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 Series on Resource Management

Building Network
Capabilities in Turbulent
Competitive Environments
Business Success Stories from the BRICs

Paul Hong and YoungWon Park

 Building Network
Capabilities in Turbulent
Competitive Environments

Business Success Stories from the BRICs

 Series on Resource Management
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 Building Network
Capabilities in Turbulent
Competitive Environments

Business Success Stories from the BRICs

Paul Hong and YoungWon Park

CRC Press
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Contents
Preface.................................................................................................. xiii
The Authors.........................................................................................xvii

Chapter 1 Research Framework: Core Competence and Global

Strategy................................................................................ 1
1.1 The Importance of Network Capability in the
BRICs Market Environment............................................1
1.2 Network Capability and Global Competitive
Strategy................................................................................7
1.2.1 Three Types of Core Competencies and
Global Expansion Strategy..................................7
1.2.2 Core Competence and Product Architecture.... 9
1.3 Product Architecture and Supply Chain Integration.... 12
1.3.1 Network Capability Dynamics and
Portfolio Strategy................................................14
1.3.2 Network Capability and Intellectual
Property Strategy................................................19
1.4 Structure of This Book....................................................21

Chapter 2 Comparisons of Strategies of Established Global

Firms and Indigenous Firms from BRICs....................... 25
2.1 Introduction.....................................................................25
2.2 Global Supply Chain Management (SCM)
Strategy and Specialization........................................... 28
2.2.1 Supply Chain Management in Emerging
Markets............................................................... 28
2.2.2 Supply Chain Management and Product
Architecture........................................................29
2.3 Cases of Collaboration between Global Firms
and Indigenous Firms.................................................... 30
2.3.1 Global Supply Chain Collaboration
between Apple and Foxconn............................ 30

v
vi • Contents

2.3.2 Growth Process of the Chinese Mobile

Phone Industry...................................................33
2.3.3 LCD Industry: An Illustration of
Supply Chain Structure in East Asia...............35
2.4 Conclusion........................................................................37

Section I  Research Framework

Chapter 3 Strategies of Chinese Indigenous Firms.......................... 41

3.1 Introduction.....................................................................41
3.2 Chinese Economic Context........................................... 42
3.3 Case Studies of Chinese Firms...................................... 43
3.4 Case Study of Haier........................................................ 43
3.4.1 History of Haier................................................. 43
3.4.2 Strategic Management System:
Four Phases of Development Strategy.............45
3.4.2.1 Quality Strategy
(Comprehensive Quality
Management) (1984 to 1991)............ 46
3.4.2.2 Brand Strategy Phase (OEC
Management) (1992 to 1998)............ 46
3.4.2.3 Diversification Strategy Period
(1998 to 2005)......................................47
3.4.2.4 Global Brand Strategy Period
(2006 to Present)................................ 48
3.4.3 Haier’s Product Strategy....................................49
3.4.3.1 Haier’s Product Development
Speed.....................................................49
3.4.3.2 Champion Quality of R&D
Organization........................................50
3.4.3.3 Haier’s Global Competitiveness
and Its Product Strategy.....................50
3.5 Lenovo Case......................................................................51
3.5.1 Early Market Experiences and Global
Market Entry.......................................................51
3.5.2 Establishing Lenovo’s Brand and Pursuit
of Its Unique Customer Base............................52
 Contents • vii

3.5.3 Diversification of Its Businesses and

Enhancement of Global Competitiveness.......53
3.5.4 Lenovo Acquired IBM PC and Expanded
Its Global Target Market.................................. 54
3.6 Conclusion....................................................................... 54

Chapter 4 Strategies of Indian Indigenous Firms............................ 55

4.1 Introduction.....................................................................55
4.2 India’s Economic Growth Patterns...............................55
4.3 Case Studies of Indian Firms.........................................58
4.3.1 Tata Group...........................................................59
4.3.2 Mahindra & Mahindra Limited (M&M)........61
4.3.3 Big Bazaar........................................................... 64
4.4 Conclusion....................................................................... 64

Chapter 5 Strategies of Brazilian Indigenous Firms........................ 67

5.1 Introduction.....................................................................67
5.2 Brazil’s Economic Context............................................ 68
5.3 Brazilian Firms............................................................... 68
5.3.1 Embraer............................................................... 68
5.4 Conclusion........................................................................73

Chapter 6 Strategies of Russian Indigenous Firms.......................... 75

6.1 Introduction.....................................................................75
6.2 Russian Economic Context............................................76
6.2.1 Energy-Dependent Economic Structure.........76
6.2.2 Aggressive Public Expenditures.......................77
6.3 Russia’s Automotive Industry........................................78
6.3.1 Current Status of the Russian
Automotive Industry..........................................78
6.3.1.1 Passenger Car Production and
Sales Statistics......................................78
6.3.1.2 Domestic Production and Sales
Record...................................................79
6.3.2 Growth of Russian Indigenous Firms:
AvtoVAZ..............................................................79
viii • Contents

6.4 Russian Energy Industries..............................................83

6.4.1 Growth of Russian Indigenous Firms:
Gazprom..............................................................83
6.4.2 Comparison of Gazprom with Other Firms.... 87
6.5 Conclusion........................................................................87

Section II Emerging Global Firms

from China, India, Brazil, and Russia

Chapter 7 Strategies of Japanese Firms in the Chinese Market...... 91

7.1 Introduction.....................................................................91
7.2 Strategy of Komatsu China............................................92
7.2.1 An Overview of Komatsu China......................92
7.2.2 Structure of KOMTRAX of Komatsu China.... 93
7.2.3 KOMTRAX’s Usage Patterns in
Emerging Markets..............................................94
7.2.4 Competition with Local Chinese Firms..........97
7.3 Strategy of Daikin China............................................... 99
7.3.1 Daikin’s China Market Strategy.................... 100
7.3.2 Product Development Strategy of Daikin
China..................................................................101
7.3.3 Brand Marketing Strategy of Daikin China.103
7.3.4 Strategic Talent Development That
Supports Global Monozukuri (i.e.,
Japanese Manufacturing)................................104
7.4 Strategy of Honda Guangzhou....................................104
7.4.1 Honda’s Entry Strategy for the Chinese
Market................................................................105
7.4.2 Product and Technology Strategy of
Honda China.....................................................106
7.4.3 Marketing Strategy of Honda China.............110
7.4.4 Implementation of Localization Strategy:
Establishing Collaboration System and
Talent Development.........................................111
7.5 Toyota’s Global Supply Chain Management
(SCM) in China..............................................................114
 Contents • ix

7.6 Strategies of Other Japanese Global Firms................116

7.6.1 Strategy of Yaskawa Electrics of China.........116
7.6.2 Strategy of Panasonic China...........................118
7.6.3 Strategy of Clarion China................................119
7.7 Conclusion..................................................................... 120

Chapter 8 Strategies of Japanese Firms in the Indian Market....... 121

8.1 Introduction...................................................................121
8.2 Strategy of Toyota India................................................121
8.2.1 Toyota Kirloskar Motor (TKM) and
Toyota Kirloskar Auto Parts (TKAP)........... 122
8.2.2 Development of Etios Sedan.......................... 124
8.3 Strategy of Honda India............................................... 126
8.3.1 Nikkei Makers Lead in Indian
Motorcycle Market.......................................... 126
8.3.2 Honda’s India Strategy.....................................127
8.4 Strategies of Other Japanese Global Firms in India.... 129
8.4.1 Strategy of Seiko Epson India.........................129
8.4.2 Strategy of Makino India................................130
8.4.3 Strategy of Denso India...................................132
8.5 Conclusion......................................................................133

Chapter 9 Strategies of Japanese Firms in the Brazilian Market...... 135

9.1 Introduction...................................................................135
9.2 Komatsu Brazil...............................................................135
9.2.1 A Brief Overview..............................................135
9.2.2 Construction Equipment Usage Patterns
in Brazil and Komatsu’s Response.................136
9.2.3 Summary...........................................................140
9.3 Strategy of Toyota Brazil...............................................140
9.3.1 Brazilian Automotive Industry......................140
9.3.2 Toyota’s Entry into the Brazilian Market......142
9.3.3 Toyota Brazil: Plants and Quality
Management......................................................143
9.3.4 Present and Future of Toyota Brazil..............143
9.4 Brazil Honda’s Strategy.................................................144
9.4.1 Brazilian Motorcycle Market..........................144
x • Contents

9.4.2 Honda’s Entry into the Brazilian Market......145

9.4.3 Honda Brazil’s Motorcycle Production
and Marketing Strategy...................................145
9.5 Other Japanese Firms in Brazil....................................148
9.5.1 Strategy of Bridgestone Brazil.........................148
9.5.2 Case of Epson Brazil........................................148
9.6 Conclusion......................................................................149

