expand - DKSH.com


expand - DKSH.com

expand›Issue 01May 2011DKSH’s magazine for Market Expansion ServicesThe global world of sourcingCreating the right relationshipsInnovating for growthInterview with John Anderson, President & CEO of Levi Strauss & Co.Keeping it frugalHow businesses target consumers in emerging markets

Naturally we don’t know all the 3.2 billionpeople living in Asia personally – just thosewho are important for your business.Over the past close to 150 years, we have built a networkof personal relationships and more than 180 distributioncenters all over Asia, which handle over 300,000 differentproducts. And because we know that information is themost crucial business asset today, our business partnersbenefit from our market insights gathered through Asia’smost powerful Enterprise Resource Planning system (ERP)based on SAP.We are the global leader in Market Expansion Services,employing 22,500 specialists in 610 business locationsall over the world. We help companies to grow theirbusinesses in and with Asia, providing all the knowledge,advice, relationships, and on-the-ground logistics theyneed. To find out more about us and the services of ourspecialized Business Units Consumer Goods, Healthcare,Performance Materials, and Technology, visit us atwww.dksh.comThink Asia. Think DKSH.

Letter from the editorWelcome to ourmagazine!Dear readersWelcome to the new issue of expand, DKSH’s magazine for MarketExpansion Services. In this edition we take a closer look at sourcing,exploring the opportunities and the challenges that companiesface as they seek to source materials, components, equipment, andproducts from various markets. In our main feature, for instance,we reveal how the challenges of higher commodity prices and fallingrevenues have catapulted the procurement function from backoffice to prominence within many organizations. This is especiallytrue for firms that choose to closely collaborate with their suppliersalready in the research and development phase, thereby creating avalue-added sourcing relationship.The sourcing theme is also becoming more and more important inthe face of ongoing globalization, with companies benefiting fromthe opportunities of new markets. But in doing so, they need tocomply with ever increasing rules and regulations to ensure productquality, while maintaining competitive costs. Staying ahead ofthe game is best ensured by collaborating with specialized serviceproviders who can facilitate relationships, offer on-the-ground logisticsand access to suppliers, as well as in-depth knowledge of localregulations. DKSH is a clear leader at this, the No. 1 provider ofMarket Expansion Services with a focus on Asia. We offer an unrivalledlocal network, combined with nearly 150 years of experiencein Asia, all of which puts us in an excellent position to support ourbusiness partners.As I write these lines, Japan is recovering from a devastating earthquakeand tsunami that cost tens of thousands of lives. I would liketo express my deep sympathy to all concerned. Fortunately, DKSHDr. Jörg Wolle, President & CEO of DKSH.Japan escaped the disaster without major damages. We are closelymonitoring the further developments and proactively communicatingwith business partners worldwide on how to best support them inthis unprecedented situation. We have also set up a global DKSHdonation program to support the recovery efforts and enable youngpeople who have lost their parents to continue their educationthrough scholarships.With best personal regardsDr. Jörg WollePresident & CEO, DKSH Holding Ltd.DKSH’s magazine for Market Expansion Services 3

ContentsWhat’s in for you66Doing businessin the PhilippinesYou need to offer value and innovation10810151820The global worldof sourcingOpportunities and challenges in sourcingRight-cost, not low-cost sourcingCreating the right relationshipsAsia’s green energy22222228283236One-on-oneInnovating for growthInterview with John Anderson, President & CEOof Levi Strauss & Co.Thought leadershipHas the nanotech revolution finally begun?The challenge of operating an ethical supply chainKeeping it frugal284 expand 01/2011

Contents4040EssayWhy cities will matter more in the decades ahead4042444851525458Inside DKSHHolding the key to market expansionExpanding our global footprintInnovative testing facilityCertifying quality suppliersTo stand still is to lose groundDKSH – the founding years446161A letter fromSingapore“Monaco of the East”6262InsidersMy Bangkok6464Close-upGlobal cooling62DKSH’s magazine for Market Expansion Services 5

The global world of sourcingThe global worldof sourcingHigh-quality and cost-effective sourcing is crucial to the success of manybusinesses, but is increasingly challenging in a competitive, global market.Finding a good, reliable partner to help navigate these challenges is vital.8 expand 01/2011

The global world of sourcing10151820Opportunities and challengesin sourcingRight-cost, not low-cost sourcingCreating the right relationshipsAsia’s green energyDKSH’s magazine for Market Expansion Services 9

The global world of sourcingOpportunitiesand challenges in sourcingFor years, the sourcing function has been working behind the scenes,but the impact of the recession has thrust it into the limelight – andis changing the importance of its role altogether. By Daniel Martin.Sourcing teams used to be at the dull end of the company, taskedwith finding cheap and suitable components, raw materials, and services,and then delivering them on time. But procurement managersare now enjoying something of a rebirth, with their status moving upthe company hierarchy. In part this is because their job has been difficultin recent years. A global recession has tested supply chains, assuppliers have gone bust and orders have been cancelled. In the postcrisisworld, soaring commodity prices are making it ever more importantto find the right supplier. Good sourcing teams have hadample opportunity to prove their worth. But there has also been ashift in the way sourcing is viewed. Increasingly, sourcing managersare being consulted on strategic decisions as company directors wakeup to the role that sourcing can play in creating a competitive advantagefor the company. Procurement is no longer just about containingcosts, it has become integral to brand development and revenuegeneration. As Professor Christopher Jahns, Executive Director ofthe Supply Management Institute at the European Business School,puts it: “Four years ago procurement was in the cellar. It wasn’t in themind of top management as a driver of profitability. Now it is startingto be recognized in the boardroom.”A greater role for sourcingThe global financial crisis has certainly raised the profile of the sourcingfunction. As firms were starved of revenues the pressure to cutcosts and preserve profitability intensified. Much of the cost cuttingwas achieved through layoffs and outsourcing, pay cuts, and delayedinvestment, but firms also looked to their procurement teams to findthem cheaper supplies. Demand shortages also put pressure on sourcingfirms. When firms saw demand for their goods drop they reducedtheir own orders from suppliers. Where contracts lacked flexibilitythey sometimes needed to be cancelled. This naturally put a strain ondealings with suppliers, exposing procurement teams that failed tobuild strong relationships with suppliers. Many suppliers also wentbankrupt, forcing sourcing managers to find new ones. Companieswith a wider network of sourcing experts and a bigger database ofpotential suppliers found this easier. Those that had performed strongaudits on their suppliers found it less necessary.But while the global recession may have put the microscope onsourcing, companies were already waking up to its importance beforedisaster struck. One reason for the increased importance of procurementis a growing desire among firms to focus on their core capabilities.Take the pharmaceutical industry for example. Christian Lotz,Business Development Manager for pharmaceuticals at DKSH PerformanceMaterials, says that “in the past, everything was done withinthe company. Now the pharmaceutical companies want to beR&D institutions, with manufacturing done outside of the firm.”Procurement managers are then responsible not only for finding theright materials, but also for finding a manufacturer that they candepend upon for quality, reliability, and environmental and socialresponsibility. The vetting process to find such a supplier can be complex.To be confident of a supplier’s reliability procurement managersneed to build a good understanding of their operations.Financial audits must be carried out to ensure that the firm is on asound footing. In assessing and checking a supplier’s corporate responsibilityprograms, it is not enough to rely on their self-assessments.Procurement managers need to work with suppliers to ensurethat laws are complied with and that working conditions and environmentalpractices are up to the required standards. Without suchcare, a firm can find its brand damaged by actions undertaken outsideof its own boundaries.10 expand 01/2011

The global world of sourcingTackling such challenges requires a broad range of expertise. ProfessorJahns argues that these demands are one reason for the growingrole of sourcing managers in the broader strategic decisions of companies.“Sourcing experts need to understand production, marketing,engineering, finance, and so on. That is why they are gettingmore say.” And of course, if, as appears to be the case, higher-caliberpeople are being hired to fill these more demanding sourcing managementroles, it is natural that they will demand a greater role instrategic decisions.Driving innovationAs production is being moved outside the boundaries of firms, sourcingmanagers are being given ever more opportunity to create valuefor a business. One of the most important ways in which sourcingcan contribute to a company’s top line is by tapping into the suppliers’ability to drive product innovation. This value-added sourcingrequires suppliers to do more than just manufacture or produce inputs.Being more familiar with a component, material, application,or process, the supplier is often in the best position to improve it.According to Riccardo Giacomessi, Sales Manager for the Food andBeverage Industry at DKSH’s Business Unit Performance Materials,“good suppliers don’t wait for the customer to tell them what theywant. They anticipate what the customer will need and conduct theirown R&D to meet those needs.”It is possible to go too far down this road. Executives at Boeing, forexample, have recently admitted that they were too aggressive in outsourcingthe design of components for its next-generation 787Dreamliner airplane. In designing past models Boeing gave suppliersdetailed blueprints for the manufacture of components. This timearound they gave suppliers specifications and let them design theirown blueprints. The result was a lack of cohesion in the design process,with components often not fitting together. The plane is nowthree years late and billions of dollars over budget.The key is to get the balance right. One way around the problem isto work closely with suppliers, letting them innovate while ensuringthat their innovation works in the context of the overall product. AsDavid Redfern, Chief Strategy Officer at GlaxoSmithKline, a pharmaceuticalcompany, puts it: “You clearly have to have a core expertise,but not all leading science is going to be within the boundariesof GSK…We do about 50% of research in-house and 50% in collaborationwith universities and biotech firms and we think that is amodel that works well.”The globalization challengeThe role of the procurement manager has also been changed by globalization,which has increased the complexity of business operations.In a more interconnected world, firms have been presentedExternal suppliers can also support top-line growth by directly contributing to product innovation.DKSH’s magazine for Market Expansion Services 11

The global world of sourcingprocurement function. A specialist sourcing firm with a global presenceprovides a company, no matter what its size, with access to suppliersall around the world, as well as a built-in relationship withthese partners. This is important not only in finding a good supplier,but in reacting to changes in circumstances.Flexibility is crucial. For example, while China has been the low-costcountry of choice for procurement teams in the past decade, wagesare growing at double-digit rates. Many firms are beginning to lookfor cheaper options, but this requires knowledge of other low-costcountries as well as access to suppliers and development of such relationships,all of which can take time to develop. Specialized procurementfirms with a wider local presence of sourcing experts, large supplierdatabases, and IT systems that can make quick assessments arein a position to shift to suppliers in different countries easily.Regulatory changes create similar pressures. Marcel Baumgartner,General Manager Sourcing for Technology at DKSH, uses the exampleof screws bought from China and imported into Europe. In December2008 the EU slapped an antidumping tax of up to 87% onChinese screws. The decision immediately forced European firms toreconsider their suppliers. In such a situation it is crucial to have alternativeoptions. Marcel Baumgartner sees this as an opportunity forsourcing firms. “DKSH's infrastructure all across Asia enables us tonot only source, but also package the required items according to ourcustomers’ specifications. If problems arise, we can switch almost immediatelyto another of the 35 countries we operate in.” This flexibilityis likely to be needed in the future: according to a report by theWTO 1 published in December, China was subject to 23 antidumpinginvestigations in the first half of 2010, more than any other country.Sourcing partners can help find alternative supplies of goods, such as GMO-free soylecithin for chocolate.with the opportunity to sell into new markets and have gained accessto new, potentially cheaper suppliers in low-cost countries but theirsupply chains are also far trickier to manage. To stay competitivefirms need to look around the globe for the most suitable suppliers.This naturally means that procurement teams need to contend witha multitude of legal systems, tax and regulatory regimes, and accountingpractices. They also need to be comfortable dealing in locallanguages and must understand local cultures and business practices.These are serious headaches for sourcing managers, but they are alsosome of the key reasons why they have become more important.The competitive pressure to source globally is encouraging firms tolook for external sourcing partners. The most obvious reason for thisis that sourcing the cheapest and best-quality inputs requires knowledgeof and access to suppliers in a wide range of countries. For manycompanies this is impractical, so they are choosing to outsource theDealing with new demandsChanging consumer demands or supplier conditions can also forcefirms to find new suppliers. Brazil is the world’s largest supplier of soylecithin, an important emulsifier for the chocolate industry, but itbecame harder and more expensive to source as the country openedup to the planting of GMO soy. Contamination meant that it wasdifficult for suppliers to guarantee their product was GMO-free.Faced with this problem, DKSH developed relationships with Indiansuppliers, working closely with them to ensure the quality of theproduct and the absence of GMO contamination. The world’s largestchocolate producers now rely on DKSH for uninterrupted, on-timedelivery of non-GMO soy lecithin. It is common to find such situations,where a lack of alternatives makes it impossible to phase out asupplier who is failing to meet the required criteria. In these cases,procurement teams need to engage more deeply with their existingsupplier or a potential alternative and encourage their development.Again, an external Market Expansion Services provider might be in abetter position to do this, because they can use a supplier for a range1Semi-annual reports of Members to the Committee on Anti-Dumping Practices, World TradeOrganization, December 201012 expand 01/2011

The global world of sourcingProcurement experts are working hard to balance supply against uncertain levels of demand.of customers. For an individual customer, the expensive and timeconsumingprocess of developing a supplier is less cost-effective.Another reason for looking to an external sourcing partner is that itis often not enough to simply find or develop a good supplier. Gettingan input from a supplier to its destination can often be costlyand full of risk. Purchasing prices can often look attractively low indeveloping countries, but the price advantage can be wasted by thecosts and risks created by logistical problems, weak intellectual propertyrights, and messy local bureaucracies. Professor Jahns talks of the“total cost of ownership” of a product. According to him, many managerswho calculate the total cost of ownership of an input fromChina estimate that the price advantage should amount to at least20–30% in order to make procurement worthwhile. Having the experienceand reach to manage the factors that can ramp up the finalcost of an input is critical in global sourcing.The challenges facing a sourcing manager have clearly become moredifficult in a globalized and unpredictable world economy. But theopportunities for a procurement manager to deliver advantages forhis firm have also never been greater. Whether firms choose to reactto these new circumstances by dedicating greater resources to theirown team or by engaging a specialist services provider, it appears thatthe procurement manager has finally broken out of the cellar.Daniel Martin is an analyst for a range of Asian economies. He worked at BusinessMonitor International as an Asia analyst before joining the Economist IntelligenceUnit in 2007. He has a BA in Economics from Cambridge University.DKSH’s magazine for Market Expansion Services 13

