The Economics and Business of the Asia-Pacific Region - Case Study Example

The Economics and Business of the Asia-Pacific Region Doing Business in China (Opportunities and Barriers) With the industrial and business growth rates being experienced by the Chinese nation, it is very likely that they shall become the world’s largest economy within our lifetimes. Companies around the world have already taken steps to ensure that they can find opportunities for investment in China. Some have setup production houses for goods that are to be exported to the world while others have created manufacturing units which are supplied by parts coming in from around the world. However, such entries have not always met with success for various reasons. China is significant mainly due to the educated, mature, diverse and immense population which the country has to offer as a market for products. Not only is this market a significant motivator for companies to do business in China, but the output which can be gathered from cost efficient labour in China is also important. In the last few decades, China has gone from a closed socialist economic system to a more capitalistic and liberalised economic structure. As the economy grows, it creates its own opportunities and internal markets. For example, China is expected to become the largest consumer of automobiles in the world if the present rate of growth is sustained. The opportunities also come from the governmental support and encouragement towards foreign businesses investing in China. However, the lower cost of labour is a prime advantage for most companies. The majority of Chinese workers have lived in comparative poverty even when they provided their employers with efficient and productive output. At the same time, it must be noted that such situations may not remain true. In China, the trends of living with less could be on a downward slope as the population gets used to having more than their predecessors. Competition from other western companies in terms of recruiting the best labour may also cause costs of hiring individuals to rise with time. A twenty year differential study for the economy of china shows that between 1981 and 2001 the percentage of working class individuals living on less than one US dollar per day decreased from almost eighty percent to less than thirty percent. Being sensitive to such changes is important because it can affect the way individual salaries, increments and time based bonuses are handled by a company. In fact, the cultural problems form the basis of the majority of issues a company can face while doing business in China. Experts have suggested that the language barrier is particularly strong for foreign companies since Chinese labour may not be fluent in English as compared to the individuals holding management positions. Negotiations in China take time since the concept of time is more fluid in China. The Chinese culture is deeply connected with paradoxical philosophy which can certainly create problems in business negotiations. Multilayered government bureaucracies have been a part of the Chinese system for many years which means setting up a business can require several licences and permits from local, state and federal governments. The Chinese place great importance on manners and following procedures for etiquette, such practices have to be understood in their cultural context. Doing business in china also depends heavily on the idea of personal connections and relationships which have been established over time. These are known as Guanxi by the Chinese and in some cases, the relationship itself must be deeply cultivated before transactions can be successful. This connects deeply with the idea of Guanxi since the personal relationship can be more important than small business deal. Stronger ties and closer relationships in terms of Guanxi eventually lead to bigger and more important business relationships. Perhaps the most important aspect of doing business in China is the idea of keeping face i.e. Mianzi. Face is kept by the Chinese if they are shown respect by their peers and is taken as a mark for personal honour. If negotiators or business partners lose face during the process it is unlikely that the negotiations can be a success or even continue from that point. However, subtle praise now and then can improve the face of an individual but overdoing it would be seen as nothing more than insincerity. In conclusion, such cultural difficulties are important barriers since despite the opportunities presented, China is still a difficult market for most companies. The use of an agent or a local partner is essential in overcoming these barriers. As far as the nature of business is concerned, companies such as Dell, GE and others have found success in making China a production centre for their products while others such as Mattel Inc. have created assembly plants and factories for finished goods. The future is certainly bright for the country as long as the price of labour and the price of production remains low as compared to the other upcoming country in the region i.e. India. Tiger Economies, Hong Kong and South Korea The tiger economies of Asia include four countries which are Hong Kong, Singapore, Taiwan and South Korea. They are called Tigers because of the animal’s link to the Asian culture image of strength as well as speed and these countries have shown tiger like impressive growth as compared to other countries in the region. While their economic success as a whole has been similar, their government structures, inherent cultures, investment methods and systems for economic controls have often been quite different from each other. An analysis of the economies of Hong Kong and South Korea is made to show their similarities and differences. Hong Kong is particularly important since it can act as a gateway to China for most foreign companies and it has also benefited tremendously from the growth in China. The laws in Hong Kong are based on the British system due to the history of colonisation but the changes coming with the Chinese control have certainly impacted them with time. Hong Kong is also known as the most liberal economy in the world since government regulation in the past had been more or less non-existent. In terms of culture, it is a mix of British colonial culture which has been mixed heavily with cultural influences from China. It is a small country measuring only 415 sq miles with a population of 6.8 million in 2000. Like South Korea, it lacks a lot of natural resources and even drinking water is piped from China. In terms of location, it is centrally placed for the Asian market with excellent political stability along with a well established economic system. This system of governmental non-interference with the economy connects deeply with the idea of allowing businesses to do things more or less unregulated except by market forces. In recent times however, industries such as the financial sector have come under regulation to improve their compliance with international demands. Cheap and educated labour as well as the high level of exports for finished goods has helped Hong Kong as much as South Korea has been helped by those implements. The majority of companies in Hong Kong operate as small companies since they form the bulk of employers in the overall economic system. Family businesses created the backbone for most of the industries in the country in the past and these setups often have a strict hierarchical management style. Newer businesses are more focused on the services and financial sectors of the economy especially in relation to providing business services for companies operating in China. For the future, Hong Kong has its fate connected with China and as China’s position looks quite strong, so does the future of Hong Kong. As the reforms made by the present government encourage investment in China as well as Hong Kong, the connections between the two countries remain vital for both of them. At the same time, as China becomes more important for all types of businesses, the value of Hong