GLOBALIZATION – BEST PRACTICES FROM BEST COMPANIES: GLOBALIZATION – BEST PRACTICES FROM BEST COMPANIES Introductory Presentation Visiting Professor Program Handelshögskolan Göteborg September 13, 2005 Göran S. Malm


World’s Best Companies: World’s Best Companies SKF THE BEST GLOBAL GE THE BEST MANAGED DELL THE BEST BUSINESS MODEL SAMSUNG THE BEST TECHNOLOGY COMPANY


Slide3: Globalization Various Industrial Revolutions England 1% 69 * Continental Europe and the USA 2% 35 Japan 7-8% 10 South Korea 10+% 6.6 It is accelerating probably because of Developed economy demand Technology transfer Efficiency of integration of global markets * Year to double GDP / Study by Paul Romer


Asia A Driver of Globalization: Asia A Driver of Globalization “With 3.4 billion people, Asia has 56% of the world population - but only 25% of world GDP.” “And Asia is growing by about 60 million annually – adding two Canadas, or one France, every year.”


Slide5: Asian Growth Race Japan = Asian Pioneer Four Dragons = 1st Wave ASEAN = 2nd Wave Mega Markets = 3rd Wave Indochina = 4th Wave Laos Vietnam Cambodia Burma China India Thailand Malaysia Philippines Indonesia Post Industrial Industrializing Embryonic Korea Taiwan Singapore / HK


Slide6: China/India GDP Growth China India 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004


Slide7: Largest 15 Global Economies by 2001 GDP (current US$ and PPP current US$) Source: World Bank, CSFB research GDP (current US$, billions, 2001) No. 6 No. 12


Long Term Growth Rates: Long Term Growth Rates 出展： IMF


Slide9: Largest 15 Global Economies by 2001 GDP (current US$ and PPP current US$) Source: World Bank, CSFB research In PPP terms China is world’s 2nd largest economy and India 4th largest GDP (PPP current US$, billions, 2001) No. 2 No. 4 One PPP US$ buys the same quantity of goods & services in all countries.


Slide10: China Demand as a Percentage of World Demand (2003E) Source: TEX report, Brook Hunt, LME, IAI, WBMS, INSG, USDA, PS&D, CSFB estimates 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%


Slide11: Manufacturing Labour Cost Per Hour ($) Source: IMD World competitiveness Yearbook 2003, CSFB research 2002 Vietnam Indonesia India China Philippines Thailand Mexico Malaysia Czech Republic Hong Kong Taiwan Singapore Korea Spain Sweden Japan US Germany Manufacturing labour cost per hour ($) 0.25 0.35 0.43 0.59 0.85 0.92 2.27 2.78 2.86 5.22 6.13 7.78 8.35 11.46 16.25 19.01 20.32 24.07


Worldwide Semiconductor Consumption by Market: Worldwide Semiconductor Consumption by Market % Share Source: WSTS/SIA


Technology and Its Production: Source: Dataquest, AMJ Technology and Its Production


Fab Capacity by Region: Fab Capacity by Region Currently Operational Future Fabs Percent of Capacity Worldwide Fab Watch (December 2003)


Size of Internal Competition Unique for China: Size of Internal Competition Unique for China Phase 1 Huge Market & Demand Influence Imported Material Supply And Global Price Level. Phase 2 Inside China Competition Will Drive Overcapacity And Price Down – Survival Of the Fittest. Great Sourcing Base - But Also Dangerous Competition for Foreigners. Phase 3 The Fittest Go Abroad For Volume Expansion (The Japanese/Korean Model) And Create WW Overcapacity And Price Down (Financed By Chinese Banks).


