On becoming a sustainable company
On becoming a sustainable company
When the Asian crisis hit, several major shocks were
immediately felt by companies across Asia. Capital flow to the
region, which continued to increase prior to the crisis,
immediately reversed as investors' confidence in the region
plummeted. Sharp devaluation of Asian currencies caused
increasing debt defaults for both foreign debt and accounts
receivables. Ballooning inflation and unemployment lowered
consumer confidence and spending. Labor unrest heightened due to
lower wage increases, layoffs, inflation and on-going
uncertainty. The impact of the crisis on companies operating in
the region was large and far-reaching.
Both the timing and magnitude of the crisis was simply
unexpected. Many companies were caught off guard. For some, the
crisis simply worsens their already bad condition prior to the
crisis. Some faced ballooning debt burdens that forced them into
bankruptcy. Some were acquired by companies with stronger
financial capacity, mostly foreign firms.
Not all companies, however, were hit hard by the Asian crisis.
Some even benefited from the crisis. Jollibee Foods Corporation,
the franchise holder and operator of the Philippines top fast-
food chain, for example, benefited from the crisis.
Jollibee was ready for the recession in the Philippines. It
had no dollar-denominated debt; it sold an affordable product;
and it had a proven record of defending its turf against global
fast-food franchisers like McDonald's. Jollibee ranks frequently
first in brand-name recall in local Philippine marketing surveys.
With the slump, Philippine consumers were cutting back on upscale
dining, which helped Jollibee post further gains. In the first
half of 1998 alone, Jollibee already reported a 33 percent rise
in net profits on sales of 6.7 billion pesos (source: WSJ 1998
Asian Economic Survey).
Companies in Asia responded to the growing crisis in different
ways. A survey conducted by Andersen Consulting at the onset of
the Asian crisis (1998) shows that most companies in Asia adopted
defensive postures, namely cost-cutting, postponements of new
investments, portfolio restructuring, and debt restructuring (see
Figure 7-2).
Aligning competitiveness and financial soundness
To determine the appropriate responses for Asian companies, we
devised a matrix which represents a "snapshot" of Asian companies
condition at the onset of the Asian crisis. Using market
competitiveness and financial soundness as variables, Asian
companies may fall into one of four cells: Bubble, Aggressive,
Conservative and Sustainable (see Figure 7-3). The best position
is, of course, "sustainable" companies, ones that have high
global competitiveness and high financial soundness. To survive
or emerge from the crisis as winners, Asian companies that fall
into the other three categories (bubble, aggressive and
conservative) must eventually become a "sustainable" company by
improving their competitiveness and/or fixing their financial
problems.