Section III  Japanese and Korean

Global Firms in Emerging Markets

Chapter 10 Strategies of Korean Firms in the Chinese Market....... 153

10.1 Introduction...................................................................153
10.2 Samsung China’s SCM Collaboration Strategy.........155
10.2.1 Samsung LCD’s SCM System..........................155
10.2.2 Samsung China LCD’s Integration of
BLU Suppliers....................................................157
10.2.3 LCM (Low Cost Module) Strategic
Challenges.........................................................159
10.2.4 Conclusion.........................................................160
10.3 Global SCM Strategy of Hyundai Beijing..................160
10.4 Hankook Tire Strategy..................................................163
10.4.1 Market Reality...................................................163
10.4.2 Strategic Focus/Organizational Leadership.... 164
10.4.3 Product/Value Innovation..............................166
10.4.4 Strategic Alliance..............................................168
10.4.5 Global Market...................................................168
10.5 Conclusion......................................................................169

Chapter 11 Strategies of Korean Firms in the Indian Market......... 171

11.1 Introduction...................................................................171
11.2 Historical Background of Korean Firms’
Entrance to India...........................................................172
11.3 Localization Strategy of Hyundai Motor India
(HMI)..............................................................................173
11.3.1 Investment Goals in Indian Context.............174
 Contents • xi

11.3.2 Localization Strategy: Local Adaptive

Product Development and Marketing
Strategy..............................................................176
11.3.3 Human Resource (HR) Policies: Develop
Native Leaders and Education/Training
at Headquarters................................................178
11.4 Samsung India Electronics (SIE).................................179
11.4.1 Investment Context and Strategic Priority...179
11.4.2 Localization Strategy: Pursuit of FPD
TV–Based Premium Strategy..........................180
11.4.3 HR Policy of Management–Employee
Relationships: Continuous Improvement
by Field Employees...........................................182
11.5 LG Electronics India (LGEI)........................................183
11.5.1 Investment Contexts and Strategic Priority.183
11.5.2 Localization Strategy: Customer-Driven
Marketing and Premium Product Strategy..184
11.5.3 HR Policy and Management–Employee
Relationships: Native Leadership and
Incentive Systems.............................................186
11.6 Conclusion......................................................................187

Chapter 12 Strategies of Korean Firms in the Brazilian Market..... 189

12.1 Introduction...................................................................189
12.2 Status of Korean Firms in Brazil................................ 190
12.3 Localization Strategy of Korean Firms in Brazil...... 190
12.3.1 Samsung Brazil.................................................193
12.3.2 LG Brazil............................................................195
12.3.3 Comparisons of Samsung and LG.................196
12.4 Concluding Remarks.....................................................197

Chapter 13 Concluding Remarks and Future Research Issues........ 199

13.1 Comparison of Japanese and Korean Global
Firms versus Indigenous Firms from BRICs.............199
13.2 Emerging Market Strategy: Direction and
Prospect.......................................................................... 202
13.3 National and Firm Level Collaborations among
BRICs and Beyond........................................................ 203
xii • Contents

13.4 Firm Level Strategies in Global BOP Markets.......... 204

13.5 Competitive Advantage of Firms in Emerging
Economies.......................................................................210
References............................................................................................. 213
Preface
In 2012 and 2013, Psy’s “Gangnam Style” and “Gentleman” received world-
wide attention with their unique appeal in the global contents market. His
success illustrates the integrative power of the open network via YouTube and
individual core competence based on his peculiar music and dance styles.
In a sense, his case is an example of building network capability in a turbu-
lent competitive environment. With the prolonged recession in advanced
economies, emerging markets—BRIC (Brazil, Russia, India, and China) in
particular—are potential engines for global market growth. Recently, their
performances are not as impressively sustaining as anticipated. The growth
rates in India, Brazil, and Russia have slowed down somewhat. Even so, the
enormous size of the customer base from these emerging markets is the stra-
tegic concern of global business firms. Their economic demographic struc-
ture is changing from a typical pyramid shape with a huge bottom tier of
poor to a diamond ring structure with a tremendous consumer power base
in the middle. According to the Japanese Economic Industry Bureau statis-
tics, the total number of households in Asia with annual disposable income
between $5,000 and $35,000 was 140 million in 1990, 220 million in 2000,
and 880 million by 2008. This reflects the rapid growth of middle income
groups from China, India, and the Association of South East Asian Nations
(ASEAN). From a global perspective, a large share of middle income groups
is distributed in these areas. With rapid economic growth and an increase in
the customer base, these economies hold amazing purchasing power poten-
tial for new products and services.
In such dynamic global business environments, the source of competi-
tive advantage is the firm’s capability that offers innovative and valuable
goods and services. However, the sustainable competitive strategy for these
emerging markets requires substantially different market penetration
approaches. Over the years Japanese and Western (i.e., US-/Europe-based)
global firms entered these emerging markets much earlier—China, India,
and Brazil in particular. Yet, all their stories are not necessarily so success-
ful. Their market share is not so impressive in these emerging markets.
These firms can no longer afford real success in these markets by merely
offering high-quality products with sophisticated technology features at
premium prices. Many Japanese firms in fact have experienced serious

xiii
xiv • Preface

business failures in these nations. For example, SONY or PANASONIC of

Japan have lost their market leadership in these emerging markets as they
merely replicated their old business model that had been fitting US and
European markets.
In contrast, Korean firms with their relatively small domestic market
have implemented an adaptive product development strategy by offering
products that are responsive to local market needs. Recently, the mar-
ket growth rates of Samsung Electronics, LG Electronics, and Hyundai
Motor in these emerging economies have become noticeable. After the
2008 global financial crisis, many global firms from Japan, the United
States, and Europe reported substantial losses in their market perfor-
mance. At the same time, the prevailing view was that the market success
of Korean global firms would be short lived. However, after the mid-1990s,
these Korean global firms are doing fairly well. Recently in Japan, seri-
ous research about Korean studies is in progress. Behind Korean global
firms’ impressive growth, scholars began to note the constructive roles of
the Korean government and the owner-management style of Korean firms
that are characterized by bold and timely investment decisions, aggressive
global market expansion, and effective crisis management.
It is worth noting that Korean business strategy and management prac-
tices have their own unique features. Korean firms have made a successful
transition from analog to digital to keep pace with revolutionary changes
in the global markets. Korean electronic firms have achieved phenomenal
growth in the context of the 1997 Asian financial crisis and the infor-
mation technology (IT) bubble between 1997 and 2000. Unlike Japanese
counterparts, Korean firms expanded their scale of operations for global
markets and their financial performance indicators (e.g., sales, profits, and
market share) vastly improved. The contribution ratio of the electronic
industry for the Korean economy and the global market is substantial.
In the past, steel, shipbuilding, and heavy industries were leading the
annual growth of the Korean economy. At present, the contribution of the
electronic industry—semiconductors, mobile phones, and thin-film-tran-
sistor liquid-crystal displays (TFT-LCDs) in particular—to the Korean
economy is substantial.
The 1997 Asian financial crisis pushed Korean firms to radically restruc-
ture their business organizations and move forward to target global markets.
Thus, the external shock pressures made these firms take steps toward radi-
cal change. Moving beyond their domestic operations these firms have pur-
sued an aggressive global expansion strategy. Since 2000 the authors of this
 Preface • xv

book and the research team have conducted numerous field visits to study
the business practices of Japanese and Korean firms in Brazil, Russia, India,
China, and South Africa (BRICS) and South East Asian Nations (ASEAN).
Our observation is that the strategic core of successful global firms is in
the development and deployment of their global network capabilities in
emerging markets. The emerging markets display enormous contextual
complexity in terms of political situations, economic policies, and the base-
of-pyramid (BOP) structure of income distributions. Successful market
performance in these emerging economies requires a sound understand-
ing of dynamic environmental factors and timely investment of appropriate
resources. This book puts special emphasis on three elements of network
competence (i.e., technology, customer, and linkage competence) and prod-
uct architecture for product development strategy as the theory base for
examining successful cases of Japanese and Korean global firms and the
responsive strategies of the native firms from these emerging economies.
This book of network capability covers the emerging global businesses
of BRICs (Brazil, Russia, India, and China) which include Chinese and
Indian electronic and automotive firms and other joint venture firms in
these emerging economies. Goldman Sachs argues that the economic
potential of Brazil, Russia, India, and China is such that they could become
among the four most dominant economies by the year 2050. These coun-
tries encompass over 25% of the world’s land coverage and 40% of the
world’s population. This second volume highlights these four countries
that are among the biggest and fastest growing emerging markets. Many
global firms have turned their attention to the emerging BRIC markets
as ways to achieve alternative global competitive capabilities in view of
somewhat slow business growth in North America and Europe.
This book has some distinctive features. First, it is based on the integra-
tion of relevant theories and field studies as the basis for understanding the
dynamic challenges and opportunities that global firms face in emerging
markets. Our research team has made numerous field visits to many firms
in Brazil, Russia, China and India to meet executives, interview them and
observe their manufacturing and supply chain practices. We report what
we have discovered through these experiences as much as what we learned
from the vast available literature. We believe that serious theory-building
efforts require constant engagement with reality.
Second, this book covers beyond selected Korean and Japanese firms.
Since the market focus is emerging large economies (Brazil, Russia, China
and India), this book presents strategic business practices of prominent
xvi • Preface

