In a developing nation where close links between politics and business are increasingly evident, preconditions such as government patronage and institutional voids have played key roles in the emergence of Renong Berhad.

The government booster (stability and influence over economic activity) in Malaysia was a key reason for Renong’s emergence. Since the racial riots of 1969, the government led by the United Malays National Organization (U.M.N.O.) has implemented wealth redistribution and affirmative action programs that have been credited with restoring stability to the nation and boosting the political power of the ruling party, U.M.N.O.

U.M.N.O.’s influence⁵ and participation in Malaysia’s economic activities began primarily through three companies, the most prominent being Fleet Holdings.This participation came from the need to reduce U.M.N.O.’s dependence on Malaysian-Chinese funding for its activities and to gain control of Malaysia’s leading foreign-controlled local publishing media.

Overnight, Renong was transformed into an investment-holding company for a major bank, the three largest engineering and construction companies, the largest cement manufacturer, a national television station and the largest newspaper publisher.

Toward 2020: Perpetual Government Booster?

In September 1997, Dr. Mahathir announced a capital injection of $20 billion into the stock market through state pension funds. Renong will likely be a major beneficiary of this stock purchase scheme, alongside 100 listed blue-chip companies.

The relationship between Renong and the ruling party and the government of Malaysia raises some fundamental questions:

1. Is Renong essentially an extension of the Malaysian government?
2. Would the Malaysian economy be worse off without Renong?

Regardless of the answers to these questions, Renong’s experience demonstrates that the operating environment in Malaysia is unlike that of most developed Western economies. The issue for Renong and other companies of its kind is whether the pace of diminishing market imperfections through deregulation, globalization, stiffer competition, faster and better information and widely available skilled labor will remove the traditional primary drivers of growth. We believe that such change in the Malaysian economy is inevitable.

Recent research indicates that in markets where institutional voids exist, conglomerates can provide an effective second-best solution in overcoming such market failures. Indeed, Tarum Khanna and Drishna Palepu, assistant professor and professor respectively at the Harvard Business School, argue in their ground-breaking article in the August 1997 Harvard Business Review that diversification is a legitimate response in emerging markets.

In most emerging countries, government intervention is an acquired taste. In the years after de-colonization, governments set out ambitious development goals but generally lacked the civil service capability to make them happen, notwithstanding exceptions such as Singapore. They relied instead on a handful of local companies that made it their business to help governments put their policies into operation. A symbiotic relationship developed that survives today. It has served national interests well and has provided bountiful opportunities to a number of entrepreneurs. They have lobbied and influenced public policy, while serving it, and have thereby extracted rents that have helped them fund an increasing array of new ventures.

Exhibit IV combines the two dimensions of government intervention and imperfections in the marketplace into a framework for understanding the dynamics of developing economies.

When we start moving to point B in the above framework and large-scale privatization is launched,  conglomerates  are in unique positions to reap the benefits of their dominant positions with privileged access to influence and financial and managerial resources, as well as being attractive to the most capable foreign partners.

Over time, the hallmarks of overstretching become evident: shortages of critical skills, growing indebtedness and multiple, increasingly complex, alliances. The extent of diversification is no longer sustainable. An unexpected downturn exposes the fragility of the situation and forces reassessment. This was the situation of conglomerates in Argentina in 1994, Mexico in the Pre-Tequila years, Korea recently and is arguably looming in Southeast Asia in the aftermath of the recent currency crisis.

Observations of the Argentine and Mexican examples indicate that restrictions in the supply of financing, associated recession and greater pressure from the international business community eventually lead to a dual response: at the government level, a steep acceleration in reform and deregulation that moves the country toward Point C in our framework, and at the individual conglomerate level, a radical rethinking of their corporate strategy.

Point C is in itself a stable institutional end-game and does not necessarily lead to the “efficient” United States-like environment of Point D.  However, highly developed economies such as Japan, Germany or France are much closer to C than they are to D and do in fact breed a number of successful, yet highly diversified, business enterprises.

