The emergence of China has been written and discussed countless times in countless places. Most of this discussion has naturally focused on the threats posed by her huge cheap labour. Not only are the wages in China much lower than in places like Malaysia, she has plentiful supply of these low-wage workers. No thanks to her huge 1.3 bln population, the competition from low cost China, therefore, appears to be as far as the mind can imagine.
However, it would be wrong to think that the competition from China would only be confined to her almost endless supply of low-wage workers. There is no doubt that the competition from her low-wage workers is formidable. But if the Malaysian companies have the perception that this is the only competition coming from China, then, they are totally wrong and our Malaysian companies would be in for a very rude and expensive shock.
There has been no real scientific study on the management practises of Malaysian owned companies. But based on long-time observation and discussion and widely held beliefs, it is not too far wrong to say that non-scientific practises like "feng shui" play an important part in the management of Malaysian companies. Apparently, although not as widespread, this reliance on feng shui is not confined to only the Malaysian Chinese owned companies. This is the scary part because it shows the shallowness and weakness of our management capability. The serious advice of i Capital to the many Malaysian companies is not to be taken in by this easy route but instead to strive hard to improve their management know-how and techniques based on modern scientific methods.
Many Malaysians, particularly the Chinese, would swear by the usefulness of using "feng shui" in managing their businesses. Just take a look at the number of aquariums or water-related interior designs. This belief is based on rather myopic views where it appears to work in some cases and based on the simple-minded logic that even if "feng shui" cannot really work, it would not do any harm anyway. This is the dangerous part.
First, let us deal with the efficacy of "feng shui". The history of China is littered with disasters after disasters made by ignorant emperors in relying heavily on "feng shui". The history of China and the world would have been very different had the emperors in the Qing Dynasty modernised China based on modern scientific methods. Mao Tsetung was so worried about the Chinese mindset that he had to stage mental revolutions to get rid of such outdated practises in the almost superstition-like beliefs. The evidence against the efficiency of feng shui is compelling. In industry after industry, the companies dominating them nowadays are either Western or Japanese owned, with a sprinkling of Korean-owned companies. It is impossible to find anyone of them managing their companies based on "feng shui". If "feng shui" is so powerful and useful as is often claimed, why are there no Chinese equivalent of the Toyotas, Canons, Coca-colas, IBMs, Louis Vuittons, Microsofts, BMWs, SAPs, etc? If one would attribute their successes to imperialism and colonisation, then it would be difficult to explain the global successes of Hyundais, Samsungs, LGs, Nokias, Volvos, Nestles, Ericssons, IKEAs, Swatchs, Holcims, Rolexs and more.
One could argue that it is only a matter of time as China catches up. This is where the misinformed would get it wrong. There is no doubt that many China’s companies would join the ranks of world-class competitors but what would be unnoticed is the reason for their success. Practising "feng shui" would certainly not be one of them and this is where the Malaysian companies are falling behind. While the CEOs of the Malaysian companies would get more and more enamoured with stuff like "feng shui", their China competitors would get more and more seduced by modern scientific management techniques. MBA in China has become highly popular. China started sending MBA students to the US in 1984 but formally accredited MBA education in China only started in 1991 when Tsinghua University and eight other universities enrolled the first batch of 86 Chinese "experimental" MBA students. Today 87 Chinese universities and institutions are officially offering MBA courses. However, it is not the number of MBA students that impresses. For such a huge country starting with a very low base, the numbers would look impressive. But what is not shown, and this is the important part, in the overall number is the fact that many of the MBA students are actually already CEOs of their own companies. They are actually managing and studying at the same time, often at great sacrifices and with difficulties. Do not get i Capital wrong. It is not advocating a MBA course as a cure-all. Far from it. In fact, many of the MBA courses offered do not add any value at all and are a sheer waste of time. But take a look at the trend in Malaysia. Here, there is a fad for the CEOs to get or buy "degrees" from paper mills that often have impressive sounding names. For example, it does not matter where and how the PhD is obtained from as long as one is called a Dr. Between the two trends, it is easy to realise that the Malaysian companies are losing out fast, not only in terms of lower wage workers but also in terms of less capable management. In Malaysia, our companies and management are declining fast to mediocrity and oblivion.