firms of these emerging economies as well as successful Japanese and

Korean firms in BRICs. Since our intent is to cover the markets in BRIC, the
strategic focus includes firms from global Japanese and Korean firms as well
as indigenous firms from Brazil, Russia, India and China. These are based
on extensive field studies in these countries and relevant literature reviews.
Third, this book presents new network capability models that include
three types of competencies and the concept of product architecture.
From these theoretical lenses, we analyze cases of Japanese, Korean and
other global firms. In particular, these successful models display tech-
nology competence (i.e., innovative capability for offering products that
fit emerging markets), customer competence (i.e., sensing capability for
understanding lifestyles of customers and satisfying their needs), and
linkage competence (i.e., integration capability of both technology and
customer competence) (Park and Hong, 2012). Our focus is to examine
the linkages between various functional design choices and their impact
on competative performance (Brown, 2013). We also add the concept of
product architecture in addition to these three competencies for more in-
depth analyses of global firms operating in BRICs.
In brief, compared to the first book, this second book has enlarged the
scope of emerging economies and the business range of global firms. The
theoretical framework is also based on the integration of international
business, product architecture, and supply chain management theories.
Thus, this book aims to serve scholars, students, and practitioners in the
areas of international business, supply chain management, and strategic
management.

Paul Hong, PhD, CMA

YoungWon Park, PhD
The Authors
Dr. Paul Hong is a professor of operations management at the University of
Toledo, Ohio, USA. He holds a PhD degree in manufacturing management
and engineering from the University of Toledo. He also holds an MBA and
an MA in economics from Bowling Green State University, Ohio, USA
and a BA from Yonsei University in Seoul, Korea. He has presented and
published more than 200 articles in conference proceedings and journals
including the Journal of Operations Management, International Journal
of Production Research, Corporate Governance: An International Review,
Journal of Supply Chain Management, Benchmarking: An International
Journal, British Journal of Educational Technology, Strategic Outsourcing:
An International Journal and European Journal of Innovation Management,
Journal of Production Economics, International Journal of Operations and
Production Management, Journal of Business Research, International
Journal of Technology Management, International Journal of Information
Management, Management Decision, Journal of Cleaner Production, Journal
of Purchasing and Supply Management, Journal of Service Management
and Business Horizons.
He is the recipient of Journal of Operations Management Best Paper
Finalist Award (2006) for the paper, “Role Change of Design Engineers in
Integrated Product Development), Emerald Literati Network 2011 Awards for
Excellence for the paper, “Integration of Supply Chain IT and Lean Practices
for Mass Customization: Benchmarking of Product and Service Focused
Manufacturers” and Best Paper Awards on “Flexible and Redundant Supply
Chain Practices to Build Strategic Supply Chain Resilience: Contingent and
Resource-Based Perspectives” and “Using Social Media for Competitive
Advantage: An Empirical Study“ at the Annual North American Research
Symposium in Tempe, Arizona, 2012 and 2013.
He is an editorial review board member of several journals including
the Journal of Operations Management, Journal of Humanitarian Logistics
and Supply Chain Management (JHLSCM), and Journal of Enterprise
Information Management (JEIM). Since 2006, he has been special issue
editor for journals such as Benchmarking: An International Journal (BIJ),
International Journal of Business Excellence (IJBEX), International Journal
of Services and Operations Management (IJSOM), International Journal of

xvii
xviii • The Authors

Procurement Management (IJPM), and International Journal of Production

Economics (IJPE). He is conference chair and international network coor-
dinator of the annual International Symposium and Workshop on Global
Supply Chain, Intermodal Transportation and Logistics—4th Symposium
in Madrid, Spain, 5th Symposium in Tokyo, Japan and the 6th Global
Supply Chain Conference in Dearborn, Michigan, USA. His research
interests are in business ecosystem innovation strategy, global supply
chain management, and international comparative studies.

Dr. Youngwon Park is an associate professor at the GCOE Project of

Manufacturing Management Research Center at the University of Tokyo,
Japan. He holds a PhD degree in the Department of Advanced Social and
International Studies from the University of Tokyo, Japan. His articles have
been published in journals including Management Decision, International
Journal of Production Economics, International Journal of Technology
Management, International Journal of Information Management, Business
Horizons, Journal of Business Research, Benchmarking: An International
Journal, International Journal of Services and Operations Management,
International Journal of Logistics Systems and Management, International
Journal of Business Excellence, International Journal of Procurement
Management, Akamon Management Review, Japan Academy of
International Business Studies, Japanese Society for Science and Technology
Studies, and the Japan Society of Information and Communication
Research. He has received research awards including dissertation paper
awards from the Japan Association for Social Informatics (JASI), best
paper awards from The Japan Society of Information and Communication
Research (JSICR), research awards of the social science field from the
Telecommunications Advancement Foundation (TAF), and research
students awards of the social science field from the Telecommunications
Advancement Foundation (TAF). His research interests are in technol-
ogy management, manufacturing and IT strategy, and global supply chain
management.
1
Research Framework:
Core Competence and Global Strategy

In Chapter 1, we provide a theoretical framework of this book.

We start from Penrose theory (1959), extend to network capabil-
ity theory, firms’ strategy in base-of-pyramid (BOP) markets, and
resource-based view (RBV) (Wenerfelt, 1984; Rumelt, 1984; Barney,
2002). We also expand competence-based theory into three types of
competencies. The early form of core competence theory traces back
to Smith (1776), Schumpeter (1934), and Coase (1937). This compe-
tence-based view coordinates and integrates diverse management
resources toward higher levels of organizational capabilities (Hamel
and Prahalad, 1990; Morone, 1993). Three core competencies are
the crucial competencies that global firms need to utilize in emerg-
ing markets. And the theory of product architecture is essential in
examining why certain industries use their product strategy differ-
ent from others.

1.1 THE IMPORTANCE OF NETWORK CAPABILITY

IN THE BRICs MARKET ENVIRONMENT
Shortly after the global financial crisis in 2009, the world economy was
deteriorating on a global scale. But since 2010, it has continued to recover
gradually. However, this recovery process varied sharply by countries and
regions. The International Monetary Fund (IMF) forecast on the world
economy as announced in April 2011 indicated that the growth rate of

1
2 • Building Network Capabilities

the world economy in 2010 registered a 5% increase over that of the previ-
ous year following a record −0.5% decrease in 2009. The gap of economic
growth between the advanced and emerging economies further increased
since 2011, and the imbalance in growth in various forms is emerging.
Developing economies generate half of global gross domestic product
(GDP) and over 40% of world exports (Sinha, 2013). Customers in these
markets are fundamentally different from those in developed markets. The
customers residing in the United States are having $44,000 as a per capita
income, whereas this figure in India stands out at $1,000. These markets
can be termed as mega markets with micro customers. With the new phase
of globalization where the world has shrunken from “size large” to “size
medium” to “size small” to “size tiny,” most of the multinational companies
have targeted only the top of the pyramid (i.e., wealthiest 10%). The true
potential lies in unlocking the other 90% of the pyramid as also suggested
by Prahalad (2005, 2009) in his book, Fortune at the Bottom of the Pyramid.
As mentioned by Prahalad, poor nations are incubating new business mod-
els and innovative uses of technology that in the coming decade will begin
to transform the competitive landscape of entire global industries, from
financial to telecom services to health care and car making.
In the words of Govindarajan (2012), a reverse innovation, very simply, is
any innovation likely to be adopted first in the developing world. Instead of
developing high-end products at home and adapting them for markets like
China and India, companies can observe reverse innovation by developing
products with the focus on the constraints of emerging markets. The price
point needs to be lower, but it should deliver high value at an affordable
price. Prahalad (2005) adds that reverse innovation requires a radical shift
in thinking as it starts with fundamentally different ground rules.
Under these circumstances, emerging markets—BRICS (Brazil, Russia,
India, China, South Africa) in particular—are perceived as a potential
engine for global market growth. Recently, the rates of their growth are not
as impressively sustaining as anticipated. The growth rates in India, Brazil,
and Russia slowed down somewhat. Even so, the enormous size of the cus-
tomer base from these emerging markets is the strategic concern of global
business firms. In particular, the rapid economic growth of these nations
is changing the economic demographic from a typical pyramid shape with
a huge bottom tier of those who are poor to a diamond ring structure with
tremendous consumer power base in the middle. According to the IMF,
while advanced economies, including the United States, Euro Zone coun-
tries, the United Kingdom, and others registered a 3% increase over that of
 Research Framework: Core Competence and Global Strategy • 3