Huge governments are, of course, 20th century creations and a result of quite explicit battles for power. However, a central figure who brought the era of big government to an end is Mrs Margaret Thatcher. Thatcherism caught on in the United States; she had established a new economic agenda around the world – recasting attitudes towards state and market and withdrawing government from business. But does it really signal “THE END” of government’s role in the international political economy?

In this century we have seen the dramatic evolution in the balance of power between government and markets. The “Lenin” philosophy where the state must assume the commanding heights or control over the most important component of the economy was adopted in various forms around the world for at least half of the 20th century. Britain and Europe invented mixed economy and the welfare state; in America increased government regulations ranged from Franklin Roosevelt’s New Deal to Lyndon Johnson’s Great Society to Richard Nixon’s wage and price controls; in Japan and East Asia, state-centred economic systems brought prosperity by government-sponsored exports.

But the pendulum of political thinking had swung to the right over the past two decades. The implosion of the Soviet model removed any obvious alternative to capitalism – Mr Lee Kuan Yew, the progenitor of modern Singapore, summed up the reality : “Capitalism collapsed, mixed economy failed – what else is there?”

We live in an era of popular disenchantment with political institutions and hostility to government’s role in the economy, especially more so during this economic and financial crisis in East Asia. Neoliberal critics of political institutions argue that politicians have insulated themselves from popular control, acting on behalf of special interests, including interests in their own power, privilege, and financial gain. Guided by such private interests, coined “cronyism and nepotism”, government economic intervention generates inefficiency. From this analysis, they draw what is now a familiar political conclusion: that we need political reforms which limit government’s capacity for economic intervention.

The truth in neoliberalism is that improving economic performance requires political reform. But neoliberals wrongly conclude that improved performance – even measured by their own standard of efficiency – would be best achieved by reducing the economic role of government. To make the political economy work better, we need instead to ensure that government conduct is subject to vigilant oversight by citizens. We should, in short, reform our economy by improving our democracy, ensuring that citizens can effectively hold governments accountable for their economic activities and hence growth in national wealth.

Therein, the central theme, then, is that while it is true that government has played a role in the economic growth in East Asia; the continued efficiency of an economic system depends on the design of relations between the state and private economic agents as well as between citizens and the state.

This theme suggests that some SMEs are positioning their businesses within their industry environments; whilst others are reinventing themselves to go beyond incremental improvement. There are a variety of models, tools and techniques which can be used to analyse the competitive environment and the resource capabilities of a company. The SWOT analytical tool was used here with the interviewees to see whether the SMEs are aware of the rules of the competitive game and more importantly, to understand the changes in the marketplace (Bowman and Helfat 2001).

All of the interviewees were fully aware of the environmental opportunities and threats in their respective industries and have a good understanding of their organizational strengths and weaknesses (Stacey 1993, Andrews 1965, Ansoff 1965). The study also demonstrated that some of the interviewees are adopting generic competitive strategy to position their businesses within their industry environments (Porter 1985).

Tay: Ok. My er conclusion is that the niche lies on the differentiation. Of course all the employment agencies (domestic helper) choose not to differentiate their products. They just generally call their helpers as maids as a homogenous product. But I think if we can somehow differentiate from the whole group, then we will have a niche pie whereby competitors er will find difficult to penetrate.

Another example is the Seafood International choosing a niche strategy, concentrating on her competitive advantage of ‘shopping and dining’ vis-à-vis the copycats of CHAO PHRAYA (closed down recently) and UNIQUE, and constantly innovating and changing their menu dishes quickly (Cooper 1979).

The study also demonstrated that some of the interviewees knew that the rules of the competitive game have changed, and that new ideas and innovations are imperative to industry revolution (Hamel 2000). One example was the traditional change of light bulbs where customers need to dismantle them from the light fixtures and bring it to the purchase shop themselves for exchange. The lighting company introduced a new service for change of light bulbs within 24 hours service, therein increasing the value equation (one of the nine routes of Hamel). Another example was the domestic helper agency in targeting a new and growing expatriate market. It is also about to introduce a new program “Off Day” for domestic helpers to utilise their time off more constructively, therein pushing the bounds of universality (another of the nine routes of Hamel).