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The global world of sourcingRight-cost,not low-cost sourcingA range of potential risks, from the reputational to the regulatory, await firmsthat don't consider the full costs of what they're sourcing. Investing in deepersupplier relationships can ensure a positive outcome. By Thomas Clouse.Stories about sourcing in low-cost countries tend toward the extreme.Some tell of tremendous savings while others complain aboutpoor-quality products and dishonest local partners. In most cases, acompany’s success in sourcing depends upon its priorities and itspreparation. Often the companies that boast of savings initially becomethe same companies that later suffer from unexpected cost andquality issues.Chris Runckel, President of US-based Runckel and Associates, a consultingfirm, explains: “The most common mistake companies makeis to chase low prices. If you focus only on price, you often missother potential costs.”Many of these other potential costs stem from quality issues, saysRunckel. While companies can save money initially by using lowercostsuppliers, they must often pay more to remedy problems whenthose suppliers are unable to meet quality requirements. In such situations,companies not only face the direct costs associated with replacingfaulty products but also the potential damage to their reputationsif the products reach their customers. In one example, UStoymaker Mattel had to recall almost a million toys in 2007 after itwas discovered that one of its suppliers has used lead paint.Clearly communicate your expectationsCommunication is an important element in ensuring quality. Companiesmust be clear about their product specifications and business expectations,a task which is complicated by differences in culture andlanguage. “Companies should put out a package of requirements tosuppliers that explains in easily understood terms what is expected andhow the whole process will take place,” says Runckel. And poor qualityis not the only issue that can damage a company’s reputation, he adds.Companies should also make sure the suppliers they work with haveethical business practices. “More companies want to know that theirsuppliers treat their workers decently, follow business standards andlegal procedures, and know how to treat the environment properly.”Mario Preissler, Head Business Unit Performance Materials at DKSH,explains: “The most important factor is really making sure the suppliersyou identify are professional companies that will follow thestandards that you expect and will still be around in the future.”Visiting the supplier companies can serve as a first step in determiningtheir level of professionalism. It also gives companies a chance toevaluate the logistical costs of a company’s location. As Runckel mentions,lower-cost producers are often located further from ports andrailroad lines, which can translate into higher shipping costs and longertravel times. This also increases companies’ exposure to priceshocks when oil prices rise.Handling regulatory risksThe location of the company not only matters for transportationcosts but for regulatory risks as well. Tariffs, which can vary greatlyfrom country to country, add significantly to product costs and canincrease quickly when trade tensions surface. In the first half of 2010,for example, more than 32 WTO members implemented anti-dumpingmeasures to slow the inflow of imports.Regulatory risks can take place on a smaller scale, too, such as whenlocal authorities increase minimum wages as they have in recentmonths in Shanghai, Jiangsu, and other parts of China. They mayalso be less direct. For example, weak enforcement of intellectualproperty rights can endanger companies’ technological assets.DKSH’s magazine for Market Expansion Services 15

The global world of sourcingFactBoxEvaluating potential suppliersCheck that potential suppliers have the experience,capacity, and financial resources to meetyour quality requirementsEnsure potential suppliers fully understandyour quality requirements. Common practicesvary from country to country, so be aware ofyour assumptionsInvestigate potential suppliers’ business practicesto ensure they’re in line with your company’sstandards and expectationsEvaluate the costs of transporting your productsfrom your potential supplier to your finalmarketFactor tariffs into your costs and potential tradefriction into your risksUnderstand the legal environment. Pay particularattention to transparency and enforcementA closer relationship with suppliers that isn't focused solely on price can lead to an entire range of benefits.A changing economic backdropProperly incorporating all these factors – price, quality, communication,ethical business practices, logistics, and regulatory environment– is made increasingly complicated by the rapidly changing globaleconomic backdrop. Higher wages are increasing production costsbut are also boosting domestic consumption. The traditional modelin which companies produced in low-cost countries and exported todeveloped countries is changing, especially as many suppliers in lowcostcountries are improving in quality and expanding their capabilities.“The gap is closing,” says Mario Preissler of DKSH.That closing gap makes supplying decisions more difficult, arguesYogesh Malik of consulting firm McKinsey & Company. “As companiesin developing markets become increasingly credible suppliers,deciding which low-cost market to source from becomes more difficult,”he notes in a January 2011 report 1 about building the supplychain of the future. That report cites a McKinsey survey, in which68% of respondents expected supply chain risk to increase in thenext five years.In response to such risk, companies must not only research the manyfactors mentioned above but also invest in their supplier relationshipsto gain the most from their supply chains. “It is very importantthat the source you buy from makes enough money to have an interestin maintaining a long-term relationship with you,” says Preissler.“The longer the relationship lasts, the more secure you are.”But while supply chain risks are increasing, so are the potential benefits.Strong supplier relationships help companies realize those benefits.Many firms are already adjusting their strategies. In a survey ofmanufacturing executives conducted in September 2010 by KPMG,a tax and audit firm, more than half of the respondents planned tocollaborate more closely with or give full responsibility to suppliersfor issues ranging from product development to cost reduction. 2While such suppliers are less likely to offer the absolute lowest price,they are more likely to work together with companies to address theincreasingly complex challenges of the global economy. Furthermore,when suppliers begin taking on more responsibility, companies canfocus more clearly on product development as well as marketing andbusiness strategies and are thus more likely to have happy endings totheir sourcing stories.1Building the supply chain of the future, McKinsey Quarterly, January 20112Global manufacturing outlook, KPMG, September 2010Thomas Clouse is a freelance journalist based in San Francisco and Beijing. Hewrites about a wide range of economic, political, and social issues for magazines inthe USA, the UK, China, and India. He was educated at Stanford University.16 expand 01/2011

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The global world of sourcingCreating the rightrelationshipsFirms willing to invest time and resources into developing deeperrelationships with their suppliers are finding a range of benefits.This is especially crucial for small to medium-sized companies.By Sumana Rajarethnam.In an intensely competitive and globalizedmarketplace, companies are compelled to focuson their core competencies, such asproduct design and marketing. In turn, thisoften results in an increased dependency onsuppliers, those who fulfill on actual delivery.This greater reliance not only affectsconsiderations of price, quality, and reliability,but also extends to a company’s ability toinnovate. Those firms that are most adept atco-operating closely with their suppliers areoften the ones that are most competitive.The ability to successfully manage this relationshipis often crucial for competitive advantage,especially as it is not something thatcan be easily duplicated or substituted for. Amutually beneficial long-term relationship isa mix of good business sense with culturaland economic understanding. While shoppingaround for better prices between supplierscan help a business remain competitivein the short term, true value comes indeveloping long-term supplier relationships.Relationship benefitsA tension between price and long-term relationshipswill always be present, says Pat Cortez,Head of Country Management Team,DKSH Philippines. “When you make a decisionbased purely on cost, expectations arealways different. There is a tendency to wantimmediate results. There is also the fear oflosing confidentiality and control. However,when you think of long-term relationships,you can agree on milestones of engagementand this takes some of the tension away.”Long-term partnerships also allow for betterresource planning. “You can achieve efficiencyby aligning your processes and productivityincreases when you understand eachother,” says Cortez. “The longer you work together,the more you can build your expertiseand bridge the gaps. It fulfills brand expectationsand is good for the image of both companies.”This in turn enables companies tobuild up an effective, long-term supplier network,which ensures both reliability andquality, while potentially also facilitating innovationsthat are developed together.Long-term supplier relationships bear severalother advantages too: industry insight, aview on regulatory challenges, and an understandingof the political environment, forexample. All of these can help strengthen thesupply chain, especially for more complex ormore regulated products.A key product of longer-term collaborationis that it also sets up an ongoing entity,which in turn is no longer driven purely byprice. It allows for partners to be the eyesand ears in local markets or across the region.“This allows perspective on the marketthat is hard to distill otherwise and allowsfirms to read the market,” says Jeffrey Moore,Vice President Developing Markets forDKSH Performance Materials, based inVietnam. “It gives you an opportunity toidentify new trends, new products, and eventhe blue-chip firms of the future. Ultimately,this translates into bringing value to thecustomer.”Close relations can avoid crisesOf course, developing such relationships isnot without challenges. A key one is culture.For example, with Japanese companies, acceptancetypically takes a long time to nurture,with much attention and time paid toaccreditation along the way. “Cultural aspectslike these are very important because they arethe basis for trust and reliability, the foundationof harmonious relations,” says YoshiyukiShirakawa, Vice President Specialty ChemicalsIndustry at DKSH Japan.Once close supplier relations are developed,they can also help firms avoid crises, such asquality lapses. The tainted-food scandal inChina highlights how an otherwise world-18 expand 01/2011

The global world of sourcingIf handled properly, long-term partnerships with suppliers will improve productivity and resource planning.class manufacturing industry can be setback by just a small group of operators,which could be potentially ruinous for thosewho don’t know and understand their supplierswell. “It is only with good businessintelligence that you will know whom topartner with,” says Moore. “This quality assurancemixed with value for money issomething that can only be developed overtime.”Key for SMEsThe need to develop deeper long-term relationshipsis especially pertinent for small andmedium-sized enterprises (SMEs), althoughof course price remains a key considerationfor such firms. Gurdip Singh, President andCEO of Crescendas MEC, a Singapore-basedmanufacturer of specialist electronic components,often finds that SMEs choose a combinationof both price and long-term relationships.“Price is not the only criterion,but from an SME perspective, it is definitelyimportant,” he says.Singh invests a lot of energy into buildinglong-term relationships with his subcontractors,especially given the time it takes tobuild a mutually agreeable process. “Youneed a good system in place, you need controlover materials, and you need to knowthe production process,” says Singh. In particular,he keeps an eye on financial capabilityand operational readiness when evaluatingpotential partners – but then activelyworks to stabilize these as the relationshipdeepens. “In the end, the financial viabilityand success of the business model that thesupplier is offering is very important. That issomething that is developed and maintainedover the long run.”Sumana Rajarethnam works as a journalist andanalyst in Singapore, covering business, politics andsocio-economic affairs in Asia. He writes for Today,a Singapore daily newspaper, and the EconomistIntelligence Unit, among others.FactBoxSuccessfully building supplier relationsKnow what you are buying: do a preshipmentsample inspection, with independent laboratoryanalysis if neededCommunicate: it seems obvious, but daily andopen communication helps to bridge divides andbuild trust. Meet your potential partners face-toface,especially in the early stage of the relationship.Be sure to visit their operationsDig deep: find ways to evaluate your supplierother than just at face value. Don’t be overlyreliant on information you find online. It is importantyou make sure the supplier has the financialand operational capabilities to serviceyour businessCheck the basics: revisit your agreed requirementsand specifications, if needed, and ensurethat these match any ad hoc or verbal agreements.This is an important means of protection,but also helps to formalize the relationshipDKSH’s magazine for Market Expansion Services 19

The global world of sourcingAsia’s green energyAs in many other industries, Asian countries have led the way in pushingdown clean-tech prices. But this fierce price competition raises other challengesfor buyers. By Premila Nazareth Satyanand.Europe and the USA have for some timeraced to produce new kinds of renewable energytechnologies, delivering much innovationbut also high prices. Now various Asianmarkets, including South Korea, Taiwan,China, and India, among others, are workingto become major new low-cost sources ofrenewable components and technologies. Ofthese, China has been the most high profileas a global provider of wind and solar equipmentover the past three years, with fourChinese solar producers and three wind turbinemanufacturers now among the world’sten largest renewable energy equipmentFactBoxRenewable energy:some global facts and figuresChina now accounts for about half of global photovoltaicproduction, while Germany dominatesthe installed solar power base, accounting for5 GW of the world’s total 16.5 GW in 2010, comparedwith China’s 500 MW. In wind, global cumulativeinstalled capacity is dominated by Europe(76 GW), North America (39 GW), China (26GW), and India (11 GW). But China added a striking13.8 GW of new capacity in 2009, from over10,000 turbines, representing a third of the globaltotal.manufacturers. Accordingly, it provides auseful example to consider in terms of theopportunities and risks for potential buyersof clean technology.Policy has been the prime impetus for China’ssudden rise in global renewable energymanufacturing. It has set laws to compel itsutilities to buy only locally generated renewableenergy, while other rules commit powerproducers to a target of 8% of energy fromnon-hydro renewables by 2020. All this isbolstered by favorable tariffs.Altogether, these incentives have helped ensurethat China’s installed wind and solarcapacities have grown by up to an annual averageof 100% since 2006, triggering rapidlyexpanding economies of scale. Together withcutthroat competition, along with governmentalloans and incentives subsidies, Chineseequipment prices have dropped by asmuch as 25% against international pricessince 2008, while exports from the countryhave soared.But does this boom herald a lasting shift inthe balance of power in the global renewableenergy industry? Not yet. China’s focus haslargely been on commoditized products,rather than on innovation. “The world’s topten renewable energy companies do not asyet include even one high-end, R&D-drivenChinese firm,” says Adrian Eberle, Head ofDKSH’s Business Unit Technology.Buying smart versus buying cheapIndeed, China’s sudden production boomraises other concerns. One relates to quality:in solar, few Chinese manufacturers have investedin quality control equipment, leadingto inconsistencies in conversion efficiency,color, and long-term stability of the panelsthey sell. In wind, the China Wind PowerOutlook 2010 1 alludes to similar problems inChina’s turbine manufacturing industry. Ofcourse, this doesn’t affect all firms, as AlanRosling, Chairman of Kiran Energy, an Indiansolar power generator, is quick to pointout. “China’s top firms produce internationalquality, which is why they now lead photovoltaicsupplies to Europe.”A second missing link is service. While westernturbine manufacturers typically offer installation,operation, and after-sales maintenanceservices, as central to an equipmentdeal, Chinese manufacturers usually do not.1Published jointly by the Chinese Renewable EnergyIndustries Association, the Global Wind Energy Council,and Greenpeace20 expand 01/2011