the previous year in 2010 compared to a −3.4% decrease in 2009, the emerg-
ing economies achieved 2.7% higher growth in 2009 and a 7.3% increase
over the previous year in 2010. Meanwhile, most of the emerging econo-
mies such as China, India, and Brazil continued their economic growth
and recovered to a level over the first quarter of 2008 before the financial
crisis. The emerging economies were having a higher proportion of world
nominal GDP, as mentioned above. Notably, China’s nominal GDP outran
that of advanced countries like the Japanese one in 2010. It is forecast that
China’s nominal GDP will largely outrun those of major advanced econ-
omies in 2011 and continue to do so thereafter (METI, 2011). The struc-
tural ratio in world GDP of the emerging economies is 31.2% in 2010, 34%
in 2011, and 39.9% by 2014. Moreover, with the rapid growth of middle
income groups, the portion of emerging economies such as China, India,
and Association of South East Asian Nations (ASEAN) might grow further.
A large share of middle income groups from these emerging economies
would hold amazing purchasing power potential for new products and ser-
vices of global firms. Furthermore, according to the Business Perspectives
on Emerging Markets 2012–2017 report from Global Alliance Intelligence
(GIA), by 2017 emerging markets are expected to account for 26% of global
revenues on average for pharmaceuticals and healthcare companies, up
from 15% today (Figure 1.1). Emerging markets are becoming large key
customer markets and critical to their future of global firm operations.
The 38 business managers in GIA’s survey suggest that the BRIC countries
(Brazil, Russia, India, and China) are still their top four most important
emerging markets for 2012 to 2017, with Brazil being the clear favorite with
90% of the votes. Mexico, Turkey, Argentina, and South Africa top the list
for non-BRIC emerging markets as well.
Additionally, emerging markets also show impressive results in inno-
vation. In terms of patent data, Rupali (2013) reports that from 1987 to
2007, the number of patents has grown at least four times. The emerging
economies are forging ahead and exploring new areas of market poten-
tial. Both China and India have achieved amazing patent outputs com-
parable to other advanced nations (e.g., United States, Japan, and other
European nations). Apart from attracting offshore engineering services,
the information technology sector in particular, India is attracting firms
for highly functional and less expensive products with frugal engineer-
ing. India, with large domestic markets and a large population of young
people, provides an ideal ground for business expansion to many firms.
For instance, Tiwari and Herstatt (2012) report that IBM has entrusted its
4 • Building Network Capabilities

Indian subsidiary with major responsibility in its Mobile Web Initiative

to expand the web-based business, education, communication and enter-
tainment market in India.
The landscape in emerging markets is becoming more favorable for
foreign players. Rising incomes and favorable healthcare policies have
spurred growth. China, for instance, allocates $41 billion for the devel-
opment of new hospitals and for the refurbishment of its healthcare sys-
tem in its latest Five Year Plan (2011–2015). India’s government plans to
improve the country’s current doctor-patient ratio to 1 to 1,000 by 2015,
an increase of 60%. India’s federal government recently announced a $4.8
billion plan to provide more than half of its citizens with access to essen-
tial medical services. The federal governments in Mexico and Turkey have
recently implemented new policies to extend healthcare coverage.
Over the next few years to 2017, global manufacturers will continue to
focus on BRICS markets, with vigorous emphasis on Brazil, China, India,
and Russia. South Africa, Indonesia, Turkey, and Vietnam follow the
BRICS countries as “secondary” emerging markets. These four countries
need to raise the level of their production capabilities. Other emerging
markets include those of Mexico, Poland, and Thailand with their high
production capabilities and long history of foreign direct investment by
large manufacturing players.
Many global manufacturers have adapted their emerging markets
approaches by developing a BRIC + 1 strategy, a hedging strategy that
involves continuing operations in the BRIC location where they have
established manufacturing, while opening up just one or two factories in
a secondary emerging market as a hedge. GE is one of these companies. It
asserts that manufacturing prices are frequently 30% lower in secondary
emerging markets than in the BRICS, but other issues frequently offset
these cost increases. Another multinational giant, Unilever, has invested
heavily in Indonesia. It has worked with the government and local asso-
ciations and leveraged its scale of investment to develop a relationship and
local support systems that will benefit the community and the company
for decades to come. Collectively, emerging markets seem to offer the best
hope for manufacturers for the future, with some estimates saying that
they will still be growing at rates double those of the developed markets in
2025. Emerging markets, however, do not come without a variety of suc-
cess factors and threats.
Increasingly, global firms emphasize these emerging markets in an
effort to overcome the stagnant growth constraints in the mature market
 Research Framework: Core Competence and Global Strategy • 5

of the advanced economies. However, these markets require a radically

different market approach.
Many still favor BRICS countries as their top focus between 2012
and 2017, with similar emphasis on individual markets across 10 indus-
tries according to Manufacturing & Industrial; Telecommunication,
Technology & Media; Professional & Business Services; Financial Services;
Consumer & Retail; Pharmaceuticals & Healthcare; Energy, Resources &
Environment; Automotive; Chemicals; and Logistics & Transportation.
However, 91% of firms also admit that they have not done enough for
the emerging markets. Their main regrets are in relation to adaptation to
local conditions, market entry decisions, and market intelligence. Over
half of the respondents indicate that information on emerging markets is
not readily available in their organizations. The majority (e.g., three out of
four) was not sure of the accuracy and completeness of the information
available to them. Japanese firms had entered these emerging economies
(e.g., China, India, and Brazil) much earlier than Korean counterparts
and yet not secured relatively strong market positions. With enormous
confidence in their production management, the majority of Japanese
firms had put quality as the forefront of their market strategy and thus
offered their products with higher prices in these markets (Schonberger,
2007). Thus, Japanese firms offered the same products from the advanced
markets to these emerging economies. But such Japanese firms mostly did
not necessarily do well in the emerging economies. Some Japanese firms
show a new success model of innovative product development according
to market needs based on their unique problem solving and technological
capability (Thomke and Fujimoto, 2000; Tomino et al., 2011, 2012). They
do not offer outdated or inferior products to the emerging economies that
are less developed. Rather, they pay very careful attention to the unique
market needs of these growing markets just as they do with the advanced
markets. In other words, their market winning approach to these emerg-
ing economies is not a plus-minus strategy but a multiplication strategy.
In this book, we introduce the successful examples of indigenous,
Japanese, and Korean global firms in Brazil, Russia, India, and China. For
this purpose, we present three types of competence and product archi-
tecture. Outstanding global firms are keenly aware of changing require-
ments of their organizational enviromennts (Rosenzweig, et al., 1991). The
winning product strategy of global firms for these emerging economies
includes technology competence (i.e., utilizing technological capabil-
ity to make good products), customer competence (i.e., understanding
6 • Building Network Capabilities

lifestyles of customers and capturing the hearts of customers), and link-

age competence (i.e., integration of technology and customer compe-
tence) (Figure 1.1) (Park and Hong, 2012). In other words, market success
of global firms depends on their supply chain responsiveness in terms of
effective deployment of their technology competence to fit the unique
needs of the customers of these emerging economies (Roh et al., 2011,
2014). This book defines such an ability of firms to detect the needs of
customers in India, China, and Brazil and translate them into the right
products as sensing competence (Park, 2011a). Emerging markets also
show two patterns: (1) the impact of direct income growth that impacts
the rapid demand growth in business-to-customer (B to C) markets and
(2) industrial or intermediate goods in business-to-business (B to B) mar-
kets based on the macroeconomic growth. In particular, industrial goods
show the purchasing patterns of such products are different by regions. It
is worthy to examine how firms change the product offerings according to
the regional differences.
Interestingly enough, customer competence is what global firms from
advanced nations find most challenging to master for their winning
performance in the emerging markets. Japanese firms discussed in this
book possess high levels of technology competence (i.e., product qual-
ity and safety performance capability) with their long experiences in the
advanced countries. Yet, their relative weakness in customer competence
in the emerging economies made them seriously unprepared for penetrat-
ing in these new markets. These emerging economies have unique market
conditions that are drastically different from those of advance markets.
Therefore, the crucial competitive advantage lies in their linkage com-
petence that integrates both technological and customer competence in
these emerging markets.

