The purpose of this investigation is to examine the impacts that changes at the global level are having upon the competitive advantages and corporate strategies of business enterprises at the local or regional scale. More specifically, at a time when the financial markets and business climate in the western Pacific have been unstable, giving rise to considerable uncertainty about future prospects in that part of the world, what business strategies have the top executives of small and medium-sized manufacturing establishments that are located within the Western New York and southern Ontario area (i.e., the BorderNet region) been pursuing?

Based upon the responses to this question, the authors also address the following related concerns: 1) What are the optimal strategies that executives should be following in order to develop effective linkages with customers and/or partners in the Asia-Pacific region? 2) What are the existing barriers and perceived risks to the development of more extensive commercial ties between companies in the BorderNet region and East Asia? 3) What are the potential benefits to the cross-border region of expanding commercial linkages to Asia? 4) What actions can/should be taken by corporate executives and various private- and public-sector groups within the region to develop and sustain such commercial ties over the long term?

For the purposes of this investigation, the following definitions are utilized:

_ "Commercial linkages" refer to foreign direct investments, strategic alliances (including joint marketing/distribution, co--production of advertising, joint storage/warehousing, production sharing, pooled research and development, shared sales personnel, and joint acquisition of equity capital), alliance joint ventures, licensing agreements and export-marketing activities.

_ The "Asia-Pacific" region is defined as consisting of 11 countries: China, Hong Kong (considered as a separate entity for this study), India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, and Thailand.

The study area consists of the 16 counties and 8 regional municipalities (some 7.8 million people) located between Toronto, Ontario and Rochester, New York. In 1995, a binational network of business organizations, private-sector groups, educational institutions, and government agencies was created to promote and develop trade, tourism, investment, and the technological upgrading of companies. This cross-border alliance is known as the Canada-U.S. BorderNet Region, or simply the "BorderNet Region." Located within this territory are more than 8000 manufacturing establishments across the full range of two-digit SIC manufacturing sectors (SIC 20-39). Almost 60 percent of these establishments specialize in the production of non-electrical machinery (SIC 35) and fabricated metal products (SIC 34). The next highest ranked categories are electrical machinery and electronics (36), rubber and plastics (30), chemicals (28), scientific instruments (38), transportation equipment (37), and food (20).

During the latter part of 1998 and early 1999, a survey of standardized and open-ended questions was mailed to a random sample of 1750 manufacturers within the BorderNet Region. After follow-up mailings and phone calls to selected companies, the response rate was approximately 20 percent.

A brief profile of the businesses that responded to the survey is as follows:

The bottom line is you have to be there to sell. Regular visits to better understand the Asian culture and to demonstrate the company's willingness to take the time and spend the money to get to know the Asian partner/customer are crucial. Eventually, remote management techniques may be utilized, but for these to work, trust and local empowerment of Asian agents and customers are essential.

New entrants are advised to research-learn-adapt with regard to local business cultures. Language and culture are frequently barriers in negotiations and packaging; therefore, a competent local (i.e., Asian) representative can smooth over the process of linkage development with buyers and sellers in Asia. In short, identify a reliable local agent in Asia, and work through that person to identify potential buyers and/or partners. Developing commercial ties with Asian customers/partners will involve considerable capital because the time required to establish strong linkages will take much longer than in North America. The key is to wait out the current crisis, remain flexible, do not over commit, and utilize federal and state programs to obtain information and assistance.

In summary, what seems clear is that companies have to be increasingly cost-conscious because they cannot avoid competing with Asian rivals and their heavily discounted products. As one person notes, in Latin America some companies are seeing 15-20 percent price cuts on competing products from Korea and Japan. The best strategy to deal with the ongoing difficulties in Asia, this person adds, is to maintain communication channels with dealers and former customers, and continue to let them know that your company is still interested in them. This person continues to make trips to selected countries in Asia, even though his company is not getting orders. Given the importance of personal relations in dealing with most Asian business associates, efforts to sustain and, if possible, expand personal contacts are likely to have longer-term payoffs. However, this strategy requires a future-looking perspective--one that is based upon the belief that conditions in Asia will eventually improve, and it requires the commitment of human resources and finances in an effort that may not have immediate economic returns to the company. It is also useful to look for sectors where Asian imports will continue to exceed exports as the crisis unfolds. According to estimates from the U.S. Department of Commerce, these sectors include energy-generating equipment and products, construction, telecommunications, pharmaceuticals, environmental protection, advertising, entertainment, and financial and managerial services.

In what specific ways can business groups, educational institutions, and governmental agencies within the BorderNet region be effective in supporting the development of commercial linkages between local manufacturers and Asian customers/partners? Given the constraints and concerns identified by the executives in this survey, actions are needed on at least two fronts.

