Globalization Of Business – Creative Technology Essay

1.0 Company Background

Creative Technology (Nasdaq: CREAF) is the worldwide leader in digital entertainment products for the personal computer and the Internet. Creative Technology was founded in Singapore in July 1, 1981, with the vision that multimedia would revolutionize the way people interact with their PCs.

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Famous for its Sound Blaster and for launching the multimedia revolution, Creative Technology is now driving digital entertainment on the PC platform with products like its highly acclaimed NOMAD Jukebox. The company’s innovative hardware, proprietary technology, applications and services leverage the Internet, enabling consumers to experience high-quality digital entertainment — anytime, anywhere.

Over time, Creative Technology has built upon the popularity and demand of its PC audio success to include graphics, DVD, computer telephony integration (CTI), communications, and videoconferencing. In doing so, Creative Technology has partnered some of the industry’s top technology companies and developers worldwide. Today, Creative Technology expands the power of the personal computer with Personal Digital Entertainment Internet (PDE) solutions, comprising desktop products, Internet appliances and Internet applications and services.

Leveraging in-house technology, partnerships and value-added investments, Creative Technology markets its solutions to consumers and system integrators, with worldwide distribution through traditional marketing channels, OEMs and the Internet. Creative Technology’s mission is to expand upon its leadership role in PDE, utilizing innovative technology, broadband and leading edge designs for technically progressive consumers and entertainment enthusiasts.

Creative Technology was listed on the US Nasdaq stock exchange in the summer of 1992, making Creative Technology the first true-blue Singapore Company to list on Nasdaq. In June 1994, Creative Technology gained a listing on the main board of the Stock Exchange of Singapore.

1.1 Worldwide Headquarters

The worldwide corporate headquarters is located in Singapore, right in the heart of the Asia-Pacific region. Since that time, Creative Technology has earned global leadership status for its innovations in interactive audio, graphics, PC-DVD, video and communications technology and as an industry pioneer in the creation of multimedia standards.

Naming its Singapore headquarters “Creative Resource”, Creative Technology strives to stimulate and inspire creativity in work and play. For many in Creative Technology, work and play quite often converge into one fun activity and creative ideas continue to generate even whilst engaging in games and musical pursuits. Being a knowledge-based company, Creative Technology places a strong emphasis on research and development, and has shaped Creative Resource into an ideal place for seeking and synthesizing new and greater knowledge.

Creative Resource, located within the International Business Park, houses a futuristic-looking 8-story office tower, a C-shaped 6-storey production podium, many fully-equipped banquet halls, function rooms, a 220-seat auditorium and a 2000-capacity outdoor amphitheater. In addition, the plethora of facilities ranging from a gymnasium to a multi-purpose studio to meeting rooms promotes wellness of the body, mind and soul of staff and helps harness the Creative Technology spirit.

No. of employees worldwide : Over 5000

1.2 Creative Technology Key Milestone

2002 MILESTONES

March

Creative Technology announces a definitive agreement under which it will acquire 3Dlabs Inc., Ltd. (Nasdaq: TDDD), the workstation graphics authority, supplying graphics accelerator solutions for professionals in Computer Aided Design (CAD), Digital Content Creation (DCC), and visual simulation markets.

2000 MILESTONES

May

Creative Technology expands its manufacturing facilities in Malacca at the signing ceremony of Sale and Purchase Agreement (“the SPA”) between Creative Technology’s wholly owned subsidiary, Cubic Electronics Sdn. Bhd and Metacorp Properties Sdn. Bhd. This expansion is part of Creative Technology’s global strategy to enhance its manufacturing capabilities in new and higher value-added products such as PDE products and intelligent speakers.

1999 MILESTONES

February

Marks the opening of Creative Resource, Creative Technology’s worldwide corporate headquarters located in Singapore.

1997 MILESTONES

December

Creative Technology acquires Ensoniq Corp., a key innovator in the design and development of PCI audio microchip technology who has gained strong brand recognition with its line of electronic musical instruments.

July

Creative Technology announces the official opening of its African subsidiary, Creative Labs (Pty) Ltd to take charge of the sales, marketing and customer support services in the continent’s growing IT market.

February

On February 21, Creative Technology unveils its new corporate headquarters facility in Singapore – Creative Resource. Strategically located in the premier hub for business and technology, the facility will house the entire Singapore HQ operations including sales, marketing, R;D, administration ; manufacturing.

1996 MILESTONES

February

Creative Technology establishes Canadian headquarters under the banner of Creative Labs, Inc. in Toronto.

1994 MILESTONES

December

Creative Technology and JC Hyun Systems, Inc. announce a joint venture entity in Korea known as Creative Technology Korea Ltd, another subsidiary in Creative Technology’s fast-expanding worldwide network.

Creative Technology acquires Digicom Systems, Inc, a Californian-based company which develops and markets a range of high end, high speed modem products based on the latest DSP and telephony technologies.

Creative Technology shares debut on the Main Board of the Stock Exchange of Singapore on June 15, 1994 with its shares trading in Singapore dollar.