Customer
Exploring Mode
Sensing

Linkage Competence

Resource Utility Exploiting

Technology

FIGURE 1.1
Three elements of core competence. (Adapted from Park and Hong, 2012.)
 Research Framework: Core Competence and Global Strategy • 7

1.2 NETWORK CAPABILITY AND GLOBAL

COMPETITIVE STRATEGY
1.2.1 Three Types of Core Competence
and Global Expansion Strategy
In 2000 Malcolm Gladwell introduced The Tipping Point: How Little
Things Can Make a Big Difference. This book became one of the bestsell-
ing books for years. This book illustrates the idea of network capability in
the daily context of American life. Malcolm Gladwell (2000) focuses on
three types of people that play prominent roles in making particular ideas
or concepts to spread like social epidemics. The first type is the connector.
The concept of the connector refers to those who have extraordinary levels
of social contacts. For example, the size of social circles of average people
among 1,000 in a random sample is about 35 people or so. In any group,
at least one person has 130 to 150 (i.e., five to six times the average). These
connectors play very important roles in spreading new ideas. The second
type is the maven which is somewhat different from connectors. They are
information experts. When superstores offer “special buys,” most people
do not remember the individual prices of the products on sale. But 0.1% of
people remember the pricing details and spread the news to others. Thus,
the databases stored in the minds of these mavens make a big impact on
network capability. The third type is the salesperson. The salesperson exer-
cises a huge influence on the customers who finally decide to purchase
particular products through their timely and credible suggestions. These
three type of people take quite active roles in social network distribution.
The above-mentioned influential people are what in Rogers (1983) referred
to as “2.5% innovators” and “13.5% early adopters.”
This book examines the building process of network capability from
the standpoint of global market expansion based on extensive field studies
(Voss et al., 2002). Our special focus is to examine linkages between vari-
ous choices of cross-functional competences and their impact on competi-
tive performance (Brown, 2013). In other words, this book discusses how
global firms successfully build their network capabilities in the markets of
BRICs. The determining factor of any firm’s competitive advantage is its
unique resources or advantageous position (Wenerfelt, 1984; Rumelt, 1984;
Barney, 2002; Rosenzweig et al., 2003; Park, 2009; Park and Hong, 2012;
Penrose, 1959; Hamel and Prahalad, 1990; Morone, 1993; March, 1991;
8 • Building Network Capabilities

Leonard-Barton, 1992; Henderson, 1993; Dougherty and Heller, 1994;

Daugherty, 1995; Helfat and Raubitschek, 2000; Danneels, 2002). In a rela-
tively stable business environment, it is not unusual that firms can utilize
their core competence for a long period once it had been successfully built
over the years. However, in a turbulent market environment the core com-
petence of the past may turn out to be the reason for business failures.
After the 2008 global financial shock, the demise of Japanese electron-
ics firms illustrate this point (Nonaka and Takeuchi, 1995; Fujimoto et
al., 2005; Fujimoto, 2006). As firms focus on incremental innovation,
architectural knowledge embedded in work routines and regular work
flows rarely changes. As the internal innovation leaders depend on orga-
nizationally filtered information, their understanding of organizational
architecture and absorptive knowledge become outdated. These firms are
no longer able to face the challenges of the disruptive innovation of rival
firms. In this context, researchers in the 1990s presented the dynamic
capability theory (Teece et al., 1990; Utterback and Suarez, 1993; Teece
and Pisano, 1994; Henderson and Cockburn, 1994; Teece et al., 1997;
Teece, 1986; Miller and Morris, 1999; Teece, 2007; Quinn and Dalton,
2009). Firms lose their competitive advantage once their organizational
governance is unable to create, store, and explore knowledge assets
through their routine work processes in the form of unique innovative
capability. In this sense, dynamic capabilities are defined as the system-
atic organic effort to capture the new innovation opportunities by con-
necting to the external network and to translate into organizational core
capability that reconfigures and protect their knowledge assets for a sus-
tainable competitive advantage (Teece, 1986; Snow et al., 1992; Nonaka
and Takeuchi, 1995). Thus, the crucial elements of dynamic capability
are organizational sensing of external environment, exploration of busi-
ness opportunities, and stretch and leverage of innovative knowledge
assets (Hamel & Prahalad, 1994). In this book, such dynamic capability is
referred to as network capability which is further explained in three types
of competence, which are market competence associated with external
environment, resource securing for enhancing technology competence,
and linkage competence that combines external and internal resources
(Park and Hong, 2012).
First, the strengths of Japanese firms are in their technology competence
that develops products with high functionality and quality. Such tech-
nology competence is based on product development capability, patent
rights, multiskilled human resources, product design, and manufacturing
 Research Framework: Core Competence and Global Strategy • 9

capability embedded in organizational system and work processes. The

indicators of technology competence are productivity, production lead
time, time to market, number of new product projects, product integ-
rity, and design quality (Fujimoto, 2001). Technical experts with years of
experience in manufacturing floors (e.g., heavyweight project managers of
Toyota Company) can recognize the level of technology competence with
their intuitive understanding and careful observation of manufacturing
processes (Fujimoto, 1997).
Second, in the emerging new markets relative weakness of Japanese
firms lies in customer competence, which is essential to inspire customers
through aggressive marketing and promotional efforts that are vastly dif-
ferent from the advanced US/European markets. This involves innovative
methods of communicating the unique value of their products, which lead
them to adopt new lifestyle patterns. Such customer competence is not
for easy and quick methodical measurement. Rather, it includes compre-
hensive measures such as customer satisfaction ratings, repeat purchase
rates, the number of new customers, market share, customer loyalty, and
customer willingness to pay. Intuitively, expert managers with years of
experience in the areas of customer service would be able to estimate the
extent of customer competence.
Third, the ability to transform an idea into a tangible substance (i.e., link-
age competence or network capability) is to integrate product concept
into tangible products (i.e., linking customer competence to technology
competence). However, many Japanese firms are not quite familiar with
this “linkage competence” concept. Japanese firms assume that their weak
customer competence is the main reason for their relatively weak posi-
tion in the global markets. Thus, many firms reinforce their marketing
efforts and yet they do not necessarily understand the critical role of link-
age competence for their market success. Linkage competence is realized
as firms attain adequate market sensing ability, develop customer-trend-
sensitive managers, implement product architecture, and achieve overall
product-process integrity in diverse manufacturing industries (Park et al.,
2012b, 2012c; Tomita et al., 2011).

1.2.2 Core Competence and Product Architecture

A critical issue of global firms is how to effectively respond in the tur-
bulent dynamic global business environment—particularly in the emerg-
ing markets. Product architecture is a useful concept for the analysis of
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 "Thirty-two."

"Twenty-five."

"Good heavens," I said, "I've only got seven."

There was a shout of laughter.

"Then you'd better begin," said somebody. "Read them out."

I coughed doubtfully, and began;

"Napoleon."

There was another shout of laughter.

"I am afraid we can't allow that."

"Why ever not?" I asked in amazement.

"Well, you'd hardly find him in a kitchen, would you?"

I took out a handkerchief and wiped my brow. "I don't want to find him
in a kitchen," I said nervously. "Why should I? As a matter of fact, he's
dead. I don't see what the kitchen's got to do with it. Kitchens begin with a
K."

"But the game is called 'Furnishing a Kitchen.' You have to make a list
of things beginning with N which you would find in a kitchen. You
understood that, didn't you?"

"Y-y-yes," I said. "Oh y-y-y-yes. Of course."

"So Napoleon——"

I pulled myself together with a great effort.

"You don't understand," I said with dignity. "The cook's name was
Napoleon."
 "Cooks aren't called Napoleon," said everybody.

"This one was. Carrie Napoleon. Her mistress was just as surprised at
first as you were, but Carrie assured her that——"

"No, I'm afraid we can't allow it."

"I'm sorry," I said; "I'm wrong about that. Her name was Carrie Smith.
But her young man was a soldier, and she had bought a 'Life of Napoleon'
for a birthday present for him. It stood on the dresser—it did, really—
waiting for her next Sunday out."

"Oh! Oh, well, I suppose that is possible. Go on."

"Gnats," I went on nervously and hastily. "Of course I know that——"

"Gnats are spelt with a G," they shrieked.

"These weren't. They had lost the G when they were quite young, and
consequently couldn't bite at all, and cook said that——"

"No, I'm afraid not."

"I'm sorry," I said resignedly. "I had about forty of them—on the
dresser. If you won't allow any of them, it pulls me down a lot. Er—then we
have Nitro-glycerine."

There was another howl of derision.

"Not at all," I said haughtily. "Cook had chapped hands very badly, and
she went to the chemist's one evening for a little glycerine. The chemist was
out, and his assistant—a very nervous young fellow—gave her nitro-
glycerine by mistake. It stood on the dresser, it did, really."

"Well," said everybody very reluctantly, "I suppose——"

I went on hastily:
 "That's two. Then Nobody. Of course, you might easily find nobody in
the kitchen. In fact you would pretty often, I should say. Three. The next is
Noon. It could be noon in the kitchen as well as anywhere else. Don't be
narrow-minded about that."

"All right. Go on."

"Non-sequitur," I said doubtfully.

"What on earth——"

"It's a little difficult to explain, but the idea is this. At most restaurants
you can get a second help of anything for half-price, and that is technically
called a 'follow.' Now, if they didn't give you a follow, that would be a Non-
sequitur.... You do see that, don't you?"

There was a deadly silence.

"Five," I said cheerfully. "The last is Notting Hill. I must confess," I said
magnanimously, "that I am a bit doubtful whether you would actually find
Notting Hill in a kitchen."

"You don't say so!"

"Yes. My feeling is that you would be more likely to find the kitchen in
Notting Hill. On the other hand, it is just possible that, as Calais was found
engraven on Mary's heart, so, supposing the cook died—— Oh, very well.
Then it remains at five."