Slide16: What Differentiates China from Japan/Korea SPEED - Arrives En Masse to US & Europe and offer unbeatable prices. BREADTH - China gaining share in low-end and high-tech. COMPETITION - Dozens of players in each industry keeping each other lean ALLIANCES - China welcomes foreign investment. Foreigners open up exports – today 60%of total. SIZE - China huge domestic market and export power house – unparallel economics of scale. ACCESS - US and European retail giants import directly and help China build market share abroad. Source: Business Week 2004


Slide17: Steps to Win in Asia 1. Acquire/Build a critical mass BASE somewhere in Asia. 2. Expand into other Asia markets supported by the BASE as COE. 3. Aim to WIN LOCALLY in markets in which you establish - become insider. 4. INTEGRATE Asian business INTO GLOBAL strategy and structure.


Slide18: To enter Asia every company needs a “Beach Head” or “Base” of critical mass somewhere in Asia SKF Grew Out of Singapore GE Medical out of Tokyo, Japan Dell out of Penang, Malaysia Samsung out of Seoul, Korea COMPANY CULTURE & BUSINESS MODEL SUPPORTED FURTHER EXPANSION


Slide19: SKF Growth Platform Seals Bearings And Units Lubrication Systems Mechatronics Services


Slide20: SKF Service Strategy TROUBLE FREE OPERATION Bearings and units Seals Lubrication Systems Condition Monitoring Shaft Alignment ASSET EFFICIENCY OPTIMIZATION Up Time Inventory Management Inventory Replenishment Logistics


Slide21: SKF Asian Strategy BEFORE AFTER SKF SINGAPORE W-HOUSE National Distributors Dealers C U S T O M E R S SKF COMPANY IN EACH COUNTRY OEMS & BIG END USERS SMALL USERS Joint Action Distributors


Slide22: SKF Asian Strategy Open eight new SKF controlled sales companies (Thailand, China, Indonesia, Taiwan, Korea, Philippines, Pakistan & Vietnam). Introduce joint action program for 400 distributors across Asia. Establish major plants in India, Malaysia, South Korea & Indonesia. Expand manufacturing in China with 5 SKF controlled units of manufacturing – reach 7% China market share. Very selective sales approach in Japan. SKF HAS ACHIEVED STRONG POSITION IN ASIA OUTSIDE JAPAN


Slide23: 1912 – Started business with China 1916 – Set up office in Shanghai 1951 – Exit China 1986 – Return of China SKF in China Yesterday


Slide24: SKF in China Today Wuhu Beijing Wuhan Guangzhou Wafangdian Hong Kong Tianjin Xi'an Nanjing Dalian Shanghai Chengdu Qingdao SKF (China) Investment Co. SKF (China) Sales Co. SKF Reliability Systems Co. SKF Automotive Bearing Co. Dalian SKF Wazhou Co. Anhui CR Seals Co. Beijing Nankou SKF Railway Co. Shenyang Chongqing SKF China Ltd. SKF Shanghai Bearing Co.


SKF Customers in China: SKF Customers in China


Slide26: Manufacturing facilities Sales units SKF Group


Slide27: GE Growth Driven by “A” Players in a Boundaryless, Winning Environment


Slide28: What is an “A” Leader “A” Leader … Enormous personal ENERGY Ability to ENERGIZE others and draw out their best Has EDGE – the instinct and the courage to make the tough calls decisively, but with fairness and absolute integrity Ability to EXECUTE and delivery commitments


Slide29: Boundarylessness External BENCHMARKING and best practice sharing – Learn from the best WIDESPREAD STOCK OPTIONS to 30,000 employees. Higher REWARD FOR COPYING a good idea – than for creating a new one. BOUNDARYLESS WORK-OUTS includes unions, customers, suppliers. Many direct reports, SEVERAL BOSSES. CAREERS ACROSS businesses. SKIP LEVEL meetings. “KILLING THE NIH – SYNDROME”


Slide30: GE – A Learning Organization GE Crotonville Center of Gravity in GE training. Top Management very active as trainers. Core programs: Six Sigma Work-out CAP – Change Acceleration Process QMI – Quick Market Intelligence Making customers winners – GE Toolkit Best Practice sharing – “Trotter Matrix” LEARNING AND ADAPTING – KEY IN A GLOBALIZING WORLD