The global world of sourcingAlso, unlike the Chinese, many westernfirms offer customers a range of financingoptions to make purchase feasible and affordable.There are also concerns that China’sintense price competition might cause suppliersto go under, making it difficult to enforceequipment guarantees and other formsof after-sales support, all of which are crucialfor ensuring that renewable energy installationsrun smoothly for the duration of theirlifespan.Given these concerns, how should renewableenergy equipment buyers profit from China’slow prices while guarding against downsiderisks? Adrian Eberle proposes four measures.The first is to aim for “total cost”, rather thansolely the initial sticker price, encompassingelements from financing to after-sales supportand guarantees. “Two, be sure aboutperformance and stability.” Eberle proposesconducting a detailed background check on apotential supplier and its equipment to ensurethat both are long-term bets.“Three, look both at the product and thetechnology behind it,” says Eberle. Onlytechnologically strong companies can helpbuyers optimize the efficiency of product useand drive it to the next level. The technologicalsophistication of a supplier’s manufacturingprocess is also key to the long-termdurability and efficiency of its equipment.For this reason, it is vital to inspect their site,adds DKSH’s Tae-Seok Huh, Business UnitManager Technology for Korea. “Four, gofor partnerships,” says Eberle. He notes thatthe best way to control equipment quality isto support key vendors in upgrading output,while maximizing one’s own benefit fromvertical integration. Finally, the supply contractshould also clearly specify quality, delivery,and penalty parameters.Premila Nazareth Satyanand is an independentconsultant and analyst based in New Delhi. She waspart of the team that wrote the UN’s recommendationson corporate environmental protection forthe 1992 Rio conference. She now freelancesfor Columbia University, the UN, the EconomistIntelligence Unit, and the Multilateral InvestmentGuarantee Agency.Asian countries are becoming major new low-cost sources of renewable technologies.DKSH’s magazine for Market Expansion Services 21

One-on-oneJohn Anderson, President & CEO of Levi Strauss & Co., talks about innovation, quality standards, and the company’s non-negotiable values and principles.22 expand 01/2011

One-on-oneInnovating for growthLevi Strauss & Co. is one of the world’s most recognized and iconic clothingbrands, available in 110 countries today. John Anderson, President & CEO,explains how innovation has been crucial in supporting the growth of the businessinto new markets.expand: Levi Strauss as a business has beena great success story over the past few years,despite the difficult economic environment.You reported profits had increased 28% in2010. What were the primary drivers of thatgrowth? John Anderson: We had a good yearin 2010, which was a culmination of workover a number of years. Four years ago, wedecided to refocus on what we consider thetrue north of this company, and that was offeringa great product. We were able to bringout innovation, and consumers were lookingfor brands they can trust, that have a historyof integrity and quality. Linking all of thattogether, we were able to truly drive someJohn AndersonPresident & CEOJohn Anderson has served as President and ChiefExecutive Officer of Levi Strauss & Co. since November2006. He joined the company in 1979 asa product manager in Australia, and in the 30years since, has served in a number of managementpositions in Asia, Europe, and North andSouth America. Before being promoted to COOin July 2006, Anderson led the company’s AsiaPacific Division for eight years, during whichtime net sales for the region doubled. He wearsLevi’s to work.good performance last year. There were alsosome initiatives behind that. We launched anew women’s concept called Levi’s CurveID, which has reinvented the women’s shoppingexperience by looking at body shaperather than size. We also upgraded men’sproducts with better fabrics, better fits, andthis notion of craftsmanship which consumersrespond to. Our “Go Forth” advertisingcampaign was based on the idea that kids todaywant to step up and own their future,linked successfully into our brands, and wasquite provocative. Overall, it was a combinationof a great product, innovation, and theadvertising campaign. When most peoplewere backing off because of concerns aboutthe economy, we took the opposite approach.You mentioned innovation. Is it difficultfor a company that’s been around for such along time and has a reputation for certaintypes of products, to continue to be innovative?It’s about staying close to your consumers.We’re focusing on fewer, bigger initiatives.That’s the real key. We then drive thatglobally. We’re in 110 countries around theworld today. No other power brand has thatfootprint. How do we optimize that? Women’sCurve ID is an example. While we arethe biggest women’s jeans brand in the world,we’ve never been known for women’s jeans.So we went back to the consumer and foundout that 80% of women buy jeans that don’ttruly fit. That’s where this whole Levi’s CurveID came from. The Dockers brand was aboutbringing innovation back with better fits andfinishes and fabrics. Then for the emergingconsumer, we launched a new brand calledDenizen. We had three big initiatives. That isthe key; not to do lots of little things, but todo big significant initiatives and drive thissize and this global capability we have. Weare absolutely focused on continued innovation.We can’t survive without it.You mentioned that you’re in 110 countries.What are the challenges when you go that farglobally? Our challenge is to make sure weremain relevant on a local basis, while leveragingour global strength. One of the majorchanges that we’ve undertaken is that in thepast we were set up on a regional structure– Head of Asia Pacific, Head of Americas,Head of Europe – we’ve just moved now to abrand structure – the Head of the Levi’sBrand, Head of the Dockers Brand, andHead of the Denizen Brand; and that’s so wecan drive a more consistent consumer experiencearound the world. The challenge whilewe drive this consistent consumer experienceis to make sure we remain relevant on aDKSH’s magazine for Market Expansion Services 23

One-on-onethose, we’re prepared to talk to you aboutbuilding the business. It’s a combination ofour sourcing guidelines, our terms of engagement,and our quality standards. It doesn’tmatter where any of our products are madearound the world, the quality standards, theworking environment are absolutely identical,and this is non-negotiable to us. We, infact, invented these standards 20 years ago,and the whole industry now is calibrated tothat. It’s not new for us; it’s crucial to the wayin which we operate.“Our first question is: how do we learn the most about the market?”country-by-country basis. We’re number onein every one of those countries and we’re notprepared to give that up. This is part of thereason why we partner with people likeDKSH. We want to have people on theground that understand the markets. If yougo to China you’ll see Chinese running ourbusiness; if you go to Japan you’ll see Japanese;if you go to Germany you’ll see Germans.We have a central design hub in theFactBoxLevi Strauss & Co.Levi Strauss & Co. invented blue jeans in 1873.Since then, the company has grown into one ofthe world’s largest brand name apparel companies.Headquartered in San Francisco, Levi’s sellsits products in approximately 55,000 retail locationsin 110 countries. The company added anAsia-based brand called Denizen last year tocompliment its famous Levi’s and Dockers brands.Levi’s also introduced the Curve ID line of women’sLevi’s jeans in 2010. Levi’s employs morethan 16,000 people and contributes to numeroussocial initiatives. The company is today privatelyowned primarily by the descendants of LeviStrauss.USA, but we also have design capability inHong Kong, Japan, and Brussels. We keepthat local knowledge but filter it up througha common point of view of how we want tocommunicate with our consumers.How does your new Denizen brand fit inwith this? We examined what was happeningfrom a consumer point of view around theworld, and we saw this new emerging middleclass, which is predominantly being drivenby countries like India and China. These arenew consumers that have got disposable incomeand that are aspiring to brands. Theycan’t yet afford to pay for premium brands,so we came up with the Denizen brand, ajeans brand brought to you by the numberone global jeans brand. We’ve launched it inAsia. That’s an example of how we stay closeto the marketplace.Levi’s uses many independent suppliers.How do you build and maintain those relationships?We start with our quality standards– they’re non-negotiable. Then it’s a matterof finding suppliers around the world basedon trade restrictions and trade opportunities.We have our sourcing guidelines and termsof engagement. So, if you’re prepared to meetIn what ways has DKSH helped with all ofthis? When we look around the world at eachmarket, our first question is: how do we learnthe most about the market? Who’s very goodwithin the marketplace? We have three models.We go in there and do it ourselves, we usea distributor model, or we use a licensingmodel. DKSH had knowledge and capabilityin Thailand. When we first looked at Thailand,we decided they had more capabilitythan we did and wanted to do business withthem. It’s been a very successful partnershipover the years. The consumer would tell youthat it’s Levi Strauss & Co., as they ought to,but it’s DKSH that is driving the business.They leverage off our design capability, theyhave their own manufacturing which meetsour quality standards, and they’re doing afabulous job in building the business throughThailand.What steps do you take to protect yourtrademark and intellectual property rights?Counterfeiting is a problem; there’s no questionabout that. The more popular you are asa brand, the more people want to copy whatyou do. We have a focused legal team and willgo after anybody that’s either infringing onour trademarks or is counterfeiting our jeans.That’s a big focus, and we’re very aggressive inprotecting our intellectual property. The realityis we invented these jeans; we inventedcasual pants. I just wish people would bemore creative in inventing their own innovationsinstead of trying to copy ours.What about talent, how do you recruit andkeep good employees? We’ve got a good storyto tell, we’ve got global brands, we lead in our24 expand 01/2011

One-on-onecategory and we have values and principlesthat are non-negotiable to us. We tell potentialemployees that if they truly want to cometo a company that’s growing, that can make adifference, that believes in them, then this isa company where they can work. We offer avery compelling story, and it’s not just aboutwhat you’ll learn; our values are very importantto us, we expect our people to live up toour values. For instance we have one day ayear where all our employees go and work inthe communities in which we operate. Wewant you to come here and we want you tofeel as though you can make a difference. Wehave a Red Tape Foundation that looks afterpast employees and retirees if they need anyhelp; so it’s a fully integrated story we bring.We call it Profits with Principles.Can you tell us more about those principles?We contribute to the communities in whichwe operate. For example, one of the thingswe focus on is HIV/AIDS education. And westill spend a lot of money on education,workers rights, freedom of association. Settingup the sourcing guidelines was a big investmentfor us. We wanted workers to feelthey had a degree of fairness in how they weretreated and where they worked. More recentlywe’ve been focusing on sustainability. Ifyou look at our jeans today, the care labelswill say wash in cold water, line dry, and donateyour jeans back to charity when you’vefinished with them. We’re making a lot morestatements, and we think it’s good for thecommunity, it’s good for business and it’sgood for our employees, because they feel asthough they’re making a difference as well.You mentioned Levi’s direct outlets. Is thispart of the strategy going forward? It varies.For instance in the USA, predominantly ourbusiness is through the wholesale channel.That’s not going to change. We also have anumber of stores in the USA – flagship stores– which really know how to set the consumerexperience. When you go into an emergingmarket, such as China or India where there isno wholesale channel, you have to build ityourself. There we predominantly use a franchiseemodel. We control that retail experience,but it’s a franchisee model.DKSH has been the sole franchisee of Levi’s apparel in Thailand for over 20 years and today operates 146 pointsof sale. In October 2010, DKSH opened the first ever Levi’s boutique in Cambodia.What are some of the challenges distributingthrough so many different partnershipsin the USA? You’ve got to make sure that youunderstand who their consumers are. If yougo into a Penny’s store, or you go into one ofour own stores, you’ll find very differentproducts sold. That’s how we assort ourproduct, based on who the consumers are.We’ve become a better wholesaler becausewe understand how retailers think and operate;so we’ve been able to bring that learningfrom our retail stores, talk the same language,talk the same profit returns to ourwholesale customers, and they really appre-DKSH’s magazine for Market Expansion Services 25

One-on-oneJohn Anderson: this or that?Cash or credit card?EitherBlackBerry or iPhone?BlackBerry, grudgingly…Wall Street Journal or Financial Times?WSJ first, then the rest of the papersSushi or pasta?EitherDark or milk chocolate?Definitely darkTea or coffee?Neither if I have a choiceWine or beer?Plenty of bothGolf or sailing?Grew up sailing; enjoy the process of golfTina Turner or Mozart?NeitherSea or mountain?Have to be near the seaArmani or Boss?Levi’s and Dockers!“This job has been my life; these brands are my passion.”ciate that. We can also experiment in ourown stores. When it works well, we quicklypush it out to the wholesaler customer. Forinstance, we piloted our new women’s fits inour own stores in the USA, got the fits right,then drove them into the wholesale channel.We take the risk away from the wholesalecustomers, and we get the scale from them.On a personal level, what have been some ofthe biggest challenges that you feel that you’vefaced during your time at Levi’s? When Icame on the job, I’d worked in the USA,Asia, and Europe, and I’d also run the globalsourcing organization, so I knew the industry,I knew the company, I knew the brand.The biggest challenge was galvanizing allthose strengths in a focused manner. That’swhen we moved away from a regional-ledmodel and became a brand-led model focusingon product. It’s taken some time to embedthat operating model within the company;and then, of course, at the same timewe had a global recession, just to keep us allon our toes. It has been great, I’ve thoroughlyenjoyed it; this job has been my life; thesebrands are my passion. We’re starting to nowdrive good growth, top line and bottom line;and I think this journey has really just begun.I am very energized about where we cantake the business in the next five years.26 expand 01/2011

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Thought leadershipHas the nanotechrevolution finally begun?Nanotechnology has come a long way in the last decade, although thetechnology’s hype has long outpaced its reality. Today we use relatively modestadvances like quicker blood tests or better toothpaste, but morewidespread applications are emerging as firms develop their manufacturingcapabilities. By Stephen Edwards.Ten years ago, nanotechnology was billedas civilization’s next great leap forward. Assignificant as the Iron Age or the InformationAge, the “Nano Age” was set to bringscience fiction to our homes and create apowerful industry within 15 years. Today,some wonder whether that might have beenoverly hyped. But a closer look reveals incredibleprogress in nanotechnology. Andalthough still early, the Nano Age is now farmore entrenched.Nanotechnology uses materials, devices, andsystems at scales of less than 100 nanometers.To get an idea of that scale, pick up aruler and look at the tiny gaps between themillimeter markers. Then imagine dividingthat space by a hundred million and you’llbe thinking about nanometers.Or consider aerospace manufacturing. Thisnotoriously precise industry often workswithin construction tolerances of 0.005 mm.That seems very small, but it’s the equivalentof 500,000 nanometers. At a nanoscale notwo jet engine blades are ever the same size.Nanotechnology exists at this extreme end ofsmall – an area where everything is differentand where quantum mechanics is more importantthan classical physics. The behaviorof substances at the nanoscale can be erraticand bizarre. Substances that are insulatorscan become semiconductors, melting pointscan change, and particles can jump throughwalls. Much of nanoscience requires thatyou forget what you know and start learningall over again.A wide-ranging fieldWith roots as early as 1959, nanoscience isnow an interdisciplinary field involving biologists,chemists, physicists, and engineers.The range of applications stretches across almostall traditional industry groups. Ratherlike computer science in the 1960s, today’snanotechnology is relatively crude comparedto the dreams of programmable nanorobotsonce discussed. Today’s nano-enabled productsinvolve “first generation” passive nanomaterialssuch as titanium dioxide in sunscreenor silver nanoparticles in foodpackaging.Currently, the nanotechnology industry canbe divided into “nanomaterials” (nanoparticles,nanotubes, and composites, usually incorporatedwithin other products to enhancetheir properties), “nanotools” (nanolithographyand scanning probe microscopes, oftentools used to manipulate nanostructures),and “nanodevices” (nanosensors and nanoelectronics,which are nanoscale devices thatcan perform tasks, such as in surgery situations).Nanomaterials is the largest segmentof the market, but nanodevices are predictedto expand at a compound annual growth rateof over 45% until 2015.In 2000 the excitement around nanotechnologyled the US National Science Foundationto estimate that nanotechnology would be aUSD 1 trillion industry in the USA by 2015.Last year, Electronics.ca, a market researchfirm, predicted, more realistically, that globalmarket value for nanotechnology would beUSD 27 billion in 2015 (in 2010 it was worthUSD 15.7 billion).Although the speed of the nano revolutionwas overestimated to begin with, nanotechnologyis still making very real advancements,impacting areas as diverse as breastcancer detection and tennis balls, where acoating of nanoparticles helps the balls remainbouncy for far longer.There are now well over 1,000 nano-enabledconsumer products on the market – fromwrinkle-free clothing and clearer LCDscreens to better skin care products – producedby nearly 500 companies, located in24 countries.28 expand 01/2011