Of course you think that, as I only had five, I came out last. But you are
wrong. There is a pleasing rule in this game that, if you have any word in
your list which somebody else has, you cannot count it. And as all the
others had the obvious things—such as a nutmeg-grater or a neck of mutton
or a nomelette—my five won easily. And you will note that, if only I had
been allowed to count my gnats, it would have been forty-five.
 II. GETTING THE NEEDLE

He was a pale, enthusiastic young man of the name of Simms; and he

held forth to us at great length about his latest hobby.

"Now I'll just show you a little experiment," he wound up; "one that I
have never known to fail. First of all, I want you to hide a needle
somewhere, while I am out of the room. You must stick it where it can be
seen—on a chair—or on the floor if you like. Then I shall come back and
find it."

"Oh, Mr Simms!" we all said.

"Now, which one of you has the strongest will?"

We pushed Jack forward. Jack is at any rate a big man.

"Very well. I shall want you to take my hand when I come in, and look
steadily at the needle, concentrate all your thoughts on it. I, on the other
hand, shall make my mind a perfect blank. Then your thoughts will
gradually pass into my brain, and I shall feel myself as it were dragged in
the direction of the needle."

"And I shall feel myself, as it were, dragged after you?" said Jack.

"Yes; you mustn't put any strain on my arm at all. Let me go just where
I like, only will me to go in the right direction. Now then."

He took out his handkerchief, put it hastily back, and said: "First, I shall
want to borrow a handkerchief or something."

Well, we blindfolded him, and led him out of the room. Then Muriel got
a needle, which, after some discussion, was stuck into the back of the
Chesterfield. Simms returned, and took Jack's left hand.

They stood there together, Jack frowning earnestly at the needle, and
Simms swaying uncertainly at the knees. Suddenly his knees went in
altogether, and he made a little zig-zag dash across the room, as though he
were taking cover. Jack lumbered after him, instinctively bending his head
too. They were brought up by the piano, which Simms struck with great
force. We all laughed, and Jack apologised.

"You told me to let you go where you liked, you know," he said.

"Yes, yes," said Simms rather peevishly, "but you should have willed
me not to hit the piano."

As he spoke he tripped over a small stool, and, flinging out an arm to

save himself, swept two photograph frames off an occasional table.

"By Jove!" said Jack, "that's jolly good. I saw you were going to do that,
and I willed that the flower vase should be spared. I'm getting on."

"I think you had better start from the door again," I suggested. "Then
you can get a clear run."

They took up their original positions.

"You must think hard, please," said Simms again. "My mind is a perfect
blank, and yet I can feel nothing coming."

Jack made terrible faces at the needle. Then, without warning, Simms
flopped on to the floor at full length, pulling Jack after him.

"You mustn't mind if I do that," he said, getting up slowly.

"No," said Jack, dusting himself.

"I felt irresistibly compelled to go down," said Simms.

"So did I," said Jack.

"The needle is very often hidden in the floor, you see. You are sure you
are looking at it?"

They were in a corner with their backs to it; and Jack, after trying in
vain to get it over his right shoulder or his left, bent down and focussed it
between his legs. This must have connected the current; for Simms turned
right round and marched up to the needle.

"There!" he said triumphantly, taking off the bandage.

We all clapped, while Jack poured himself out a whisky. Simms turned
to him.

"You have a very strong will indeed," he said, "one of the strongest I
have met. Now, would one of the ladies like to try?"

"Oh, I'm sure I couldn't," said all the ladies.

"I should like to do it again," said Simms modestly. "Perhaps you, sir?"

"All right, I'll try," I said.

When Simms was outside I told them my idea.

"I'll hold the needle in my other hand," I said, "and then I can always
look at it easily, and it will always be in a different place, which ought to
muddle him."

We fetched him in, and he took my left hand....

"No, it's no good," he said at last, "I don't seem to get it. Let me try the
other hand...."

I had no time to warn him. He clasped the other hand firmly; and, from
the shriek that followed, it seemed that he got it. There ensued the "perfect
blank" that he had insisted on all the evening. Then he pulled off the
bandage, and showed a very angry face.

Well, we explained how accidental it was, and begged him to try again.
He refused rather sulkily.

Suddenly Jack said: "I believe I could do it blindfold. Miss Muriel, will
you look at the needle and see if you can will me?"
 Simms bucked up a bit, and seemed keen on the idea. So Jack was
blindfolded, the needle hid, and Muriel took his hand.

"Now, is your mind a perfect blank?" said Simms to Jack.

"It always is," said Jack.

"Very well, then. You ought soon to feel in a dreamy state, as though
you were in another world. Miss Muriel, you must think only of the needle."

Jack held her hand tight, and looked most idiotically peaceful. After
three minutes Simms spoke again.

"Well?" he said eagerly.

"I've got the dreamy, other-world state perfectly," said Jack, and then he
gave at the knees just for the look of the thing.

"This is silly," said Muriel, trying to get her hand away.

Jack staggered violently, and gripped her hand again.

"Please, Miss Muriel," implored Simms. "I feel sure he is just going to
do it."

Jack staggered again, sawed the air with his disengaged hand, and then
turned right round and marched for the door, dragging Muriel behind him.
The door slammed after them....

* * * * * * * *

There is a little trick of sitting on a chair and picking a pin out of it with
the teeth. I started Simms—who was all eagerness to follow the pair, and
find out the mysterious force that was drawing them—upon this trick, for
Jack is one of my best friends. When Jack and Muriel came back from the
billiard-room, and announced that they were engaged, Simms was on his
back on the floor with the chair on the top of him—explaining, for the
fourth time, that if the thing had not overbalanced at the critical moment he
would have secured the object. There is much to be said for this view.
 BACHELOR DAYS

THE BUTTER

"You mustn't think I am afraid of my housekeeper. Not at all. I

frequently meet her on the stairs, and give her some such order as "I think
—if you don't mind—I might have breakfast just a little later—er, yes,
about eight o'clock, yes, thank you." Or I ring the bell and say, "I—I—
want-my-boots." We both recognise that it is mine to command and hers to
obey. But in the matter of the butter I have let things slide, until the position
is rapidly becoming an untenable one. Yet I doubt if a man of imagination
and feeling could have acted otherwise, given the initial error. However,
you shall hear.

There are two sorts of butter, salt and fresh. Now, nobody is so fond of
butter as I am; but butter (as I have often told everybody) isn't butter at all
unless it is salt. The other kind is merely an inferior vaseline—the sort of
thing you put on the axles of locomotives. Imagine, then, my disgust, when
I took my first breakfast in these rooms eleven months ago, to find that the
housekeeper had provided me with a large lump of vaseline!

I hate waste in small things. Take care of the little extravagances, I say,
and the big ones will take care of themselves. My first thought on viewing
this pat of butter was, "It is difficult, but I will eat it." My second, "But I
must tell the housekeeper to get salt butter next time."

An ordinary-minded person would have stopped there. I went one

further. My third thought was this: "Housekeepers are forgetful creatures. If
I tell her now, she will never remember. Obviously I had better wait until
this pound is just finished and she is about to get in some more. Then will
be the time to speak." So I waited; and it was here that I made my mistake.
For it turned out that it was I who was the forgetful creature. And on the
fifteenth day I got up to find another large pound of vaseline on my table.
The next fortnight went by slowly. I kept my eye on every day, waiting for
the moment to come when I could say to the housekeeper, "You will be
getting me in some more butter this morning. Would you get salt, as I don't
much like the other?" Wednesday came, and there was just enough left for
two days. I would speak on the morrow.

But, alas! on the morrow there was another new pound waiting. I had
evidently misjudged the amount.

I forget what happened after that. I fancy I must have been very busy, so
that the question of butter escaped me altogether. Sometimes, too, I would
go away for a few days and the old butter would be thrown away and the
new butter bought, at a time when I had no opportunity of defending
myself. However it was, there came a time when I had been three months in
my rooms, and was still eating fresh butter; contentedly, to all appearances
—in the greatest anguish of soul, as it happened. And at the end of another
month I said: "Now, then, I really must do something about this."

But what could I do? After eating fresh butter for four months without
protest I couldn't possibly tell the housekeeper that I didn't like it, and
would she get salt in future. That would be too absurd. Fancy taking four
months to discover a little thing like that! Nor could I pretend that, though I
used to adore fresh butter, I had now grown tired of it. I hate instability of
character, and I could not lend myself to any such fickleness. I put it to you
that either of these courses would have shown deplorable weakness. No, an
explanation with the housekeeper was by that time impossible; and if
anything was to be done I must do it on my own responsibility. What about
buying a pound of salt butter myself, and feeding on it in secret? True, I
should have to get rid of a certain portion of fresh every day, but...

I don't know if you have ever tried to get rid of a certain portion of fresh
butter every day, when you are living in a flat at the very top of chambers in
London. Drop it out of the window once or twice, and it is an accident.
Three times, and it is a coincidence. Four times, and the policeman on duty
begins to think that there is more in it (if I may say so) than meets the eye....
But what about the fire, you will ask. Ah, yes; but I could foresee a day
when there would be no fire. One has to look ahead.