Thus, most of the interviewees interviewed revealed that their companies are building up distinct capabilities and are optimistic with their respective strategic moves. Therein, they are projecting a strong and profitable growth in the next three to five years. This finding is also supported by the informant from Spring Singapore who processed applications from SMEs to build and enhance their capabilities to transcend the limits of incremental improvement and achieve strong growth rate.

RC: Ok. As I mention we (flower & gift) have been achieving double digit growth over the past 2 or 3 years, and part of the reason is that we have put in place an integrated system whereby if you place an order on the website, you know, if you call in, we can tell you that you’ve placed an order on the website. … our integrated system comprises of a CRM

RL: 2005, we hit about 11 million (sales), an increase about almost 50%. Looking at 2006, current year we are in the 3 or 4 months, 1 quarter and we have seen a 25% increase of 2005….. Looking at the first quarter, we are looking at 2006 on a whole year of increase 30 to 35%. and a profit of 15%….it will be tremendous achievement for the company.

The global strategies and structures of SMEs may differ from those of larger companies as indicated in the former characteristics of limited financial and managerial resources, personalized objectives of business owners, and informal centralized planning and control system (Cavusgil 1984, Roth 1992).  The strategic options for optimal SMEs’ performance have been addressed but not resolved (Vernon-Wortzel and Wortzel 1997). One such option is for SMEs to choose a niche strategy, concentrating on where they have competitive advantage because they can innovate and change products quickly (Cooper 1979). Another suggested that SMEs can grow through a concentration strategy aimed at improving their performance in their current products and markets, broad product-line development, or new market development including international expansion (Dilts and Prough 1989, Chaganti and Mahajuan 1989). While others may involve avoidance of debt and fixed asset investment while differentiating on quality in current markets (O’Neil and Duker ,1986).

In Singapore, where the business environment is highly competitive and the market is saturated, the government has called for SMEs to consider adopting ‘blue ocean’ strategic move to create new and uncontested market for profitable growth¹⁵. This has led to a call by our then Prime Minister Goh Chok Tong (2001) to transform SMEs into ‘Singapore International Companies’¹⁶ . With the changing global landscape and the borderless world (Ohmae, 1989), Singapore SMEs are encouraged to play in the international arena and the game has just begun¹⁷.

Another strategic option for internationalization is for some SMEs to take a cluster approach and go in as a team (cooperative strategies). D’Souza and Mcdougall (1989) suggest that cooperative strategies are rarely adopted by SMEs. However, Shan (1990), Brown (1991), and Van Hor (1990) proposed that cooperative strategies are a good mode of commercializing products in foreign markets and overcoming resource scarcity.

Method

Interviews with interviewees’ observations and projective techniques through jokes and analogies were employed in this study to gather data relating to SMEs’ strategic moves in Singapore. Projective techniques were used both as ice-breakers to establish good rapport and throughout the interviews to enhance understanding and solicit sincere and clear responses from the interviewees.   The objective was to generate a comprehensive description of the business approaches in which competitiveness is sustained to obtain an understanding of the strategic moves of SMEs in Singapore. In total, eight companies were interviewed for study.

The interviews were mainly held at the interviewees’ premises and prior notice was given to the time and duration of the interview to ensure there were no interruptions or disruptions. The interviews were conducted during office hours and lasted for an average duration of forty five minutes.

The interviewees involved were mainly Chief Executive Officers and/or Managing Directors and they represent the highest echelon in their own respective industries, and therefore possess the authority for strategy formulation and execution. They are mainly males and have been with the companies as founders for at least more than five years.

