International -- Asian Business: Management
Fetch Me a Westerner (int'l edition)
U.S. consultants are thriving in Asia
Hirohide Yamaguchi was in over his head. His team had spent eight years managing reforms at the Bank of Japan. But when the central bank's board asked Yamaguchi's budget and management office to overhaul operations in a bid to boost efficiency, the career official did what no BOJ bureaucrat had ever before contemplated: He went outside for help. In December, the bank signed McKinsey & Co. to lead its latest restructuring. Says Yamaguchi: "My knowledge had reached its very limit."
First came the crisis. Now come the consultants--and the investment bankers. From Korea to Thailand and Indonesia, East Asians are turning to the big U.S. firms--Goldman Sachs, McKinsey, Bain & Co., Morgan Stanley, and others to clean up troubled ministries, banks, state-owned companies and family-run conglomerates. These advice peddlers won't solve the Asians' woes: Trouble sometimes runs too deep for anyone to fix it fast. But in many cases, their counsel is already producing key reforms and corporate workouts.
Disaster clearly spells opportunity for these firms, whose troubleshooters get up to $600 an hour for their advice. In Indonesia, the World Bank is paying McKinsey & Co. to review recapitalization proposals as part of its support of Jakarta's banking-sector cleanup. In South Korea, President Kim Dae Jung's year-old administration is using consultants to force reforms on bureaucracy itself. Korea's Planning & Budget Commission has pushed through contracts worth $3.5 million with A.T. Kearney, Andersen Consulting, Bain & Co., Arthur Andersen, and others to produce radical reforms to cut red tape, attack corruption, and slash overstaffed ministries. Consultants bring a perspective on government "from the customer's point of view," says Jin Nyum, head of Seoul's planning commission.
Even Korea's notoriously unfocused conglomerates may be getting religion. While in the past some of Korea's chaebol have spent heavily on consultants' reengineering plans, profligate habits proved stubbornly resistant to change. Humbled by the downturn, though, the chaebol now "are quite aggressive in taking advice," says Robert F. Felton, McKinsey's branch manager in Seoul. "They're struggling--and don't want to pay our fees if they don't intend to do something."
Indeed, Asia's leaders have never been in such a fix. Failure to mend ailing banking systems would be a major brake on the region's ability to grow out of its problems. In South Korea, Morgan Stanley has just guided the government through the sale of 51% stakes in two of its most troubled institutions, Seoul Bank and Korea First Bank. The respective buyers, HSBC Holdings and Newbridge Capital, a U.S.-funded venture-capital firm, are the first foreign concerns ever to take control of Korean banks, marking a major step toward reform of the troubled financial sector.PACKAGING. Similar rescue operations are taking shape elsewhere. Morgan Stanley is helping the Thai government sell two banks it seized after the baht collapsed two years ago, Bangkok Metropolitan Bank and Siam City Bank. Even the region's healthy institutions, bracing for more competition as barriers to investment fall, are resorting to foreign expertise as they retool. Development Bank of Singapore (DBS), 40% state-owned and one of the best capitalized institutions in East Asia, now takes advice from consultant A.T. Kearney as it absorbs Singapore's Post Office Savings Bank, which it bought last year. Morgan Stanley is helping DBS in its pending acquisition of Hong Kong's Kwong On Bank Ltd.--a $460 million deal.
Investment bankers are also helping to package and sell distressed industrial assets, a strategy that many governments are using to raise badly needed revenue. Both Goldman, Sachs & Co. and Lehman Brothers Inc. are advising Indonesia as it privatizes some $2 billion worth of state-owned companies, from tin mines to toll-road operations. Goldman is in the final stages of gathering outside bids for a port at Tanjung Priok, near Jakarta. In one of many revenue-raising sell-offs, Goldman is seeking a foreign partner for telecom giant PT Indosat.
Often, the newly privatized companies need more help in contending with deregulation and global competition. Korea's SK Telecom, for instance, is one of the world's largest cellular companies, with 6 million subscribers. But it started sweating when new competitors axed its market share by half in three years. Kearney helped SK Telecom focus on profitability rather than sales by hiring outside firms to handle such jobs as base-station maintenance. That way the telecom company can concentrate on its core businesses and key customers. The consultant estimates that $240 million in savings will be achieved over three years.
The region's many family-controlled corporations, where patriarchy and tradition often reign supreme, could use similar help. In industries from autos to oil refining, these companies are selling off subsidiaries and bracing for a more competitive future. Lack of focus, ad hoc decision-making, and haphazard growth patterns are all common. Many companies, says James B. Haybyrne, chairman of Strategic Thinking Group in Hong Kong, face a wrenching shift away from traditional management as a younger generation assumes control.
Aggressive multinationals are seeking advice on playing the Asian game, too. According to M&A Asia, an industry publication in Hong Kong, U.S. and European companies announced $31 billion in takeovers of Asian companies last year--a fourfold increase over the number in 1997. The momentum shows no sign of abating.
All this means double-digit revenue growth for those advising on everything from shop-floor productivity to strategic thinking. Deloitte & Touche Consulting Group, with Asia headquarters in Hong Kong, has opened offices in Bangkok and Manila in the past four months and plans branches in Seoul and Kuala Lumpur. Asian revenues are set to top $200 million in the year through May--about double their level before the Asian crisis began.
The wave of consulting deals and merchant banking arrangements shows that Asia's government and business elites are learning the ropes of restructuring. It wasn't so long ago that foreigners scoffed at Japanese autos and Korean semiconductors. Now, outside help could help Asia produce a new crop of winners.By Mark L. Clifford in Hong Kong and Emily Thornton in Tokyo, with Jennifer Veale in SeoulReturn to top