The global growth imperative: Asian markets are major theme of CEO summit

Chief Executive, The, Jan-Feb, 2004 by Jennifer Pellet

It's a contradiction that more and more American CEOs face. On one hand, an opportunity for global expansion of breathtaking proportions glimmers on the horizon; burgeoning new markets in Asia, in particular, promise tremendous potential. On the other, the allure of expanding internationally is tempered by some formidable pitfalls, from anti-American sentiment to political corruption and intellectual property theft.

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At Chief Executive's CEO2CEO Leadership Summit, co-sponsored by Bain & Company and Korey Kay, CEOs gathered in New York in late November to contemplate this blend of opportunities and hazards. They also shared experiences in establishing a toehold--or building on an existing one--in emerging markets, namely China, Japan, South Korea and India. Like most CEOs, those at the conference expressed wariness about expansion in Eastern Europe and South America. And while they predicted that Western Europe and North America will remain important, Asia, they said, is where the growth is.

Many companies, including multinational firms like American International Group and Citigroup, are focusing on building on an already significant presence in Asia. AIG is firmly entrenched there, with its largest non-U.S. concentration of activity in Japan, China and South Korea. But while CEO Hank Greenberg sees the region as his firm's No. 1 market outside the U.S., he worries about a range of factors that could fuel swelling anti-American sentiment, including trade disputes, foreign policy and the behavior of American corporations overseas.

"Our foreign policy has not endeared us to the rest of the world right now, and that's going to be a long and lasting problem," Greenberg told attendees. He also expressed concern that the benefits of globalization haven't been shared evenly among the populations of many countries, and that could be fueling a backlash against free trade and financial flows. "If all companies do is make a lot of money in a country and export it out without investing in that country, that's not going to help," Greenberg said. "We have to do more to make the locals and the country itself benefit from globalization."

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Greenberg also cautioned CEOs that building a presence in Asia requires perseverance and commitment, including personal involvement from the top. "If you're going to try to do business in any part of Asia, be prepared to be there yourself," he said. "Because a leader there doesn't want to meet with your regional vice president or No. 2. That's an insult to them. So if you're not prepared to put in the price of doing that, then don't bother, because you won't get what you're after."

Greenberg practices what he preaches. During the 17 years it took AIG to break into the Chinese market, the CEO made countless trips to the region in a campaign to build relationships and negotiate favorable terms. "The payoff was that we got the first license in 1992, and today we own 100 percent of eight branches located in the best parts of China, while everyone else has 50-50 joint ventures," he recounted. "So it was worth the effort."

Greenberg also relies on the personal touch in Malaysia, where he has met repeatedly with Prime Minister Mahathir Mohamad to negotiate a path around the country's requirement that foreign insurance companies divest 30 percent of their stock to so-called bumiputras, or local Malaysian businessmen. "I wasn't about to convert the branch to a local subsidiary and divest," he said. "So we've been pressured and tortured and I've seen Mahathir a zillion times over this--but we haven't done it. If I had sent a No. 2 or No. 3, we would have been forced to do it."

Greenberg has little patience with companies that opt for token efforts or piggyback on the success of other U.S. companies to build outposts in the region. "The worst thing you can do is be in and out," he said. "We've seen companies come in, hire people from us or from other companies and then a few years later pack up their tents and go home. You destabilize the market and wreck it for others--and soil the reputation of Americans."

While Greenberg touts his 100 percent AIG-owned Asia operations, Citigroup Chairman Sandy Weill made an equally convincing case for expanding in the region through joint ventures. Citigroup has been growing its foothold in Japan (where it now earns more than $1 billion a year) since 1902. Partnerships with local firms--including a 20 percent stake in Nikko Cordial Securities and a 50-50 investment banking joint venture between Nikko and Salomon Smith Barney--have factored prominently in its strategy. Already, 37 percent of Citigroup's $88 billion in revenue comes from non-U.S. markets, and recent moves to angle for market share in China include the purchase of a share of the Shanghai Pudong Bank and a partnership to build a credit card business.

With the growth in today's emerging markets likely to outpace that of the U.S., Weill said joint ventures bring the twin advantage of facilitating more rapid expansion in high-potential areas and, in the case of China, enabling the company to break into a lending and exchange market still closed to foreign firms. "It's not as good as the model of owning 100 percent of something if 100 percent can work in a country," he acknowledged. "But in Japan, where the bodies of financial services companies who tried to do it without partners line the roads of Tokyo, you're much better off working with a Japanese partner. And in China, where we wouldn't have been able to think about being in the credit card business for three more years, doing something in the way of a joint venture allows us to get a big head start."