In an effort to sample a broad cross section of SMEs, data collection was designed to cover a comprehensive range of industry sectors. Therein, six interviewees were selected from the following industry sectors for the interviews:-

• Retail
• Manufacturing
• Research and Development
• E-commerce
• Food and Beverage
• Service

The conventional planning view of the strategy process which is exemplified by Ansoff and Andrews implies a continuous process of strategic change and adaptation. However, much strategy in practice is rooted in stability, not change. Strategic re-orientations are not an every day event. They only occur occasionally as brief ‘quantum leaps’. (Mintzberg, 1987) In other words, Mintzberg suggests that strategy formulation does not normally entail a preconceived rational planning process. Instead, ‘logical incrementalism’ (Quinn, 1980) describes what usually occurs¹⁰. Using an analogy, a senior manager in a major oil company has described the process in this way: ‘We knew where the island was, but we didn’t start out with the boat to get there. We had to construct it as we went along.’

Mintzberg and Quinn (1985) distinguished eight styles of strategic management, only one of which conforms to any kind of rational planning process model¹¹. Mintzberg (1978) has defined strategy as a ‘pattern in a stream of decisions or actions’ that emerges over time. That ‘pattern’ is the result of strategies that are intended, planned and deliberate combined with strategies that are unplanned, unintended and emergent.

Strategy as Reinvention

Hamel argues that companies are reaching the limits of incremental improvement and that many need to reinvent themselves instead (2000, p69). Within any industry he argues, you will find three types of companies -rule makers, rule takers and rule breakers¹².

Hamel contends that strategy is revolution and everything else is just tactics (2000, p70). To achieve this strategy insurrection, Hamel outlines the following nine routes to industry revolution:-

• Radically improving the value equation
• Separating function from form
• Achieving joy of use
• Pushing the bounds of universality
• Striving for individuality
• Increasing accessibility
• Rescaling industries
• Compressing the supply chain
• Driving convergence

According to Spring Singapore, a government agency on standards, growth and innovations, the SMEs are defined as:

• Applicant company is registered or incorporated in Singapore
• At least 30% local equity
• Fixed assets (defined as net book value of factory building, machinery and equipment) not exceeding $15 million*
• Employment size not exceeding 200 workers for non-manufacturing companies*

*computed on a group basis

In Singapore, the growing and promising SMEs with individual entrepreneurial characteristics and relatively small sales turnover (estimated between S$5m and S$30m) and market size, are unlike large corporations and American SMEs⁶ (much higher annual sales turnover and different definitions) featured in the work of Kim and Maubourgne (2005). Therein lays the challenge facing local SMEs in Singapore: to adopt and execute strategic Blue Ocean moves so as to pick the best new business opportunities in the turbulent waters of change and uncertainty and swim towards the shore of sustained competitiveness. The alternative is to struggle in the competition-based red ocean to stay afloat.

Hence, this study of analysing the strategic choices of Singapore’s SME for sustained competitiveness is indeed an ambitious one. If, in the sections to follow, some of the implications of those insights are drawn out it will have achieved a major objective, which is to relate the lessons to be learned from the literature to the kinds of strategic management issues which typically arise in Small and Medium business.

Literature Review

How much easier it is to be a spectator, high up in the stands with a near perfect view, second guessing a football team’s coach or the players’ ball handling in the World Cup tournament. On the pitch, at ground level, the view is not so clear and it takes special skill and judgment to keep a winning strategy. So it goes with many companies and their respective strategic management. The primary aim for profit seeking organisations is to maximize the performance of the firm over time (Rappaport, 1981 and Treynor, 1981). Therein, all organizations are faced with the need to manage strategies – either from a position of strength or to overcome significant problems (Johnson and Scholes, 1997). The question is whether the strategic decisions made should restrict itself to the more popular competition-based strategies alone to sustain competitive advantage in the long run? Or is there an alternative strategy to explore and create uncontested market space and make the competitors irrelevant?

For the context of this research, the definition and meaning of strategic management, and the types of strategic models and decisions will be explored. Also, as the subject of the study is on SMEs, their strategic options will be discussed. According to Richard Daft (1994), strategic management is concerned with the processes by which management plans and decides on actions to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational objectives. In the study, the term ‘corporate strategy’ is used for two main reasons. Firstly, the literature is concerned with strategy and strategic decisions in all types of organization – small and medium enterprises, large commercial enterprises, multi-national corporations and public services – and the term ‘corporate’ embraces them all. Secondly, ‘corporate strategy’ denotes the most general level of strategy in an organization and in this sense embraces other levels of strategy⁷.