Besides, as I said, I hate waste. As any cook will tell you, the whole art
of housekeeping can be summed up in three words—Watch the butter.

More months passed and more pats of vaseline. Every day made an
explanation more hopeless. I had thoughts at one time of an anonymous
letter. Something in this style:

"MADAM,—One who is your friend says beware of vaseline. All is

discovered. Fly before it is too late. What is it makes the sea so salt? NaCl.
Sodium Chloride. THE BLACK HAND"

That would give her the impression, at any rate, that there were two
kinds of butter. Confound it all, by what right did she assume without
asking that I had a preference for fresh?

I have now been in my rooms nearly a year. Something must be done

soon. My breakfasts are becoming a farce. Meals which I used to enjoy I
now face as an ordeal. Is there to be no hope for me in the future?

Well, there is a chance? I shall have to wait until July; but with
something definite in view I am content to wait.

In July I hope to go to Switzerland for a month. Two days before

returning home I shall write to my housekeeper. Having announced the day
of my return, and given one or two instructions, I shall refer briefly to the
pleasant holiday which I have been enjoying. I shall remark perhaps on the
grandeur of the mountains and the smiling beauty of the valleys, I may
mention the area in square miles of the country....

And I shall dwell upon the habits of the native.

 "... They live (I shall write) in extraordinary simplicity, chiefly upon the
products of their farms. Their butter is the most delightful I have ever tried.
It is a little salt to the taste, but after four weeks of it I begin to feel that I
shall never be able to do without salt butter again! No doubt, as made in
London it would be different from this, but I really think I must give it a
trial. So when you are ordering the things I mentioned for me, will you ask
for salt butter...."

And if that fails there remains only the one consolation. In three years
my lease is up. I shall take a new flat somewhere, and on the very first day I
shall have a word with the new housekeeper.

"By the way," I shall say, "about the butter...."

THE WASHING

Of course, it is quite possible to marry for love, but I suspect that a good
many bachelors marry so that they may not have to bother about the
washing any more. That, anyhow, will be one of the reasons with me. "I
offer you," I shall say, "my hand and heart—and the washing; and, oh, do
see that six tablecloths and my footer shorts don't get sent every week."

We affect Hampstead for some reason. Every week a number of shirts

and things goes all the way out to Hampstead and back. I once sent a
Panama to Paris to be cleaned, and for quite a year afterwards I used to lead
the conversation round to travel, and then come out with, "Ah, I well
remember when my Panama was in Paris...." So now, when I am asked at a
dance, "Do you know Hampstead at all?" I reply, "Well, I only know it
slightly myself; but my collars spend about half the year there. They are in
with all the best people."

I can believe that I am not popular in Hampstead, for I give my

laundress a lot of trouble. Take a little thing like handkerchiefs. My rooms,
as I have mentioned, are at the very top of the building, and there is no lift.
Usually I wait till I am just out into the street before I discover that I have
forgotten my handkerchief. It is quite impossible to climb all the stairs
again, so I go and buy one for the day. This happens about three times a
week. The result is that nearly all my handkerchiefs are single ones—there
are no litters of twelve, no twins even, or triplets. Now when you have a lot
of strangers in a drawer like this, with no family ties (or anything) to keep
them together, what wonder if they gradually drift away from each other?

My laundress does her best for them. She works a sort of birthmark in
red cotton in the corner of each, so that she shall know them again. When I
saw it first I was frightened. It looked like the password of some secret
society.

"Are there many aliens in Hampstead?" I asked the housekeeper.

"I don't know, sir."

"Well, look here, what I found on my handkerchief. That's a secret

signal of some sort, you know, that's what it is. I shall get mixed up in some
kind of anarchist row before I know where I am. Will you arrange about
getting my clothes washed somewhere else, please?"

"That's because you haven't got your name on it. She must mark them
somehow."

"Then, why doesn't she mark them with my name? So much simpler."

"It isn't her business to mark your clothes," said the housekeeper.

That, I suppose, is true; but it seems to me that she is giving us both a

lot of unnecessary trouble. Every week I pick out this decorative design
with a penknife, and every week she works it in again. When you consider
the time and the red cotton wasted it becomes clear that a sixpenny bottle of
marking ink and a quill pen would be cheaper to her in the long run.

But she has a weakness for red cotton. The holes in the handkerchiefs
she works round with it—I never quite understand why. To call my
attention to them, perhaps, and to prevent me from falling through. Or else
to say, "You did this. I only washed up to the red, so it can't be my fault."

If I were married and had a house of my own, there would be no man

below; consequently he wouldn't wear the absurd collars he does. I get
about two of them a week (so even red cotton is not infallible); and if they
were the right size and a decent shape I shouldn't grumble so much. But I
do object to my collars mixing in town with these extraordinary things of
his. At Hampstead, it may be, they have to meet on terms of equality, more
or less; force of circumstances throws them together a good deal. But in
town no collar of mine could be expected to keep up the acquaintance. "You
knew me in the bath," I can imagine one of his monstrosities saying; and,
"When I am in the bath I shall know you again," would be the dignified
reply of my "16-Golf."

Collars trouble me a good deal one way or another. Whenever I buy a

new dozen, all the others seem suddenly to have become old-fashioned in
shape, and of the wrong size. Nothing will induce me to wear one of them
again. They get put away in boxes. Covered with dust, they lie forgotten.

Forgotten, did I say? No. The housekeeper finds them and sends them to
the wash. About a month later she finds them again. She is always finding
clothes which have been discarded for ever, and sending them to the wash.

The mistake is, that we have not yet come to an agreement as to what
really is to go to the wash, and what isn't. There is a tacit understanding that
everything on the floor on Monday morning is intended for Hampstead. The
floor is the linen-basket. It seemed a good idea at the time, but it has its
faults. Things gets on to the floor somehow, which were never meant for the
north-west—blankets, and parts of a tweed suit, and sofa cushions. Things
have a mysterious way of dropping. Half-a-dozen pairs of white flannel
trousers dropped from a shelf one December. A pair of footer shorts used to
go every week—a pair which I would carefully put down to take the bath
water when I had finished with it. I wonder what those shorts thought they
were doing. Probably they quite fancied themselves at football, and boasted
about the goals they shot to companions whom they met at Hampstead.

"You're always here!" a pair of local wanderers would say.

 "My dear man, I play so hard, I don't care how dirty I get."

The irony of it!

But, worst of all, the laundry-book. Every week the housekeeper says to
me, "Would you pay your book now, as it's been owing for a month?" And
every week I pay. That sounds absurd, but I swear it's true. Or else the
weeks go very quickly.

And such amounts! Great ninepences for a counterpane or a tablecloth

or a white tie. Immense numbers of handkerchiefs, counting (apparently)
twelve as thirteen. Quaint hieroglyphics, which don't mean anything but
seem to get added into the price. And always that little postscript, "As this
has been owing for a month, we must request...."

TAKING STOCK

Beatrice has been spring-cleaning me to-day, or rather my clothes. I

said, wasn't it rather early for it, as none of the birds were singing properly
yet, and she had much better wait till next year; but no, she would do it now.
Beatrice is my sister-in-law, and she said—— Well, I forget what she did
say, but she took a whole bundle of things away with her in a cab; and I
know John will be wearing that purple shirt of mine to-morrow. As a matter
of fact, it was a perfectly new one, and I was only waiting till Lent was
over.

Beatrice said the things were all lying about anyhow, and how I ever
found anything to put on she didn't know; but I could have told her that they
were all arranged on a symmetrical plan of my own. Beatrice doesn't
understand the symmetry of a bachelor's mind. I like a collar in each
drawer, and then, whatever drawer you open, there's a collar ready for you.
Beatrice puts them all in one drawer, and then if you're in a hurry, and open
the wrong drawer by mistake, you probably go up to the office in two
waistcoats and no collar at all. That would be very awkward.

Beatrice actually wanted a braces drawer (if she hadn't married John I
should never let her talk to me about braces), but I explained that I had only
one pair, and was wearing those, so that it would be absurd. I expect she
wanted me to think that John had two pairs. All I can say, is, that, if he has,
he ought to be above taking my best shirt....

I don't think the waistcoat drawer will be a success. There are twenty-
three of them, and some of them don't blend at all well. Twenty-three in one
drawer—you know there are bound to be disputes. I see William has got to
the top already. Ah! he was a fine fellow, the first I ever had. I don't quite
know how to describe him, but in colour he was emerald green, with bits of
red silk peeping through. Sort of open-work, you know, only where you
would expect to see me there was more of William. I wore him at Beatrice's
wedding. He would come. Only he wouldn't let me into the vestry. I wanted
to sign my name; all the others were. I have never worn him since that day,
but Beatrice has fished him out, and now he lies on the very top of the
drawer.