April

Creative Technology sets up Creative Labs (Ireland) Ltd as Creative Technology’s European Operations and Technical Centre (EOTC) in Dublin, Ireland which includes the manufacturing, operations and technical support services.

1993 MILESTONES

September

Creative Technology acquires Westpoint Creative, a leading UK multimedia distributor, to create a new company, Creative Labs (UK) Ltd., which will become Creative Technology’s European headquarters.

July

Creative Technology and Computamart Pty Ltd announce a joint venture to form a new entity known as Creative Pacific Pty Ltd in Sydney, Australia. Creative Technology and I*O Data Device, Inc. also set up a joint venture company, Creative Media K.K., located in Tokyo, Japan.

Creative Technology acquires ShareVision(r) Technology Inc., a company that develops videoconferencing products that allow users to communicate using video, voice and graphics anywhere in the world over a single regular analog telephone line while simultaneously collaborating on Windows applications.

May

Creative Technology opens its US-based Technical Support Centre in Stillwater, Oklahoma to offer expanded operational hours and more technical agents to provide technical support to endusers.

March

Creative Technology acquires E-mu Systems(r), Inc, a leading developer and manufacturer of innovative audio products based on digital sampling technology for musical instruments and multimedia markets.

1992 MILESTONES

September

Creative Technology forms new subsidiary in Beijing, China – Beijing Chuang Tong Multimedia Computer Ltd.

August

Creative Technology Ltd announces its initial public offering of 4,800,000 Ordinary Shares and the stock is traded on the NASDAQ National Market under the symbol CREAf.

1991 MILESTONES

October

Creative Technology establishes Avidtek Co., Ltd., a subsidiary office located in Taipei, Taiwan.

1988 MILESTONES

August

Sim Wong Hoo, Creative Technology’s founder, establishes business in USA and founded Creative Labs, Inc. in South San Francisco, California. The company markets its first product, Creative Music System, followed rapidly by the launch of Game Blaster, a full stereo sound board for the PC.

1981 MILESTONES

July

Creative Technology is founded in Singapore by Sim Wong Hoo.

1.2 Products Range

1.3 Why Creative Technology Went Global

” I had hope that a multilingual society like Singapore would need a mulitlingual computer.

I was wrong. Also, I realized that by looking only at Singapore, we were just like a frog looking at the sky from the bottom of a well” – quoted from Sim Wong Hoo

In 1986, Creative Technology started Cubic (Multimedia computer) in Singapore but the market was not ready to embrace such a technology, thus forcing Creative Technology to switch from language to music

.

Creative Technology then went on to create the PC add-on sound card (Sound Blaster), which proves to be a big hit when they convinced some software developers in US to support this product.

In 1989, the Sound Blaster alone brought the company’s revenue from US$5.4 million to US$658 million.

Creative Technology did not strategically go into the global market in their beginning years. It was somehow pushed to globalise due to the minimal demand in the home market. The success it saw in the US in 1989 was the triggering factor that could have brought them to the level of global recognition today.

The Singapore government could have played a part in Creative Technology’s success story.

Singapore is a country with few natural resources, faced with an economic hinterland that had turned politically hostile, could not but have decided to become a global city after its unsuspected birth in 1965.

It has succeeded beyond the worst fears of its opponents and the wildest dreams of its partisans. To keep succeeding, it cannot give up the formula for success.

Singapore lies at a unique geographical and cultural crossroad, which made it an ideal base for expanding business regionally or globally. Within a short span of a seven-hour flight, businessmen could reach virtually every corner of the Asian market covering a population of 2.8 billion people.

Most importantly, the Singapore Government is extremely supportive of global trading with the International Enterprise/EDB constantly creating overseas contact opportunity for local companies.

The extensive list of free trade agreements that the Singapore Government had established with many countries have given Singapore companies preferential access to the world market

“Singapore is a small nation, has small domestic market and lack resources and manpower.

So we have to look outward this problem and strengthen Singapore’s global competitiveness.

Through the Overseas ventures, our businessmen would be able to further develop their business acumen and knowledge. We could forge closer ties with our neighboring countries”

– quoted from Ministry Of Trade and Industry

2 Creative’s Globalization strategy and geographical locations

2.1 Benefit Of Going Global

3 Cultural Issues/ challenges faced by Creative Technology

“Culture” may be defined as “the integrated pattern of human knowledge, belief, and behaviour… language, ideas, beliefs, customs, taboos, codes, institutions, tools, techniques, works of art, rituals, ceremonies, and other related components…” (Encyclopaedia Britannica, 1989).

3.1 The Cultural Iceberg

Culture is like an iceberg. The tip of the iceberg includes the visible aspects and do’s and taboos of working in other cultures. The remaining huge chunk of the iceberg hidden below the surface includes the invisible aspects of a culture such as the values, traditions, experiences and behaviors that define each culture.

Venturing into different cultures without adequate preparation and understanding can be just as dangerous as a ship maneuvering icy waters without charts, hoping to be lucky enough to avoid hitting an iceberg.

