An On-The-Ground Look At Asian Competition

You can't avoid Asia's gazelles by staying home. They're intending to compete right here.

Asia today is a very hospitable petri dish for growing innovative companies, says Brad Gambill, managing director of Innosight Asia. The consultancy, founded by Harvard Business School professor Clayton Christensen, launches and advises businesses in Singapore, South Korea, India, and other countries. From his Singapore office, Gambill described this new wave of competition to editor-at-large Leigh Buchanan.

Are many young Asian companies eyeing the U.S. market?
From what we see, a little more than half want to move into the U.S. market at the time they're developing their home markets. They see the U.S. as the Holy Grail, where the wealth and the prestige are. At the same time, we're beginning to see a shift where companies view their home markets as more attractive. Part of that is driven by [University of Michigan professor] C. K. Prahalad's work on what he calls the bottom of the pyramid, which has persuaded people that there's money to be made in poor and developing countries.

As Asian companies target the U.S., will price remain the chief competitive advantage?
The fact that Asia has lower-cost labor will get competed away over time. But increasingly, foreign companies will have an advantage because their distance from U.S. customers will force them to improve quality. For example, a number of Asian companies are interested in the education market. So companies will offer to tutor American children over the Internet. It would be cheaper than Sylvan (NASDAQ:EEEE), but because the person may be in India there'd be less trust. In response, companies will be forced to offer guarantees. They may let customers pay according to results. So if your child gets an A in math, you pay a different rate than if he gets a B or a C. Those kinds of guarantees force foreign companies to create different business models, to consider what kinds of children to accept and how to motivate them, and to understand in detail the kinds of textbooks and tests used in their schools. To be successful, the Asian businesses have to provide guarantees and compete on quality.

How does government support for small businesses in Asia compare with support in the U.S.? U.S. government programs aren't as good because the American VC community is so strong that they don't have to be. In Asia, the VC community isn't nearly as developed. Resources are very scarce from the time an entrepreneur develops an idea to the time he gets real commercial traction. And there aren't a lot of people with the kind of skills you find in the U.S., people who have made dozens or hundreds of investments and recognize patterns of failure and success.

Singapore has replaced that with grant programs that impose some of the discipline an experienced VC would provide. They hand you the money but then they check up to make sure what you're doing will eventually create value. That support's not as good as you'd get from a VC, but it's maybe 30 or 40 percent as good. Government processes also are much more streamlined than in the U.S. Starting up Innosight Asia, we got a government grant within two weeks of applying for one.

Does the Asian culture of entrepreneurship differ from what you find here? As in America, entrepreneurship in Asia is considered glamorous, but it's more speculative. There are fewer success stories to point to. Another thing you don't find among entrepreneurs in Asia is a sense of entitlement. Many companies in the U.S. just assume they're going to be successful. Asian entrepreneurs are more aware of their fragility. There's no arrogance. So they take smarter risks than Americans. They have more sense of the scarcity of resources so they do a better job managing the resources they have. They're more frugal, more focused on getting a return on investment. If you want to know what gives these companies staying power, look to humility.

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