|
WHERE IS ASIA HEADING IN
THE NEW MILLENIUM?
Sharad
The message is clear across all the continents: the future of the global
economy is in Asia. By 2012 two third of the total world population will
be in Asia. That combined with the technology revolution and the forces
of globalisation will drive growth. Asia will remain as one of the most
dynamic areas in the world with the fastest economic growth. The reasons
being the huge market and large population, the region's diversified economic
structure and its rich material and human resources. Of course it had an
economic collapse in the 1990's. But Asia is recovering and the crisis was
instrumental in bringing about greater awareness in the need for better
governance and more prudent regulation. It remains imperative for Asia to
push ahead with restructuring since even now all the preventive measures
for the crisis have not been taken. As far as competitiveness is concerned
the term Asian Competitiveness is a misnomer. Asia is not a competitive
unit but a number of units with different economic, financial, government
and demographic weaknesses. Asia has to be looked at country by country
when assessing factors like prospects, potential and rise in living standards.
Factors like transparency and openness, markets dominated by cartels and
families, regulation and deregulation are still being sorted out by most
countries in this area. Asia has switched its focus in the world of information
technology, now making great strides in information technology services
(as opposed to hardware production, which it previously concentrated on).
India, Korea and Philippines are examples. Another major change sweeping
through Asia is the switch from the United States culture to one with a
distinct Asian flavour. This switch will have important ramifications in
many markets, spreading from items such as comics and films to mainstream
products and services. Since Asia constitutes countries each one radically
different from another, in this article, the issues in its three main nations:
Japan, China and India will be considered to present a somewhat true picture
of what Asia is at the dawn of the new millennium. Japan The world's 2nd
largest economy as well as America's 2nd largest trading partner Japan boasts
of a sizeable number of highly competitive, world class companies like Toyota,
Honda, Sony etc. Its technological sophistication rivals America's in fact
is often better and it has an admirably well educated workforce. But still
the country is facing serious economic crises. Stocks have plunged to levels
last seen in mid 80's. Real estate values have been hammered, bankruptcies
are rising and unemployment has reached post-war peaks. Falling consumer
prices are raising fears of a deflationary spiral. Once considered an unstoppable
economic juggernaut Japan now seems to be a pitiful, helpless giant. The
reasons for these pitiable conditions are many. First of all actual Japan
is not the Japan we know. Within the highly competitive Japan consisting
of export oriented industries like car and consumer electronics that the
world is familiar with there exists another Japan with a plethora of uncompetitive
industries like agriculture, chemicals, consumer packaged goods and many
types of services; and inefficient industries like transportation, construction
and energy. Many are protected by trade barriers and other government policies.
The more Japan protects the more the economy gets bifurcated. This protectionism
drives up the cost of living and also the cost of business. Costs of construction
and logistics are also too high. Investment in Japan has also been highly
stagnant. Naturally a question arises whether there is something wrong with
the Japanese business model. The answer to which is both Yes and No. There
are ideas like TQM, continuous improvement and JIT which are best practices,
better ways of organising production, reducing defects, improving efficiency
and so forth. They taught the world how important operational effectiveness
was. The problem with this approach is that it is very hard to sustain an
advantage based on operational effectiveness because everybody else tries
to imitate. Again Japan is lagging behind in the use of Information Technology.
Another area where the Japanese companies err is in not employing a strategy.
In fact most companies don't have any strategy at all. They try to maximise
market share as rapidly as they can. This leads them to enter every business
segment, every product category, offer every feature and service and imitate
relentlessly anything the rivals offer. Japanese companies also have a style
of decision making where everyone has an equal say. If there is a no clear
leader and nobody to decide then the company ends up doing everything. The
final condition is the Keiretsu structure i.e. a group of companies bound
by ownership interest. There are pressures to serve sister company needs.
Of course these aspects are changing inspired by the success of Sony and
Honda which were headed by strong CEO's. Again a question arises as to how
the country can recover. First of all the government should stand up and
legitimise the need for substantial changes. A major step needs to be taken
in the restructuring of bank portfolios. A lot of emotional and psychological
energy as well as economic difficulties are being caused by the debt problems
in banks. Of course they have an excellent education system and real strengths
in terms of technology, but innovation has been blunted by some of the same
consensus decision making and incentive issues. The country also faces the
demographic problems like having an ageing and shrinking population. Last
but not least Japan has still not used its secret weapon: Women. Women in
Japan have still not entered the workforce in a substantial way. The country
is facing many problems. But they are not unsolvable ones. If everything
goes right Japan can within five years take the world by storm again. It
will not be the powerful but immature; intelligent but reckless; Japan which
stormed the world many years ago after the devastating bomb blasts. This
time it will be a much more mature old fox, which has learnt all the tricks
of the trade, and it will propel Asia into an enviable position in the world.
