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Panel: Emerging Markets and the Changing Business Landscape

19th CEEMAN Annual Conference
Georgia - Tbilisi | 2011
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I listened to Dr Kraljic’s presentation with interest but I beg to disagree with one of the points that he made. He stressed the importance of competitiveness and competition. But should Eastern Europe really compete with the Asian economies on their conditions? Should we do what they do? The Asian companies assemble products that have been designed in California. Do we want to compete with Asia on that? I simply do not see how that can be done. 

There is another option, though. I think that the focus should be on creativity and innovation. Eastern Europe should not compete with Asia on assembly but should it compete with California on design? Of course, this is a difficult proposition. You might ask whether we have the capital that the American companies have. But is there a third option? Is it preferable to maintain hold and heavily polluting industries and compete in that field? 

Think of iPhone 4. It costs about USD 560. The components cost USD 178. By the way, most of them do not come from China but from the United States, South Korea and Taiwan. The Chinese share of the USD 560 is only USD 14; that is what they get for their assembly. The balance of USD 368 goes to Apple. This reminds me of a statement by Peter Drucker whom I admire greatly: “Marketing and innovation produce results; all the rest are costs.” 

What is our innovation strategy? There are two approaches. One is to go for incremental improvements targeting the top of the pyramid. This strategy was pursued by BMW, iPhone 4, and Four Seasons Hotel. 

There is also a new way of thinking about innovation. This approach amounts to a radical simplification, targeting the base of the pyramid. Examples of this are Tata Nano and Skype. The cheapest car produced in Ukraine costs USD 7,000. Why can’t we produce a cheaper car? It is not that we cannot; we do not want to. Each time I mention Tata Nano in Ukraine, people say, “Oh, give me a break! Is that a real car?” It is this excessive pride that is stopping us from doing what the Indians have done. 

Another Indian company produces refrigerators that run on batteries. This makes sense in India because of the irregular power supply. Their refrigerator costs USD 70. Again, we have a cheap producer of refrigerators in Ukraine, but the cheapest one costs USD 300. They can produce a cheaper one because they possess the technological skills for that. But they do not have the right mind to do it. 

Another good example is the Tune Hotels chain: advertising a five-star sleeping experience at the price of a one-star hotel. Unlike five-star hotels, they do not focus on facilities like swimming pools and fitness and they do not have large rooms. But unlike one-star hotels, they provide a clean and comfortable bed, security, and centrality. The chain was set up by Tony Fernandez who also founded Air Asia: the best Asian low-cost air carrier in the past few years. Both of these companies are Malaysian. Malaysia has 26 million inhabitants – a bit more than half as many as Ukraine. I ask my fellow Ukrainian countrymen why we cannot do something like that. What is the problem? What is it that we lack? 

Tony Fernandez is a member of the Indian minority of Malaysia. He is like those leaders described by Mahatma Gandhi: “First they ignore you, then they laugh at you, then they fight you, then you win.” Air Asia is a stunning success. You may have heard that they ordered 200 Airbuses this year. This is the biggest order in the history of Airbus. Air Asia is also helping Malaysia Air which is in trouble. Now, Tony Fernandez is a Malaysian hero. He has obtained the highest state title. All this happened despite the fact that he acted without government support. 

As any other country, Malaysia needs to deal with crime. Of course, the situation in Kuala Lumpur is better in that respect than it is in London. But can it improve even more? Can it be like in Singapore? The Malaysian police officials would say that it was possible - if you provided Singaporean funding. Why did they need more money? Because, they would say, they had to use more helicopters. 

The typical street crime in South-East Asia involves somebody riding a motorbike, snatching a lady’s purse and speeding away. How do you stop this type of crime with a helicopter? The real problem is that out of 100,000 police officers in Malaysia, only about 10 percent patrol the streets. Why? Because it is hot and humid in Malaysia. You love to be in an air-conditioned office despite the fact that you have been trained to be in the street. 

Realizing this, the Malaysian government put many of them out to patrol the streets and moved public servants into the Police offices to do office jobs. The number of public servants was half of the number of police officers as there was no need for too many of them. The result of this was a 40 percent drop in street crime. 

This seems easy to achieve. In fact it is hard. And it is hard because government agencies usually do not talk to each other. The army and the police do not want to talk to each other either. If you ask them why, they will tell you that they do not salute in the same way. Think of how difficult it is for marketing and sales departments to talk to each other. If they find a way to communicate, they could do miracles. 

I want to conclude this talk with a note on the emerging markets’ talent strategy. Do we know who our best students are? Do we know how to identify them? And do we care what will happen to them after they graduate? These are the issues that we should be thinking about.
19th CEEMAN Annual Conference: Management Education in a Changing World: Are We Ready for the Challenge?
September 2011
Published from:
October 2011
Pavlo Sheremeta, Panel: Emerging Markets and the Changing Business Landscape,
Accessed: June 24 2019,
Available at: http://ceeman.lecturehub.com/lectures/637/2011_ceemanac_tbilisi_sheremeta_pemcbl
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