlook this. He noted, “Just as there is a fundamental shift in our macro business environment today, younger employees are fundamentally different. They do not necessary plan to stay with an organisation for a long time. Working with a MNC, a large organisation or even a company as we know it, is not the attraction it used to be”. He elaborated on two of his finer observations of the workforce of the future:

  1. “Company of one”
    Younger employees are a “company of one”. In this company of one, employees prioritise building their personal brand and value. They want to acquire skills and accumulate experiences that build their CV. In a disruptive environment where larger corporations are constantly restructuring and struggling to thrive, the younger generation wish to control their own destiny rather than tie that to a unpredictable future with a company that may not exist in five years’ time. In this sense, joining a start-up with five persons may be more preferable and not necessarily more risky than throwing in their chips with large organisations. At least with the former, they have a say in their future.
  2. Since senior leaders can’t control, they should coach
    The discourse on control is an interesting one. Chin pointed out that control structures in organisations are eroding as information technology leads to transparency and devolution of power and information. While the traditional Asian leader, due to Asian socio-cultural norms, may expect respect and obedience to their instruction, control is gradually shifting from the manager and into the hands of the young employee (who as mentioned above, wills it). The social contract between employer and employee is changing. Confronted with this, leaders and managers should leverage their younger employees’ thirst to learn and equip themselves with skills. Instead of prescribing instructions (that they may not follow anyway), coach them. Ask them questions such as “have you thought about this?” or “why are you doing this?”. Then, let them experiment and find out for themselves.

As Chin concluded, training people for the future workplace is a “thought process and not an execution process”. It may be slow going at first but in a year or two, these young employees will then know how to create solutions for their organisation – and better ones too! Don’t forget, creation trumps control – and cost arbitrage – in Asia’s new business normal.

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