It also seems clear that the executives of these establishments must assume a major share of this responsibility to increase commercial ties with Asia themselves. As the processes of globalization and internationalization continue to have dramatic impacts upon the nature of production, marketing, capital flows, and transportation, and as these processes of change continue to create a dynamic operational milieu within which business and locational decisions must be made, business executives must make strategic decisions at the local level that enable their companies to maintain a competitive position. With regard to the Asia-Pacific marketplace, executives within the BorderNet region must take steps to become more aware of the variety of possible alternatives for developing commercial linkages in Asia, and utilize those resources at the local level that are likely to enhance the competitive capabilities of their companies.

Table A

Selected recommendations from "local" executives for developing and/or expanding commercial ties to the Asia-Pacific Region

_ Some local firms are being asked by Asian customers to enter into co-production arrangements, but many are refusing this offer because they see this as "giving away their technology."

_ Vigorously protect the company's intellectual property rights because violations of such rights are commonplace in Asia.

_ Several companies that are in the import business are quite pleased with current conditions, and remind local companies that this is an excellent time to source lower-priced materials from Asia.

_ One executive recommends cutting ties with Asian distributors and setting up a company's own marketing operations in places like Singapore to market their products. This strategy allows the companies to weed out financially weakened customers and avoid unstable intermediaries.

_ Many are abandoning "open account" or other favorable-to-the-importer financing arrangements and are insisting upon bank-backed agreements to reduce loss on receivables.

_ Some are avoiding Asia altogether and are redirecting their efforts from Asia to Latin America and Europe.

_ One company notes that the bottom line for doing business in Asia is that "you have to be there to sell." Regular visits to better understand the Asian culture and to demonstrate the company's willingness to take the time and spend the money to get to know the Asian partner/customer are crucial. Eventually, remote management techniques may be utilized, but for these to work, trust and local empowerment of Asian agents and customers are essential.

_ Emphasize high quality products and products with unique technologies.

_ Continue to make regular visits to the customers to maintain personal contacts and to further network development. It is not only crucial to know the Asian representative, it is also important to know the end user. Therefore, after-sales service should be regarded as an important aspect of the marketing plan.

_ Extend invitations to present and potential customers and partners to visit a local company's facilities.

_ Begin operations in Asia by emphasizing only the company's core business--don't try to compete in peripheral areas.

_ When preparing a marketing plan, be certain to incorporate research about the Asian marketing/cultural environment so that product recognition is ensured.

_ New entrants are advised to research-learn-adapt with regard to local business cultures. Language and culture are frequently barriers in negotiations and packaging; therefore, a competent local (i.e., Asian) representative can smooth over the process of forging business ties with buyers and sellers in Asia. In short, identify a reliable local agent in Asia, and work through that person to identify potential buyers and/or partners.

_ Developing commercial ties with Asian customers/partners will involve considerable capital because the time required to establish strong linkages will take much longer than in North America. The key is to "take a long-term perspective, wait out the current crisis, remain flexible, do not over commit, and utilize federal and state programs to obtain information and assistance."

Table B: make this into a table???

Executives of companies that have not tried to conduct business in Asia, or who have tried and failed, what barriers or perceived risks were involved. Examples of responses include the following:

_ Conflicts arising from different interests and objectives of alliance partners

_ Too expensive to continue to carry out the alliance

_ Partner failed to fulfill agreed-to obligations

_ Markets changed and/or disappeared

_ Partners failed to maintain an amicable relationship

_ We could not identify a suitable partner.

_ We were unable to establish viable relationships.

_ We fabricate custom-made products and cannot compete in the Asian market because of the low labor costs in that marketplace.

_ Developing business contacts in Asia has proven to be an extremely long, detailed, time-consuming process with no guarantee of success.

_ Once the freight costs were factored into our price, our product would be too expensive to market to Asia.

_ It is too expensive to establish marketing sales force and after-sales service operation in Asian countries.

_ If we did manage to sell any of our special machines in Japan or Taiwan, they would be copied and offered on the North American market. Corruption is a key problem in that region.

_ We concentrate our marketing efforts on North America.

_ None of our products apply to Asia.

_ We could not identify a suitable partner.

_ Cannot find a reliable manufacturer's representative.

_ Asia is not a market that we have yet targeted. We are establishing linkages in the European Union first.

_ Better opportunities exist for growth in Europe.

_ The distance and the cultural dissimilarities are too great to overcome.

_ We don't have the time or start-up revenues to explore this marketplace.