When a company hits the cultural iceberg, it appears in the form of delayed or abandoned projects, misunderstood communications, frustrated employees and a loss of business and reputation. Thus, skills and competences in cross-cultural management are increasingly strategic for companies. Therefore, they need to understand different cultures to conduct their business successfully.

In case of Creative Technology, following are the major cultural challenges they faced when they ventured into American and European markets.

* Understanding the Multi-cultural customer needs

* Developing and Retaining the Human capital for Innovation ; Creativity

* Managing the Multi-Language needs for communication

3.2 Understanding the Multi-Cultural Customer needs

Creative Technology founder, Mr. Sim spent considerable amount of money, time and efforts in understanding the Multi-Cultural customer needs to ensure that his products are designed and made to exceed the customer expectations. Though we could not get much information about his strategies during his initial periods (1990s), we could gather a lot of information to show that Mr. Sim did spent a lot of efforts in this regard. In Europe, Mr. Sim hired the services of “MORI (Market & Opinion Research International)”, the largest independently-owned market research company in the United Kingdom.

Figure-1 (Source : http://www.mori.com)

MORI carried out a large scale international study looking at the public’s attitudes towards music, how they currently buy and how they’d like to buy in the future. The survey was conducted in 10 European countries. As seen in Figure-1, almost three fifths of the people surveyed envisage that they will download or stream music in future. Millions envisage storing their entire music collections on portable devices. Digital music is set to have a major impact in Europe. This survey also indicated several minute details on the customer’s needs which were used in the subsequent development & launch of products like :

* Creative Inspire(tm) speaker, Inspire 5.1 Digital 5700

* The 20GB Creative NOMAD(r) Jukebox (D.A.P Jukebox)

* The Sound Blaster 4.1 Digital sound card

Subsequent to the success of these products, the European Imaging and Sound Association, EISA, has voted the innovative D.A.P Jukebox European Personal Audio of the Year, 2001-2002.

Creative Technology’s effort to understand its customer did not stop there….in subsequent years, it carried out the following research/surveys to continue to understand the needs of people across a Multi-Cultural and international customer base.

* 1999 – This Research/Survey revealed that more than a third of the British population will be buying DVD media instead of VHS format in the future, making it one of the fastest growing media for home entertainment. http://www.mori.com/polls/1999/creative.shtml

* 2000 – This Research/Survey was done as part of an in-depth look into home audio technology and the trends of tomorrow. http://www.mori.com/polls/2000/creativelabs.shtml

* 2001- Pan-European Independent Survey into the Future of Creative’s Digital Audio Technology http://www.mori.com/polls/2001/creativelabs.shtml

Creative Technology also spends lots of efforts and money in collecting their global customer feedback in order to access the customer satisfaction and also to make changes on their future products. Creative Technology uses the following tools for this purpose.

* Public forums to discuss solutions and exchange ideas : The Creative News Server has been established to provide forums for the discussion of Creative Labs products for our customers and other interested parties. The address for the news server is http://www..creative.com/support/news-server/welcome.asp. Individual newsgroups have been created for virtually all Creative Labs products. There is even a newsgroup for the discussion of Creative corporate and policy issues. These newsgroup entries and activities are regularly monitored by Creative employees and considered for future development activities.

* Surveys and Promotions : From time to time Creative Technology collects information/feedback from customer via surveys or contests. Participation in these surveys or contests is completely voluntary. This Survey information is used for purposes of monitoring or improving the use and satisfaction of the website and the products.

* Mailing Lists : Creative Technology also provides the opportunity for customers to supply their email address for the purpose of receiving a specific newsletter or product information. This way, Creative technology reaches their customers all over the globe with the latest product information.

By understanding the customer needs across the culture, Creative Technology acquired the ability to create products with unique identity that can set new global standards in the market place to keep it in No.1 position.

This way, Creative Technology developed ‘strong capability’ to ‘better execute’ to achieve ‘stronger results’ and ‘better reliability’ which in turn increased the ‘market confidence’ to produce excellent financial results as seen in the figure 2.

Figure 2

3.3 Developing and Retaining the Human capital for Innovation & Creativity

The global labor market is changing rapidly. For the next decade or more, companies will experience an imbalance between supply and demand of technology and knowledge workers. In fact, for the period 1997-2008, new entrants into the workforce in the United States will grow at 11 percent while demand is expected to grow by 19 percent (Source : http://www.deloitte.com).

To compete, organizations must develop aggressive talent strategies. As an IT hardware Company, Creative Technology needed a lot of these knowledge based workers which they had to source it from the complex multi-cultural environment. Creative Technology handled this challenge very effectively by using the following model (Table-1) of Short Term and Long term goals. This created the win-win situation for both Creative Technology and its employees.

Table-1

Creative Technology spent a lot of efforts and money to develop various competencies within the organization, by means of training and exposure.