This strategic wave of known competitive rules¹ results in reduced profits and stunted growth for the enterprise in the cutthroat competition, metaphorically struggling to swim in the bloody red ocean. From this perspective, the SME is viewed then as a company who metaphorically swims in the blue ocean of new and uncontested markets, and riding on the crest of demand creation. This relatively uncharted strategic wave of value innovations results in demand creation and provides the opportunity for high profitable growth to make the competition irrelevant². This perspective is not intended to replace existing generic competitive strategies (Porter, 1980, 1985) or the core competence and capabilities approach in building competitive advantage (Hamel and Prahalad, 1994) but instead to provide an alternative interpretation that may be relevant to certain SMEs and to the strategic planning of Singapore registered companies, especially those in the highly competitive and saturated markets.

The primary objective of the study was to investigate the relationship between Small and Medium Enterprises’ strategic framework and their sustained competitiveness through an analysis on the choices of their formulated business strategic moves and how the execution of these moves result in profitable or non-profitable growth in a crowded and saturated markets in the Singapore context.

Accordingly to the Singapore Statistics (2005), the Small and Medium Enterprises contributed about 55% to Singapore’s Gross National Product. This is a pretty significant contribution which led to the selection of this sector for the study. According to the Ministry of Manpower (2005), the over 126,000 SMEs’ (including SOHOs- Small Office, Home Office) combined employees constitute about 50% of the total workforce in Singapore. The choice of blue ocean strategy for the SMEs as the subject of interest was determined by the changing global economic landscape and increasingly intense competition faced by Singapore.

In many organizations today, there are many individual groups all doing a good job. They are doing their own thing, very interested in meeting or beating their measurements, but not understanding or caring about how their activities affect others further down the process. They are interested only in what they are doing and how they are measured. This situation causes sub-optimization to occur throughout the workplace. The three major objectives of CP/WR, then are:

• Make processes effective – producing the desired results
• Make processes efficient – minimizing the resources used
• Make processes adaptable and relevant – being able to adapt to changing customer and business needs.

All well-defined and well-managed processes have the following five common characteristics:-

1. There is someone who is held accountable for how well the process performs, i.e. there is a process owner appointed
2. The process has a well-defined boundaries, i.e. there is a defined process scope
3. The process has documented policies, procedures, work instructions, training requirements and formalized change procedures, preferably to ISO 9000 standards
4. The process is measured (cycle time) and provide feedback at the point at which the task is being performed. They know how good they can be.
5. The process is customer-oriented and has a balanced measurements and targets, i.e. the financial, customer, internal business process and learning and growth perspectives.

Keeping CP/WR on Track

Getting the full value from CP/WR means being able to tell – early- when efforts wander off course. So what can the steering committee do to create the optimum conditions for CP/WR?

First, choose the right targets – process with key performance variables that will enhance organization critical capabilities to achieve competitive advantages.

Second, ensure that the need for change is widely understood and accepted – which means investing substantial and visible effort to demonstrate real commitment.

And third, look out for the “red flags” – the tell tale signs that something is going wrong, identified and corrected quickly enough, these red flag can help and alert CEO and business leaders to keep a CP/WR effort on track. We will discuss the first two conditions in this workshop and the third condition in the fifth workshop.

1) Choosing the Right Targets

Aiming CP/WR at the wrong targets is quite common, since the targets are moving and often difficult to make out.  The targets must be those key performance variables identified that will enhance the critical capabilities of the organization for it to achieve competitive advantages, that is, the meaningful dimensions of performance must be clear.

To determine what kind and what levels of performance mush be delivered, management will need to become much better informed about what drives customer behavior, as well as about the impact of technology on the economics and structure of their industry now and in the future.  Understanding the drivers of customer behavior requires a clear view of how a product or service is used and what impact it might have on customers’ finances or life style.  Similarly, understanding the impact of technology requires the ability to assess the likely trajectories of its price and performance, and to judge how far it might alter the key cost and asset drivers of the business.