Thought leadershipNanowires are being used to make transistors in computer chips even tinier.DKSH’s magazine for Market Expansion Services 29

Thought leadershipNanowires and carbon nanotubes are two ofthe most exciting areas of development.Nanowires, sometimes just one nanometerthick, could be used to build tiny transistorsfor computer chips. Carbon nanotubes arenano-sized cylinders of carbon atoms thatcan be hundreds of times stronger thansteel, but six times lighter. This has beensuccessfully incorporated into products asdiverse as bicycles, skis, and lightweightboats.Nanoscale silver is the nanomaterial withthe most applications so far. It is used inbioengineering, optics, textiles, water treatment,antibacterial food packaging, antibacterialbandages, batteries, and manyelectronics applications.Argento Diagnostics, a spin-out companyfrom the UK’s National Physical Laboratory,use silver nanoparticles to create a handhelddiagnostic reader that produces accurateresults for saliva, blood, or urine testswithin minutes. Keith Page, CEO of ArgentoDiagnostics, explains that the smartphone-sized device “is made feasible by theuse of silver nanoparticles. This helps usminiaturize the test chip, the reagents, andthe sample-reading device, whilst not compromisingthe sensitivity and the accuracyof the detection.”Argento’s device can be developed to test foranything from hormone levels to viruses.The reader is currently being used to measurethe stress and recovery rates of UK athletesin training for the 2012 Olympics. Thedevice could also allow patients to testthemselves at home and have the results automaticallyappear on their doctor’s computerscreen, or it could become a tool tostop the spread of human or animal pandemicswith instant test results possible atairports and border crossings.Living up to expectationsNanotechnology dreamers famously lookahead to microwave-sized “universal factories”that build atom by atom to create anyobject you choose. Or to nanorobots thatattack cancer cells, reverse the aging process,and perform nanosurgery with no scars.Much of this remains firmly in the domainof science fiction. But the hype that surroundssuch predictions has led some toworry that nanotechnology will end up likeother technologies, such as virtual reality,where the promises consistently seem to liefar ahead of reality.“As with other splashes in the past, ‘nano’ hashad its benefits and its baggage,” explains Dr.Eric Granstrom, General Manager and VicePresident of R&D at Cima NanoTech, a USbasednanomaterials developer. “On the frontend, the public perception of all the new capabilitiesof nanotechnology is a great boostto the field. However, materials developmenttakes time and to unlock the benefits of radicallynew properties in nanoscale materialsrequires substantial skill and effort.”This is a view echoed across the industry.Dr. Lerwen Liu, Managing Director ofNanoGlobe, a Singapore-based nanotechconsultancy, explains that “commercializationhas not been easy, especially for startups.Multinational companies are able todevelop new technologies and materials thatfit into their existing production line.” However,start-ups with sound technology areoften not quick enough to find larger manufacturingpartners to help them developquality products at a competitive cost.Despite the challenges, enough incentive remainsto keep the industry expanding at asteady pace. “Producing nanomaterials iscostly and highly complicated, so havingtop-notch equipment and specialist staff isessential. If a company is successful though,it can sell nanomaterials at USD 120 pergram, a big inducement to start nanotechnologyR&D,” says Yoshiyuki Shirakawa,Vice President Specialty Chemicals Industryat DKSH Japan.New business ventures also need to understandthat nanotechnology is a truly globalenterprise with science, manufacturing, andbusiness capabilities spread far and wide. Forexample, Cima NanoTech acquires and developsits technology in Israel, set up itsheadquarters in Minnesota, and does manufacturingin Japan.Unlocking the benefits of nanotech requires new skills and new approaches to manufacturing.Certain industries also have an advantageover others when it comes to nanotechnology.“One of the benefits of the electronics30 expand 01/2011

Thought leadershipare no ‘transistor’ radios, ‘color’ TVs, ‘horseless’carriages. After a few years of talkingabout nanolights, they’ll just be lights again.The prominence will fade and nanotechnologywill be the everyday building blocks foran increasingly affluent, healthy, and productiveworldwide economy.”Stephen Edwards is a freelance journalist basedin Perth, Australia. He specializes in emerging trendsin technology, transport, and business within theAsia Pacific region. He writes for a wide range ofpublications in Hong Kong, Singapore, the UK,Europe, and Australia.FactBoxNanoscale silver is one nanomaterial being applied to many products, from textiles to cleaning agents.world for harnessing nanotech is an environmentfor innovation that already has a lot ofthe infrastructure in place. It has the appropriatebusiness conditions – high-volumeproduction, intellectual property-savvy businessplans, high-speed product innovationcycles, and an understanding of high risk/return technical ventures,” says Eric Granstrom.Concerns remain thoughLike many new technologies, the nano revolutionhas also raised health concerns. Elementsat the nanoscale behave differentlyand some are concerned that nanoparticlescould be toxic. David Rejeski, Director ofthe Project on Emerging Nanotechnologies,a peak nanotechnology research organizationbased in Washington DC, believes“public trust is the ‘dark horse’ in nanotechnology’sfuture.” Rejeski was speaking to anAmerican Senate Committee responsible forthe USD 1.5 billion annual federal budgetfor nanotechnology research. He stressedthat “if government and industry do notwork to build public confidence in nanotechnology,consumers may reach for the‘No Nano’ label in the future and investorswill put their money elsewhere.” If one nanobrandedproduct is red-flagged as a healthrisk it could have serious consequences forthe whole industry.Regulatory change, however, is likely to lagwell behind the increasing pace of nanotechinnovation. There are now over 27,000 registeredpatents containing the term “nano” atthe US Patent and Trademark Office. Thediscovery of a revolutionary nanomaterialcalled graphene was awarded the Nobel Prizein 2010. The material is 1 atom thick, 100times stronger than steel, and can drasticallyincrease computing speed over silicon. Also,at Harvard University, researchers recentlycreated transistors made from silicon-cladgermanium nanowires which could form thefoundation for miniature processors fornanorobots or implantable medical monitors.Two more big steps into the Nano Age.Like with all revolutions, Eric Granstromlooks ahead to a time when “nano” is just thenorm. “After a decade, nano will be so ubiquitousthat we won’t call it nano. Today thereSuccessful nano-enabled productsSelf-cleaning glass uses UV light to helploosen organic moleculesFlexible digital screens use nanotechnologyto create “Quick Response Liquid Powder Displays”Stain-proof or water-resistant clothes usenanoparticles like hairs to help repel water andother materialsScratch-resistant coatings use silicate nanoparticlesto increase resistance to scratching oneverything from cars to eyeglass lensesAntimicrobial bandages use silver nanoparticlesto block microbes’ cellular respiration and“smother” harmful cellsClear sunscreens contain nanoparticles ofzinc oxide or titanium oxide to avoid the whitishcolor of older sunscreensInkjet printers equipped with nanoink lastmuch longer than conventional cartridges, asfiner, nano-enhanced ink covers a much widerarea”Nanowhitening” toothpaste uses nanoscalecalcium peroxide to penetrate the tiniestinterdental spaces to get a uniform whiteningeffectCommercial airlines can now save 2% oftheir fuel costs by using a nanotechnology coatingon top of the plane’s existing paintDKSH’s magazine for Market Expansion Services 31

Thought leadershipThe challenge of operatingan ethical supply chainSelecting the right business partners throughout the supply chain is both crucialand complex. How to balance ethical behavior against business sustainability onlyadds to its importance. By Kim Andreasson.Companies today are expected to act responsiblyand ethically in how they do business.Those that don’t face multiple risks:consumers may boycott their products, regulatorsmay clamp down on them, and investorsmay demand change. But for firmsthat operate globally, with supply chainssprawling across multiple countries, actingresponsibly across all these domains is a challenge.Both the ethical standards required offirms and any associated regulations thatthey need to uphold may vary widely acrossdifferent markets. Furthermore, many firmswill be reliant on their sourcing partners toensure that they are indeed compliant withlocal rules.“The best definition of ethics I have comeacross is something that is mandatory butnot enforceable,” says Dr. Gopal Iyengar,Director of the Kirloskar Institute of AdvancedManagement Studies in Harihar,India. In essence, it is up to companiesthemselves to establish a code of conduct,share it with their business partners, and ensureorganizations in their supply chains adhereto them.A 2008 survey conducted by the EconomistIntelligence Unit, on behalf of logistics firmUPS, showed that almost half (46%) of 344senior executives admitted that their companyneeded to do more to integrate socialand environmental considerations into theirsupply chain. 1 The reasons are obvious. Mostcompanies are sales driven and customerswant the best quality for the best price.Creating and maintaining an ethical supplychain therefore is a long-term investment towardsa more sustainable business. It is also acrucial form of risk management. “Somepeople think they can outsource responsibility,which is a complete fallacy,” says JonathanGuyett, Vice President Corporate SupplyChain for DKSH, based in Thailand.While the biggest brands often take the biggesthits, the responsibility for ensuring anethical supply chain is shared as it affects everyonein it.The consequences of inadequate monitoringcan result in negative publicity, which directlyand indirectly affects the bottom line.In a 2007 article, Businessweek noted thatMattel, an American toymaker, had taken acharge of USD 29 million to cover the costof product recalls in the first eight months ofthe year alone due to inadequate safety measuresat its subcontracted Chinese manufacturingplants. 2 In an extreme illustration ofthe seriousness of ethics, in July that sameyear, Zheng Xiaoyu, the former head of China’sfood and drug administration, was executedfor taking bribes from drug manufacturersto forego necessary screenings, whichled to consumer fatalities.The pressure to be ethical is also increasingfrom consumers, NGOs, and investors. Tonavigate this complex landscape, companiesmust thoroughly assess their business partners’policies and practices to ensure they areconducting themselves in an ethical manneras in today’s competitive business environmentpeople may view compliance as a hurdleand try to circumvent it.The challenge: change human behaviorThe optimal ethical supply chain is one thatreduces risk through compliance whilemaintaining a competitive and sustainablebusiness. While finding the appropriate balancebetween an ethical code of conduct andmaking money is a challenge, the biggest difficultyin creating and maintaining an ethicalsupply chain is in changing human be-1Supply chain resilience: How are global businesses doing?,Economist Intelligence Unit, October 20082What went wrong at Mattel, Bloomberg Businessweek,August 14, 200732 expand 01/2011

Thought leadershiphavior. “Don’t look at it from a regulatoryperspective,” advises Dr. Robert Koller, Headof Safety, Environment, Quality & RegulatoryAffairs (SEQRA) at DKSH, “look at itfrom the management and leadership pointof view.”“Being ethical is something you simply haveto do,” agrees Krister Kling, Managing Directorat Guston Molinel, a clothing manufacturerin Vietnam with a staff of over 900people that exports over 2 million garmentsper year to the west. He says certificationssuch as those provided by ISO are importantto have because many companies requirethem to do business; however, the cost ofcompliance comes directly from his bottomline. “Everybody demands it, but nobodywants to pay for it,” he says.Companies that wish to create and maintainan ethical supply chain face a variety of practicalchallenges, including financial commitmentsas well as various levels of auditing,standardization, and effort. To further complicatethe matter, every industry is differentand many contractors have their own standardsthat they want suppliers to meet.Get to know your business partnerA common practical suggestion in managingFirms need to establish a code of conduct and then ensure that suppliers throughout the supply chain adhere to it.an ethical supply chain is to get on theground and get to know your business partners.Before you start working with a supplier,you have to make them understandwhat your requirements are, says Per-OttoKiesler, Regional Head of Quality Assuranceat DKSH’s Business Unit Healthcare. As serviceproviders, they are geared towards meetingtheir business partners’ concerns. Gettingthis right can also speed up a firm’soverall compliance process. “If you have agood supply chain team you can directly integratethe time required to handle any complianceissues,” he advises.Kling, as a supplier, agrees with that assessment.He also says he visits his Vietnamesefactory basically every day and maintains aclose relationship with his own plant managerto make sure standards are followed sohis company can meet the requirements ofcontractors.A sourcing partner like DKSH, as a leadingprovider of Market Expansion Services witha staff of 2,500 people in Vietnam alone and22,500 people across Asia, is well placed towork closely with their clients in tacklingsuch issues. Kiesler advises treating such suppliersas real partners. He admits it’s hard todo in today’s competitive business environmentbut repeats that “it’s important thatyou have that feeling of a true partnershipand that you both make money.”Monitoring compliance issuesTo increase visibility and improve flexibilitymost companies today implement an IT so-DKSH’s magazine for Market Expansion Services 33