* Change Dynamics (http://www.changedynamics.com) : Creative Technology used the services of the well known Corporate Training University, Change Dynamics, which has a unique approach of skill-building programs helping businesses achieve their management and employee development goals. Creative Technology had Change Dynamics present twelve workshops for managers at two sites on: Coaching, Teamwork, Time Management, Conflict Resolution, Finance for Non-Financial Managers, Charting A Career Path, Diversity, New Manager’s Skills, Motivation, Standards ; Objectives, Overcoming Negativity, and Monitoring Performance. Change Dynamics also conducted a company-wide assessment of Creative Technology’s managers, with employees answering 20 questions about how well they are being managed.

* Great Place to Work : By creating an inclusive environment with excellent opportunities for all the employees, Creative Technology efficiently managed to attract new Knowledge workers and develop them further to suit its diverse needs. It also helped them to retain most of them resulting in a wealth of human capital.

As a proof, Creative Labs, Ireland achieved the honor of being listed as “Best Companies to Work for in Ireland” in 2003, published by Irish Independent Discovery Research Ltd. http://www.greatplacetowork.com/best/list-ie-2003.htm

Figure – 3

Figure 3, lists all the dimensions with which a company has to fit in to receive this honor which once again proves the sincere efforts taken by Creative Technology in the area of multi-cultural diversity to attract, develop and retain the Human Capital.

3.4 Managing the Multi-Language needs for communication

Language, one of the main tools for controlling our world, can also produce obstacles that limit our ability to communicate. In today’s workplace, where it is not uncommon for employees of ten or more ethnic groups to work together, differences in language often add another hurdle to the communication process. The same goes good on the customer front for any global company like Creative Technology in terms of managing

o Company websites

o Marketing materials like brochures, e-Newsletters, etc

o User manuals for the products

o Advertisements, etc

in various languages without diluting the content. Any little error in any of this could results in a big way considering the differences in the culture across the globe. Creative Technology managed this challenge by hiring the local experts in this field of Translation/Interpretation like the one below.

Adams Globalization (http://www.adamsglobalization.com) is one of the major service providers in this area for Creative Technology. This company has a 22 year legacy of globalization experience. Currently they provide high-quality translation services in over 30 languages, with unsurpassed technical accuracy and linguistic clarity. They support Creative Technology in the following areas.

* Internationalization and localization of software

* Software testing

* Website globalization

* Documentation localization ; International desktop publishing

Combined with such type of external expertise, Creative Technology’s globalization solutions give its customers the benefits of simultaneous worldwide release for software, websites, and documentation which once again makes it No.1 in the Market place with greater customer satisfaction.

Overall, Creative Technology’s sincere efforts in understanding the Multi-Cultural customer base and Multi-Cultural work force created a Culture Value Chain for the company, as given in Figure-4, which helped them to rise to their current levels and sustain it in the days to come.

Figure-4

4.0 Entering Foreign Markets – Creative Technology’s Push and Pull Factors

4.1 Creative Technology & Home Country Developments

Creative Technology was founded with the vision that Multimedia would revolutionize the way people interact with their personal computers. Over time, Creative Technology built on the success of its PC audio products to include Nomad MP3 player, graphics, DVD, computer telephony integration, communications and video conferencing. Creative Technology’s approach was simply one of partnership and forging of links with some of the industry’s top technology companies worldwide. Leveraging on in-house technological capabilities, partnerships and value-added investments, Creative Technology expanded its business and solutions through many channels to consumers and system integrators.

Creative Technology’s globalization did not happen very much until the early 1990s to the mid 90s. The earlier formative years in the 1980s was one of local business expansion and research. The founder Mr. Sim , spend a lot of his time then in US where he set up Creative Labs. It was only in 1989 that Sound Blaster, a PC Card with 11 -voice synthesizer, text to speech capabilities was launched.

Mr. Sim did not at that time wait for Singapore’s government to provide it with incentives before contemplation of entry into foreign markets. His reason for foreign markets entry was concurrent with the Government’s call for regionalization in the late 1980s. He knew that his strategy of expansion was to harness the technological advances of foreign developed countries to turn his products to one of high demand, high utility and immense penetration in the foreign country.

With his drive and hunger for expansion and awareness of a lack of local technological advances to propel his product forward, he embarked on his focused strategies of harnessing knowledge from the United States. This was the turning point for his company , as Creative Labs provided the foundation for his rapid expansion ever since. Subsequent milestone of Creative Technology sees the company employing a mixture of strategies, ranging from the earlier years of Foreign Direct Investment, to the use of Exporting, Licencing and Joint Venture in other. Was this a direct result of the efforts of the Home country?

Singapore , as Creative Technology’s home country, was one dependent on the global markets to strive and survive. As a small city-state with no natural resources, it needs to tap on the world market to drive its economy. The on-set and severity of the 1985-86 recession prompted the Government to rethink its strategy of relying on the state and multinational firms for sustained economic growth. Since 1986, and increasingly so in the 1990s, Singapore has been encouraging local firms , both government linked and private, to venture abroad as part of a strategy to diversify the sources of growth in Singapore economy. It started with the ‘ Going Regional ‘ drive to capitalize on the rapid economic development and industrialization of the Asia Pacific region.