Slide31: Acquisitions - Vital Part of GE Globalization Integration – Key to Success Assign “Integration Leader” during Due Diligence phase. Establish “Post-Acquisition Integration Project Team”, selecting leaders of each function (Legal, HR, Finance, Sales, MKTG, etc.) of acquiring business unit for global & local entities. Assign experienced GE leaders to several key positions … CEO, COO, CFO, HR, Legal, Marketing… Establish “100 Day Plan” … CEO/COO and Integration Project Team Qualitative : Trainings on GE Value, Compliance & Controllership, 6-Sigma, Work-out etc Quantitative: Reanalyze and test the Deal Economics and identify down-side risks and up-side opportunities New CEO/COO will work with “Integration Leader” for Connecting Acquired company / its unit with respective global GE Business unit CEO/COO will focus on On-going operation Integration Leader provides functional support GE HAS MADE UP TO 100 DEALS PER YEAR


Slide32: average Index = 1 Slow and Steady Relative Size of Deals Average annual excess returns Source: Bain & Company Global Learning Curve study (2002-2003)


Slide33: Transformation to a Service Company $25B $50B $70B ~$100B $120B-125B 15% 85% 45% 55% 55% 45% 67% 33% 75% 25% Products Services Dramatic Transformation from Product Oriented Company to Higher Margin, Higher Growth, Services Oriented Company


Slide34: Cost & Quality Coming Together Cost of Failure (% Sales) 40% 35% 30% 20% 15% 10% 5% 3.4 DPMO 233 6210 66807 308537 500000 Sigma 6 5 4 3 2 1 Most of This Cost Is Locked Up In Hidden Factories


Slide35: Six Sigma Quality Objective: Virtually Defect-Free Processes, Products and Services Sigma Level Defects per Million Average U.S. Company 3 67,000 Good U.S. Company 3.5 22.750 GE 1999 = 3.5 World Class Company 6 3


Slide36: Win Locally Growing From The “Base” Step 1 Buy/JV Existing Co Installed Base Sales/Service Force Dealer Network Low-end Products Engineering Step 3 Leverage GE Integration Step 2 Win Locally Upgrade Safety & Quality Add GE Brand & Values Add Assembly Kits Bring in Technology & Localize Standardize Components Source Components most competitively Introduce Regional/Global Systems Design High Competitiveness can lead to exports


Slide37: Japan As Center of Excellence HINO - TOKYO COE MEDICAL ASIA 15 people dedicated support team Development of “Green Book” to define a world class supplier Audits and participation in improvement projects IN TWO YEARS THE JV’S REACHED WORLD CLASS CHINA KOREA INDIA Audits Improvement Projects Japanese Management Team Audits Improvement Projects Audits Improvement Projects


Slide38: Global Plant Roadmap


Slide39: Dell’s Strategic Advantage Best Customer Experience Low Cost Provider Virtual Integration Simplified Management Productivity Keep Cost Down Supply Chain Continuity Virtual Services Go Direct Quality and Service E-competency Michael Dell “I have always been fascinated with eliminating unnecessary steps.”


Slide40: The Power of the Direct Model


Slide41: Dell Direct Model Advantages ASSET MANAGEMENT TIME TO MARKET SUPPLIERS KEEP INVENTORY CLOSE TO DELL / 60% OF CUSTOMERS’ PAY IN ADVANCE Global Receivables ≈ 30 days Inventories ≈ 3 days Payables ≈ 70 days ----------- Surplus Financing ≈ 37 days ======= NO EXCESS INVENTORY IN DISTRIBUTION NETWORK In 3 days a new product/feature can be launched – competition has to clear its network first.