Of course it's awfully good of Beatrice to take so much trouble about

my clothes, and I'm extremely grateful, and after all she did marry my
brother John; but I think sometimes she—— Well, here's a case. You know,
when you have twenty-three waistcoats you perhaps run a bit short of—of
other things. So, naturally, the few you have got left, you—— Well,
Beatrice took them all away, and said that as I couldn't possibly wear them
again she'd cut them up for house-cloths. And really—half-way between
winter and summer is a very awkward time for restocking. But I suppose it
is going to be warmer now?

House-cloths! I bet John has a go at them first.

Beatrice found what they call in the profession a "morning-coat and

vest" under the bed, and said that she would take it away and sell it for me.
I like the way she "finds" things which I have been keeping for years under
the bed. It is absurd to talk about "finding" anything in a small flat, because,
of course, it's there all the time: but Beatrice thought that I ought to be
grateful to her for the discovery, so I pretended I was. She said she would
get at least half-a-crown for it; but I said I would rather have the coat.
However, it turned out that I wasn't even to have had the half-crown....

I used to have thirty pairs of old white gloves in a drawer. I would take
them out sometimes, and stroke them affectionately, and say, "Ah, yes,
those were the ones I wore at that absolutely ripping dance when I first met
Cynthia, and we had supper together. You can see where I spilt the ice
pudding." Or—"This was that Hunt Ball, when I knew nobody and danced
with Hildegarde all the time. She wore black; just look at them now." Well,
Beatrice had that drawer out pretty quick. And now they are on their way to
Perth or Paris, or wherever it is; except Hildegarde's pair, which will just do
for the girl when she cleans the grates. I expect she really will get them you
know; because John doesn't dance.

You know, you mustn't make too much fun of Beatrice; she has ripping
ideas sometimes. She filled a "summer-trunk" for me—a trunk full of all the
clothes I am going to want in the summer. She started with a tennis-racquet
(which, strictly speaking, isn't clothes at all), and went on with some of the
jolliest light waistcoats you ever saw; it made me quite hot to look at them.
Well, now, that's really a good idea so far as it goes. But what will happen
when the summer does come? Why, we shall have to go through the whole
business all over again. And who'll arrange the winter-trunk? Beatrice. And
who'll get the pink pyjamas and the green socks that there's really no room
for, dear? Why, John.

Yet I am sorry for John. He was once as I am. What a life is his now.
Beatrice is a dear, and I will allow no one to say a word against her, but she
doesn't understand that trousers must be folded, not hung; that a collar
which has once been a collar can never be opened out and turned into a cuff
(supposing one wore cuffs); and that a school eleven blazer, even if it
happens to be pink, must not be cut down into a dressing-jacket for the little
one. Poor John! Yes, I am glad now that he has that shirt of mine. It is
perhaps a little too bright for his complexion, perhaps he has not quite the
air to carry it off; but I am glad that it is his. Now I think of it I have a tie
and a pair of socks that would go well with it; and even William—can I part
with William?—yes, he shall have William. Oh, I see that I must be kind to
John.

Dear Beatrice! I wonder when I shall have everything straight again.

MEDES AND PERSIANS

I have already said that I am not afraid of my housekeeper, so there is

no need for me to say it again. There are other motives than fear which
prevent a man from arguing with housekeepers; dislike of conversation with
his intellectual inferiors may be one, the sporting instinct is certainly
another. If one is to play "Medes and Persians" properly, one must be a
sportsman about it. Of course, I could say right out to her "Do this," and she
might do it. Or she could say right out to me, "Do that," and I would reply,
"Don't be absurd." But that wouldn't be the game.

As I play it, a "Mede" is a law which she lays down, and to which (after
many a struggle) in the end I submit; a "Persian" is a law which I lay down,
and to which ... after many a struggle ... in the end ... (when it is too late)....
Well, there are many Medes, but so far I have only scored one Persian of
note.

The first Mede was established last winter. For many weeks I had
opened my bedroom door of a morning to find a small jug of cold water on
the mat outside. The thing puzzled me. What do I want with a small jug of
cold water, I asked myself, when I have quite enough in the bath as it is?
Various happy thoughts occurred to me—as that it was lucky, that it
collected the germs, or (who knows?) indicated a wife with five thousand a
year—but it was a month before the real solution flashed across my mind.
"Perhaps," I said, "it was hot once. But," I added, "it must have been a long
time ago."
 The discovery upset me a good deal. In the first place, it is annoying
suddenly to have all one's hopes of a rich wife and protection from disease
dashed to the ground; in the second, I object to anybody but a relation
interfering with my moral character. Here was a comparative stranger trying
to instil the habit of early rising into me by leaving shaving-water outside
the door at three A.M. Was this a thing to be taken lying down?

Decidedly. So I stayed in bed and ignored the water-jug; save that each
morning, as I left my rooms, I gave it a parting sneer. It was gone by the
evening, but turned up again all right next day. After a month I began to get
angry. My housekeeper was defying me; very well, we would see who
could last the longer.

But after two months it was a Mede. Yet I have this triumph over her.
That though I take the water in I ... pour it into the bath and slip back into
bed again. I don't think she knows that.

Since then there have been many Medes. Little ones as to the position of
the chairs; bigger ones as to the number of blankets on the bed. You mustn't
think, though, that I always submit so easily. Sometimes I am firm. In the
matter of "Africa Joe" I have been very firm. Here, I know, I have right on
my side.

A year ago I was presented with a model of an Irish jolting car (with
horse and driver complete), which had been cut out of some sort of black
wood. The thing used to stand over my fireplace. Later on I acquired, at
different times, a grey hippopotamus (in china) and a black elephant. These
I harnessed on in front of the horse; and the whole affair made a very pretty
scene, which was known to my friends as "Sunday in the Forest: Africa Joe
drives his Family to Church." Besides all these I had yet another animal—a
green frog climbing a cardboard ladder. I leant this against the clock. One
had the illusion that the frog was climbing up in order to look at the works
—which was particularly pleasing because the clock didn't go.

Very well. You have the two scenes on the same mantelboard. One, the
frog as Bond Street watchmaker and jeweller, and the other (such is
Empire), Africa Joe in the heart of the forest. And what does the
housekeeper do? If you will believe me, she takes the frog down from the
clock and props him up behind the car, just as though he were getting on to
it in order to go to church with the others!

Now I do put it to you that this is simply spoiling the picture altogether.
Here we have a pleasant domestic episode, such as must occur frequently in
the African forests. Black Joe harnesses his horse, elephant, hippopotamus,
or what not, and drives his family to the eleven o'clock service. And into
this scene of rural simplicity a mere housekeeper elbows her way with
irrevelant frogs and ladders!

It is a mystery to me that she cannot see how absurd her contribution is.
To begin with, the family is in black (save the hippopotamus, who is in a
quiet grey), so is it likely that they would tolerate the presence of a garish
green-and-yellow stranger? (More than likely Joe is a churchwarden, and
has not only himself to think of.) Then, again, consider the title of the
scene: "Africa Joe drives his Family"—not "Africa Joe about to drive." The
horse is trotting, the elephant has one leg uplifted, and even the
hippopotamus is not in a position of rest. How then could the frog put a
ladder up against a moving cart, and climb in? No; here anyhow was a
Mede that must be resisted at all costs. On the question of Africa Joe I
would not be dictated to.

But, after re-emphasising my position daily for three weeks, I saw that
there was only one thing to do. The frog must be sacrificed to the idea of
Empire. So I burnt him.

But it is time I mentioned my one Persian. It was this way. In the winter
I used always to dry myself after the bath in front of my sitting-room fire.
Now, I know all about refraction, and the difficulty of seeing into a room
from outside, and so forth, but this particular room is unusually light,
having six large windows along one of its sides. I thought it proper,
therefore, to draw down the three end blinds by the fireplace; more
especially as the building directly opposite belonged to the Public House
Reform Association. In the fierce light that beats from reform associations
one cannot be too careful.

Little things like blinds easily escape the memory, and it was obvious
that it would be much pleasanter if the housekeeper could be trained always
to leave the end three down. The training followed its usual course.

Every morning I found the blinds up and every morning I drew them
down and left them there. After a month it seemed impossible that I could
ever establish my Persian. But then she forgot somehow; and one day I
woke up to find the three blinds down.

By a real stroke of genius I drew them up as soon as my dressing was

over. Next morning they were down again. I bathed, dried, dressed and
threw them up. She thought it was a Mede, and pulled them down.

But it was a Persian, and, as I pulled them up, I knew that I had scored.

Yet, after all, I am not so sure. For it is now the summer, and I have no
fire, and I do not want the blinds left down. And when I pull them up every
morning I really want to find them up next morning. But I find them down.
So perhaps it really is a Mede. To tell the truth, the distinction between the
two is not so clear as it ought to be. I must try to come to some arrangement
with the housekeeper about it.

THE CUPBOARD

It was the landlord who first called my attention to the cupboard; I

should never have noticed it myself.

"A very useful cupboard you see there," he said, "I should include that
in the fixtures."

"Indeed," said I, not at all surprised; for the idea of his taking away the
cupboard had not occurred to me.

"You won't find many rooms in London with a cupboard like that."