By the mid-1990s, Singapore’s external wing has spread with significant foreign direct investment portfolios in a number of countries in the region , notably China, Indonesia, Thailand, Malaysia, Myanmar, Vietnam, Philippines and India. A large part of the regionalization effort was led by government -linked companies rather than private ones.

It is clear and evident that the Home country provided all means of support and was conducive for Creative Technology’s expansion. Even though not one of direct incentive for Creative Technology’s globalization push, it was clear the Home country ‘s go regional drive has an impact on his venture to foreign markets.

4.2 Host Country’s Pull Factors

The Pull factors of a foreign country can be direct or indirect. In the case of a direct pull factor, strong trade incentives are in place to entice foreign investors. Making production and sales viable through means such as Foreign Direct Investment. Where it is indirect, it can be due to restrictions of the host country like trade barriers on import quotas and protectionist measures, thus restricting the less troublesome means of Exporting and Licencing as alternatives to exploiting profit opportunities in a foreign country.

Creative Technology started its globalization efforts mainly via the means of Foreign Direct Investment. In the establishment of its subsidiaries such as Creative Labs, Inc and Creative Lab Europe, it was able to take advantage of the favourable circumstance offered in these continents to maximize its profits position. An examination of two major host countries’ environment will provide a good understanding of Creative Technology’s globalization efforts, namely in the US and in Europe.

4.2.1 Creative Labs, Inc – US

In 1988, Creative Technology set up its first subsidiary in US, Creative Labs, Inc, with the aim of breaking into the US market . Creative Labs is the sales, marketing, training and customer support organization for Creative Technology in the Americas. Creative Labs’ operations include additional headquarters in Canada and Latin America, as well as a technical support center in Stillwater, Oklahoma. These centers enable Creative Labs to provide effective support and to produce localized products for the American market.

Recognizing that US was a huge marketplace where English was the primary language used by a large population of pc- educated and literate population, US thus became a natural first choice as a foreign market expansion. Its government is highly supportive of FDIs and adopts an open attitude towards any foreign investments. Foreign capital are treated the same as domestic capital and there are no restrictions on foreign ownership of US corporations or on the acquisition of existing corporations owned by US shareholders.

4.2.2 Creative Labs – Europe

Creative Labs Europe was established in November 1993 to capture a bigger share of the growing potential of the European market. The European network consists of numerous Local Sales Offices (LSOs) strategically located throughout Europe and the European Operations and Technical Center (EOTC) in Ireland. While the LSOs provide localized sales and marketing support, the EOTC acts as the central hub to Creative’s fast growing European business, providing efficient product supply and customer support to complement the activities of the LSOs.

Europe undoubtedly remain an attractive location for Creative Technology. Looking at the percentage of FDI to GDP, it can be seen that the FDIs into Europe has been growing steadily and strongly from the 1970s to the 1990s. ( See chart below )

Average

European Union

USA

Japan

1970s

0.03

0.05

0.01

1980s

1.02

0.47

1.00

1990s

1.21

1.05

0.42

The bulk of FDIs flowing into Europe went into countries such as France, Germany , UK, Netherlands, Italy, and Spain. Such host countries was attractive to Creative Technology because it offers a huge literate consumer market base, strong technological advancement and knowledge sharing, and a conducive tax regime. The governments in the host countries see foreign investments positively because it results in capital formation, technology and management skills transfer, regional and sectoral development, increase in employment and income and positive effect on trade balances. Countries all over the World fight to get FDIs . In the selection of the choice markets for expansion , Creative Technology evaluated many environmental factors ranging from good legal and financial infrastructure to the culture and multimedia-literacy of its people.

Below is a sample of some of the key drivers countries have in attracting foreign investments.

Country

Key Drivers For Investment

Chile

* Good Economic growth

* Government incentives

* Increasing supply of low cost multimedia products

* Low processing costs

Sweden

* Increasing availability of multimedia products

* Devaluation of currency in 1992

* Opportunities for large scale production and economies of scale

* High technology and knowledge development

United States

* Strong economic growth

* Strong demand growth and huge market size

* Highly developed multimedia processing industry

Russia

* Privatisation of state-owned manufacturing ; processing complexes

* Recent devaluation of currency (1998)

* Low products costs

* High potential of growth

Australia

* Increasing availability of technological talents

* Strong economic growth and internal demand

Further studies show that countries attracting FDIs was due to ownership advantages and the internalisation advantages of the source countries. The location advantages of host countries are very important in determining the distribution of the magnitude of FDI inflows.

Second, countries with larger market size, faster economic growth, higher per capita income, a higher level of FDI stock and more liberalised trade policies represented by a higher degree of openness attracted relatively more FDI inflows, while higher efficiency wages and greater remoteness from the rest of the world deterred FDI inflows

4.3 Recent Singapore Government incentives

Globalization efforts supported by home countries are important to propel companies going Global. The incentives should be an assistance and a means but not the reason for a company to think of going global. It was Creative Technology’s own business strategy of expanding its customer base with good innovative products ahead of its competitors by tapping on foreign technological know-hows that saw it through globalization, and not the incentives of the home country.