Thought leadershipContractors should physically go and inspect production processes to ensure standards are followed.lution to track supply chain information.DKSH is using a platform that allows thecompany to consolidate and track informationrelated to the European Community’sRegistration, Evaluation, Authorization, andRestriction of Chemicals (REACH) regulation,which requires companies to discloseinformation about all the chemicals they import.By consolidating data into a single databasethat combines details with automatictracking, DKSH has minimized risk of noncompliancewhile improving visibility.Creating a transparent environment wheresuppliers keep their contractors informed ofany amendments or modifications is alsoimportant. To ensure ongoing compliance,contractors should verify that suppliers havea change management process in place; if asupplier undertakes major changes, contractorsshould physically go and inspect themagain, Kiesler recommends. Change managementis followed by consistency. Samplesmust be representative of entire shipments.Mattel learned this lesson in the hard way.Robert Eckert, its CEO, has said the companyused to test toys only randomly butthat it now tests every single batch.Such standards can increase costs and in theshort term companies may even lose businessover them. “If you increase your standards,you lose some partners,” Koller agrees, but beingcompliant and having a reasonable levelof standards pay off over time. This is especiallytrue when it comes to averting a consumeror regulatory backlash, where less ethicalfirms may have their practices exposed.This makes considerations of ethics an integralpart of any supply chain evaluation today,especially when it comes to selectingsourcing partners, along with harder metricssuch as cost and speed. In the long run, serviceproviders who are able to guarantee anethical supply chain have a clear competitiveadvantage in a marketplace where compliancewith regulations as well as social andenvironmental standards is becoming increasinglyimportant.Kim Andreasson is Managing Director of DAKAadvisory, a consultancy. He is the editor of severalmajor research programs on corporate socialresponsibility and supply chains. He is currently basedin Ho Chi Minh City, Vietnam.FactBoxHow to ensure an ethical supply chainWhen selecting a supplier, look at their sustainabilitypolicies and practicesDo an inspection before you start to work witha supplier and make them understand your requirementsIntegrate the time and resources for handlingknown regulatory issues, such as REACH, intoyour supply chain planningGet on the ground and get to know your businesspartnersCreate transparency, consistency, and ensureany changes are communicatedWork hard to make sure everyone feels like apartner and that everyone makes money fromthe arrangementGet the balance right and implement a systemthat is both ethical and sustainable34 expand 01/2011


Thought leadershipKeeping it frugalFrugal – or reverse – innovation is changing the way businessestarget consumers in emerging markets. By Kim Thomas.In 2003, John Anner, President of EastMeets West (EMW), a development NGOthat specializes in South East Asia, visitedthe neonatal unit of a hospital in Vietnam,as part of a government-instigated missionto reduce child mortality rates. In Vietnam,a large proportion of infant deaths happenin the first 24 hours of life and are related tothe specific pathologies of newborn or lowbirthweightbabies, so it was an importantarea to tackle. Although the unit wasequipped with four expensive ventilators,none of them worked, leading to four infantdeaths the previous night alone. The failureswere due to simple causes: high temperatures,fluctuations in voltage, and a lack ofspare parts, technical support, or maintenancework.Reverse innovation in medicineEMW set about working with doctors andits technology partner MTTS, a Vietnamesefirm, to design a “frugal” version of the ventilator.The new equipment was made out ofparts easily found in local markets: plastictubes, milk bottles, and aquarium pumps.Along with a ventilator, known as the CPAP(continuous positive airway pressure), theydeveloped an infant warmer to prevent hypothermiaand an overhead phototherapy tocure jaundice. The new products werelaunched in 2005 throughout Vietnam.They look very different from the equipmenttypically used in western hospitals. BecauseVietnamese hospitals don’t have wall-mountedcompressed air on hand to drive a ventilator,the EMW ventilator has its own air supply(a re-engineered aquarium pump). Whilea normal ventilator has disposable parts,which are costly to replace, the CPAP hasnone. Each machine has an in-built voltageregulator (a device that maintains a constantvoltage), because the frequent fluctuationsin voltage common in Vietnam can burn outsensitive medical devices. The technologyhas now been adopted by 180 Vietnamesehospitals, cutting infant mortality rates inthose hospitals from 40% to 5%.Such devices are a striking example of frugalinnovation, or what Vijay Govindarajan,professor of international business at TuckBusiness School in the USA, calls “reverse innovation”.While innovation traditionallyinvolves the development of new featuresand new capabilities, often with little considerationof cost, frugal innovation starts bylooking at what the target customer can afford.“You start with the price point andthen work backwards,” explains ProfessorJaideep Prabhu, Jawaharlal Nehru Professorof Indian Business and Enterprise at theJudge Business School, University of Cambridge.“These people have less disposableincome, and they’re not interested in technologyfor the sake of technology – it has tomeet a basic need.”The spread of frugal innovationFrugal innovation has become widespread inthe past ten years – and it’s no longer thepreserve of governments or NGOs such asEMW. The reason is that the emerging economieshave vast untapped markets, but lowindividual incomes. “In emerging economies,the urban markets are starting to looklike western markets – pretty saturated, witha lot of competition,” says Prabhu. “The bigwhite space for businesses is the next 4 billion– those people around the world wholive on less than USD 5 a day, who are outsidethe formal global economy.”A number of companies have had strikingsuccess with frugal innovation products.One of the best known is the Tata Nano – acar aimed at less well-off Indian consumersthat retails for 100,000 rupees (about USD2,000). The Tata Group chairman, RatanTata, is said to have had the idea for theNano after seeing families of four travellingprecariously on a two-wheel scooter and realizingthat there was huge potential for a36 expand 01/2011

Thought leadershipFactBox LAIFExamples of frugal innovationTata Swach: this water filter is designed totackle the problem of waterborne diseases. Itscentral component, which is made from ricehusks and stones, can be bought on its own forUSD 6 and used to connect two clay potsThe Mac 400: GE’s handheld electrocardiogramsells for USD 800, rather than the usualUSD 2,000. Its lightness and portability meandoctors can carry it out to patients in ruralareasChotuKool: Godrej & Boyce’s low-cost, portablefridge is aimed at rural consumers in India,who were consulted heavily about the design. Itcosts USD 69, uses a cooling chip and fan ratherthan a compressor, and runs on batteriesLow-cost local innovations in ventilators have helped many of Vietnam’s hospitals cut child mortality rates.low-cost car. The Nano is made from inexpensivematerials and has had all but themost basic functionality stripped out: it hasonly one wing mirror and one windscreenwiper, and the wheels have only three wheelnuts. To keep the price low, the companytransports the cars as kits that are assembledby local entrepreneurs, who then sell the carlocally, sharing the costs of assembly anddealership. Since going on sale in March2009, more than 200,000 Nano cars havebeen sold in India.Frugal innovation is not just about making aproduct as cheaply as possible, however. It’sabout meeting a particular need – and, as theEMW experience shows, designing a productor service to meet the needs of the poorestconsumers can require as much ingenuityas designing one for affluent ones. GE’s Mac400, for instance, is a handheld electrocardiogram(ECG) that compresses complextechnology into a small, portable device thatcan be used by doctors working in remoterural areas. It costs USD 800, compared toUSD 2,000 for a standard ECG. Durability,too, is highly important: Nokia’s 1100 rangeof mobile phones, marketed at low cost inAsia and Latin America, are highly robust,have rubberized key pads and are equippedwith torches to cope with frequent powercuts. More than 200 million units have beensold so far.Product innovation as business modelPoorer consumers will not buy a product unlessthey really need it, so the most successfulbusinesses in the field of frugal innovationhave been those that consult the end users.When Godrej & Boyce, an Indian manufacturer,developed its lightweight, battery-operatedChotuKool fridge, it worked closelywith village women right from the designstage to the selling stage. It was the villagerswho told the company that the fridge neededto be portable, and needed to be able tohold five or six bottles of water and three tofour kilograms of vegetables. Villagers arealso involved in marketing: each villagerwho sells a fridge earns a commission ofUSD 3.When businesses are targeting customers inremote areas, distribution poses challengesthat don’t apply in urban situations. “Peopleoften talk about the last-mile problem in thiscontext,” says Prabhu. For example, even iffirms could afford to get the electricity gridto a small town, extending it an extra mile toa small nearby village is too expensive for thereturns they get. The same applies to others,such as banks, where the marginal cost ofestablishing a new bank branch in a progressivelysmaller town is too costly. “It’s too expensiveand the number of people who usethe bank branch would be too small to justifythe expense,” says Prabhu.In general, business is adept at finding ingenioussolutions to such problems. The explosionin mobile phone adoption in emergingeconomies has driven microfinance initiatives,which allow greater numbers of peopleto become economically active. One suchexample is Kenya’s m-Pesa project, developedby Vodafone in collaboration with theUK’s Department for International Development,which enables people to send moneyby mobile phone. A man leaving his villageto work in Nairobi can SMS moneyback to his family when they need it, withoutincurring prohibitive transfer costs.New technologies that are more associatedwith the affluent west can also be adaptedfor poorer areas. Tata Consulting Services(TCS), an Indian consulting firm, developedDKSH’s magazine for Market Expansion Services 37

Thought leadershipsize to local market demands to ensure wefully exploit this potential.”The Mac 400 handheld electrocardiogram: originally developed for remote rural areas, it is now also used for curbsideaccidents in the USA.its “Bank in a Box”, which is an internetbasedsolution that enables small rural banksto share a computing platform at low cost.“Small banks can now easily have the righttechnological backbone to deliver services totheir customers without making high capitalinvestments,” says Abhinav Kumar, directorof communications and public affairs at TCSEurope.Similarly, some multinational pharmaceuticalshave begun acquiring and developinggeneric copies of their products so that theyhave different pricing tiers, allowing them totarget consumers at a wider range of incomelevels. “The strategy is mainly driven by costcontainment and patent protection objectivesbut all the same it does increase access toquality medicines at a lower price,” says ShaneBenson, Vice President of Healthcare, BusinessDevelopment, at DKSH Healthcare.Does frugality have limits?Whether frugal innovation will prove a successfullong-term strategy is open to debate,however: there is a limit to how much profitcan be made from selling goods very cheaply.“There aren’t many outstanding exampleswhere people have made a huge amount ofmoney,” notes Prabhu.Nevertheless, companies hope that by targetingpoorer consumers, they can buildbrand loyalty that will serve them well asthese consumers become more affluent. Theyhave already found that products that aresuccessful in one emerging market can besuccessful in another, and in some cases, inwestern economies. The m-Pesa scheme, forexample, has now been introduced to Afghanistanand Tanzania, while GE’s handheldcardiogram has been authorized by theFood and Drug Administration (FDA) foruse in curbside accidents in the USA.Innovation goes globalSwiss food giant Nestlé has a portfolio calledPopularly Positioned Products, which consistsof existing products that have beenpackaged into smaller units, so they can besold at a wide range of price points, to caterfor consumers with lower incomes, both inthe west and in emerging economies. Bycombining this with new distribution methods,such as the use of street markets, mobilestreet vendors, and door-to-door distribution,Nestlé seeks to reach a wider set of consumers.“By catering to all consumer segments, companiescan tap a considerable market potential,”explains Bo Nielsen, Vice President forGlobal Business Development at DKSH FastMoving Consumer Goods. “We at DKSHsupport our suppliers by suggesting to adapteither the product itself or else the packagingCisco, a US information technology firm,has invested heavily in a research center inBangalore, India, which it now regards asone of its principal sources of innovationsfor both emerging markets and developedones. “All innovations are global in nature,”says the firm’s President for Inclusive Growth,Aravind Sitaraman. “What we innovate inIndia is relevant to all emerging countriesand also largely applicable to the developedworld. For example, would our plan to provideremote education and healthcare notapply to China, Africa, West Asia, SouthEast Asia, and South America? Similarly,would not technology that makes a city usepower efficiently be as relevant to powerstarvedemerging nations as to those in thedeveloped world?”Perhaps more significantly, frugal innovationhas a knock-on effect, allowing businesses tobenefit from opportunities created by others.Take Indian telecom provider BhartiAirtel, which developed a low-cost mobilephone service for poorer consumers. It partneredwith bigger telecoms providers to providethe equipment and used IBM to supplyback-office services. The resulting expansionof mobile phone usage has enabled otherbusinesses to offer mobile-based services.So far, most companies have only dippedtheir toes in the water when it comes to frugalinnovation. But the future seems promising:“Companies are not necessarily makinga huge amount of money at the moment,but I think this is where they’ll see growth.These will be massive markets in 10 to 15years – it’s a matter of time,” says Prabhu.Kim Thomas is a freelance journalist specializing intechnology and business. She has contributedextensively to the Financial Times and The Guardiannewspapers and written numerous reports on businessissues for the Economist Intelligence Unit.38 expand 01/2011

DKSH’s magazine for Market Expansion ServicesFaun Robe

EssayWhy cities will matter morein the decades aheadThe rapid urbanization of many emerging markets, especially within Asia,is reshaping the nature of consumer demand – and demand for city infrastructure.By Stephen Keppel.Economic and political power is shifting from countries towardscities. Urbanization is increasing rapidly, especially in Asia, and thistrend has major implications for firms seeking to invest and expand innew countries. All major Asian countries, particularly China, but alsoVietnam and Malaysia, are swiftly urbanizing, as economies becomemore based on manufacturing and services. Accordingly, businessesare already planning their city-based growth strategies, not least forthe huge new infrastructure demands that urbanization incurs.Asia and Africa are currently the fastest urbanizing regions – LatinAmerica’s current pace of urbanization is slower only because it isalready quite urbanized. The UN says that of the 324 fastest growingcities in the world, 53% are in Asia and 24.4% in Africa. 1 Asia isundergoing the biggest population shift from rural to urban areas inhistory. According to the Asia Development Bank (ADB), each yearAsia’s urban population goes up by 44 million, or over 120,000 perday. 2 Over the next few decades this rapid urban growth will allowemerging cities in Asia to overtake urban centers in America andEurope in both size of population and economy. The Economist IntelligenceUnit forecasts that the GDP of China’s fastest growing cities(the so-called CHAMPS: Chonquing, Hefei, Anshan, Maanshan,Pingdingshan, and Shenyang) will grow by 10.7% in 2011 comparedto just 0.85%, 0.12%, and 1.15%, for New York, Chicago, and London,respectively. Consulting firm McKinsey estimates that by 2025,China alone will have 221 cities with over a million inhabitants comparedto just 35 in Europe today. 3 Other parts of Asia are also rapidlyurbanizing. In Malaysia, for example, 72% of the populationalready live in cities, with a further 2.4% moving away from thecountryside each year. Indonesia’s population of 246 million peopleis far less urbanized, at 44%, but nearly 4.2 million people migrateinto one of its many cities each year. 4The demand for infrastructureNew urban residents require infrastructure and services and the surgein urbanization in Asia is fostering substantial demand in these areas,creating opportunities for businesses and investors. According to theADB, Asia requires “each day, the construction of more than 20,000new dwellings, 250 kilometers of new roads, and additional infrastructureto supply more than 6 megaliters of potable water.” 5 BothChina and India are seeing huge infrastructure spending. Shanghai’smetro is now the largest in the world and is expected to double in sizein the coming decade. India plans to spend USD 1 trillion between2012 and 2017 to improve its current infrastructure. Some of theseprojects are traditional in nature, such as highway expansions andmetros, but many are specifically designed to meet local demandsand budgets.Tapping this expanding but varied infrastructure market will notnecessarily be straightforward. A lack of financing, poor planningand weak judicial enforcement can hinder large-scale projects. Butexperiences from Latin America suggest that difficult situations canalso lead to infrastructure innovations. Bus rapid transit (BRT),which aims to make bus transit as efficient as light rail or metro, wasdeveloped in Brazil in order to quickly and cheaply establish a masstransit system. BRT has been copied throughout Latin America and1State of the World’s Cities, UN-HABITAT, 2010/20112Financing liveable and sustainable cities for Asia and the Pacific, Asian Development Bankspeech, September 20103Preparing for China’s urban billion, McKinsey Global Institute, February 20094CIA World Factbook, 2010 estimates5Urbanization and sustainability in Asia: Case studies of good practice, Brian Roberts, TrevorKanaley, Asian Development Bank, 200640 expand 01/2011

