Long Range Planning 33 (2000) 706-729 www.elsevier.

com/locate/lrp

Strategic Lessons from the

Asian Crisis
Kulwant Singh and George S. Yip

This article looks to the strategic opportunities provided by the recent Asian economic
crisis. It suggests that whilst the crisis did require immediate responses, the longer-term
issues were equally important. The authors look at different reactions to the crisis. They
discuss a variety of strategies, including bargain hunting for assets and making
strategic purchases whilst prices are low, forming new alliances to augment or supplant
those that already exist, and expanding whilst competitors are weak. They embed their
ideas into traditional strategic thinking, touching on issues of competence
enhancement, competitor awareness and customer focus. They use topical examples to
illustrate their points. Crises will reappear unexpectedly in countries and markets,
demanding that firms revisit their strategies. This article provides a framework for
thinking about these issues. 쎻 c 2000 Published by Elsevier Science Ltd.

Kulwant Singh is Associate
Professor of Business Policy at
NUS Business School, National
University of Singapore,
Singapore 117591. E-mail:
fbaks@nus.edu.sg
George S. Yip is the Beckwith
Professor of Management
Studies at the Judge Institute,
University of Cambridge,
Trumpington Street, Cambridge
CB2 1AG, UK. E-mail:
george.yip@jims.cam.ac.uk
The crisis that struck Southeast and East Asia in 1997 was, for
most countries in the region, the most severe of the last 50 years.
Coming after more than two decades of high growth and numer-
ous claims of impending Asian economic dominance,1 the crisis
was a major shock to the region and firms operating there. The
macroeconomic causes and consequences of the crisis have been
widely discussed, as have the national-level prescriptions for
recovery and reform.2 While there continues to be some disagree-
ment as to the precise causes of the crisis and the specific correc-
tive actions required, there appears to be growing agreement on
its macroeconomic lessons. The rapid recovery of many of the
crisis-struck countries also suggests that some of these lessons
have been learnt.
While macroeconomic discussions of the causes, consequences
and recovery courses for countries are important, they do not
offer adequate prescriptions for firms or multinational corpora-
tions (MNCs) in the region, nor to those now considering entry.
Few attempts have been made to draw specific lessons for firms,

0024-6301/00/$ - see front matter 쎻 c 2000 Published by Elsevier Science Ltd.

PII:S 0 0 2 4 - 63 0 1 ( 0 0 ) 0 0 0 7 8 - 9
particularly regarding the strategic responses MNCs should adopt
in economic crises and the ways in which they should prepare for
future crises.3 Though it appears that the Asian crisis is over—in
the sense that the region has recovered from the sharp economic
downturn and is now growing again—we believe that the recov-
ery is not. It is timely to identify the strategic lessons of the crisis
for firms, so that they can take better advantage of the recovery
and be better prepared when the next crisis strikes—as it surely
will in Asia and elsewhere.
In this article, we focus on MNCs, especially those from North
America and Europe, which have already committed to the
region or which are considering significant new investments.
Though we base our article on the Asian crisis, our aim is to
offer strategies and ideas for firms that will have to grapple with
the challenges of various major and unforeseen economic crises.
We offer our prescriptions in terms of four strategic lessons,
deriving these lessons from our analysis of the problems MNCs
faced during the Asian crisis. We believe that MNCs that learn
and build on these lessons will be better prepared to deal with
and profit from future economic crises.

Strategic actions during crises

What should MNCs do during a major economic crisis? What
operational actions have to be taken to preserve strategic success?
How can firms that have significant investments in a crisis region
preserve or increase the value of their assets, whilst preparing for
the eventual recovery of the region? What opportunities for a
new entrant exist in the midst of a downturn? What commit-
ments can a firm make during a crisis that will not entangle it
in a quagmire, and that will pay off significantly in the future?
What should firms do during the recovery? What can MNCs do
now to prepare for the next major economic crisis?
These questions suggest the need for firms to take both stra-
tegic and operational actions during a crisis, and to consider both
the short- and long-term implications of these actions. Figure 1
organises these actions into a framework of activities that firms

Figure 1. Dealing with crises

Long Range Planning, vol 33 2000 707

 have to focus on during crises. This framework suggests that dur-
ing crises, both operational and strategic actions can have short-
and long-term horizons, and that both short- and long-term
actions can have operational and strategic consequences. Though
crisis management is essential, and often an immediate priority,
firms that do not explore other options miss out on major
opportunities. As even actions dealing with the immediate conse-
quences of a crisis have the potential to significantly impact long-
term strategic performance, it is essential that firms consider the
broad set of available options when fashioning their response to
a crisis.
Figure 1 also summarises actions that firms can take during
crises. Short-term operational issues are the typical focus of crisis
management actions. However, other short-term actions can be
crisis management is strategic in nature. These largely relate to acquiring undervalued
assets, and therefore are termed bargain hunting. Actions with
an incomplete long-term strategic impact are termed strategic investments.
Though these actions can cover a broad range of activities includ-
response to a crisis ing, conceivably, reducing operations in a country, they often
involve increased commitments. Finally, we term as operational
management those actions focusing on long-term, non-strategic
issues. These may relate to issues such as ensuring that plant and
equipment are preserved during the crisis, and that supplier and
distribution chains are maintained.
This framework highlights the focus of our article, which
primarily concerns lessons relating to strategic actions for dealing
with crises. However, rather than focusing directly on these
actions, we present them in the context of four key strategic les-
sons from the Asian crisis. We primarily elaborate on strategic
bargains and investments while briefly illustrating crisis and
operations management actions.

Balancing crisis management and strategic

responses
The first lesson follows directly from Figure 1, which suggests
that crisis management is an incomplete response to a crisis. It
is essential to consider both operational and strategic issues and
to ensure appropriate responses to both sets of factors.
A crisis in our present context is a poorly structured or unex-
pected, rapidly occurring, high risk event that threatens the safety
of MNCs’ personnel, stakeholders and assets, and the continued
success of operations.4 It is essential, when hit by a major uncer-
tain event, that firms adopt a crisis management mode that focuses
on immediate and effective responses. Many MNCs found them-
selves facing collapsing currencies, rapidly failing operations and
the need to urgently evacuate staff from riots during the Asian
crisis. Many of these firms, however, were unprepared to deal with
such problems. We believe that some MNCs’ failure to prepare
was due more to the belief that crises would not occur, than to
a lack of knowledge of crisis management. The swift occurrence
of the crisis in what was believed to be a stable region reinforces