Slide42: Dell Marketing Approach ENTERPRISE CUSTOMERS PUBLIC INSTITUTIONS INDIVIDUALS / SMALL BUSINESS Larger deals supported by special WEB/EDI connections and field sales force Product development plan revealed Pricing competitive, often bidding Smaller deals done by WEB/PHONE Pricing announced by MEDIA and WEB at lowest level in the market – low margin Orders by WEB/PHONE will consider additional features of choice – improved margin


Slide43: Korea Japan Singapore Malaysia Vietnam Philippines Thailand India Australia New Zealand China Taiwan Pakistan Head Offices in Japan and Singapore Production Offices in Penang (Malaysia), Xiamen (China) Dell Asia Penetration Hong Kong Smaller sales offices in Delhi (India), Sydney (Australia), Hong Kong and Beijing (China)


A Modern Asian Success Story: Jong-Yong Yun “At Samsung, we believe we’ve got the critical mass of technology, facilities, personnel, partnerships, and capital needed to compete with and beat the world’s best.” A Modern Asian Success Story


Slide45: Samsung Strategy SCAN the world for new TECHNOLOGIES / INNOVATIONS PUSH frequent PRODUCT launches – upgrade the mix INVEST heavily in BRAND & Product PROMOTIONS IN business DOWNTURNS – INVEST MORE in Product / Brand to improve gap to competition A MODERN “GENGHIS KHAN” DETERMINED TO REACH THE TOP


Strategic Convergence: Strategic Convergence


Reinforcement of R&D: Reinforcement of R&D 10 Major Technologies Ultra Speed Wireless Comm. IP N/W High Speed Computing Intelligent Control Micro Processing Technology Data Handling Fiber Optics MM Data Processing Physical Device Advanced Material R&D Infrastructure Establish Global R&D Network Innovate Development Process Reinforce Technology Standardization Improve Royalty Balance


Samsung R&D Strategy: Samsung R&D Strategy Core Technology Outstanding Talents Increase Global R&D Spending Shape Industry and Set Global Tech. Standards Attract the Best People from All of the World Cultivate Existing Professionals 6.1% 7.0% 8.2% 2003 2005 2010 1,800 (3.1%) 2,800 (3.7%) 4,300 (4.5%) 2003 2006 2010 R & D Investment No. of Ph.Ds


Investing in Brand Equity: Investing in Brand Equity Ranking amongst Electronics Manfacturers Global Brand Value Ranking (34 in 2002  20 in 2005) (US B$) Rank Company Value 1 2 3 4 6 : Coca-Cola Microsoft IBM GE Nokia : 67.5 59.9 53.4 47.0 26.5 : 20 Samsung Electronics 15.0 Source : Interbrand, 2005 Rank Company 1 2 3 4 5 7 8 Microsoft IBM GE Intel Nokia Hewlett-Packard Cisco 6 Samsung Electronics 9 10 Dell Sony


Slide50: Map Over Samsung Asia Penetration Korea Malaysia Vietnam Philippines Thailand Indonesia Asia Production Bases China India Australia Japan


Slide51: Map Over Samsung Asia Penetration


Slide53: Global Businesses in Asia GE about Global businesses: “If you are not in Asia – you are nowhere”; and “If you are not in China – you are not in Asia!” ASIA PRESENCE IS BOTH OFFENSIVE AND DEFENSIVE STRATEGY IN PARALLEL


Slide54: To remain successful “Asia Pole” must be well integrated into global business in technology, sourcing, production, marketing and services Asia % of Total Business SKF 15% GE 11% Dell 10% Samsung Electronics 40% (14%)


Slide55: Success in Globalization See change as OPPORTUNITY – NOT as a THREAT. Follow CUSTOMERS closely View your company OUTSIDE IN not inside out LEARN from best practice INSIDE/OUTSIDE your COMPANY – compare performance between the offices, factories, warehouses etc. ACCELERATE CHANGE inside your company – BREAK the NIH/SILO mentality. SUCCESSFUL LEADERS ARE CURIOUS, DEMANDING AND SETTING HIGH BARS FOR THEMSELVES AND THEIR COMPANIES


Slide56: “Control Your Destiny … or Somebody Else Will” Thank you! John F Welch


Slide57: VISITING PROFESSOR PROGRAMME SEPTEMBER 1, 2005 – DECEMBER 31, 2006 GLOBALIZATION – BEST PRACTICES FROM BEST COMPANIES CORPORATE GOVERNANCE