EssayRapidly increasing urbanization, especially in Asia, makes consumer markets in the developing world more accessible.is now being utilized in Asia, Africa, and even the USA. Jaime Lerner,a former mayor of Curitiba in Brazil and a pioneer of BRT, believesthat “creativity starts when you cut a zero from your budget.”Business implications of easier market accessAnother benefit of urbanization is that it makes consumer markets inthe developing world more accessible. While rural areas are often difficultto reach due to the poor state of road and rail networks, urbancenters are usually located in major transport hubs and middle-classconsumers largely reside in cities where government offices, businesses,and schools are located. Large cities become the natural marketfor consumer goods, pharmaceutical products, and services aimedat middle- and upper-income households.As urban populations rise, however, markets for different goods andservices will not grow at the same rate. In Asia in general, and inparticular in countries like Vietnam, most of the urban growth comesfrom rural immigrants. These migrants will nevertheless be able toearn more in these cities than the countryside, but will have differentdemand requirements. Being able to adapt to local markets is impor-tant. For instance demand for mobile telephony in emerging citiesmay grow faster than for more expensive appliances or services. Similarlyfinancial services that are easily accessible and do specific thingssuch as help with remittances sent to family in rural areas may bemore attractive than more advanced products. The success of M-Pesa,a mobile phone-based banking system pioneered in Kenya, provesthat as emerging markets continue to urbanize demand for serviceswill evolve in ways that is hard for western companies to predict withoutdeveloping local knowledge. The key to accessing these growingurban markets in the next decade will continue to be developing adeeper understanding of the needs of local customers.Stephen Keppel is an editor and economist with the Economist Intelligence Unit(EIU) in charge of economic and political forecasting, with a specific interestin urbanization, infrastructure, and innovation. Before joining the EIU, Stephenworked as a project manager and consultant on projects involving internationalbusiness development in various emerging markets.DKSH’s magazine for Market Expansion Services 41

Inside DKSHTailored solutions for any size of business: DKSH provides a comprehensive package of services for business partners, helping them to successfully expand their business.42expand 01/2011

Inside DKSHInside DKSHOur clients wish to expand their businesses inexisting and new markets. Our customerswish to expand their sourcing base and marketshares and their access to knowledge andrevenue opportunities. Providing our clients andcustomers with a comprehensive packageof services to reach their goals is what we callMarket Expansion Services.444851525458Holding the key to marketexpansionExpanding our global footprintInnovative testing facilityCertifying quality suppliersTo stand still is to lose groundDKSH – the founding yearsDKSH’s magazine for Market Expansion Services43

Inside DKSHHolding the keyto market expansionTailored solutions for any size of business: DKSH’s in-depth local knowledge,comprehensive distribution networks, and extensive experience in the Asianmarkets will pave the way to new, exciting, and fast-growing opportunities forany company wishing to establish or further expand their presence in Asia.As the western economies claw their wayout of the global downturn, the fast-growingAsian markets are becoming increasingly attractiveto companies looking to expand.Moreover, these markets are no longer seenas mere sourcing opportunities – natural resourcesaside, companies are now looking fornew customers and growing purchasingpower. New economic hubs are starting tothrive in the region, with intraregional tradeand so-called south-to-south investment betweenemerging markets becoming strongerthan ever.The prospect of the creation of the ASEANEconomic Community (AEC) by 2015 reinforcesthe notion that the 21st century willbe played out in Asia. The block would havea combined population of over 560 millionand total trade would exceed USD 1,400 billion.So, economic opportunities are aplentyand they are providing a much-needed lifelineto companies across the world.Market entry as a challengeBut for many that are looking to venture inthese markets, the obstacles and the challengescan be daunting. The new opportunitiesoften come with poor infrastructure, incoherentand ever-changing regulation, andpolitical uncertainty.Logistics and regulations aside, companiesmust also be willing to redesign their productsto meet the demands of these new consumergroups.Resolving these problems can be costly takingfocus away from core activities such asinnovation that can enhance the company’scompetitive edge in the market. These challengesvary according to a particular firm’sdegree of market expansion, which can bedivided into three levels, with companies requiringdifferent services depending on whatlevel they’re on.Opening doors in AsiaThe first group encompasses those companiesthat are yet to enter these new markets.They often have innovative products in theirportfolio, but with much smaller resourcesat their disposal or limited knowledge ofthese countries, expansion into unknownand very diverse markets can be daunting.They might lack time, capital, or other localresources that can take their products successfullyto market. And with the advent ofthe global downturn, the risks have increased– investments are scarce; marketvolatility is very high; and unstable fuel andraw material prices can affect productioncosts drastically.In the technology sector, for example, acompany’s strength typically lies not in marketingand distribution, but in developmentand production. However, their core competenciesare challenged in these new marketsbecause of the different laws, sourcingrequirements, and cultural differences. Thisis where DKSH’s Market Expansion Servicesstep in. We help companies by providingthat crucial knowledge, as well as marketing,sales, distribution, and after-sales services.An example of this kind of service can beseen in the recent partnership betweenDKSH’s Business Unit Technology and RuagTechnology, a division of Ruag Group. RuagTechnology is a Swiss-based company thatdevelops advanced technologies in areassuch as specialized machining, forming andsurface technologies, engineering, aircraftstructures, machine assemblies, and environmentaltechnology.With our unmatched relationships in Asiaand on-the-ground logistics, DKSH offersRuag high speed to market, reduced complexity,and no fixed overhead costs. Theagreement between DKSH and Ruag Technologycovers the distribution of both theTurningator and Windpower equipment inTaiwan, China, Korea, and Japan. Dr. Ad-44expand 01/2011

Inside DKSHCompanies not yet present in Asia can use DKSH’s Market Expansion Services as a springboard into emerging Asian markets such as Cambodia.rian Eberle, Executive Vice President BusinessUnit Technology at DKSH, explainsthat “Ruag offers the market a revolutionarymethod for machining large parts on-sitewhich reduces costs as well as downtimeconsiderably. DKSH is excited to help Ruagexpand in new markets across Asia.”Bulking upThe second group of companies that DKSHhelps typically already have some presence inAsian markets, with a proprietary sales and adistribution infrastructure. Their challengeis not on market entry, but rather aboutfinding ways to perform to their full potentialor achieve the kind of growth that is possiblein these new markets because their energyand efforts are being drawn away fromtheir core competencies. Distribution andlogistics costs may be mounting, and becauseof their relatively small size, few resources areleft for other activities. By becoming theiroutsourcing partner, and seamlessly integratingtheir sales and distribution functionsinto our own organization, DKSH can helpto ensure an integration of their operationson a wider platform.One example of this kind of business partnercomes from Oerlikon, one of the world’sleading international high-tech industrialgroups specializing in machine and plant engineering.Trevor Norman, InternationalDKSH’s magazine for Market Expansion Services45

Inside DKSHLarge multinationals benefit from DKSH’s capillary distribution network and local field-based sales force that ensures products are not only delivered in excellent conditionand just on time, but also prominently positioned at the point of sale.Sales & Marketing Manager at OerlikonSystems, explains that “with the DKSH partnership,we are able to react quickly to localopportunities and build upon our establishedreputation in the market. DKSH offersus the unique opportunity to transferour proven capability into an exclusive supportstructure for our products.”Strengthening coverage and distributionThe third type of companies that DKSHhelps are also already operating in Asia, butusually via a distribution partner. They oftenfind that they are experiencing growth andperformance levels that are not meeting theirrequirements or aspirations. This is oftendue to a range of issues, including poor servicenetworks, a lack of state-of-the-art ITinfrastructure, compliance issues, and an incomprehensiveand poorly integrated rangeof services.DKSH’s partnership with Nestlé Confectionaryis a clear example of how we helpsuch companies make the most of these newmarkets. The challenge for chocolate manufacturerssuch as Nestlé is to operate in hotand humid climates, where product qualitycan easily be impacted. Thanks to DKSH’sability to reliably deliver Nestlé’s productsto the targeted points of sale, with specializedtemperature-controlled warehouses anddelivery vehicles, Nestlé can ensure that itsproducts reach consumers at ideal temperatures.Six years into our partnership withNestlé in Thailand, the company has experienceda 300% increase in sales of its confectionaryproducts, such as KitKat and Milo.DKSH can provide the logistics, wide-rangingdistribution networks, effective order fulfillment,and cash collection. These are servicesthat, thanks to DKSH’s long-standing experiencein the region, can be scaled up or downto suit the individual needs of the businesspartner. More importantly, they can be providedat a cost that cannot be easily matchedby any one company, which makes DKSHthe outsourcing partner of choice for an integratedand accelerated expansion in Asia.46expand 01/2011

How quickly are your turbines up andrunning again after maintenance?RUAG’s Turningator mobile lathe series is an innovative solution for achieving targeted efficiency gains in power plants. These versatile lathes enableon-site machining of heavy turbine housings, and thus offer decisive benefits: shorter turbine downtimes and no transportation costs. We’ll behappy to advise you about all the other advantages.RUAG TechnologyIndustriezone Schächenwald · 6460 Altdorf · SwitzerlandLegal domicile: RUAG Switzerland Ltd · Seetalstrasse 175 · P.O. Box 301 · 6032 Emmen · SwitzerlandTel. +41 41 875 72 18 · Fax +41 41 875 73 02 · dir.technology@ruag.com · www.ruag.com

Inside DKSHExpandingour global footprintAs the No. 1 provider of Market Expansion Services with a focus on Asia,DKSH helps companies to grow their business in new and existing markets.We constantly expand our on-the-ground logistics which today include22,500 specialists, 610 business locations, 180 distribution centers, and accessto 550,000 customers in 35 countries.Integrating two new agenciesfor DKSH Technology.With the acquisition of the Japanesebusiness of Mikron Machining,a Swiss machine toolsmanufacturer, DKSH is expandingits technology portfolio. Byintegrating Mikron Machining’slocal and after-sales operationsinto our Business Unit, we combineestablished products withour market expansion expertise.We have also acquired Trekintalin Taiwan, which gives us a newlocal presence and customer basefrom which to develop our instrumentsbusiness in Taiwan.Business Unit: TechnologyFirst ever Levi’s store openedin Cambodia. After representingLevi’s in Thailand for 20 years,DKSH opened the doors to theCambodian market for this globalbrand. In October 2010, Levi’smade its debut at a newly openedstate-of-the-art department storein the center of Phnom Penh.The store offers a range of productsfor women and men, includingthe iconic jeans, shirts,and accessories. Custom fittingis also available. The aim of theexpansion is to tap into Cambodia’semerging middle class, raisingtheir awareness and appreciationof branded goods.Business Unit: Consumer GoodsNew lab-scale beverage trialplant in Bangkok. Our newlab-scale beverage pilot plant inBangkok is designed to reducemarket entry time for regionalbeverage and dairy manufacturersby providing state-of-the-arttesting facilities. The plant includesa complete line of pasteurization/UHT,homogenization,and bottling equipmentwith testing capabilities for pH,solid analyses, viscosity, etc.Full-size trials are often expensivefor manufacturers. Withsmall-scale testing, DKSH canreduce costs and market entrytimes with customized solutions.Business Unit: PerformanceMaterialsNew offices in Myanmar. AsDKSH Myanmar kept growing,we decided to build a central officebuilding for all Business Unitsin Yangon. We have successfullycompleted construction and relocatedto the new offices. Our newsix-story building hosts the officesof four Business Units as well assome of our suppliers’ offices. Thedistribution center for BusinessUnit Healthcare is part of thebuilding, too. The site is convenientlylocated so that bothdowntown areas and Yangon InternationalAirport can be easilyreached.Business Units: ConsumerGoods, Healthcare, PerformanceMaterials, Technology48expand 01/2011

Inside DKSHTokyo, JapanIsogo, JapanTaipei, TaiwanYangon, MyanmarBangkok, ThailandLaguna, PhilippinesPhnom Penh, CambodiaDKSH opens a TechnologyCall Center in Thailand. BusinessUnit Technology Thailandhas set up a new call center inBangkok. It has been designed tosupport the team in further enhancingtheir professional, highlevelcustomer service. It is designatedto consolidate customerrelationships and strengthen ourcustomers’ commitment to suppliers.The new call center usesthe award-winning infrastructureof DKSH’s Business Unit Healthcare.This is a great example ofhow different Business Units canwork together, creating synergywithin the Group.Business Unit: TechnologyNike added to our portfolioof fashion brands. Under a newagreement, DKSH has becomeNike’s strategic retail partner inThailand, including first rightson all new Nike retail projects.DKSH opened the first Nike storein the newly renovated ParadisePark Mall in Bangkok in October2010. The second store is locatedin the Central World departmentstore. With the addition of Nike,DKSH complements the existingportfolio of fashion brands with asports brand of world renown.Business Unit: Consumer GoodsNew laboratory infrastructurein Japan and the Philippines.DKSH has opened twonew pharmaceutical laboratoriesin Asia to increase their applicationexpertise. The new highcontainmentlaboratory in Isogo,Japan, supports the registrationprocess of active pharmaceuticalingredients, especially oncologyproducts. The other new lab,based in Laguna, Philippines, offerstechnical pilot trails for tabletcoating applications as well asprototype formulation of tastemaskedchildren’s antibiotics.Business Unit: PerformanceMaterialsDKSH’s magazine for Market Expansion Services49

