Asia Pacific Business LECTURE 1

Ishtiaq P. Mahmood NUS Business School

 What is Asia? What do we mean by Asian business? Why do we want to learn about business in Asia?

China, India rise while US slips in Fortune company rankings

153 American companies are on 2008 Fortune 500 list, down from 162 in 2007; Japan had 64 firms and France had 39 to edge out Germany with 37 and Britain's 3But China had an unprecedented total of 29 companies on the list - as many as Italy, Spain, and Australia combined. The top Chinese firm was Sinopec with US$159 billion in revenues. India had seven companies led by Indian Oil and Reliance Industries.

Emerging Asia vs. Re-emerging Asia?

India accounted for 33% of the world economy in 1 AD. Indias share was three times the share of Western Europe and was much larger than that of the Roman Empire as a whole (21.5%). In other words, India was by far the worlds economic superpower at that time. In 1000 AD, Chinas economy was 23% of the world economy. By 1500 it was the same size as Indias and thereafter has always remained significantly larger. Angus Madison

Asia in historical context

Year 1820 Region
W. EU, US, Aus, Canada

Population 14% 66% 17% 66% 15% 75%

Income 25% 58% 56% 19% 45% 33%

Asia 1950
W. EU, US, Aus, Canada

Asia 1992
W. EU, US, Aus, Canada

Asia

Asia-Pacific has been the most dynamic part of the world since the 1960s
Japan, The dragons, China, India, Southeast Asia What is driving Asias dynamism?
Free market /Government tinkering (Ghana vs. Korea) Big business/ Networks of SMEs (Korea vs. Taiwan)

Will Asia be able to sustain its economic competitiveness?

Working hard (perspiration) vs. working smart (inspiration) The Asian Financial Crisis/ Sub-prime Crisis Is economic competitiveness is the only thing to care about?

What is competitiveness?
Prosperity

Productivity

Competitiveness

Innovative Capacity

Innovation is more than just scientific discovery There are no low-tech industries, only low-tech firms

What makes countries competitive?

Solid macro-foundation
Trade regime: Ghana vs. S. Korea FDI regime: Is FDI always good? FPI regime: Is free movement of capital a good thing? How about Free movement of labor?

But ultimately countries are competitive because the companies in those countries are competitive What makes firms competitive?
Internal: firm competence and resources
Does competence that work in one context also work in another context? (Guanxi)

External competition: the structure of the industry in which the firms operate
Multi-domestic vs. global business (role of government)

IMPACT OF GOVERNMENT ON

LONG TERM INDUSTRY PROFITABILITY

Government Policy

Strategy is about how to align the internal competence with the external rules of the game How universal are the strategic wisdoms we take for granted?

Samsung vs. Sony

Diversification vs. focus Centralized leadership vs. decentralization Family ties vs. professional managers

A quick recap
If countries are competitive because the firms are competitive, what makes firms competitive?
Firm strategy and resources Industry structure Macro-economic foundations Also, the location of the firms (the clusters)

Messo: Clusters & Competitiveness

Firms are more competitive if they are part of clusters
What will it take for Asia to develop successful bio-tech clusters/ education clusters/ movies clusters, etc.?

Should government be the one to initiate cluster-development?

Does the govt. have the ability to pick winners?

Specialization of Regional Economies

Select U.S. Geographic Areas
Denver, CO Leather and Sporting Goods Oil and Gas Aerospace Vehicles and Defense Wichita, KS Aerospace Vehicles and Defense Heavy Machinery Oil and Gas Chicago Communications Equipment Processed Food Heavy Machinery Pittsburgh, PA Construction Materials Metal Manufacturing Education and Knowledge Creation Boston Analytical Instruments Education and Knowledge Creation Communications Equipment

Seattle-BellevueEverett, WA Aerospace Vehicles and Defense Fishing and Fishing Products Analytical Instruments

San FranciscoOakland-San Jose Bay Area Communications Equipment Agricultural Products Information Technology

Raleigh-Durham, NC Communications Equipment Information Technology Education and Knowledge Creation

Los Angeles Area Apparel Building Fixtures, Equipment and Services Entertainment

San Diego Leather and Sporting Goods Power Generation Education and Knowledge Creation

Houston Heavy Construction Services Oil and Gas Aerospace Vehicles and Defense

Atlanta, GA Construction Materials Transportation and Logistics Business Services

Note: Clusters listed are the three highest ranking clusters in terms of share of national employment Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School

Process of Economic Reform

The Reinforcement of Macro and Micro Reforms

Stability and confidence support investment and upgrading

Create opportunity for productivity

Required to achieve productivity

Macroeconomic reform

Microeconomic reform

Productivity growth allows economic growth without inflation, making macroeconomic stability easier to achieve

But clusters dont develop out of nothing, contexts matter

Macroeconomic contexts provide the hard infrastructure
Is free market the way to go to develop competitiveness?

