Appreciate the forces at play

As discussed in my previous blog (see here), ASEAN is one of the fastest-growing regions in the world; its GDP is expected to expand at an average of 4–6% for the next five years, it is likely to become the emerging markets’ second largest consumption base, and it will play a significant role in most multinational corporations’ (MNCs) manufacturing footprint. Given such an exciting future, many firms want to decentralize their organization in order to capture as much of the market as possible.

However, because the region is made up of 10 different countries that are individually much smaller than some of the larger emerging markets, are home to many different languages and business cultures, and are still relatively less mature, MNCs are forced to try and control the growth of such a complex environment through centralization of accountability.

Create a portfolio using a “Target Plan” approach

MNCs need to create a target plan for each of the individual markets that accounts for the impacts of the longer-run economic integration of the region. Given the developmental differences between the various countries, establishing individualized, long-term strategic expectations of the markets is imperative. The target plan will then drive decisions on the level of centralization versus decentralization required by the individual markets. See a hypothetical example below to explain the concept. Note that these country expectations will not necessarily hold true for your firm; it will vary for each industry and each company.

Company Alpha’s clusters based on the Target Plan approach

Industrial firm Alpha found that a uniform strategy across the region did not properly take local market differences into consideration, while a localized strategy was not the most efficient use of its resources. So Alpha decided to divide the region into strategic and opportunistic countries.

Three most commonly used reporting structures in ASEAN

Cost and Accountability Influencing Reporting Lines: While expectations of the market, i.e. target plans are going to play the largest role in determining decentralization decisions, the specific level of decentralization will usually be a function of keeping costs as low as possible and providing accountability to whoever is most capable/appropriate to make decisions.

In FSG’s latest work on the subject, titled Organizational Effectiveness in ASEAN, we highlight multiple practices of multinationals that have addressed the four critical success factors necessary to be organizationally effective in ASEAN. Contact your account managers for the full report.