Inside DKSHInnovative testing facilityA new lab-scale beverage pilot plant in Thailand is helping our customers inthe food and beverage industry develop new products using our suppliers’advanced new ingredients. The plant helps to reduce product innovation costsand access to market times.As the leading Market Expansion Servicesprovider with a focus on Asia, one of ourfundamental objectives at DKSH is to drivegrowth both for our suppliers and our customers.In December 2010, in line with thisstrategy, DKSH’s Business Unit PerformanceMaterials, a distributor of specialty chemicalsand ingredients in Asia, inaugurated alab-scale beverage pilot plant in Thailand.DKSH’s new beverage pilot plant is speeding upcustomers’ access to market.The scope of the plant allows our customersto innovate and design new products by experimentingwith new ingredients providedby our suppliers, so that they are equippedto face new market demands – for example,a search for low-fat, healthy, and convenientfood and drink products has been one of thekey trends in the global food and drinksmarket. The plant consists of UHT/HTSTpasteurizing systems, in-line homogenizer,and bottling equipment with testing facilitiesfor pH, solid analyses, viscosity, and anultraclean fill hood. These features makepossible small-scale experimentation for ourcustomers in the Asian beverage and dairymarkets, with products ranging from juicesto teas to soy-based drinks.When designing the plant, DKSH identifiedthat a major obstacle to innovation in theAsian beverage market was that running atrial on a full-size processing line would betoo costly for many of our customers. Bymaking this pilot plant available, DKSH isreducing the costs associated with productinnovation – many of our customers wouldotherwise not be able to afford a facility onthis scale. DKSH is also shortening access tomarket times – as customers can simulateproduction of a new product, they can carryout more trials in less time.David Macdonald, Vice President PerformanceMaterials at DKSH Thailand, explains:“This investment further enhancesour leading position in the South East Asianbeverage and dairy industry by allowingDKSH to introduce exciting new ingredientideas, to assist costumers with faster-to-marketinnovations using our state-of-the-artlab-scale beverage plant, and to minimizecustomers’ costs in doing so.”With this project, DKSH has expanded on itsrole of ingredient sourcing by offering valueaddedservices like research and developmentto our customers. Having the right infrastructureat their disposal is an important factor formany of the companies in this industry thatare looking to grow.FactBoxProducts tested in the new laboratoryJuices, juice concentratesMilk, milk drinks, milk replacements, yogurt,ice cream mixes, soy beveragesNutritional drinks, isotonic drinksBrothsTea, coffeeDKSH’s magazine for Market Expansion Services51

Inside DKSHCertifying quality suppliersA new certification program within DKSH’s Business Unit Performance Materialsis helping pharmaceutical firms ensure that their suppliers conform toa range of specific quality criteria. A broader rollout in the near future will soonmake it available across other industries.At DKSH we always look for ways to offervalue-added services that will help our businesspartners ensure quality as they grow. Weunderstand that when choosing a supplier,our customers’ primary criteria are in ensuringquality, product purity, competitiveprice, and worldwide delivery. But they alsoneed assurance that the supplier has access tothe right technology, equipment, machinery,and personnel, that it behaves ethically, andthat it is financially sound.Any disruption to a customer’s supply chaincould have serious consequences on theirbusiness and their client relationships, potentiallyresulting in the loss of hard-woncontracts. For example, with products thathave to adhere to extensive regulations, it isparamount that suppliers are aware of thesespecifications and have the knowledge andcapability to comply and deliver.This is why we offer our Supplier AgreementProgram (SAPA), a unique new service designedby DKSH’s Business Unit PerformanceMaterials to ensure that suppliersunderstand the needs of our customers andthat they are able to deliver on these requirements,with no risk of interruption to thesuppliers’ services. SAPA was first tested in2010 on Business Unit Performance Materials’Business Line Pharmaceutical Industry,due to its highly regulated nature. It will beexpanded to other Business Lines from2011.Evaluation Test Qualification CertificationSupplier identificationand evaluationTest and approval ofmaterialQualificationof supplierVisit and pre-audit Different tests Audit andfollow-up auditQualification andperformancefollow-upAuditson-goingPotential supplier Approved material Qualified supplier Certified supplierOverview of the key stages in DKSH’s Supplier Agreement Program (SAPA).There are four stages to SAPA: a potentialsupplier is first identified and evaluated; thenboth materials and the supplier itself are testedand qualified. Afterwards SAPA ensuressupplier consistency with regular follow-ups.In this final stage, sourcing continues to ensurethe supplier’s quality through regularinteractive visits and audits at manufacturingplants. This is all achieved within the frameworkprovided by DKSH’s Safety, Environment,Quality and Regulatory Affairs department(SEQRA), which establishes the criteriafor documentation, audit performance, fullcompliance, and final approval for the supplier.A quality agreement is then put in placeand DKSH recognizes the supplier for its excellentperformance with a certificate.Joaquim Pires, Regulatory Affairs Managerat DKSH based in France, explains: “WithSAPA in place at DKSH, customers can relyon the work done by us and at the same timereduce non-compliance risks, recalls, andmajor deviations. Ultimately, we can helpimprove our suppliers and in so doing bothour suppliers and our customers can gainprofessional credibility in their markets”.52expand 01/2011

Inside DKSHTo stand stillis to lose groundAs the leading provider of Market Expansion Services with a focus on Asia,DKSH’s purpose is to help our business partners grow their business innew and existing markets. In order to manage this expansion, we are constantlyinvesting in infrastructure, extending our network, and strengthening ourA strong online presence for DKSH. Forcompanies in the business-to-business environment,the internet has become the mostimportant information source. Consequently,online marketing efforts for DKSH will playa leading role in helping us become immediatelyrecognized as the No. 1 Market ExpansionServices provider with a focus on Asia.DKSH has implemented a whole set of measuresin the area of online communications.In March 2011, we launched an internationalonline marketing campaign designed to enhancebrand awareness. We have also workedon search engine optimization worldwideand translated seven country websites intotheir national language.Levi’s jeans donation in Thailand. DKSHhas been the sole franchisee and distributorof Levi’s products in Thailand for over 20years. In August and September 2010,DKSH repeated the highly successful SwapJeans promotion, which allowed customersto exchange any old pair of jeans for a discountednew pair or other Levi’s products.Jeans in good conditions were delivered tofoster homes and foundations including theSuan Keaw Temple Foundation and the ProvincialRed Cross Chapter of PrahnakornsriAyutthaya. By linking the promotion withcharity donations, we were once again ableto make a significant contribution to the localcommunity, while at the same time drivingsales.DKSH named “Distributor of the Year”by Lapp. Lapp, a key partner for cables,heavy duty connectors, and cable glands forDKSH’s Business Unit Technology, hasnamed DKSH Taiwan “Distributor of theYear 2010” out of its 52 worldwide distributors.The award recognizes and honors ourstructured sales approach and professionalbusiness development. Business Unit Technologyand Lapp have worked together forover 15 years. After a downturn in Taiwan’scable business sales in 2009, DKSH surpassedLapp’s most ambitious expectationsby more than doubling the business in oneyear. To drive sales for the supplier, DKSHcreated a new brochure illustrating Lapp cables’advantages and contacted potential customersfor personal sales pitches. As a result,we gained over 70 new customers for Lappwithin three months.54expand 01/2011

Inside DKSHleadership, with the ultimate objective of delivering every service our businesspartners need to grow in their chosen market. At the same time, we take a deepinterest in the communities we serve.DKSH expands its product portfolio toinclude Agricultural Machinery. DKSHTechnology has entered a new field of businessand established a Product Group forAgricultural Machinery. We are confidentthat with growing production levels and demand,agriculture will represent a big businessopportunity in the coming years inSouth East Asia. One of our early successeswas winning a contract to distribute DaesungKorea’s agricultural machinery in eightAsian countries. As part of our next step, weplan to expand into more countries and extendour participation on the processingvalue chain.Caring Heart volunteers in Hong Kong.DKSH’s staff in Hong Kong have been dedicatingtheir after-work hours to the localcommunity. Founded in 2009, our volunteerteam has 156 members who spend timevolunteering in homes for the elderly, children’scenters, and associations for the mentallydisabled. The team is supported by ourpartnership with the Agency for VolunteerService (AVS), a non-profit organization thatprovides training to improve the quality ofvolunteer service. In 2010, the Caring Heartteam co-operated with the Hong Kong RedCross to conduct a six-month “Little RedHat” program helping newly arrived childrenfrom mainland China to get integratedinto Hong Kong society.Quality certifications for DKSH Healthcare.Business Unit Healthcare has significantlyinvested in the quality of its distributioncenters and works with Swiss certificationagency SGS to have these efforts officiallyrecognized. Since October 2010, the globalcertification agency SGS has awarded ourpharmaceutical and healthcare distributioncenters over 20 international quality certifications.This recognizes DKSH’s efforts tocomply with GMP standards and ISO 13485.Moreover, in early 2011, DKSH Vietnamwas the first service company in the countryto receive ISO 13485:2003 certification forthe distribution of medical devices. SGS, aSwiss-based company, started business in1878 by offering agricultural inspection servicesto grain traders in Europe and has sincedeveloped into the industry leader of certifications.DKSH’s magazine for Market Expansion Services55

Inside DKSHISO 17025 laboratory accreditation forDKSH Technology in Thailand. BusinessUnit Technology Thailand has been grantedthe ISO/IEC 17025 Laboratory Accreditationfor the calibration laboratory in Thailand.This global quality standard for testingand calibration laboratories enables DKSHto provide comprehensive after-sales servicesfor laboratory equipment. The calibrationlab is a part of Calibration and Quality Services,a comprehensive solutions programdesigned to assist customers with controllingtheir monitoring and measuring devices asrequired by ISO registration and consumerprotection laws. Through these services,DKSH supports customers by setting costsavinggoals, increasing productivity andperformance. Together with the launch of anafter-sales service call center in January, theISO 17025 certification for the calibrationlab further strengthens DKSH’s position asexperts in the market as well as growing ourafter-sales service business in Thailand.Business Unit Technology expands itssourcing activities DKSH’s Business UnitTechnology has established a new BusinessLine Sourcing to help European companiessource products in Asia. As a full-servicecontractor, DKSH specifies, sources, inspects,packs, stores, consolidates, and shipsto locations worldwide. The focus is on handtools, wood and metal working machinery,hardware, and consumables. The new BusinessLine has already signed contracts withbig industrial retailers and wholesalers inFrance, Switzerland, Finland, Ukraine, theNetherlands, Austria, and Turkey, supplyingtechnology products from China, Taiwan,and Vietnam.L’Oréal Award for Supply Chain Excellence.L’Oréal has awarded our operationsin China, India, and Indonesia its SupplyChain Excellence Award for supplying itsplants in Asia Pacific with high-quality rawingredients. Building on its existing relationshipwith DKSH France, L’Oréal has entrustedus with providing supply chain servicesacross Asia. Drawing on our suppliernetworks in Japan, South Africa, China, India,and the USA, DKSH ensures smoothdelivery of raw materials to L’Oréal – fromhair dyes to waxes, silicone, actives, and preservatives,supporting L’Oréal brands such asGarnier and Lancôme. We are particularlyproud to have won this award for 2010, whenL’Oréal China became the group’s numberthree cosmetics subsidiary. DKSH clearlyplayed a key role in supporting L’Oréal’s impressivegrowth in Asia Pacific.Partnership with Energizer expanded toCambodia, Laos, and Myanmar. After yearsof successful collaboration in Thailand andVietnam, DKSH and Energizer have expandedtheir partnership to Cambodia,Laos, and Myanmar. USA-based Energizermarkets high-profile personal care products.After 20 years of closely working withDKSH, Energizer today is one of the marketleaders in the household and personal careproduct segments in Thailand. DKSH hasalso been acting as a full-service agency forEnergizer in Vietnam since 2007. On the basisof this successful collaboration, DKSHwill now start to distribute Energizer’s householdand personal care products in Cambodiaand Laos and household products inMyanmar. This expansion will enable us toextend our offering in these markets.Supporting independent pharmacies inMalaysia. The healthcare business has alwaysbeen very dynamic. Independent pharmaciesare constantly faced with challengessuch as competitive pricing and findingfunds to support in-store promotional activities.Thus DKSH Malaysia has initiated aHealthcare Community Pharmacy Projectto support independent pharmacies throughimproved point-of-purchase displays. Thekey tool of this initiative was to develop exclusivegondola end displays for promotionalpurposes. By providing these, DKSH managesto secure the prominent front gondolaends for our clients’ products – the mostlimited and sought-after positions withinstore display. These eye-catching displays secureus a permanent display area and exposurefor our clients. It started as a pilot projectwith eleven outlets in Johor in May 2010.Sales from these outlets have since doubled.Given the positive outcome, we will be implementinga similar concept nationwide.Enhancing know-how through new marketingalliance. DKSH has teamed up withUK-based Ceuta Healthcare Alliance, theleading sales, marketing, and logistics outsourcingservice provider to the health andbeauty industries serving both multinationalsand smaller innovation companies. Underthe agreement, DKSH and Ceuta willshare business contacts and know-how thatwill benefit both parties’ market expansion.In particular, this cooperation will allow usto transfer best practice from the highly developedUK pharmacy market to our businesspartners in Asia.56expand 01/2011