Kong itself as an investment hub might be reduced over time. On the other hand, South Korea has had a strained relationship with China mainly due to the political situation with North Korea and its very strong alliance with America including the stationing of American Soldiers in South Korea. The business structure of the country is based on several large companies which have a tremendous effect on the economy. Companies such as Samsung, LG and Hyundai are running with authoritarian management and often controlled by a very powerful family. These companies are large enough to affect the economy of the country if they are making profits or losses. The country itself is also one of the smaller Asian countries but it is densely populated with a total population of 47 million of which more than a quarter live in or near Seoul. However, the literacy rate is an astonishing 97% which yields a very high quality and economically efficient labour force like the one in Hong Kong. Unlike Hong Kong, the companies which control the economy in South Korea may have thousands of employees in hundreds of businesses which make the company itself very important for the country. Labour reforms which were enacted recently in South Korea led to problems with strikes and unrest but they eventually led to an improvement in the economic situation overall. These reforms reduced the level of job security and that led to improvements in the level of competition amongst the companies and the employees as well. Foreign investment in terms of international companies taking over local groups also helped in improving the economic outlook of the country. While Hong Kong is moving towards the services side, South Korea is focusing on the industrial side and it guards its home production with import restrictions. This means that they are quite hesitant about the rise of China as a manufacturing powerhouse since that would certainly affect their position as a manufacturing base. Overall, the economic systems as well as business structures of the two tigers are quite different but the overall move for both countries point towards economic independence which comes with liberal reforms and a free market policy. They have taken different approaches to becoming powerful economies but it does seem that they have been successful despite issues such as corruption in government and a lack of natural resources. Clearly, there is no one clear path to economic success but only general guidelines which show how a country can become a tiger. India: Reform and External Relations As a potential market for the future, India shows a lot of promise since the population is vast and the economic gains made by the country have created a growing middle class which is continually seeking to improve its own living standard. Historically speaking, India has been one of the significant trade partners for the UK as well as many other western nations for many years since gaining its independence from Britain in 1947. In matters of trade, military support and aid to the country there have been ups and downs since the relationship the major powers have had with India was often connected to the relationship they have with India’s primary regional rival i.e. Pakistan. India has an extremely large population which makes it a tremendous market but also placed incredible strains on the government. The country as well as its population is mostly poor yet there are individuals who can rightly call themselves billionaires. The middle class is a growing phenomenon with high levels of education across the country. The rising level of outsourcing to India, the growth in the IT industry as well as the telecom sectors have been great drivers of the present economy. However, before the current boom, there were a lot of reforms which helped the economy be more attractive for foreign investors such as permitting the import of a lot of goods that could previously be only obtained through licences. The liberalisation process which started in the mid-eighties cost the country a lot with runaway inflation levels and increased debt on the government. The reforms in the 80s were certainly required since the economic growth rate of the country was far below the levels of other countries in the region. However, the reforms caused problems with the public in terms of acceptance. Exports from India did not quickly attain the level they were expected to and India was put on the verge of economic collapse since it was about to default on its loans. Although industrial output was doubled, the unions were not happy and rising inflation levels caused the collapse of two governments and eventually led to the assassination of Rajiv Gandhi. The problems caused by the reforms in the 80s had to be fixed with more reforms which came up in the 90s. The reforms of the 90s focused on making India more attractive as an investment destination as well as controlling the internal situation of the country. Inflation was reduced from 17% in 1991 to less than 10% in 1993. The trade deficit of the country was taken from $5 Billion in 1992 to less than a billion dollars in 1994. The gradual changes that came with the reforms helped in allowing foreign companies and international banks to come to India with their own financial services. Deregulation became an important aspect of helping the economy since private banks were given more freedom, bank liquidity ratios were reduced allowing them to make more money available to the public. Most importantly, the stock market and the telecom industry were also deregulated allowing more foreign and local investments to be made within the country. The gradual process of reforms, even though it was painful, worked in the case of India because the evidence of progress and improved overall economic indicators show it to be so. India came to be a perfect destination for outsourcing of business processes as well as software development mainly due to the sociological factors such as a highly educated English speaking population coupled with government support for software and high-tech industries. India also has a lot of individuals who have lived abroad and brought back skills and knowledge from around the world to India. While other regional powers such as Pakistan have tried to muscle in on the investment opportunities, India continues to take the lion’s share. The recent progressive governments of India have put India in a position to rival China in terms of economic growth and development. The development of India into one of Asia’s powerhouses can be attributed to many things but a major contributing factor has been the transfer of technology and technological know-how to companies in India. The country did not have to make breakthrough discoveries in silicon chip manufacturing or computer processor design since those were made by electronics and computer companies working elsewhere. By adopting technology rather than creating it, India bring down the overall cost as well as the time needed to come to par with developed countries for BPO services. Dell, GM and GE are some of the companies who have outsourced work to India and while GE has saved millions of dollars by outsourcing to India, Dell actually lost some of its standing as a premier provider of customer support services by investing unwisely in India. In conclusion, a SWOT analysis for BPO in India shows that the English speaking, motivated, efficient and economically viable labour is a big strength for India. Their government’s move towards a more liberal economy will also be a strength if the process of liberalisation is continued. They have an opportunity to become the BPO centre of the world while China becomes the manufacturing centre of the world but this would require them to carefully handle their relationship with China. The weaknesses come from a large number of destitute individuals in the population, poor infrastructure, a lack of suitable facilities for businesses, political problems in connected to Pakistan with regard to the Kashmir issue along with complex legal and bureaucratic systems. Read More