During the 1990s to the year 2003, the Government of Singapore actively emphasized on globalization. The recovery from the 1997 economic crisis was very quickly followed by prompt efforts to remake Singapore’s competitiveness in the global economy. Against a backdrop of an equally challenging environment where United States, Europe and Japan, its major trading partners, who were all experiencing economic declines, affecting particularly exports to these countries, Singapore came up several measures to stay focus on its engagement of going global. Some of the efforts are listed below : –

� Double Tax Deduction (DTD) Scheme

-allows approved companies to deduct against their taxable income twice the eligible expenses incurred in activities covered by Section 14B of the Income Tax Act

� Malaysia-Singapore Third Country Investment Feasibility Study (MSTC) Fund

-allows Singapore / Malaysia companies to jointly undertake feasibility studies for joint investment or business project in a “third countries” . The fund covers 50% of all eligible expenses (eg. Travelling, patent fees, consultant fees for due intelligence investigation)

� Exhibition Management Services

-this incentive scheme aims to raise the standard of trade fair and conferences in Singapore in the hope to attract more international trade fairs and conferences

-Incentives include endorsement and marketing assistance through tax incentive and grants offered by IE Singapore

� Approved Cyber Trader Scheme (ACT)

-Companies conducting international business through the use of Internet can qualify for the ACT incentive (10% concessionary tax)

� Approved International Shipping Enterprise Scheme (AIS)

-the AIS scheme aims to provide shipping companies with an incentive to operate from Singapore. Approved companies can enjoy tax exemption for 10 years on income from qualifying shipping operation

� Revised Overseas Investment Incentive (Revised OII)

-allow eligible Singapore holding company to defer the income tax due from its profitable operations in Singapore for a period of 2 years

-very useful for companies facing cash-flow problem during the initial years when they have to finance their foreign venture

The home country government remains committed to the benefits and cost of companies going globalized and often cite Creative Technology as an exemplary company for others to follow. Mr Sim has been appointed by the government to be the chaiman of Technopreneurship 21 Private sector committee tasked with recommending changes that can facilitate growth of Technopreneurship in Singapore with the aim of globalization.

5.0 Creative Technology’s Strategy right or wrong?

Creative Technology’s success in the late 90’s was pretty much dependent on its crown jewel – the sound card. At that time, the company captured 60% of the world’s sound card market. Since then, Creative’s product line quickly proliferated to include multimedia upgrade kit solutions, video cards, high-end sound cards with Wavetable synthesis, desktop video conferencing and Chinese processing software. And how does Creative Technology do it in a short period of time? It did through acquisition, which includes companies like Cambridge Soundworks, E-mu……etc to name a few. Its aim was to dominate the audio part of the business very quickly. This focus, combined with an extensive channel strategy and strong retail presence, has enabled Creative Technology to remain at the forefront of the industry.

However, Creative Technology still feels that this is not good enough. The company realized that its product line is too PC based – it is too dependent on sound card. In the last two years (2001 & 2002), Creative Technology was suffering from record losses and the recent SARs episode didn’t help either.

But Creative Technology now seems to be well over its darkest days, there is now a sense of achievement as the company has moved away from its dependence on sound card business which today accounts for only 30 percent of the total revenue.

Creative Technology offensive into the new segment known as Personal Digital Entertainment (PDE) product market which started around four years ago seems to be taking off and is set to be the new cashcow. This new segment is now Creative Technology new core focus for the new decade. Creative Technology’s strategy is to steer its business away from the soundcard and increasingly moving towards the mass consumer products like the MP3 player. The move is likely to set Creative Technology on collision course with the likes of Samsung, Sony, Philips and other consumer giants with deep experience and deeper pocket.

However, Creative Technology still believes that the shift in strategy will allow it to sell to a broader market and not just the PC users. In addition, most consumer electronics makers do not have the experience of making supporting products that have to work with PCs. Hence, Creative Technology will certainly has an edge in this area and is probably the right step to head into.

In the coming years, Creative Technology plan is to hit the retail consumer directly, making use of its existing sales outlets in US (which is its biggest market) and through warehouse sales. By moving towards consumer based products, Creative Technology is set to have a mass appeal from both sexes since PC based products are still predominantly a male thing.

From a product strategy standpoint, Creative Technology is making the right move. It needs to diversify rather than relying on one core product – in other words, it needs more cashcows. However, one need to note that Creative Technology founder Sim Wong Hoo is a technological creator-artist. He plays a key role in the design process, often challenging the design team and tempering their fancy design with practicality. The products, which he and his company bring forth, are not always the most popular, current best sale type, but those that open new horizon. One good example is the Prodikeys. Hence, at times, the company may run the risk of losing money if it develops products that consumers are not ready or do not have mass appeal.

