GLOBALIZATION BEST PRACTICES FROM BEST COMPANIES

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GLOBALIZATION BEST PRACTICES FROM BEST
COMPANIES

• Introductory Presentation
• Visiting Professor Program
• Handelshögskolan Göteborg
• September 13, 2005
• Göran S. Malm

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Worlds Best Companies

• SKF THE BEST GLOBAL
• GE THE BEST MANAGED
• DELL THE BEST BUSINESS MODEL
• SAMSUNG THE BEST TECHNOLOGY COMPANY

FOUR COMPANY EXPERIENCES IS BASE FOR MY STORY
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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
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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.

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Asian Growth Race
Japan Asian Pioneer
Post Industrial
Korea
Four Dragons 1st Wave
Taiwan
Industrializing
Singapore / HK
ASEAN 2nd Wave
Mega Markets 3rd Wave
Thailand
Malaysia
Indochina 4th Wave
Philippines
Indonesia
China
Vietnam
Laos
India
Burma
Cambodia
Embryonic
JAPAN CENTER OF EXCELLENCE FOR ASIAN GROWTH
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China/India GDP Growth
China
India
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
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Largest 15 Global Economies by 2001 GDP (current
US and PPP current US)
GDP (current US, billions, 2001)
No. 6
No. 12
Source World Bank, CSFB research
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Long Term Growth Rates
?? IMF
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Largest 15 Global Economies by 2001 GDP (current
US and PPP current US)

• One PPP US buys the same quantity of goods
  services in all countries.

GDP (PPP current US, billions, 2001)
No. 2

• In PPP terms China is worlds 2nd largest
  economy and India 4th largest

No. 4
Source World Bank, CSFB research
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China Demand as a Percentage of World Demand
(2003E)
45
40
35
30
25
20
15
10
5
0
Source TEX report, Brook Hunt, LME, IAI, WBMS,
INSG, USDA, PSD, CSFB estimates
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Manufacturing Labour Cost Per Hour ()
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

Source IMD World competitiveness Yearbook 2003,
CSFB research
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Worldwide Semiconductor Consumption by Market
Share
Source WSTS/SIA
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Technology and Its Production
Source Dataquest, AMJ
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Fab Capacity by Region
Percent of Capacity
Currently Operational
Future Fabs
Worldwide Fab Watch (December 2003)
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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).

STRONG CHINA PLAY IMPORTANT FOR DEFENSE OF
GLOBAL BUSINESS
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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 60of 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
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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.
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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
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SKF Growth Platform
Bearings And Units
Lubrication Systems
Seals
Mechatronics
Services
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SKF Service Strategy

• Bearings and units
• Seals
• Lubrication Systems
• Condition Monitoring
• Shaft Alignment

TROUBLE FREE OPERATION

• Up Time
• Inventory Management
• Inventory Replenishment
• Logistics

ASSET EFFICIENCY OPTIMIZATION
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SKF Asian Strategy
BEFORE
AFTER
National Distributors
Dealers
OEMS BIG END USERS
C U S T O M E R S
SKF COMPANY IN EACH COUNTRY
SKF SINGAPORE W-HOUSE
SMALL USERS
Joint Action Distributors
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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
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SKF in China Yesterday

• 1912 Started business with China
• 1916 Set up office in Shanghai
• 1951 Exit China
• 1986 Return of China

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SKF in China Today
Beijing Nankou SKF Railway Co.
Shenyang
Dalian SKF Wazhou Co.
Wafangdian
Beijing
Dalian

Tianjin
Qingdao
SKF (China) Investment Co.
Nanjing
SKF (China) Sales Co.
Xi'an
Wuhu
Shanghai
Chengdu
Wuhan
Chongqing
SKF Reliability Systems Co.
SKF Automotive Bearing Co.
SKF Shanghai Bearing Co.
Guangzhou
Anhui CR Seals Co.
Hong Kong
SKF China Ltd.
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SKF Customers in China
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SKF Group
Manufacturing facilities Sales units
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GE Growth
Driven by A Players in a Boundaryless, Winning
Environment
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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

CREATING THE A TEAM POSITIONING TO WIN
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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
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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
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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
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Slow and Steady
Relative Size of Deals
Source Bain Company Global Learning Curve
study (2002-2003)
Average annual excess returns
average Index 1
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Transformation to a Service Company
Products
Services
25B
50B
70B
100B
120B-125B
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25
15
45
45
55
55
85
67
75
Dramatic Transformation from Product Oriented
Company to Higher Margin, Higher Growth, Services
Oriented Company
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Cost Quality Coming Together
Cost of Failure ( Sales)
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Most of This Cost Is Locked Up In Hidden Factories
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30
20
15
10
5
3.4
DPMO
233
6210
66807
308537
500000
Sigma
6
5
4
3
2
1
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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
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Win Locally
Growing From The Base
Step 1 Buy/JV Existing Co
Step 3 Leverage GE Integration
Step 2 Win Locally