708 Strategic Lessons from the Asian Crisis

the need for MNCs to establish crisis management procedures for
a range of contingencies, including financial and strategic events.
These crisis management plans, however, must always be based
on the strategic interests of the MNC.
In the midst of a severe crisis, many firms naturally focus on
minimising losses through asset conservation and cost contain-
ment measures.5 Cost reduction is necessary, particularly if rapid
growth prior to the crisis (a not uncommon occurrence in the
crises that have struck Asia and Latin America in recent years)
may have masked inefficiencies within firms. As markets decline,
it is important to address these inefficiencies. But it is equally
essential that firms use the crisis to prepare for the recovery. The
key trade-off firms face is between maintaining present perform-
ance and building for future performance. MNCs must balance
crisis and strategic management during crises. It is essential that many firms failed to
in dealing with crises, MNCs remain aware of the potential for
long-term gain, and the danger of long-term harm from short- treat the crisis with
term actions.
General Motors (GM) faced a major problem in Taiwan when the urgency and
its dealer network collapsed during the crisis, depriving it of
access to most of its markets. To deal with the immediate chal- importance that it
lenge of re-establishing its distribution network, GM acquired
some of its failed dealer outlets in the major cities, ensuring that warranted
operations could continue in major markets. However, the failure
of its dealer network represented a long-term strategic challenge.
Recognising that the failure of the existing distributor provided
it with the opportunity to build an entirely new network, GM
did precisely this, via the Internet. In July 1998, GM introduced
its online sales systems to complement its much reduced physical
distribution network. This system has proved to be so successful
that online sales are expected to account for 30 per cent of total
GM sales in Taiwan by the end of 2000, and it is being examined
as a model for global adoption by the GM. GM’s response illus-
trates that an appropriate balance between crisis management and
strategic management can help firms deal with the immediate
crisis, while setting the stage for long-term success.
It is also clear that many firms failed to treat the crisis with
the urgency and importance that it warranted. Some failed to
treat the crisis as the major strategic challenge it represented.
Our observations suggest that the reaction most common
amongst MNCs during the Asian crisis was, essentially, to do
nothing more than reduce short-term costs while waiting for the
crisis to pass. Many firms adopted an easy, but highly inefficient
response: cutting all budgets and operations by a fixed amount,
possibly to ensure the equitable sharing of pain. In essence, they
did not handle it as a crisis but more as a long-term operational
or efficiency problem (see Figure 1). An alternative option evalu-
ated and adopted by some firms was to leave the region, in some
cases with the intention returning after the resumption of
growth.
Other firms did not treat the crisis as a strategic challenge. In
our conversations with managers, we regularly raised the ques-

Long Range Planning, vol 33 2000 709

 tion, ‘How did you alter your firm’s strategy to deal with the
Asian Crisis?’ We have been astounded by the answer offered by
a majority of the respondents in our informal survey: ‘We have
not altered our strategy at all.’ Our follow-up question, ‘Did your
firm re-evaluate its strategy to confirm that no changes were nee-
ded?’ commonly brings another surprising answer: ‘No.’ These
responses appear to challenge a fundamental precept of strategy,
that as the environment in which a business operates changes,
so its strategy must be optimised for the new environment. Our
position on this is fairly simple: MNCs and their managers have
either adapted their strategies without formalising such changes,
or they were too optimistic about the state of the region, or they
were simply wrong. We believe that approaches that worked well
before a major crisis are not likely to work as well during the
approaches that crisis or in the early recovery stages. Those that did not work
before the crisis will almost certainly not do so afterwards. It is
worked well before a therefore essential for firms to alter, or at least to question, their
basic strategic posture during crises. In doing this, they must
major crisis are not strike a balance between responding to the immediate challenges
of the crisis and facilitating the long-term strategic success of
likely to work as well the firm by flexibly adapting to the new environment. Research
suggests that there is often a tendency for firms to react to threats
during the crisis or in rigidly, by restricting information processing or by restricting
control to higher levels within the organisation.6 These tend-
the early recovery encies might be particularly great when the crisis is felt by a
distant foreign subsidiary. The subsidiary might react by
stages restricting information flow to the corporate headquarters, while
the headquarters might react by limiting the options available to
the subsidiary. These tendencies, together with managerial and
structural inertia, may prevent firms from reacting flexibly to crises
or to adapting to ensure strategic interests.7 These firms may get
locked into reacting in the operations management framework,
with actions that are designed to deal with neither immediate nor
strategic issues. Again, the ‘solutions’ for dealing with these prob-
lems are easily specified, though much more difficult to
implement: ensure communications channels remain open, that
the interests of the corporation are made clear, that action is coor-
dinated and flexibility is provided to country subsidiaries.
It is difficult, when crises strike, to avoid reacting to immediate
concerns and to focus on longer-term interests. After all, failure
to survive the immediate threat renders the future concerns irrel-
evant. But in reacting to any crisis, MNCs must not lose sight of
the longer-term rewards that will surely come for firms that pre-
pare for the re-emergence of growth. The key lesson is that in a
crisis, MNCs must adopt proper crisis management procedures,
but must balance all crisis actions with strategic interests.

Regions don’t have economic crises

The second lesson that the Asian crisis offers is one which is well
known but, paradoxically, has not been adequately recognised. Ref-
erences to ‘the Asian Crisis’, though clearly intended as a simplifi-

710 Strategic Lessons from the Asian Crisis

cation, have often been taken as indicating that the entire region
was in crisis, and from the same causes. That this is obviously
untrue did not prevent some firms from taking major strategic
decisions on the inappropriate assumption that all countries and
industries in the region were in the midst of a uniformly severe
recession. Almost all countries in Southeast and East Asia, a diverse
and difficult to define region, did in fact experience significant
economic slowdown, though the severity of the slowdown ranged
from catastrophic (in Indonesia) to relatively mild (in Taiwan).
Some countries at the fringe of the crisis were hardly affected
(China, India), continued to grow (Australia), or continued to suf-
fer from pre-existing causes (Japan). Equally important, countries
were differently affected by the crisis, dealt with it differently, and
have recovered at varying rates and in different ways.
For the countries most affected by the crisis, sales will not
recover to pre-crisis levels for some time and may not return to
pre-crisis growth rates for many years. Even if growth rates
eventually recover, the sales lost during the crisis may not be
recouped for many years, as illustrated in Figure 2. Investment
decisions that assumed the continuation of pre-crisis growth rates
are unlikely to be rewarded for some time. For the less badly
affected countries, the decline in market size is less significant,
and the recovery much more rapid, with less of a lasting impact.
Even if an economic crisis strikes a region broadly, the causes

Figure 2. Loss of markets. This figure demonstrates that even if crisis-

struck economies recover rapidly, the lost growth may not be reco-
vered for some time. Many firms had assumed that the pre-crisis
growth AB would continue, so that markets would grow to size D by
time t. In fact, markets declined along BC during the crisis. An optimis-
tic view is that economies will return to their pre-crisis growth (CE),
in which case a market size of DE would have been lost at time t. It
is more likely that growth will be slower (along CF), so that market
size DF will have been lost. To fulfill expectations of pre-crisis market
sizes, economies must grow even faster than pre-crisis rates (along
CD), which is clearly unachievable.