Now, let’s look at the current market. Many international markets are extremely competitive due to the liberalization of the World trade and investment environment. Capable competitors are confronting each other around the globe and this is hurting Creative Technology as well. To be profitable in such competitive environment, Creative Technology must reduce the cost of value creation and differentiate its product offering so that consumers are willing to pay more for their product. Hence, in recent times, we see Creative Technology’s latest range of MP3 product for example the Nomad MuVo Squared is already a niche above Sony. It is not only lightweight but is also the World’s smallest. The strategy that it is adopting is to differentiate its product through superior design, quality, service, functionality and so on. It shows how far design has become part of Creative Technology’s arsenal to build its brandname. As described by Mr. Sim himself, “Some of the new products can sell on their industrial design alone”

But is this enough? The answer is No! Creative Technology understands that to deal with competition, it needs to adopt the strategy to lower its cost structure. Hence, in recent years we see Creative Technology shifting its production to Malacca and China. It has also move away from using Singapore as a key production base.

Creative Technology has also setup RND in different location from Malacca (recent partnership with the university there) to China to Creative Labs in US and Europe. Creative knows that it can no longer sustain by just depending on the RND in US, Europe or Singapore which has a relatively high cost structure. To lower the costs of value creation, it needs to tap the talents from countries that can also help to lower its operating cost. It realizes that it can no longer base all its value creation activities (such as marketing, production, RND, human resources, general management) in a single location. In a world where competitive pressures are increasing, such strategy become imperative for Creative Technology if it is to survive.

But the argument is wouldn’t a company like Creative Technology that serves a global market be better off if it consolidate everything in one location to accumulate the volume more quickly. The answer is yes if it were in the past where Creative Technology core product is only sound card – which sets a de-facto industry standard. In those days, it probably makes sense since the sheer volume will help to reduce its fixed cost.

However, with Creative Technology’s plan to move to consumer’s based product, it needs to be locally responsive. In other words, Creative Technology need to be able to differentiate its product offering and marketing strategy from country to country in an attempt to accommodate the diverse demands that arises from national differences in consumer tastes and preferences, business practices, distribution channels, competitive conditions and government policies. There is a need to shift its strategy from global to transnational.

What works well in the last few years may not necessary applies in current situation. In the past, Creative Technology focus on increasing profit by reaping the cost reduction that come from experience curves effects and location economies. The production, marketing and RND activities of Creative Technology are concentrated in a few favorable locations (namely, Singapore, US, Europe and China). Today, Creative Technology realize that it can’t do that anymore because of the pressure for local responsiveness as it move into consumer based products. It needs to be able to react to consumer’s needs in a short amount of time. Time to market is now crucial in order to be the leader. However, localizing product offering can involve duplication and lack of standardization and hence results in higher cost. As a result, this may work against Creative Technology since it limits the company’s ability to realize significant experience curve and location economies.

5.1 Future strategy to stay “globalize” and effective

Creative Technology is changing its business model to keep its business afloat.

In recent months, it announced that it would go into contract manufacturing, on top of developing its own products. It had previously turned down contract manufacturing offers, but now, it has decided to start manufacturing for other labels.

Mr. Sim , Creative Technology founder, believes that the market has changed and to turn the market faster, they need to have bigger volume to bring down the cost. To do so, he believes he needs to engage more partners and by putting their brand name, in this way, they will become less resistant to selling a Creative Technology product. However, this business model will have its setback as margins are expected to be thinner. Mr. Sim believes that the greater volume will compensate for it and Creative Technology should be able to withstand competition even though there will be some cannibalization because they have quite a number of core products now rather than just the crown jewel-sound card in the past. This strategy may work very well for Creative Technology since it complement with its transnational strategy. Not only is Creative Technology able to be locally responsive, it is now able to pull in the volume to bring down its average unit costs.

Mr. Sim’s plan is to kick off the manufacturing of the original design products in China due to its low labour cost. Its strategy in China is simple – disperse the manufacturing in different parts of China to spread the risk. Since the last SARS outbreak, Mr. Sim feels that it is better to spread the risk by investing in different parts of China.

One suggestion for Creative Technology in its China strategy is to venture into new terrain (shifting more inland) in China, Creative Technology may be able to take further advantage of the lower labor cost. One good city to consider is Chengdu which was recently highlighted in Streats on 18th September. The cost of operation in Chengdu is lower and they have talented staff and rich government incentive. Chengdu also has one of the best higher education systems in interior China. Today, its high tech park in Qingdao is an already a complement to facilities in Malacca (Malaysia) and Singapore. With more plans to setup manufacturing plants in China, Creative Technology should be able to keep its manufacturing cost down.

Creative Technology is also co-developing with Microsoft a new personal digital entertainment player, which run on Microsoft’s window CE platform and contains Creative Technology and hardware design.

The strategic alliance with Microsoft will help “globalize” the market as it taps on each other strength in value creation. It can help Creative Technology share the fixed costs with its partner and also bring together complementary skills and assets that neither company could easily develop on its own. Moreover, if the directions of Microsoft are any indicator, the home consumer market is where the giant is heading next. And when it happens, Creative Technology’s products, all of which support Windows, will be poised to make the leap to mass adoption.

However, alliances have risks and Creative Technology must be careful not to give away more that it receives. Study has shown that “out of 49 international strategic alliances, two-thirds were found to run into serious managerial and financial troubles within two years of the formation”.