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2. The survey instrument and survey responses

a. The instrument [Transparency]

A survey instrument was designed with the assistance of several key business executives within the local region that had commercial linkages with Asian nations. The seven-page instrument consisted of both standardized and open-ended questions related to:

_ the effect the recent financial crisis in Asia was having on individual manufacturer's operations;

_ background information about the company (e.g., employment, sales, ownership, R&D expenditures)

_ information about specific commercial linkages to Asian nations (e.g., motivations for creating such linkages, profitability, present status, reasons for success as well as failure of existing and past linkages)

_ efforts undertaken by the firm to create personal and social networks within the Asia-Pacific region, and sources of information about opportunities for commercial interactions;

_ questions on the factors contributing to the competitive advantages and disadvantages of the firms' abilities to conduct business in Asia

_ and concluding questions in which the executives are asked to provide advice to North American companies that are in the process of beginning or expanding business operations in Asia.

b. The survey responses

The survey was administered to a random sample of some 1750 manufacturers within the BorderNet region during months of November and December, 1998. The surveys were mailed with return envelopes and postage, and a follow-up mailing and phone calls were made to over one-half of the initial set of firms. After accounting for non-deliverable surveys, the response rate was 18 percent for the U.S. companies and over 8 percent for the Canadian firms--for a total of 11 percent.

U.S. Canada Total

# in sample 447 1189 1636

# usable surveys 79 97 176

% response 17.6 % 8.2 % 11 %

[Sources: Commerce Register, Inc. Upstate New York Director of Manufacturers (Midland Park, NJ: Commerce Register, Inc., 1994-95 edition). Niagara Regional Development Corporation, Niagara Canada Business Directory, 1993/1994 (Thorold, Ontario, 1995). Scott's Directory: Canada (Statistics Canada, 1998).]

[The returned surveys showed no significant differences in terms of sectoral affiliation, employment size, or sales volume. Tests for non-response bias included a comparison of late versus early respondents for key variables (e.g., export-intensity and firm size) following the logic outlined by Babbie (1973). Significant differences between early versus late respondents did not emerge (t-tests), and the same holds true for respondents versus nonrespondents.]

c. Rationale [TRANSPARENCY]

Why undertake this study? What is the rationale underlying this investigation? Several points need to be make.

_ [The global-local theme] First, much is being written in geography and related disciplines about the relationship between the forces of globalization and the evolving patterns of human behavior at the local or regional level. The assumption is that economic, political, and technological forces are operating unevenly in both time and space within the global environment, and that when assessing the impact of these forces, it is important to pay attention to the geographic scale at which one is making the appraisal. The writings of Porter and Krugman in economics and Storper and Cox in geography, to name just a few, are emphasizing the importance and power of the "local" when talking about the national and international competitive advantage of industry sectors, regions, and individual companies. Thus, this study provides an opportunity to examine the nature of global-local forces within the context of a particular set of questions related to corporate behavior within a particular geographic (i.e., regional or local) setting in response to changes taking place at the global level.

_ [The internationalization process and potential opportunities to expand commercial linkages to Asia] Second, many of the small and medium-sized establishments (SMEs) within the BorderNet region are engaged in international business ventures, and thus are quite likely to be affected by the economic and financial turmoil in Asia. For example, more than 60 percent of the U.S. manufacturers within the BorderNet region are engaged in exporting activities, and since the early 1990s, the export sales of these companies have doubled to over $2.6 billion. Moreover, across the entire BorderNet region, average annual increases in export sales over the past five years have been exceeding 10 percent for almost one-half of these companies. And, finally, it is estimated that approximately 12 percent of the export sales of these local companies is derived from shipments to Asian nations. [This compares to an estimated 8 percent of total Canadian exports that are destined for the Asia-Pacific region, and to some 37 percent of U.S. exports. It should also be pointed out that Canada's exports to China and the "Four Tigers" have been increasing significantly (Harris, 1996, p. 401).]

In short, many executives of local companies continue to perceive a variety of opportunities for expanding commercial ties to the Asian region once an economic turnaround occurs; however, others are not yet in a position to engage in such activities, and still others are not even considering the prospects of developing linkages to Asian customers/partners. In Canada, for example, SMEs account for over 98 percent of all business enterprises and play an increasingly important role in the Canadian economy. Yet, the overall participation rate of Canadian SMEs in Asia is very low relative to larger firms. SMEs account for only 9 percent of the value of Canada's total exports, even though they constitute some 97 percent of all Canadian export firms (Harris, 1996, p. 407). It seems to us, therefore, that it would be helpful to know what business strategies have been pursued in the past and which ones are currently being pursued by local companies that have resulted in successful commercial ties to the Asia-Pacific region. These successes could possibly assist other SMEs within the BorderNet region in developing commercial links with Asia. [As Rao and Ahmad note, considerable scope exists for Canadian businesses, especially SMEs, to expand their exports to the Asian countries and to increase investment in these economies (Harris, 1996, p. 401).] It was upon this premise that the Canadian Government financed most of the cost of this investigation, and upon which we have received encouragement from local WNY private- and public-sector groups to undertake this study.

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When the executives in our cross-border survey were asked what might motivate them to explore (anew or again) the development of commercial ties with Asia, they mentioned such conditions as the following:

_ They would pursue Asian markets if their R&D investment is protected, if costs are better managed, if they could identify a reliable manufacturer's representative, if the financial crisis gets resolved, and if the current risks of doing business in Asia are reduced._