Long Range Planning, vol 33 2000 711

 and consequences of the crisis will differ between countries. It
is essential for firms to recognise these differences, so that they
can deal with specific causes and consequences as they affect
operations in each country. This will allow firms to focus on the
appropriate strategic or operational issues.
The varying consequences of the Asian crisis for different
countries are illustrated in Figure 3, which offers a simple frame-
work for evaluating the components and depth of the crisis in
different countries. We identify the major components of the
crisis as comprising sub-crises in banking, politics, economic pol-
icy, national confidence, currencies, demand, supply and corpor-
ate effectiveness. In Figure 3 we offer our personal interpretation
of how severely major economies were affected in each of these
areas, and the state of their recovery in mid-2000. Our evaluation
is based on an extensive review of published and current infor-
mation, and discussions with many managers and officials in the
region. We do not intend this evaluation to be a definitive report
on the state of these countries—indeed it is may well be dated
soon after this article is published. Instead, we offer this frame-
work as a simple means for organising the complex task of evalu-
ating the immense data on the status of very different countries
that have been affected differently by major economic crises.
This framework of eight sub-crises obviously simplifies major

Figure 3. Components of the Asian crisis

712 Strategic Lessons from the Asian Crisis

and complex components, but provides a useful basis for evaluat-
ing the depth of the crisis and recovery for each country. For
example, most countries were successful in stabilising their cur-
rencies by 1999. Malaysia made significant progress in dealing
with its banking crisis, though it had not, by mid-2000, fully
overcome its political crisis. Indonesia is particularly mired in its
political crises but also suffers on all other fronts. South Korea’s
confidence was badly hit, though its major problems continue
to be related to the need to improve corporate effectiveness,
restructure its banks and chaebols, and to reduce excess capacity
in several major industries. In Thailand, many MNC producers
experienced significant disruptions from suppliers. For Singa-
pore, the primary problem was insufficient demand from its
major Asian trading partners, though it continues to face the
challenges of corporate restructuring. Japan’s economic policies significant differences
still cannot stimulate sufficient domestic consumption. A more
detailed analysis will demonstrate that while significant progress exist between
has been made in several areas, major problems remain, so that
the effects of the crisis will continue to be felt in the region for countries, a fact not
some time. We believe that this illustration demonstrates that
this simple framework is useful for providing an overview of accorded sufficient
regions, countries or states that are experiencing economic crises.
For MNCs, the key benefit of this analysis is to highlight the importance by many
fact that significant differences exist between countries, a fact not
accorded sufficient importance by many MNCs during or since MNCs during or since
the crisis. Many MNCs continue to attribute uniformity to the
very different countries of the region, and thus fail to develop the crisis
appropriate strategies for each country during or outside of crises.
In a recent book, Asian Advantage, we provide a systematic frame-
work for analysing how the 14 most important economies in the
region differ, and the kinds of opportunities provided to MNCs.8
MNCs must recognise that economic crises occur at country
and industry levels, not at the regional level. Though contagion
effects can quickly drag neighbouring countries into a ‘regional
crisis’, firms must distinguish between the causes, consequences
and recoveries of different countries. The widespread applica-
bility of this lesson is clear from other recent ‘regional crises’,
such as the Latin American crisis during which different econom-
ies were also affected differently.
The importance of distinguishing between countries is reinforced
by the fact that the economies in a region can partially substitute
for each other and can play different roles in an MNC’s portfolio
of investments and activities. Crisis effects and opportunities will
also differ for MNCs, depending on the nature and size of their
actual or prospective commitments. This poses unique challenges
and opportunities for MNCs, which will have to recognise these
differences and implement varied responses across operations in
different countries. Though difficult, the need to recognise country-
level distinctions within regional and global operations represents
one of the original imperatives for successful multinational oper-
ations.9 The methods for doing so are relatively well established—
balancing autonomy, centralisation and localisation, the use of

Long Range Planning, vol 33 2000 713

 regional headquarters, matrix structures, adopting global and coun-
try strategies, and so on. Yet, in our discussions with managers on
the Asian crisis, we have been surprised by the frequency of the
complaint that corporate headquarters made no allowances for dif-
ferences between countries during the crisis, or even for the fact
that some countries were in the midst of a severe crisis at all. The
failure to recognise these differences and to allow differentiated
action can cause MNCs to make inappropriate choices, such as
cutting back in all countries in a region when this course may be
warranted in only some of the countries. All MNCs must recognise
that, regardless of the breadth of a crisis, they must identify the
problems faced—though as discussed below, not necessarily the sol-
utions—at the level of operations within each country. The failure
to adopt this approach will reduce the effectiveness of responses and
result in missed opportunities, the strategic lesson we discuss next.

Exhibit 1. Impact of the crisis on MNCs

The major consequences of the Asian crisis for MNCs were typical
of most economic crises. MNCs must, therefore, expect and deal
with the following in future crises.

Loss of markets
The most direct consequence of the Asian crisis was that with
very few exceptions, sales declined significantly as purchasing
power and confidence declined. A striking example of the col-
lapse is provided by personal computer markets, which shrank
greatly in most Southeast Asian countries (Table 1). The magni-
tude of these declines is even greater, when viewed against 1997
projections of 15 per cent future growth rates for most of these
markets. Auto manufacturer BMW suffered an average decline of
22 per cent in sales to Asia, with some markets declining by
much more. No firm, irrespective of its flexibility and the
efficiency of its operations, can routinely deal with such declines.

Disruption of supplier and buyer chains

Even firms that avoided the worst effects of the crisis faced major
problems from the loss of intermediaries. Many local enterprises
failed or lacked the resources to operate reliably. The disruption
to small and medium enterprises which supplied components,
provided services or undertook logistics functions was great, dis-
rupting established buyer and supplier chains. As many of the
emerging economies had relatively weak and thin supplier and
logistics industries, MNCs faced difficulties replacing these net-
works. Consequently, even profitable MNCs and those that
gained from favourable cost trends were not spared from the
crisis. For example, the collapse of the Indonesian Rupiah caused
a collapse in imports, leading to a large shortage of shipping
containers. Exporters from Indonesia faced difficulties securing
containers and had to bear the increased costs of having to
import empty containers.

714 Strategic Lessons from the Asian Crisis

Collapse of local partners
Many MNCs entered the region with cooperative ventures, rely-
ing on the widely accepted wisdom that their partners’ connec-
tions or expertise would facilitate their local operations. Many
local partners in fact proved to be valuable, providing MNCs with
local knowledge or resources, or access to business and political
decision makers. However, the costs of such dependence
became apparent during the crisis, as the failure of local partners
left some MNCs stranded.16 Chrysler attracted adverse publicity
in Thailand because of its unwillingness to absorb the losses of
a failed local partner. Negative consequences have been parti-
cularly great for those MNCs which lost the advantages offered
by politically connected firms and individuals. Businesses part-
nering firms or individuals linked to the former Indonesian Presi-
dent, Suharto, for example, suffered major reverses with his
departure from office.

Increased financial risks

Firms operating in the region faced significant financial risks
because of uncertainties in exchange rates, inflation, interest rates
and the availability of funds. The value of income streams from
the region consequently became less reliable.

Disruption of cost structures

The swings in financial costs and risks and the loss of sales and
markets contributed to major disruptions in cost structures,
requiring MNCs to re-think business models. Though most firms
faced increased costs, some gained from favourable movement
in costs and exchange rates. While many imports became more
costly, wage and property costs declined in most countries in
the region. Government actions also reduced some costs signifi-
cantly.