Culture provides the soft infrastructure

Can Asians think? Does political freedom matter for competitiveness?

The 5C
Competence (firm) Competition (industry) Cluster (location) Context Culture

WEEK 1

Intro Trade FDI International Finance Culture & Politics Diversification & Groups Innovation Japan Korea Taiwan China India Southeast Asia Recap

MACRO INSTITUTIONAL CONTEXT

WEEK 2 WEEK 3 WEEK 4

WEEK 5

MICRO

WEEK 6

WEEK 7

INDIVIDUAL COUNTRY CASES + VIDEOS

WEEK 8 WEEK 9 WEEK 10 WEEK 11 WEEK 12 WEEK 13 WEEK 14

China: Some Mind-benders

1. Exactly, how well has China done? How sustainable is Chinas growth? 2. What does China need to do in order to sustain its dynamism? 3. Can China open up economically without opening up politically? 4. Can other emerging economies emulate the Chinese miracle?

Can India overtake China?

1. Is India rising? 2. Why was India left behind? 3. What explains Indias recent competitiveness in IT? 4. Can the service sector lift India out of its poverty? 5. Can the US lose its dominance in IT the same way it did in electronics manufacturing? Andy Grove 6. Can India overtake China?

Japan: Some issues to ponder

1. What explains the immense popularity of Japanese pop culture across the globe (Japanese anime, hello kitty, TV drama, J-pop). How can a society so bound by norm and discipline such as Japan still come up with innovative concepts (cup noodle, karaoke)? 2. Are the problems confronting todays Japan uniquely Japanese? Can Japan beat off low cost competition from China and other emerging economies? 3. Can Japan maintain its technological edge with its current immigration policy?

Geographic Influences on Competitiveness

World Economy

Broad Economic Areas

Groups of Neighboring Nations

Nations

Regions

Economic development is accelerated by concerted action at all four levels

Clusters

Warning
The outline and case sequence may change slightly due to Availability of new case/ article/ videos, etc.

You should regularly check the course platform

Class Process: What to Expect

A course about ideas
The answer is less important than the thinking process interdisciplinary approach to a complex subject means that you have to get used to a less structured approach Preparation Readings (E-reserves)

International Patenting Output

Annual U.S. patents per 1 million population, 2001

400 350 300 250 200 150 100 50

Australia Netherlands UK Switzerland Germany Japan Sweden Taiwan US

Finland Israel Canada Norway New Zealand South Korea Singapore

= 10,000 patents granted in 2001

0 0% 10% 20% 30% 40%

Compound annual growth rate of US-registered patents, 1990 - 2001

Source: US Patent and Trademark Office (www.uspto.gov). Authors analysis.

US Patents Granted to Country's Inventors: 1970-99 The main numbers indicates the number of US patents granted for inventions made in these countries in the indicated time period. The number in brackets indicates the number of these patents that are owned by domestic entities for the country in question.

Recipient Countries
Newly Industrialized Economies

1970-74

1975-79

1980-84

1985-89

1990-94

1995-99

Taiwan (ROC) South Korea Hong Kong Singapore

Emerging Asian Economies

1 (1) 24 (20) 59 (45) 21 (10)

176 (170) 43 (36) 75 (61) 9 (5)

397 (386) 91 (87) 113 (94) 20 (15)

1,772 (1,738) 424 (418) 177 (149) 47 (39)

5,271 (5,179) 2,890 (2,865) 279 (237) 148 (59)

12,366 (12,148) 11,366 (11,278) 570 (469) 499 (287)

India China Indonesia Malaysia Thailand

83 (37) 61 (52) 19 (6) 2 (2) 4 (4)

67 (37) 2 (2) 5 (4) 13 (10) 3 (1)

40 (24) 7 (6) 5 (4) 6 (5) 7 (5)

64 (33) 129 (112) 10 (7) 13 (7) 11 (9)

126 (74) 239 (211) 26 (19) 43 (20) 15 (13)

316 (237) 332 (263) 18 (12) 89 (45) 56 (49)