The other part where using "feng shui" for business management is dangerous is the application of the rationale that while it may not do any good, it would not do any harm either. So why not, nothing to lose goes the reasoning. The trouble with such thinking is that it distracts the CEO or management of a company from doing the right thing. The CEOs and management need to drive their companies to adopt the best management practises and these take a lot of focus, energy, attention and resources. By getting distracted with the wrong stuff, a lot of time and ground is lost to one’s competitors. Besides getting themselves equipped with modern management techniques, the management of the China companies are actually putting them into practise. An area where these companies have caught up fast is in product packaging. Whether it is the peanut candy from Xiamen (which is also made in Malaysia) or Chinese tea from anywhere in China, their product packaging are now very sophisticated, not only in terms of design but also in the way the products are packaged. And not forgetting that China had a very late start in modern packaging concepts.
It is trendy nowadays to talk about the Ringgit peg with many asking for a repeg and many advising against a repeg. For this issue of i Capital, we would not get involved in the pros and cons of a repeg. What it wants to point out is something that it has advised before but which has been overlooked altogether. If Malaysia moves back to a free or managed currency regime, are the Malaysian companies ready for such a change ? Do our CEOs know enough about currency regimes and treasury management to handle a different currency regime? Are they familiar with the financial and treasury management methods and techniques used in the Western companies ? What steps are taken or can be taken to prepare them for such a change ? Again, there are no studies done on this. But based on anecdotal evidence and casual conversations, our CEOs are generally "blur" on financial and treasury management and would not be able to handle a managed or free floating currency regime. If we now have a managed or free floating currency regime, the next currency crisis would once again decimate many Malaysian owned companies. Again, for our CEOs and management to be prepared in a managed or free floating currency regime, they need to be familiar with modern scientific management methods. While China is still in a fixed exchange rate regime, you can be sure that when they change the regime, they would be ready to deal with the new currency regime.
What can Malaysian companies do ? Unfortunately, a lot. For Malaysian companies, the threat is not only from the low wages and abundant workers in China. It would be simple if these were the only threats. The culture and mindset of our CEOs and management need re-examining. Their skills and capabilities need to be upgraded in a major way. The government and associations like the Malaysia Employers Federation, the Federation of Malaysian Manufacturers, the universities, the many associations of the SMEs, the chambers of commerce and other similar bodies and the mass media can play a more active and constructive role in preparing the Malaysian companies. Organisations like the National Productivity Corporation should be restructured and turned into a low price, high quality management consultancy, especially for the SMEs. The CEOs and management themselves must be serious about building their organisations. To do that, they must make the effort to learn and equip themselves with the modern scientific management practises. It will not be easy but it will be worth it. Getting equipped does not necessarily mean getting a degree or professional qualification. There are too many examples of success to be so simplistically minded. Bill Gates and Larry Ellison (of Orcale) are not graduates. Michael Dell (of Dell) and Brian Behlendorf (one of the developers of the highly successful open source Apache) both dropped out of universities. Richard Branson and Li Ka Shing are without university degrees. Not having a degree is not the same as not practising modern scientific management methods. They need not be equated with one another. However, it would be impossible for Microsoft, Oracle, Dell, Virgin and Cheung Kong to be globally successful without modern scientific management methods.
In response to our analysis last week, subscribers told us that what we have written about the unnecessarily high dependence on foreign workers makes sense. Looking at the major adverse consequences, we guess this is not surprising. But what is more important is what we do about this escalating problem. i Capital would strongly recommend that the Malaysian government looks at the quality, composition and type of foreign workers. The government must have the will to take decisive action that will benefit the whole nation and not just selected sectors or people. Like what i Capital suggested last week, imagine how wonderful it would be for our children if we have, for example, 200,000 qualified foreign teachers teaching in our schools.