Greater political risk

Political instability was one of the earliest consequences of the
crisis, with Indonesia, Japan, South Korea and Thailand undergo-
ing unscheduled or unexpected changes in political leadership.
MNCs had to factor much greater political risk into their evalu-
ation of this region. This reduced one of the major advantages
that the region had enjoyed for many years, namely political stab-
ility.

Opportunities exist in every crisis

The third lesson follows closely from the first two, namely that
opportunities exist even in a severe crisis. Opportunities will be
particularly great when the crisis strikes suddenly and a whole
region falls into crisis, or is widely believed to be in crisis. An
obvious analogy of the opportunities available is that of stock
market corrections, during which some stocks that are otherwise
fairly valued are re-rated because of overall market declines. Con-

Long Range Planning, vol 33 2000 715

 Table 1. Growth in personal computer sales in Asia: 1998 vs. 1997 (%)

First quarter Year on year

Indonesia ⫺86 ⫺81.1

Thailand ⫺75 ⫺40.5
South Korea ⫺73 ⫺34.3
Malaysia ⫺49 ⫺26.4
Philippines ⫺48 ⫺19.8
Singapore ⫺15 ⫺10.2
Hong Kong ⫺15 ⫺0.1
New Zealand ⫺3 4.7
Australia 0 11.8
Taiwan 2 8.0
China 2 29.5
MNCs typically have India 4 31.5

two types of
trarians and others with longer-term horizons often make sig-
opportunity during nificant gains by selectively picking up stocks in these times. The
same holds during economic crises that strike regions. MNCs
crises: short-term typically have two types of opportunity during crises: short-term
bargain hunting and long-term strategic investments.
bargain hunting and
Bargain hunting
long-term strategic Major buying opportunities emerged during the Asian crisis as
asset values collapsed. In terms of US dollars, some asset and
investments equity prices fell to as little as 20 per cent of their mid-1997
levels. Assets that were rare, difficult to acquire or which were
previously not for sale, suddenly became available, generally at
far below their pre-crisis prices. Firms making portfolio invest-
ments or those simply seeking to ‘fish the bottom’ found attract-
ive purchases. These opportunities are common during major
economic crises, offering the opportunity for significant capital
gains when asset values recover.
Several cautions are in order, however. Firms that adopt a bot-
tom-fishing approach risk being labelled exploitative, with the
real possibility that their long-term reputation or operations will
be harmed. Buyers must not require or expect unrealistically high
returns from all acquisitions simply because they are in a crisis-
struck country or because the purchase is made in the midst of
a crisis. Careful acquisitions, and the commitment to turn these
assets around rather than to raid them, will be recognised by
governments, unions and employees, and will smooth sub-
sequent operations. Buyers must, therefore, not merely be seen
to be sources of capital, but as sources of management skills and
competencies, and as long-term investors.

Strategic investments
An alternative approach, and one that offers a broader range of
options, is to focus on strategic investments. These investments
can take the form of acquisitions, alliances, the expansion or
restructuring of existing operations, or new market entries. With

716 Strategic Lessons from the Asian Crisis

all of these options, firms should particularly focus on ‘architec-
tural assets’ such as storage and distributon networks, large fran-
chises, collections of property, networks of efficient plants, or
well established families of brand names. These assets are much
more difficult to acquire in times of growth and typically recover
their value much faster with economic recovery.

Acquisitions
Strategic acquisitions differ from bargain hunting in that they
focus on the beneficial impact of the target on the buyer’s long-
term performance. Though often prompted by asset values, these
acquisitions are driven more by long-term commitments to oper-
ations in a specific country or industry than by short-term capital
gains. The availability of assets, however, should not blind firms
to the difficulties of strategic acquisitions. Though many assets Though many assets
may appear cheap relative to pre-crisis prices, those valuations
were grossly inflated. More fundamentally, many assets were may appear cheap
cheap because they had not been performing well, while others
were in industries suffering from chronic over-capacity. It is relative to pre-crisis
possible to overpay for any asset, and the availability or relative
cheapness of targets does not negate the need for appropriate prices, those
valuation. As in all acquisitions, deals must be based on funda-
mental value, realistic prices and good timing. DBS Bank of Sin- valuations were
gapore appeared to have overpaid for Thailand’s Thai Danu Bank
in early 1998, rushing the acquisition when larger, wealthier and grossly inflated
more experienced banks such as Citicorp balked in the face of
high prices. DBS Bank had to absorb heavy and unexpected losses
from Thai Danu for the following two years, affecting overall
corporate results. Meanwhile more astute investors such as ABN
Amro and Standard Chartered waited a few months and obtained
better banks, for better prices on better terms.
Many sellers are typically unwilling or unable to accept
reduced valuations of their assets during crises, and balk at con-
firming deals that would result in large write-offs for themselves
or their creditors. As a consequence, many of the higher quality
assets are not available for sale. Another problem experienced
during the Asian crisis was that lack of transparency, and
accounting and business practices which depart from Western
norms, made valuation difficult and time consuming. This
required buyers to proceed on the basis of good faith or opti-
mism, qualities that were sharply reduced in the wake of disclos-
ures of rampant mismanagement, cronyism and corruption in
several countries in the region.10 The wealth of opportunities
typically available during major crises requires that MNCs exer-
cise discipline to channel resources where they will have the gre-
atest strategic benefit, rather than into fire sales that provide one-
off gains.
In any event, the many difficulties of managing acquisitions
are sure to arise after purchases are made. Some of these diffi-
culties will be made even more severe by the circumstances of
the sale. It would be wrong of MNCs to assume that these pro-
cesses will be easier simply because they believe their acquisition

Long Range Planning, vol 33 2000 717

 rescued the acquired firm from crisis or imminent failure. The
widely offered proposition that the majority of acquisitions do
not deliver the expected value is likely to hold in Asia.11 Despite
its Asian origins and a pre-existing relationship, Singapore’s DBS
Bank was concerned enough about the difficulties of managing
the newly acquired Thai Danu Bank that it left the entire Thai
senior management team in place. While this approach will help
in some regards, it will handicap restructuring and integration
efforts. MNCs will face greater difficulties and will have to pay
particular attention to managing the acquisition and integration
processes and to managing the acquired assets.