Inside DKSHDKSH looks back on a record year in2010. The business year 2010 was the mostsuccessful one in DKSH’s history whichspans close to 150 years. While Total Salesgrew by 19% to CHF 9,976 million and NetSales increased by 14.8% to CHF 7,293 million,most importantly, we achieved an exceptional51.2% increase in EBIT to CHF195 million. In 2010, we succeeded in benefittingextraordinarily from recovering markets.The year was furthermore characterizedby the thorough implementation of ourstrategy for growth designed to cement ourleading position. We drove growth by expandingexisting businesses, proactively developednew business, and complementedthis organic growth through strategic acquisitions.At the same time, we invested in operationalexcellence, using our extensive networkand expertise to cost-effectively providebest-in-class services. Our excellent 2010 resultsare further proof of the value of ourbusiness model: Market Expansion Servicesis a successful reinvention of the traditionaltrading companies’ model, offering a uniquerange of products and services. This approachhas helped us to outperform theGDP growth of the countries we operate inby an average of 70% since 2002.Appointments within DKSH’s Group Management.After 6 years as CFO and a total of13 years with DKSH, Stuart Davy steppeddown at the end of March. We would like tothank him for his valuable services over theyears and look forward to his continued supportas a Member of the Board of Directorsof some of our subsidiaries, among others.We are also delighted to have found an internalsuccessor. As of April 2011, the formerExecutive Vice President Country Operations& Business Processes, BernhardSchmitt, has taken over the function ofCFO. With over seven years at DKSH, includingfive years as CFO of our operationsin Thailand, he has gained an intimate understandingof our company.Martina Ludescher, formerly Vice PresidentStrategy & Corporate Communications, isthe first woman to be promoted to GroupManagement and as of April 2011 has assumedthe new position of Head CorporateDevelopment. In this function, she is responsiblefor Strategy, Human Resources, CorporateCommunications, and Branding.A globally standardized Code of Conduct.DKSH firmly believes in the value ofethical behavior and compliance with all internationaland local rules and regulations.Our globally standardized Code of Conductreplacing previous local and regional codeswas introduced throughout our operations inthe course of 2010 using, among others, ane-learning tool. The new Code of Conduct isthe foundation of compliance directives thatensure responsible corporate governance.Based on our corporate values that are theprinciples by which we set our professionalpriorities it is an important cornerstone ofour strategy for growth.Compliance and quality. Safety, the protectionof the environment, health, as well asquality and regulatory compliance are toppriorities at DKSH. In order to achieve thesegoals we strictly follow international regulationssuch as the European Community’sRegistration, Evaluation, Authorization, andRestriction of Chemicals (REACH) regulationand the Globally Harmonized System(GHS) for the classification and labeling ofchemicals, which are both designed to contributeto international chemical safety. Inorder to implement REACH and GHS, wehave set up a team of regulatory specialists ina newly established European RegulatoryAffairs Compliance Competence Center inLyon. This center is an integrated part of theglobal Safety, Environment, Quality, andRegulatory Affairs team. The DKSH expertssupport our business partners in complyingwith these regulations by combining the relevantregulatory know-how with soundbusiness practice. All procedures are backedby state-of-the-art IT systems: the REACHprocess is fully integrated in our SAP systemand totally standardized. Moving quickly,we have preregistered a portfolio of 900 substancesfor our business partners. We arethus in the position to effectively supportthe necessary registration investments, therebyadding significant value for our businesspartners.DKSH’s magazine for Market Expansion Services57

Inside DKSHDKSH – the founding yearsYokohama in ruins after the earthquake of September 1, 1923.Ed. A. Keller & Co.’s warehouse in Manila.The first three decades of the 20th century presented formidablechallenges to all businesses, including the founding fathers of today’sDKSH. As global trade faltered during the Great Depression of the1930s, three Swiss merchant houses operating in Asia started creatinglinks between each other: Siber Hegner & Co.; Diethelm & Co.; andEd. A. Keller & Co.Early in the 20th century, Wilhelm Diethelm and Eduard Keller, inquick succession, incorporated their respective businesses, Diethelm& Co. in 1906 and Ed. A. Keller & Co. in 1908. Both believed theirsons too young and inexperienced to run their firms. Eduard Kellerpassed away before the incorporation was complete, leaving his closefriend Wilhelm Diethelm as representative for his sons Willy andEduard Keller.Under the guidance of Diethelm, Willy and Eduard establishedthemselves in top positions of the company’s prospering operationsin the Philippines, helped by America’s new laws facilitating trans-Pacific trade, which subsequently trebled in size. In 1917, Willymoved to Zurich to become chairman of his father’s firm. After hismarriage to Wilhelm’s daughter, he was also elected as vice-chairmanto Diethelm & Co., thereby deepening the links between the twofirms.Meanwhile, in Japan, Siber Hegner & Co. suffered its greatest turmoil.Rather than from the Great War, this was from the Great KantoEarthquake of 1923, which caused the biggest seismic damage thatJapan had witnessed until then. The fires that ensued destroyed muchof Tokyo and Yokohama, with Siber Hegner suffering great losses.The company quickly faced huge repayment deficits, as many of itsdebtors struggled in the aftermath. Robert Hegner, son of its recentlydeceased founder, took the difficult decision to take the firm publicto deal with this.Willy Keller was one of the investors, thus creating the first financiallink between the companies. A decade later, Willy Keller was establishedas vice-chairman of Siber Hegner & Co., thereby successfullycreating the links between the three separate companies that wouldformally merge nearly 70 years later to create DKSH.58expand 01/2011

Inside DKSHWilhelm (Willy) Keller (fourth from right) with employees in front of the offices of Ed. A. Keller & Co., Manila, around 1910.DKSH’s magazine for Market Expansion Services59

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A letter from Singapore“Monaco of the East”By Daniel Martin.One constant throughout Singapore’s developmenthas been the government’s willingnessto use a firm guiding hand. Soon afterindependence in 1965, the governmentset about nurturing a manufacturing sectorthat could compete in global markets. Manufacturerswere offered generous tax incentivesand foreign firms were welcomed. Thepolicies were a success and as the governmentploughed money into education andinfrastructure, manufacturers continued tomove up the value chain, producing highertechnologyproducts. Today, electronicsmanufactures are the country’s largest export,while a thriving pharmaceuticals sectoraccounts for 18% of total manufacturing.But for most visitors to this city state, it isnot the factories that catch the eye. They arekept far from residential and commercialareas – another reflection of the government’scareful planning. Instead, one isstruck by the towering skyscrapers, whichhouse South East Asia’s largest financial center.Openness to foreign banks, an efficientbureaucracy, and low tax rates have all contributedto the rise of Singapore as a financialhub, alongside its strengths as a global tradehub and biotech research center. But perhapsmore important has been the eagerness offoreign executives to relocate to this city, attractedas they are by its low crime rate, cleanair, uncongested streets, and lush greenery.With Asia set to remain the world’s fastestgrowingregion for at least another decade,Singapore’s financial sector will continue togrow, bringing more wealthy people to thecity. The private banking industry is benefittingfrom having more savings to manage,and, more broadly, the city is setting itself upto cater to the tastes of the rich. Its shoppingmalls are already among the most impressivein the world and there has been a markedrise in pricey rooftop bars, luxury apartments,and top restaurants in recent years.A seat in the grandstand at Singapore’s annualgrand prix, the only “street race” on the FormulaOne circuit other than Monaco, offersthe most striking view of the recent changes: animpressive array of yachts parked in a harborthat is overlooked by the newly built MarinaBay Sands Casino. This casino is one of twothat opened in 2010 and together they haveadded more than a percentage point to GDP.Singapore’s repositioning of itself as a “Monacoof the East” is perhaps the most surprisingof its reinventions. A city built on hardwork, prudent saving, and wise investmentis loosening up. And it’s not just the bankersDaniel Martin is an analyst for a range of Asian economiesat the Economist Intelligence Unit.who are attracted by the new environment.Firms of all ilks are finding it easier to recruitor move skilled workers to Singapore, andthe city is increasingly seen as the best locationfor regional headquarters. Interestingly,it seems that Singapore’s uptight governmenthas spotted another opportunity to moveforward – this time by having fun.DKSH’s magazine for Market Expansion Services 61

InsidersMy BangkokSomboon Prasitjutrakul, President of DKSH Thailand and Head of DKSH’sBusiness Unit Consumer Goods, tells us what his native city has to offernot only as a tourist destination, but ever more so as one of South East Asia’sbest answers to western business hubs.Bangkok straddles the Chao Phraya River,with canals cutting across to pour into thebay south of the city center. This old metropolisis undoubtedly one of the alpha citiesof South East Asia. A fusion of ancienttranquillity and fast-paced life, Thailand’sleading city is not only a promise of unrivalledexoticism for western explorers, but ithas also shown its worth in terms of businessopportunities.Born and raised in Bangkok, and now in myrole as President of DKSH Thailand, I findthat the greatest assets of this superb city areits people, its culture, and its diversity. Honest,friendly, and respectful, Thais makebusiness dealings in this part of the worldmuch simpler. And if you really want to hitit off with them, a little small talk goes a longway. The Thai workforce also offers greatquality at great value so that business opportunitiesare particularly inviting, especiallyfor manufacturers.inexpensive, and fast alternative to driving.Worth mentioning here is the rapid halfhourSky Train transfer from our new airportto the city center, which takes the edge offoften-stressful business trips.But business opportunities are not all that ison offer. After a hard day’s work, Bangkok’svast array of entertainment does not comeshort of any of its western rivals. Haggle inthe Floating Market or let your nose be tan-A lack of decent infrastructure is one of thegreatest obstacles that companies face whenexpanding into emerging markets – but inthis respect, Bangkok poses no real problems.Though the well-paved roads are overflowingwith maddening traffic, the rest ofthe transport system provides an effective,Bangkok’s Floating Market: an experience for foreigners and locals alike.62 expand 01/2011

InsidersLinkBoxBangkok Floating Marketwww.bangkokfloatingmarket.comSiam Niramit Theatrewww.siamniramit.com/oldweb/index.phpBangkok Symphony Orchestrawww.bangkoksymphony.org/index.htmlThailand Cultural Centerwww.thailandculturalcenter.com/index.phpSiam Centerwww.siampiwat.comSaxophone Pubwww.saxophonepub.com/2010The Steak Lao Restaurantwww.steaklao.thailand.comBaan Khanitha Restaurantwww.baan-khanitha.comSomboon Prasitjutrakul and his family love Bangkok’s diversity.talized by the unique smells of Thai streetfood. Catch a show at the Siam NiramitTheater or listen to the Bangkok SymphonyOrchestra at the Rajamangala National CulturalStadium. I personally love family outingsto the Ancient City, followed by a tripto the Joe Louis Puppet Theater. And in theevening the live music scene at Saxophonenear the Victory Monument is excellent.Thai cuisine is rightly recognized as the“kitchen of the world”. My favourite diningexperience is usually at home, but I also enjoyeating out at Steak Lao, which is great forNortheastern Thai food, or the excellentBaan Khanitha, an award-winning local restaurant.Failing that, our many local noodleshops are always reliable for a great meal.For a visitor, there are plenty Western-style,state-of-the-art shopping centers to be explored,as well as local markets to be discovered.I balance my shopping needs betweenthe Central Department Store, a more upmarketdepartment store for clothes andother goods, and the Chatuchak WeekendMarket, a vast array of thousands of streetstalls which is excellent for bargain huntingfor nearing anything you could want. Anothernational treasure to be discovered isour cuisine: with the variety on offer, thequality, and the value, it won’t be long tillThe Grand Palace or Wat Phra Keow served as the official residence of the Kings of Thailand.DKSH’s magazine for Market Expansion Services 63

Close-upGlobal coolingClassic: western refrigerators reflect cultural differencessuch as larger vegetable compartments for Italians.Low tech: the so-called Mitticool refrigerator fromIndia is made from a special clay. Water keeps it cool.Luxury: this model combines a sophisticated fridgewith a state-of-the-art coffee-making system.Keeping food fresh for longer has been ahuman concern for thousands of years. Thereis evidence from 6050 BC that Neolithicpeople were boiling water to extract salt,which was then used to conserve food – especiallymeat. Much later, Romans, Greeks,and Hebrews would dig storage pits into theground, fill them with snow, and insulatethem with wood and straw.Nowadays, electric refrigeration is a widespreadcommodity, at least in developedcountries. But, as the fridge is a primaryelectrical appliance of the cultural cornerstoneof every house – the kitchen – it comesas no surprise that regional and cultural variationhave had an effect on design. A fewstereotypes to begin with: the meat-rich dietof the Germans requires bigger meat andfish compartments; the vegetable-loving Italianswant separate storage space; and feudsbetween omnivores and vegetarians in Indianfamilies can be appeased with internalseals to stop smells mingling.Cuisine differences aren’t the only factors:level of income and development play a roletoo. For example, the difference in averageincomes between an American and an Indianfamily is reflected in the latter’s preferencefor smaller, simpler, and cheaper fridges.Similarly, electricity supply is much less reliablein some developing countries: the Chineselike a fridge with an automatic resetfunction that kicks in after a power cut. Or,better yet, a very sustainable electricity-freefridge that uses solar power and evaporationwill be providing a much-needed low-costbasic solution in poorer countries, wheremany cannot afford and cannot access reliableelectricity supplies.Practicality aside, some companies have beenhaving fun turning the fridge from unexcitingappliance to statement of luxury. ASwedish manufacturer has substituted theclassic American fridge feature, the waterdispenser, with a beer dispenser. Others haveaddressed the western morning-coffee-drinkingculture by incorporating a coffeemaker,instantly ousting the kettle from the kitchen.And to serve the internet-fanatic, some allowyou to check your e-mails on the computerin your fridge door.FactBox“Cool” inventorsOliver Evans is generally thought of as the inventorof the modern refrigerator. But, thoughhe did design the first refrigeration machine in1805 to run on vapor and not liquid, as modernfridges do, he never built a prototype. JacobPerkins extended on his work when in 1834 hemade in-home refrigeration a reality with theinvention of the cooling compression systemJapanese inventors are pushing the boundariesof household domestics with their transparentfridges allowing you to visualize all your groceries.Their double-door fridges, on the otherhand, let you get to your food from any angleEmily Cummins was named one of the “Womenof the year” 2007 thanks to her sustainablefridge invention inspired during her time in Namibia.It uses solar power to keep medicine andother small items cool64 expand 01/2011

PublisherDKSH Holding Ltd.Wiesenstrasse 8P.O. Box 8888034 ZurichSwitzerlandPhone +41 44 386 7272Fax +41 44 386 7282communications@dksh.comEditorial and designInfel AG, ZurichLithographyZürichsee Druckerei AG, StäfaPrintFO-Fotorotar, Egg/ZHPicture creditsDKSH: 1, 3, 8, 11, 12, 13, 16,41, 48, 49, 54, 55, 56Diethelm Keller Holding: 58, 59Dominik Orth: 25, 33, 42, 45,46, 48, 49, 51, 55John Kraus: 22, 24, 26Avenue Images: 6GettyImages: 31iStockphoto.com: 19, 21, 29,62, 63Keystone: 34Laif: 30, 37, 38Mitticool, Samsung ElectronicsGmbH, Whirlpool: 64

FOLLOWYOURCONVICTIONS”FREE ACCESS TO ALLHUMAN KNOWLEDGE.SOME CALLED ITIMPOSSIBLE, I CALLED ITWIKIPEDIA.”Jimmy Wales, Founder of WikipediaIn 2003, Jimmy Wales stayed true to his beliefs byturning Wikipedia into a non-profit foundation.At Maurice Lacroix, we create our uniquemovements and award-winning designs by hand –because, like Jimmy, we too follow our convictions.For more information visit www.MauriceLacroix.comMasterpiece Squelette

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