J. Bleeke and D. Ernst, ” The Way To Win in Cross border Alliances”, Harvard Business Review, Nov-Dec 1991, pp127-135

A transitional strategy makes sense for Creative Technology at this juncture (at least for the next few years). This is because Creative Technology is facing tremendous pressure to reduce cost and a high pressure to be locally responsive since it is moving towards consumer based products. There are also significant opportunities for Creative Technology to tap on the foreign talents at the low cost sites leveraging valuable skills within a multinational’s global network of operations.

In some ways, this strategy that Creative Technology is pursuing looks like a winning formulae for it to achieve cost and differentiation advantages.

However, it must not be complacent. Mr. Sim’s strategy to move into the consumer’s market is good but he needs to be cautious because after all, Creative Technology is a new player in this market and to compete directly with competitors like Sony, Samsung and Philips, Creative Technology needs to create a lot of values in its product without spending a lot of advertising dollars. This is because, in his own words, Mr. Sim has said that, “I’m not prepared to take the risk even at the expense of missing some of the market opportunity at this current time”

The other challenge is Intel’s drive to establish control over nearly all PC hardware standard. As Microprocessor become more powerful, multimedia capabilities can be built into the chip reducing the need for add-on cards. This will drive the sound and graphic card business out the market.

Microsoft has also added more multimedia capabilities into its operating system squeezing Creative Technology from another direction.

Creative Technology has already tasted failure before in the past when its core sound card came under attack as it fail to develop successful new products. To this end, Creative Technology must continue to strive for successful product roadmap by getting all its Creative labs to work together. This may sounds easy but is not since resources are spread so thinly and it will be a challenge by itself to achieve this goal from different sites across the globe.

Hence, it is important for Creative Technology to have the humility to recognize that valuable skills can arise anywhere within the company’s global network, not just the corporate Creative Resource Center located in Singapore. It must be able to establish an incentive system that encourage employees to acquire new skills and think Creatively – something which is difficult to teach.

Also, creating new skills involves a degree of risk since not all new skills add value and some may even cause failures. To this, Creative Technology must be able to balance it carefully while creating an environment for the employees to take risk and reward them accordingly without sanctioning them for actions or idea that did not pan out.

For Creative Technology to succeed, it must realize the challenges ahead as firm pursuing transnational strategy tends to be bogged down by organizational issues that can lead to inefficiencies.

6.0 Conclusion

Appendix – A

LIST OF REFERENCES

Channel newsasia.com website, Creative launches new MP3 player ahead of warehouse sale by Deepa Balji on 11th Sept 2003. Retrieved: Sept 12, 2003 from http://www.channelnewsasia.com.sg

Channel newsasia.com website, Creative’s Q3 net profit drops 68%, see more business from non-PC products on 8th May 2003. Retrieved: Sept 12, 2003 from http://www.channelnewsasia.com.sg/stories/singaporelocalnews/view/39316/1/.html

Channel newsasia.com website, Creative Tech moving into contract manufacturing with new products on 14th March 2003. Retrieved: Sept 13, 2003 from http://www.channelnewsasia.com.sg/stories/singaporebusinessnews/view/34814/1/.html

Sim Wong Hoo and the stuff he dabbles in ….winged marine vessels, electronic firecrackers, IT start-ups by Denesh Divyanathan, Straits Times on 3rd Mar, 2003. Retrieved: Sept 18, 2003 from http://www.it.asia1.com.sg/newsdaily/news003_20030303.html

Yahoo Financial news website, Creative Tech : Consumer Pdts Rev Seen Up During Christmas on 11th Sept 2003. Retrieved: Sept 12, 2003 from http://biz.yahoo.com/djus/030911/0230000066_2.html

Our take – Creative Writhing by Rick Aristotle on August 6, 2003. Retrieved: Sept 18, 2003 from http://www.The MotleyFool.com

Charles W.L. Hill, 2004. Global Business Today. International Edition. McGraw Hill.

Creative goes cheap, cheap again on Sept 12, 2003. Retrieved : Sept 13th, 2003 from http://www.straitstimes.asia1.com.sg

Creative dreams big on a smaller budget on Oct 14, 2003. Retrieved : Sept 14th, 2003 from http://www.it.asaia1.com.sg/newsdaily/news006_20021014.html

The sound card business : An exception to MNC-led growth. Retrieved : Sept 14th, 2003 from http://66.218.71.225/search/cache?p=Sim+Wong+Hoo+going+global+&ei=UTF-8&vm=i&n=15&fl=0&b=46&url=OgsmfB_xyesJ:www.crito.uci.edu/itr/publications/html-pubs/itr-123/itr-123.htm

Creative has an ace up its sleeve by Hock Lock Siew on Aug 7th, 2003. Retrieved : Sept 14th, 2003 from http://www.business-times.asia1.com.sg/story/0,4567,90223,00.html

Cutting edge design on Mar 5th, 2003. Retrieved : Sept 13th, 2003 from http://www.computertimes.asia1.com.sg/issues/story/0,5104,609,00.html

www.straitstimes.asia1.com.sg/columnist/0,1886,62-38805,00.html