Alliances
Strategic partnerships or alliances are an alternative to acqui-
too much has been sitions. Firms that are unwilling to be acquired by MNCs are
often willing to establish alliances with them. Partnerships with
made of the local firms or government corporations that are fundamentally
sound but that are temporarily handicapped may be valuable in
importance of the long run. Alliances offer a bundle of advantages that are simi-
lar to (but weaker than) those offered by acquisitions. However,
relationships in Asia alliances are not cost free, having risks and costs similar to but
lower than those of acquisitions. MNCs must be careful to forge
alliances that are consistent with their strategy, and that will
deliver value greater than their costs. The careful selection of
partners and structuring of relationships can provide strategic
long-term benefits.
Relationships with existing suppliers and buyers represent one
particularly important class of alliances. While we feel that too
much has been made of the importance of relationships in
Asia—though useful for providing opportunities, astute Asian
businesses are unlikely to establish or maintain relationships that
do not benefit them—they are nevertheless important. Some of
this importance is simply due to inefficient markets in parts of
Asia, where inadequate infrastructure, limited competition, inad-
equate information and unreliable logistics make the mainte-
nance of effective relationships important. MNCs must, there-
fore, maintain important relationships and build new ones in
times of crisis. This may even require compromising short-term
profitability to facilitate the survival of allies, through channelling
sales or resources to key partners, providing greater or more gen-
erous credit or long-term loans, and investing in partners. Steel-
case International of the United States, for example, acquired
25 per cent of its Thai distributor, Modernform Group, and its
Singapore distributor during the Asian crisis. Though Steelcase
had other options, it chose to invest in Modernform with which
it had a well-established relationship that it could strengthen and
expand to undertake regional distribution. Other MNCs may
have a different rationale for similar action, exploiting lower
valuations to buy out ineffective local partners or distributors or
to gain better control. Though the costs of these efforts will be
significant, they are likely to be less expensive than having to
build new networks to replace failed partners. While we are not

718 Strategic Lessons from the Asian Crisis

certain that investing in partners will offer large returns, we are
sure that the failure to support them during crises will be remem-
bered and will be costly in the future. Investing in partners is an
option that all firms committed to a crisis country or region
should evaluate.12

Expansion or restructuring of existing operations

The opportunities available extend well beyond the acquisition
of under-priced assets. Many firms gain during crises by reco-
gnising and exploiting opportunities that arise during or because
of the economic turmoil. Others take the opportunity to expand
or restructure their activities at relatively low cost. Although
almost all industries suffered major declines in market size and
overall demand during the Asian crisis, some segments were
stable or grew. Many firms in Indonesia, Thailand and Malaysia While we are not
that operated in raw materials or natural resources, or that
undertook assembly work for export, became more cost competi- certain that investing
tive during the crisis. Many of these businesses shared the charac-
teristics of sourcing and paying for materials and services locally, in partners will offer
while selling and receiving payment from abroad. For these firms,
cost and currency swings were highly favourable, leading to large returns, we are
expanded exports and profitability. In fact, the crisis countries
enjoyed export booms after the initial shocks of the crisis wore sure that the failure
off. Increased exports and hold-ups in regular export channels
may have accounted for some logistics firms, particularly the to support them
express delivery firms, enjoying major increases in rates, sales
and profits in Indonesia, the worst hit economy. Though the during crises will be
retail industry in Indonesia was very badly affected, several large
urban retailers continued to enjoy significant sales, partly as a remembered
result of the failure of the smaller ‘mom and pop’ stores, the exit
of some firms, and the failure of distributors in the more remote
locations. Carrefour and Promodes, the European hypermarkets,
both commenced operations in Indonesia in 1998 at what was
possibly the low point of the crisis, but their formula of appealing
to the large middle class with wide varieties of goods at prices
lower than at traditional outlets was immediately successful. This
success allowed them to expand from two to five stores in a
single year, with plans being finalised for further expansion to
eight stores.
The rapid recovery of Southeast and East Asia from the crisis
has surprised most observers, just as the onset crisis did. MNCs
that failed to look for or exploit opportunities during the crisis
may well have suffered a second blow in having missed out on
the opportunities available during the rapid recovery.

Market entry
A different opportunity arose for MNCs that did not have oper-
ations in the region or in particular countries in the region. For
firms that had missed out on investing in Asia in the past, the
crisis offered a second opportunity to participate in the region,
with much lower entry costs than at any other time in recent
years. As entry costs declined significantly, the viability of many

Long Range Planning, vol 33 2000 719

 new ventures improved, even with the increased risk premiums
required. MNCs must be careful, however, to ensure that all new
ventures into crisis countries are fundamentally sound and do
not rest on transient cost advantages, if they are to succeed in
the long run.
The potential rewards for new market entrants can be parti-
cularly great when a major economic crisis forces regulators to
ease restrictions on foreign participation in previously closed
industries. Most foreign firms have found it difficult to make
investments in Japan and South Korea, or in protected industries
such as banking and finance, telecommunications or property in
other countries. The crisis forced governments and firms in these
countries to accept, if not necessarily welcome, foreign investors.
At the same time, many highly diversified Asian firms were sell-
Firms with a view to ing assets and businesses to reduce the scope of their operations.
Firms with a view to long-term strategic investments have been
long-term strategic acquiring assets that will yield significant pay-offs after the region
recovers. Among the most astute acquirers is GE Capital, which
investments have has made high quality acquisitions in Hong Kong, India, Indone-
sia, Thailand, Japan and other countries. Its acquisition of the
been acquiring assets US$6.5 billion auto and equipment leasing business from Japan
Leasing Corporation is the largest foreign entry into Japan’s fin-
that will yield ancial sector, and has provided it with a large, broad and diffi-
cult-to-replicate base of clients in one of the largest economies
significant pay-offs in the world. British Telecom, which already had some oper-
ations in the region, made a string of investments to significantly
after the region expand its presence. Opportunities for the entry of firms were
not limited to newer or higher technology industries, but
recovers included mature industries. The cement industry, for example,
saw a number of firms from Europe (Blue Circle Industries, Hei-
delberger Zement, Holderbank Financière Glaris, Italcement and
Lafarge), Latin America (Cemex) and Australia (Pioneer
International) making a string of investments, costing approxi-
mately US$2 billion, to enter into in several countries in the
region. As a consequence, several Japanese firms merged to meet
the competitive challenge of these entrants, as did major cement
manufacturers in the Philippines.
Clearly, not all of these investments will succeed, and not all
new entrants will be able to overcome the disadvantages associa-
ted with late entry. It is also clear that whilst opportunities exist
in all crises, they are not necessarily widespread, easily identified
or available to all firms. Nevertheless, the lesson for MNCs is
that opportunities do exist in crises, and that searches for these
opportunities must be undertaken in times of crisis. All firms
must re-think their strategies when a crisis strikes, to adjust to
the new, difficult environment they have to operate in. Enlight-
ened firms recognise that amid difficulties there exist opport-
unities from which a careful firm can benefit.