• Standardize Components
• Source Components most
• competitively
• Introduce Regional/Global
• Systems Design
• High Competitiveness can
• lead to exports

• Installed Base
• Sales/Service Force
• Dealer Network
• Low-end Products
• Engineering

• Upgrade Safety Quality
• Add GE Brand Values
• Add Assembly Kits
• Bring in Technology
• Localize

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Japan As Center of Excellence
CHINA

• Audits
• Improvement Projects
• Japanese Management Team

HINO - TOKYO COE MEDICAL ASIA
KOREA

• Audits
• Improvement Projects

• 15 people dedicated support team
• Development of Green Book to define a world
  class supplier
• Audits and participation in improvement projects

INDIA

• Audits
• Improvement Projects

IN TWO YEARS THE JVS REACHED WORLD CLASS
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Global Plant Roadmap
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Dells Strategic Advantage
I have always been fascinated with eliminating
unnecessary steps.
Best Customer Experience

• Go Direct
• Quality and Service
• E-competency

Michael Dell
Virtual Integration
Low Cost Provider

• Simplified Management
• Productivity
• Keep Cost Down

• Supply Chain Continuity
• Virtual Services

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The Power of the Direct Model
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Dell Direct Model Advantages
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

ASSET MANAGEMENT
NO EXCESS INVENTORY IN DISTRIBUTION NETWORK In 3
days a new product/feature can be launched
competition has to clear its network first.
TIME TO MARKET
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Dell Marketing Approach

• Larger deals supported by special
• WEB/EDI connections and field sales
• force
• Product development plan revealed
• Pricing competitive, often bidding

ENTERPRISE CUSTOMERS PUBLIC INSTITUTIONS

• 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

INDIVIDUALS / SMALL BUSINESS
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Dell Asia Penetration
Korea
Japan
China
Pakistan
Taiwan
India
Hong Kong
Philippines
Vietnam
Thailand
Malaysia
Singapore
Head Offices in Japan and Singapore
Australia
Production Offices in Penang (Malaysia), Xiamen
(China)
New Zealand
Smaller sales offices in Delhi (India), Sydney
(Australia), Hong Kong and Beijing (China)
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A Modern Asian Success Story
At Samsung, we believe weve got the critical
mass of technology, facilities, personnel,
partnerships, and capital needed to compete with
and beat the worlds best.
Jong-Yong Yun
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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
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Strategic Convergence
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Reinforcement of RD
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
10 Major Technologies
RD Infrastructure

• Establish Global RD Network
• Innovate Development Process

• Reinforce Technology Standardization
• Improve Royalty Balance

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Samsung RD Strategy
Core Technology
Outstanding Talents

• Increase Global RD Spending
• Shape Industry and
• Set Global Tech. Standards

• Attract the Best People from
• All of the World
• Cultivate Existing Professionals

R D Investment
No. of Ph.Ds
4,300 (4.5)
8.2
2,800 (3.7)
7.0
1,800 (3.1)
6.1
2003
2005
2010
2003
2006
2010
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Investing in Brand Equity
Ranking amongst Electronics Manfacturers
Global Brand Value Ranking (34 in 2002 ? 20 in
2005)
(US B)
Rank
Company
Rank
Company
Value
1 2 3 4 5 7 8
Microsoft IBM GE Intel Nokia Hewlett-Packard Cis
co
1 2 3 4 6
Coca-Cola Microsoft IBM GE Nokia
67.5 59.9 53.4 47.0 26.5
6
Samsung Electronics
20
Samsung Electronics
15.0
9 10
Dell Sony
Source Interbrand, 2005
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Map Over Samsung Asia Penetration
Korea
Japan
China
India
Philippines
Vietnam
Thailand
Malaysia
Indonesia
Australia
Asia Production Bases
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Map Over Samsung Asia Penetration
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"The future is not be predicted It is to be
created."
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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
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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)

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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
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Control Your Destiny or Somebody Else Will

Thank you!
John F Welch
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VISITING PROFESSOR PROGRAMME SEPTEMBER 1, 2005
DECEMBER 31, 2006
GLOBALIZATION BEST PRACTICES FROM BEST
COMPANIES
CORPORATE GOVERNANCE