The Management of Large Groups: Asia and Europe Compared

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 The Management of LargeGroups:Asia and Europe ComparedPHILIPPE LASSERRE, Professor of Business Policy, INSEAD,FontainebleauPresented by:RAHUL CHHATWANITopicsPart 1 : Types of corporations in EuropePart 2 : Types of corporations in AsiaPart 3 : Comparison of their Organizational Setting and Corporatecontrol stylesPart 4 : Recommendations for European managers in their dealingswith Asian corporationsAbout the AuthorPhilippe Lasserre is Professor ofBusiness Policy. A French national, hegraduated from ESSEC (Paris). Heobtained his PhD from the Universityof Texas and became a permanentfaculty member of INSEAD.He is the author of various articles onplanning, strategy and internationalbusiness.IntroductionSYNERGYA group effect which provides business units with a reduced cost position andmarket power through sharing of assets, transfer of skills and competences.Groups can contribute to value creation by:Using their financial or political powers to the maximum advantageImposing management disciplineThrough acquisitionsInnovationPART 1European Corporate ArchetypesIndustrial groupsIndustrial holdingsFinancial conglomerates: Characterized by a portfolio of business activities whichshare a common set of competencies. High degree of synergy is achieved by managingkey interdependencies at corporate level. These could be called œ Strategic Planning œgroups. Examples “ British Petroleum (UK) and Michelin (France).: Corporations in which the business units are clustered intosubgroups or sectors. Synergies are strong within the subgroups but weak betweensubgroups. Value creation is delegated to subgroup management; the corporate levelimplements planning and control systems. These could be called œStrategic Controlgroups. Example “ Siemens: Characterized by a constellation of business unitswhich do not necessarily share any common source of synergies. Value is created byimposing management discipline, financial leverage and the management of acquisitions.Example “ Hanson Trust (UK)Industrial GroupIndustrial holdingsFinancial ConglomeratesAviation “ Cathay Pacific and DragonairProperties “ Swire PropertiesBeverages “ bottler of Coca ColaShipping and TradingPART 2Asian Corporate ArchetypesEntrepreneurial conglomeratesKeiretsus : Super groups or clusters of groups in which the business are either: Widely diversified into a large numberof unrelated activities ranging from banking, trading, manufacturing and services. Thesegroups are under the leadership of a father figure who is the key strategic actor. Littleattempt is made to manage synergies. Based on the ability of the leader to establishpolitical connections, conclude deals with governments and business partners and toimpose loyalty and disciple upon business units. Example “ Samsung and Hyundai (Korea)vertically integrated¦or horizontally connected. They are like a club of organizationswhich share common interests. Value is added by informal coordination of key activities,transfer of expertise in personal rotation and strengthening of supplier-distributor chains.National holdings: Formed more recently as an expression of industrialindependence to capitalize on domestic markets. Value creation stems from œnationality.Entrepreneurial ConglomeratesHorizontal KeiretsuSet up around a Japanese bank through cross- shareholding relationships withother companies. The bank assists these companies with range of financialservices.The Fuyo GroupMain Bank : Fuji bankMembership: 29 companiesAverage cross-shareholding ratio: 15%Major affiliated companies: Hitachi, Nissan motors, Canon and Yamaha.Vertical KeiretsuSet up around a lead industrial or parent company. They have networks ofsubsidiaries which function as suppliers and distributors for the output of thelead industrial firm.Honda MotorThey have brakes for their own cars and motorcycles designed andmanufactured by Nissin kogyo, a member of their own vertical keiretsu.PART 3Two Dimensions: Organizational setting and Corporate controlTypes of corporate Organizational settings :1.Federation : The centre plays an important role in managing synergies. Methodsinclude centralized functions, strategic planning and socialization of personnel. Typicallyfound: European industrial groups, some Asian National holdings.2.Confederation : the centre allocates resources, guards corporate identity and renewsstrategy. Business units enjoy a large degree of strategic freedom but are negotiatedand fit with the overall corporate strategic framework inspired by the centre. Hasbottom- up planning, negotiated strategies and central financial and human resourcemechanisms. Typically found : European industrial holdings and Asian national holdings.3.Constellation : Organized as many uncoordinated businesses. Each unit is linked(directly or indirectly ) to the centre. Characterized by one-to-one contractualagreements between the centre and the business units. Typically found: entrepreneurialconglomerates and financial conglomerates.4.Connexion: Either no centre or several centres. Some loose coordination (meetings)and some tight coordination (long term contracts). Keiretsus are best example.Corporate controlDescribes how groups ensure that business units performance and behaviors are in line withcorporate expectations. Five major methods exist:1.Financial control: uses financial goals based on financial standards. Most common inEuropean financial conglomerates.2.Control by systems: based on implementation of planning and control mechanisms likestrategic planning, capital budgeting, control reviews etc. Predominates in Europeanholding and groups.3.Control by strategy: Emphasis is on appreciation of the strategic trajectory of thebusiness units and how they fit into the corporate strategy. Uses task forces, informalmeeting etc. Most common in European industrial groups and to some extent, Keiretsus.4.Personalized control: Exercised by direct interface between the group chairman andbusiness units managers. Exclusive method used in Asian Entrepreneurial conglomerates.5.Ideological control: Focus is to make sure that the managers have understood the valuesof the group and are behaving accordingly. Asian national holding and Vertical Keiretsus.CharacteristicsWesternAsianRole of IndividualsContribution of individualsvery important as linked tocompany goalsThe whole group mustsucceed otherwise theindividuals contribution hasno meaningRevenues vs RelationshipsFocus on the ROI and notconcerned on how it isachievedAlso focus on ROI butemphasize the process onhow to get there.Heterogeneous vsHomogenousMulticultural with plenty ofnationalities. Different waysto thinkPeople having samebackground henceunderstanding is inunspoken wordsRemote vs Face-to-faceContacting clients by emailor on the phoneThey respect meeting eachother face to face forconducting businessrelationships.PART 4Recommendations for European CorporationsGetting rid of prior judgementsInvesting in the study of cultures and societiesResisting the temptation of easy translationConclusionThere is no one single method for managing groups, andglobalization of markets and competitions has revealed theemergence of organizational forms in the Asia pacific regionwhich differ significantly from the one adopted in Europe andNorth America. Western corporates must adopt an ˜biologicalapproach to building and regulating organizational life.

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