A strategic response is essential

It is essential that all crisis responses be guided by strategic con-
siderations. The lesson is, therefore, that MNCs must react to

720 Strategic Lessons from the Asian Crisis

crises strategically, in line with their corporate and business stra-
tegies, to ensure that the strategic intent continues to be the focus
of their action. This is not the trivial lesson it may appear to be.
Each MNC must develop its strategy for dealing with an econ-
omic crisis in the context of its overall global, regional and coun-
try strategies. Actions taken must be consistent with these stra-
tegies, rather than being ad hoc or local in focus. At the same
time, strategies must be flexible enough to allow for crisis man-
agement actions and changed environments. Getting these
broader strategies right is a prerequisite for developing appropri-
ate country strategies and operations for dealing with crises.
So, what do we recommend as an appropriate strategic
response to a crisis? By strategic we mean corporate-wide, com-
petence-enhancing, competitor-aware, customer-focused and
long-term. In addition, as discussed above, a strategic response By strategic we mean
must be opportunity-driven. We will discuss each of these
elements in turn. This discussion represents the core of our rec- corporate-wide,
ommendations on how firms can deal strategically with econ-
omic crises. Our recommendations cover several types of strat- competence-
egy—corporate-wide, competence-enhancing, competitor-aware
and customer-focused—as well as taking a long-term view. enhancing,
Corporate-wide strategies competitor-aware,
Many MNCs reacted to the Asian crisis as if it was a local matter,
with little impact on their global operations, competitors and customer-focused and
markets. Many continued to react this way even after it become
clear that the crisis had a broader impact than originally thought, long-term
with many industries and several non-Asian economies suffering
from slower growth through contagion. Several firms suffered
significant corporate-wide effects from shocks to their Asian
operations. Motorola, for example, delayed construction of a
US$3 billion chip manufacturing plant in Richmond, Virginia,
because of the Asian crisis. Some MNCs had to absorb major
losses from their Asian subsidiaries, impacting their overall per-
formance.
Each MNC must develop its own strategy for dealing with
crises in the context of global, regional and country strategies.
Actions taken must be consistent with these strategies, rather
than being ad hoc, local or short-term in focus. Will the crisis
alter corporate strategy, core business strategies and competitive
objectives? Will it be beneficial for some businesses to move out
of or into crisis countries? Should the firm exit some products
or businesses, and enter others? Questions of this nature must
provide the overall framework within which specific issues are
dealt with in any crisis.
Identifying optimal corporate-wide response is difficult for
firms with complex operations in different countries in a region.
For example, firms such as IBM, Seagate, ABB and Philips have
spread their value chains in many businesses across the countries
in Southeast and East Asia to take advantage of varying country
characteristics. The varied impact of the Asian crisis on different
countries (see Figure 3, discussed above) made it difficult to

Long Range Planning, vol 33 2000 721

 establish the specific impact on particular products or businesses,
and made choices even more difficult. Decisions of this kind are
not possible at the country level since corporate-wide interests
are often unclear. This requires the direct intervention of regional
or corporate headquarters.
Some firms reacted to the Asian crisis by transferring pro-
duction from higher cost centres to Asian operations, as excess
capacity, lower costs, favourable currency movements and lower
transportation costs made it effective to redistribute production
to the region. Other firms faced a related situation, transferring
production within the region to more attractive locations. How-
ever, particular caution should be exercised in this respect as
there may be a measure of irreversibility. The famously long
memories of Asians may work against MNCs seeking to return
The famously long to the same locations in the future, if departure in a time of crisis
is perceived as abandonment. In this context, the withdrawal of
memories of Asians J. C. Penney and Wal-Mart from Indonesia in recent years (for
reasons only partly related to the crisis) may be costly in the long
may work against term. The cost of these withdrawals will be particularly high
when viewed against the commitment and success of competitors
MNCs seeking to such as Carrefour and Promodes, as discussed above. Similar
forces are likely to exist in other regions.
return to the same MNCs must collate and transfer to crisis-hit operations the
relevant knowledge for crisis management. During the Asian
locations in the crisis, some firms discovered that their Latin American subsidi-
aries possessed valuable experience that they could share on
future, if departure in dealing with sudden, broad and deep economic slowdowns.
Realising that the Mexican crisis of 1995 was its closest experi-
a time of crisis is ence to the Asian crisis, Tricon, the parent of KFC, Pizza Hut
and Taco Bell, launched an effort to transfer knowledge from
perceived as Mexican to Asian subsidiaries of how to offer and deliver value
to more cost-conscious customers, with apparently promis-
abandonment ing results.
Corporations with the greatest commitments in a region
often suffer the most and experience the greatest corporate-
wide impact when a crisis strikes. For example, even temporary
deferment of investments in Asia, a common business decision,
could adversely affect corporate activities in other markets, in
addition to impacting Asian operations. Under these con-
ditions, corporate headquarters must provide operations in the
crisis countries with greater flexibility and guidance, to allow
them to adapt to the particular circumstances they face without
harming corporate interests. Despite the widespread acceptance
of globalisation, we were surprised by how many managers
expressed frustration at their inability to convince distant cor-
porate headquarters of the need to modify targets or bench-
marks in the face of the crisis.
Few MNCs faced as great a challenge as LVMH, the French
luxury goods group, which in 1997 drew 26 per cent of its sales
from the East Asian economies and a further 14 per cent from
Japan. Faced with declining sales, but having garnered signifi-
cant experience from dealing with Japan’s decade-long slow-

722 Strategic Lessons from the Asian Crisis

down, LVMH reacted with a corporate-driven, region-wide
restructuring plan designed to close stores, lower overheads,
reduce exposure, deal with the cyclical nature of sales, and
refresh its product lines. The difficulties in Asia were an
important catalyst to corporate-wide restructuring, which saw
a number of major acquisitions. Though sales from non-Japan
Asia only accounted for 18 per cent of corporate sales in 1998,
they grew to 23 per cent of total sales by 1999. For LVMH as a
whole, restructuring was successful, with 1999 sales and profits
growing by more than 20 per cent to record highs. Though
this success reflected more than the restructuring of Asian
operations, the failure to adopt a corporate-wide framework
would probably have reduced the effectiveness of restructur-
ing efforts.
Many Asian firms
Competence-enhancing strategies
Many firms have sought to increase their size and value by have placed too
accumulating assets and by increasing the value of these assets.
Many Asian firms have placed too much emphasis on increasing much emphasis on
the value of their assets, rather than on improving the efficiency
and productivity of those assets. In essence, many of these firms increasing the value
have placed greater emphasis on a strong balance sheet rather
than on a strong profit and loss account. Some MNCs in Asia of their assets, rather
appear to have followed similar patterns.
A focus on balance sheet management, which can be justified than on improving
in times of rapid asset inflation and economic growth, should
generally be replaced by a focus on profit and loss account man- the efficiency and
agement, with emphasis on increasing sales and profitability,
reducing costs and improving operations. Asset accumulation for productivity of those
its own sake should be discouraged, and firms should aim for
the ‘ideal’ state of being able to undertake operations without assets
being locked into large asset bases. This requires a renewed focus
on competencies and an evaluation of what resources must be
committed to develop the competencies required in the longer
term.
It seems an obvious proposition that in dealing with the crisis,
firms should try to enhance their competencies so that they are
better positioned to grow after the crisis passes. At the very least,
MNCs should avoid undermining their competencies. Avoiding
damage to competencies can take the form of retaining key staff,
not closing down valuable or difficult-to-establish operations,
maintaining relationships with key suppliers and customers, or
maintaining investments in activities that build brand name,
market share and mind share. Yet it has been common for firms
intent on reducing costs to adopt broad, ‘across the board’ cost-
cutting approaches that have reduced budgets by equal percent-
ages in key areas such as marketing and production equipment
maintenance and replacement, as well as in less important areas
of expenditure. It is clear that the impact for a manufacturing
firm of 5 per cent cuts in R and D, marketing or operations is
likely to be very different from similar cuts in building mainte-
nance or stationery and supplies.