Even if the right performance target if in view, management should take care to define it broadly enough.  One of the common pitfalls in process re-engineering is to focus too quickly on one performance dimension and to lose sight of others that may be equally important – or even more important – to success.  For example, a retail business seeking growth recently launched a process re- engineering effort to boost its capacity to open new retail outlets.  Management quickly decided that the key performance objective of CP/WR would be to generate a tenfold increase in revenue from newly opened outlets.

Fortunately, a preliminary diagnostic of recent performance uncovered the fact that the net present value of new retail outlets had been declining at a substantial pace for several years since the company had begun to step up the pace of new openings.  This insight led management to concentrate much more explicitly on factors determining the quality of retail sites, and to shift the focus of the re-engineering to the “upstream” decisions about which sites they should acquire.

Another common pitfall in process redesign efforts is becoming preoccupied with exhaustive process “maps” that take years to develop and make impressive wall coverings, but serve to distract attention from the key leverage points in the process and prevent the delivery of the near- term improvements that are needed to sustain the change process.  At each step along the way, top management must challenge an organization to understand how each activity in the CP/WR effort contributes to overall performance objectives, and they must ask their people to search for ways to deliver the desired performance earlier and with the least investment possible.

It is a company’s processes that create value for its customers. This is, in effect, a restatement of our definition of a process as a group of tasks that create customer value. The tasks are the bits of work that people actually perform, but the tasks themselves do not create value nor do the individuals performing them. It is only whole processes, all the tasks put together that create value.

Therein, the design (the structure, layout, and organization of the process – how the individual tasks are performed and integrated) – is a critical determinant of how well the process performs. A process design full of handoffs cannot be inexpensive; a process with redundancies cannot be inexpensive; a process entailing endless reviews cannot be flexible. A process cannot perform better than its design allows. It is perhaps most accurate to say that the process design defines the limits of process performance – how well it can possibly perform if all performers do what is expected of them.

Next, people. In order to compete in a world of changing customer preferences and rapidly evolving technologies, many companies have adopted a product development process known as concurrent engineering. This process brings group of people with different skills – such as manufacturing, engineering, finance, and marketing – to work together. They seek to develop new products in a manner that ensures not only that all aspects of the new product work but that they work together.

But no matter how well designed this product development process may be, it needs the right people to implement it. It needs engineers who will listen to and respect the views of marketers, marketing experts who understand enough technology to grasp the engineers’ concerns, and manufacturing specialists capable of translating customer needs into their operational implications. Without such people, the best-designed product development process will not develop great products.

Note that the right people do not necessarily mean the best, or even superior, people. Who is better, an engineer who has top technical expertise but lacks team skills or an adequate technician with terrific team skills? The answer depends on the design of the process in which the engineer will be asked to work. Some processes need the technical expert; others, the team player. Peak process performance needs superior design and people well-matched to the design. This provides a reprieve from the daunting goal of having the “best” people that many companies set themselves. That would take winning the lottery. Having the right people just requires focus and discipline.

Even the right people working with a peak performing process design won’t deliver peak performance unless they care deeply about what they’re doing. Without motivation, the process design will remain a piece of paper, and people’s abilities will be mere credentials on a resume. Unmotivated people merely go through the motions. Organizations must have a spirit and a soul to encourage people to exercise their potential and to make a process hum. Business leaders and owners need to create a learning environment through the following ways:

1. The employee has a clear understanding of what is expected.
2. The employee has the competency to perform what is expected.
3. The employee is supported by a conducive work environment, and an efficient, effective and adaptable process.
4. The employee is motivated to perform.

Motivation, that is, the desire to perform up to expectations – is only one of the four factors that determine performance. When employees don’t perform, do not jump the gun in diagnosing the cause of the performance problem to be a lack of motivation. It is usually a problem in expectations, competency or work environment and business processes.