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Updated: August 28, 2010 16:06 IST

Fostering social capital in knowledge economy

D. Murali
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Established in 1976 with $25,000 in capital and 11 employees, Acer now ‘ranks No. 2 for total PC shipments and No. 2 for notebooks, and has a global workforce of 7,000 employees. 2009 revenues reached $17.9 billion,’ as informs. An interesting case study about the company’s China experience is available in ‘The Global Environment of Business: New paradigms for international management’ by David W. Conklin (

SOE system

The company’s ‘production facilities had been concentrated in Taiwan, but it now faced the question whether it should build new facilities in mainland China,’ begins the narrative, sourced from Tsai, Everatt, and Cheng (1999). “The key to Acer’s success had been the ability to continually innovate, and Acer management saw this ability as dependent on its organisational structure, with delegated responsibility and employee initiative. However, potential employees in mainland China had developed a very different set of attitudes toward their work as a result of employment in state-owned enterprises (SOEs) where their pay was guaranteed regardless of performance.”

The SOE system had inherently discouraged creativity and initiative, and indeed, showing these traits could create resentment and hostility among one’s peers, the book notes. On the other hand, “a highly disciplined and flexible workforce was critical for success at any of Acer’s manufacturing locations. This meant that during peak production periods, workers would be asked to work diligently and commit to overtime.”

Transforming employees

The author raises ‘critical thinking questions’ such as whether Acer should allocate research and development activities to its plants outside China and place only routine production activities in China; and whether a plan could be developed for Acer to enable it to transform China’s social capital.

Citing Everatt et al., a 2004 paper by William R. Gray Jr. observes that when setting up offshore manufacturing Acer found that experienced local managers were not always plentiful. “Acer would hire at least one upper level local manager in some capacity such as personnel manager, and set up training and development plans for the manager and a group of local supervisors to provide them with a path to management.” The paper also makes a reference to Bartmess (1994) on how the sending of local managers to the headquarters for training is often ‘the best way to transfer the company’s culture, quality expectations, environmental regulations, and workforce policies.’

Accumulated history

Social capital is created through a firm’s accumulated history, instructs Conklin. This capital plays a key role in the creation of intellectual capital, facilitating the creative actions of individuals within the firm, he adds. Importantly, social capital consists of relationships that facilitate flows of information, and a social network, or even a structure for having confidence in communication, can facilitate the exchange of information necessary for entrepreneurship.

It may be distressing to learn that India’s social capital is seen as ‘segmented,’ what with sharp divisions and limits to mobility and growth of many. Rather than having a coherent and unified social capital, India consists of a maze of barriers that separate very different groups, resulting in some outstanding business sectors and geographical regions alongside many that are stuck in traditional business routines, the author describes.

In sharp contrast, he says, China’s government has been eager to facilitate entrepreneurship with innovation and has developed social capital that can support the same. “China has invested far more than India in its physical and educational infrastructure to serve all business activities in a unified and coherent national mission. For China, social capital is not geared to the protection of vested business or class interests…”

New factor of production

A chapter on ‘strengthening the firm’s knowledge capabilities’ opens by discussing the imperatives of the knowledge economy that go beyond compilation of information. The focus is on new ways to analyse data in order to better understand the factors that are relevant for strategies, writes Conklin.

The firm needs to search continually for the implications underlying the data that it can now collect and analyse, and it must develop systems for continually creating new insights and sound judgments in regard to these implications, he elaborates. No wonder, therefore, that knowledge is a new factor of production, quite apart from the traditional factors of land, labour, and capital!

To leverage this factor, the traditional silo-style of management – with interrelationships among the silos being structured and limited to standard procedures of communication – is ineffective. In such ‘old’ organisations, innovation is the responsibility of the R&D department, and the management acts as the central hub for coordinating information. Today’s need, as the author highlights, is not only to stimulate creative thought and new ideas throughout all of its employees, but also to ‘collaborate with other organisations in order to deal most effectively with what may lie ahead.’

Triple helix

An insightful section in the book is about ‘the triple helix’ – comprising universities, governments, and businesses – in enabling knowledge economies. The author makes a reference to a World Bank publication (Yusuf & Nabeshima, 2006) and its finding that each nation, as well as each region within a nation, has a distinct ‘innovation system,’ and that the success of university-industry linkages (UILs) depends on the strength of this innovation system as a whole.

When, for instance, Malaysia wanted to gain global leadership in multimedia research and design, the view of Stan Shih, former head of Acer, was that there were simply not enough knowledge workers in the country to achieve such a vision. The country had worked between 1996 and 2001 on creating Multimedia Super Corridor, as leading edge of the new economy, through the MDC (Multimedia Development Corporation). But, “Civil servants were attempting to micromanage the corridor’s development… The MDC lacked the ability to encourage a risk-taking culture that would be essential for innovation…”

Innovation initiatives

Conklin traces how, after 2001, the MDC began to shift its focus to the development of labour-intensive IT-related activities at the low end of value chains, taking advantage of Malaysia’s low costs and its geographical position as a potential Asian hub. “Data processing centres and customer service centres proliferated. This expansion came at the right time for Malaysia’s economy, as its traditional computer-related manufacturing suffered in the face of new, lower-cost competition from China.”

In the wide world of global competition, MDC has not been alone. For, the book speaks about similar initiatives in other geographies such as Canada (which offers substantial R&D tax credits), Hong Kong (where the ‘Cyberport’ has been created as ‘information technology flagship’ aimed at fostering an interactive environment that would be home to a strategic cluster of about 100 IT companies), Kerala (which created a ‘Smart City’ focused on the Internet), and Israel (which is ‘attempting to become a second Silicon Valley, attracting twice the number of venture capital investments as the whole of Europe’).

Recommended read for the global ‘new’ manager.



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