Long Range Planning, vol 33 2000 723

 Exhibit 2. Coca-Cola in Indonesia17
Indonesia was a highly promising market for Coca-Cola before the
crisis, with 11 bottling plants in the country and sales and profits
growing annually by about 25 per cent. In 1998, however, sales
plunged by about 30 per cent, as the effects of the crisis were felt
and disposable incomes collapsed. Coca-Cola’s response to this crisis
provides an example of how MNCs can deal strategically with such
crises. Coca-Cola’s actions during the Asian crisis were importantly
driven by its experiences during Mexico’s 1994 crisis. The firm con-
tinued to invest in Mexico during the crisis, with the result that its
market share increased from 55 per cent to 65 per cent in a three
year period.
Coca-Cola’s initial response was to raise prices by between 40 per
cent and 45 per cent on average across its entire product range in
November 1997. Next, the mix of packaging was changed. The
plunge in the Rupiah’s value made aluminium much more expens-
ive, making the cost of Coca-Cola in cans prohibitive. As locally made
glass bottles were cheaper and could be reused, Coca-Cola con-
verted 75 per cent of its Indonesian production to bottles, up from
approximately 50 per cent before the crisis. Coca-Cola also consoli-
dated its canning operations in one plant in Jakarta, enabling it to
reduce the number of shifts required at other bottling plants. This
provided labour and overhead cost savings. To reduce foreign
exchange exposure risks, the company did not renew office space
leased in US dollar terms, instead moving its administrative oper-
ations to its own bottling plants. These efforts were part of a com-
pany-wide effort to reduce costs.
In spite of these efforts, Coca-Cola did not reduce expenditures
on management training, believing this to be key for its future.
According to Darryl McDonough, the Jakarta-based finance director
of the Indonesian operations, because tough times demand that
businesses ‘work smarter, Coke is still going to need to develop
and source better people.’ The firm has followed the widely offered
prescription that advertising is even more important in a crisis,
increasing resources dedicated to the now cheaper media space.
The company has also put more emphasis on targeted, point-of-
sale advertising. It continued with its roll out of computer monitor-
ing systems around Indonesia, to enable it to better understand
customers and tailor products their needs. In all, the message was,
‘We’re here for the long term.’
Coca-Cola also used the opportunity to buy assets in other coun-
tries, being one of the first companies to acquire assets in Asia in
the immediate aftermath of the crisis in late 1997. Coca-Cola raised
its investment in its Thai bottling plant by 5 per cent to 49 per
cent, acquired its South Korean and Philippines bottling plants and
expanded operations in India, Vietnam and other countries.
Coca-Cola saw the crisis in Asia as an opportunity to invest and
bolster market share. With the market having great potential—
annual per capita soft drinks consumption in Indonesia was about
2 litres, compared to 90 litres in neighbouring Australia—the firm
was unwilling to sacrifice its long-term prospects to boost short-
term earnings.

724 Strategic Lessons from the Asian Crisis

 Prioritisation is essential. Exploiting crises to attract and
develop quality staff and management, to establish or acquire
important operations, to build new relationships or strengthen
existing ones with major suppliers and customers, and to invest
in brand reputation and capturing market share can all build
competencies that will provide long-term competitive advan-
tage. MNCs must ensure that crisis management or perform-
ance-maintaining actions do not come at the cost of long-term
success. In the midst of the crisis, while many airlines focused
on cost cutting, Singapore Airlines, already widely rated as pro-
viding among the best in-flight service in the world, launched
a US$300 million upgrade of its services. Though this invest-
ment may not provide the returns it would have done pre-
crisis, the benchmark of long-term returns and an unwilling-
ness to compromise on fundamental competencies justified For every firm that
the investment.
pulls back or cuts
Competitor-aware strategies
Firms must not lose sight of how their foreign and local com- down operations
petitors deal with crises. For every firm that pulls back or cuts
down operations during crisis, there is another laying the during crisis, there is
groundwork for recovery and future competitiveness. Whilst
always following competitors is a mistake, ignoring their another laying the
actions or presuming their failure are equally faulty strategies.
As industries and economies restructure during crises, many groundwork for
MNCs subsequently face changes in the nature, degree and
identity of competition. In the Asian crisis, as in other recent recovery
crises, governments have generally moved towards greater lib-
eralisation of markets, which has resulted in increased compe-
tition in most industries. Understanding and preparing for
competitive actions in a time of major disruptive change will
provide firms with a better understanding of their own options
and of competitors’ future potential.
An extensive alliance and equity exchange agreed between
Goodyear of the United States and Sumitomo of Japan in Feb-
ruary 1999 was designed, in part, to deal with the Asian and
Latin American crises. But in creating the largest tire group in
the world, this alliance posed a major challenge to other lead-
ing firms, forcing them to look for similar ventures. As a conse-
quence, in early 1999, Michelin of France moved into a ‘stalk-
ing mode’ in its search for an Asian partner, approaching
several Japanese and Korean firms regarding possible alliances.
Pirelli and Cooper, who were already partners in Europe and
North America, sought a partner to extend their existing
cooperation to Asia. Similarly, moves by some airlines in the
region to join global airline alliances have been quickly copied
by most airlines in the region. These examples and the cement
industry case discussed above affirm the need for MNCs to
continually test their strategies against the plans and actions
of their competitors. This proposition, which is probably
accepted without question outside of crises, is equally appli-
cable during crises.

Long Range Planning, vol 33 2000 725

 Customer-focused strategies
Though the Asian crisis afforded opportunities for MNCs to
acquire undervalued assets, we believe that a major opportunity
was for the acquisition of under-served and under-appreciated
customers. We believe that the reputation Asian firms have for
customer and market orientation does not extend beyond the
top tier of firms. Most Asian firms have focused on cost and
speed advantages, and have done relatively little to meet or
exceed the needs of large segments of industrial and retail cus-
tomers in Asia. This provided an opportunity for MNCs which,
as a result of possessing greater resources, found that satisfying
key customers was amongst the most profitable investments they
could make during the crisis.
Individual consumers and firms typically reduce consumption
we believe that a levels broadly and adjust consumption patterns during crises.
Most customers become more price sensitive and switch to lower
major opportunity cost alternatives. This requires that products and their pricing
and positioning be changed to adapt to the new, more price-
was for the conscious environment. Firms that offer more competitive prices
while continuing to deliver value to customers will face fewer
acquisition of under- challenges and are likely to attract customers’ attention.13 Despite
major declines in personal computer markets (see Table 1), Gate-
served and under- way increased its Asia-Pacific unit sales in the fourth quarter of
1998 by 74 per cent over the previous year, while Dell’s market
appreciated share rose by 40 per cent in the same period. Though both firms
entered the region at the time of the crisis and had relatively
customers limited presence in the region, their model of offering value for
money and lower prices, direct to customers, proved to be viable
and appropriate to a region suffering high failure rates among
suppliers and distributors. Their commitment to the region in
spite of the major crises also placed them favourably for the
future.
For incumbents, the challenge is to develop innovative oper-
ations so that they can introduce lower priced products that meet
customer needs, without compromising their overall corporate
strategy or reputation, and without damaging their long-term
success. MNCs must resist the temptation to introduce failed or
inferior products or business models from their home countries
on the assumption that crisis-hit and value-conscious customers
will accept lower standards. MNCs must also understand that
their crisis is not their customers’ crisis. Simply passing on costs
or reducing value delivered to customers is a certain prescription
for long-term failure. Multinationals have a particular problem
in this regard, since their commitment to individual countries is
often questioned. Actions by MNCs that are viewed as opportun-
istic, exploitative, unreasonable or simply unfriendly may have
long-term consequences that outweigh immediate benefits. The
benefits of working with and supporting suppliers and customers
are magnified many fold in times of crisis, albeit with greater cost
and difficulty. Strategic long-term relationships with customers
should not be disrupted for transient pain reduction.