China The People's Republic of China (PRC) is home to 25% of the world's
population. This makes it potentially the largest market for goods and services
in the world. Under the previous centrally planned economic system in China,
the state allocated raw materials, co-ordinated production and distributed
finished goods for the whole country. A Chinese enterprise was just a production
unit inside the vast central planning system. Each year it would be assigned
a production quota, and its entire product was then sold to the state at
a predetermined price. Its financial performance was not an issue since
any profit made had to be handed over to the state. All investment plans
had to be approved by the state. However, following the economic reforms
started in 1979, China has been seen as a major growth area for those seeking
global market opportunities. The World Bank predicts that China will become
the world's largest economy a few years into the 21st century. Thus, the
reforms have led to significant growth in the Chinese economy; China's economic
growth rate has been above 8% since 1979, which is one of the fastest in
the world. Moreover, even after the Asian economic crisis in the autumn
of 1997, China managed to maintain this level of growth while other Asian
economies slowed considerably. The growth of China in recent years has been
unparalleled. The following information will help us to get a better understanding
of the way China is growing. " According to the most recent EIU (Economic
Intelligence Unit) report, foreign investment in China amounts to $56.7
billion, a figure surpassed only by foreign investment in the U.S., the
U.K. and Germany. The People's Republic of China attracts more foreign direct
investment than any other developing country, with an average annual increase
of over 15% a year during the 1990s. " Last year, Western companies purchased
$35.6 billion worth of products from Taiwan alone. Compaq, Dell, Hewlett-Packard
and IBM together accounted for $22 billion of that total. " During 1990-1996,
the number of multinational companies in Shanghai increased from 300 to
16,000. More than half of Fortune 500 companies has operations there. "
E-commerce is on the rise in China. According to a report from Andersen
Consulting, Chinese will become the number one web language by 2007. Other
promising industries include high-tech magazines, consumer products and
some media sectors. " China's entry into the World Trade Organisation is
now in final negotiations. The move will potentially expand Western business
opportunities and help globally integrate China in terms of its reporting
system. Yet not all is full steam ahead. One of the major fuels for growth
in China lies in the western companies, which enter into business relationships
with the country. Doing business with the Chinese is, and always has been,
a struggle for Western executives, which in turn creates a major barrier
for companies hoping to profit from this huge new market. There is a profound
misunderstanding of Chinese business on the part of the West, stemming mainly
from a lack of cultural knowledge. So it has become imperative on the part
of non-Chinese managers need to familiarise themselves at least in part
with the social and cultural values of the ethnic Chinese. These values
form the basis for Chinese business practices, even pervading day-to-day
corporate decisions. The Chinese company is not just an economic entity.
It is a socio-economic combination. For instance, in the case of overseas
Chinese, many businesses are family businesses. Families' agendas and goals
are involved, a situation that often leaves Westerners feeling frustrated
and confused about what is going on. Even public companies frequently have
their own social networks, which play an important role in the decision-making
process. To complicate things even more, in the People's Republic of China
the majority of companies are still state-owned, or even state-affiliated,
so they have a different kind of decision-making and reporting process.
Another serious problem faced is the corrupt practices in Mainland China.
A recent Chinese statistic indicates that approximately 16% of China's GDP
is being lost through corruption. This certainly poses a problem for Western
firms, but it is also problematic for the Chinese. As China prepares to
enter the WTO, however, corrupt practices are meeting increasing resistance
on at least two fronts: a government that wants to strengthen the country's
economy and improve relations with the West; and a new generation of Chinese
entrepreneurs and managers who want to establish the appropriate infrastructure
necessary for an advanced economy. At a minimum, entry into the WTO will
bring increased transparency of financial data and more standardised business
practices. On the whole China appears to be the most promising country in
Asia. Experts have no doubt that it will become the backbone of the world
economy maybe forging its way ahead of the US. India A country, which was
always high in offering promises but on most occasions failed to deliver
the goods the story of India has always, ended in anticlimaxes. Now at the
dawn of the new millennium the country is trying to rewrite history. As
far as numbers go India can now boast of a decent foreign reserve and growth
rate of economy. Under Prime Minister Mr. Atal Bihari Vajpayee India has
its first stable government in recent years. Sales of everything from cosmetics
and cars are soaring as consumers are opening their wallets. Add to this
a booming high-tech sector (though it is at present facing a few minor setbacks)
the Indian economy can be described as the miracle of the last decade. But
this rosy picture is a farcry from what the businessmen in the country experience.
A country where politics is always placed above business and economics India
has been languishing while many of its Asian neighbours became dynamos.
The condition had worsened to such an extent that the country nearly defaulted
on its foreign debt just a decade ago. The growth of the service industry
has brought about a remarkable leap in the Indian economy but the old problems
still persist. On the wish list of various businessmen there are still long
unresolved issues like overhaul of draconian labour codes, lower interest
rates and tax reform. While the government dallies on reform, Indian firms
are still labouring to get their own houses in order. For example TATA is
exiting non-core businesses like cement and personal products while consolidating
steel, autos and software. Restructuring is becoming a norm. The lower tariffs
are forcing Indian companies to compete with imports. There is also a concerted
effort to do away with what the Indians call the License Raj: A system of
overlapping permits put in place to maintain state control of the economy.
Yet business still finds itself penalised due to the governments inability
to push further reforms. Besides a radical shift in labour policy business
people are clamouring for a new bankruptcy law that will allow firms to
fast track a process that will take years in the present set-up. They also
want the government to clean up the financial system that is at present
burdened by non performing loans in the agriculture and industrial sectors.
Only then can risk-averse banks extend finance at low interest rates. There
is also a demand for new phone and power lines and also for new roads. Privatisation
should be considered more seriously as it seems to be the only viable option
to increase productivity. Privatisation in sectors like oil should be brought
about at the earliest. This is a time when the country is on a fast track
path towards growth. It becomes the duty of the government to not shirk
its responsibility at this critical juncture or else India will yet again
turn out to be a tale of lost opportunities.
Sharad
MDI, Gurgaon
pg01_shard_r@mdi.ac.in |