726 Strategic Lessons from the Asian Crisis

The long-term view
The impact of the Asian crisis will be felt in the region well into
the next decade. In spite of the rapid recovery and the implemen-
tation of corrective measures, we believe that the fundamental
causes of the crisis remain, making for a difficult business
environment long into the future. The massive withdrawal of
funds from the region, the large overhang of bad debts, reduced
investments, more cautious investors and weakened governments
will restrict the growth of existing opportunities and the emerg-
ence of new ones.14 As most existing firms in the region continue
to operate and new ones emerge, competition in the region will
increase. Government support and financial assistance, which
were often significant in the past, cannot be relied on in the
future. Changes in industry structure will impact upon cost
structures and may require new business models. Changes in There is clearly a
regulatory structures will impose additional constraints in some
areas, though offering greater flexibility in others. These and balance required, but
many other challenges will make the Southeast and East Asian
region a difficult one to operate in over the next decade. Firms striking this balance
that succeed in this environment are likely to be rewarded. In
the midst of the most severe crisis to strike Asia in decades, deal- is central to strategy,
ing with the crisis from a strategic and long-term perspective is
even more important. and is one that firms
All MNCs must re-evaluate their medium- and long-term tar-
gets and strategies during major economic crises. Despite the must grapple with on
recent installation of manufacturing and assembly capacity in
Southeast Asia, many automobile manufacturers were forced by an ongoing basis,
grossly excess capacity and major declines in demand to under-
take expensive restructuring. In spite of the immediate costs, with or without a
long-term interests dictated immediate action. Recognising the
fundamental change in the environment as a result of the Asian crisis
crisis, General Motors delayed the completion of its assembly
plant in Thailand and scaled it down from 100,000 vehicles to
40,000 vehicles a year. This still represented a major problem for
the firm, as demand collapsed by 65 per cent, to about 150,000
units, and capacity utilisation fell to 22 per cent.15 Yet, having
invested approximately US$5 billion in the region, a strategy of
withdrawal was not feasible. Instead, General Motors focused on
reducing or postponing costs, while continuing to invest in exist-
ing and new partners, brand names and other strategic assets. At
the same time, the long-term potential of the Chinese market
prompted General Motors to commence production on schedule
at its Shanghai plant, the biggest single investment in China by
an MNC. MNCs that take the long view will be better able to
make adjustments in the short-term that facilitate long-term suc-
cess. There is clearly a balance required between maintaining
present performance and using the crisis to build for future per-
formance, but striking this balance is central to strategy, and is
one that firms must grapple with on an ongoing basis, with or
without a crisis.
Inevitably, despite all the possible strategies suggested above,
some firms will have to cutback or withdraw from the region,

Long Range Planning, vol 33 2000 727

 at least temporarily. Even so, such moves can be done in such
a way as to minimise damage. For example, Motorola has built
a reputation in Asia as a good people manager. But in June 1998,
Motorola announced a corporate restructuring that would cost
10 per cent of its global work force their jobs, or 15,000 people
(including in Asia). After the announcement, Motorola gave
group ‘leaving parties’ for staff who had been let go. The aim
was to say, ‘It’s not your fault,’ and ‘Let’s stay friends.’ It is
important to note that Motorola continues to make strategic
investments in Asia even as it cuts costs. For example, the com-
pany continued construction on a $750 million high-technology
factory in Tianjin, China that it claims will outclass any other
Motorola manufacturing site outside the US. And though the
company has closed factories in North Carolina and California,
it is already planning to spend an additional $250 million to
upgrade the Tianjin semiconductor wafer fabrication plant
before it is even completed.

Conclusion
There are, obviously, other lessons and other means of dealing
with the Asian crisis that we have not discussed. These include
the importance of financial hedging; disposing of non-productive
assets; the benefits of reducing the diversity of operations for
MNCs with widely diversified operations; organisational restruc-
turing; localising activities, staff and costs; adapting to changes
in regulations; and many other specific actions. We have focused
on providing a strategic approach to guide the actions that MNCs
in Asia have or should have taken. Though we have focused on
the Asian crisis, we believe that the lessons we have identified
are broadly applicable to all major economic crises, and that
MNCs will gain from adapting these prescriptions to their parti-
cular circumstances.

References
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2. See, for example, J. J. Garten, Lessons for the next financial
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In Crisis: The Implosion of the Banking and Finance Systems,
Wiley, New York (1998); World Bank, East Asia. The Road
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3. Some discussions of firm-level issues relating to the crisis
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Boom, Bust and Beyond, Prentice-Hall, Paramus, NJ (2000).
4. This definition is derived in part from C. Pearson and J. A.
Clair, Reframing crisis management, Academy of Manage-

728 Strategic Lessons from the Asian Crisis

 ment Review 23(1), 59–76 (1998). This source provides a
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of cooperative strategies in the context of the Asian Crisis,
see Ang et al. (2000), pp. 103–136 (see Reference 3).
13. For a discussion of crisis marketing strategies set in the Asian
crisis, see S. H. Ang, S. M. Leong and P. Kotler, The Asian
apocalypse: crisis marketing for consumers and businesses,
Long Range Planning 33(1) 97–119 (2000).
14. Ang et al. (2000) (see Reference 3); World Bank (1998) (see
Reference 2).
15. For a discussion of the challenges of dealing with low
capacity utilisation, see C. Baden-Fuller, Managing Excess
Capacity, Blackwell, Oxford (1990).
16. For a theoretical discussion of the risk of dependence on
partners, see K. Singh and W. Mitchell, Precarious collabor-
ation: business survival after partners shut down or form
new partnerships, Strategic Management Journal 17, 99–115
(1996).
17. Material for this section was obtained from S. K. Witcher,
Coca-Cola Amatil struggles to handle Indonesia woes: bottler
tries to keep Coke affordable with cheaper containers,
efficiency push; Survival mode, The Asian Wall Street Journal
8 September, 7 (1998); R. Brown and R. Washington, Lead-
ing drinks manufacturers in Asia: corporate strategies in the
face of crisis, The Financial Times, London (1999).

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