Business in Asia – People and Power

Here is a write-up that I submitted for one of my course assignments in Business School. Obviously trying to bring in a different opinion, but not that well received…

The Many “Faces” of Asia

Asia is a unique continent in several ways – political governments, freedom, ethnicity, race, religion, society and culture. The most striking difference in my opinion is the people. Asia struggles with a non-homogeneous mix of people. This lack of homogeneity is pronounced not only in the continent, but also within each Asian country. This is probably the single biggest differentiator or impediment when it comes to economic or social prosperity. India is an example of such diversity with 22 official languages, 6 major religions, 35 festivals and myriad cultures within a single geographic space. In exceptions like Japan, we do observe that economic progress has been aided by homogeneity. This is also one major difference between the “East” and the “West”. Anglo-American business practices are mere implementation of capitalistic economics with the base assumption that it affects homogeneous entities. This is by far the only difference between Anglo-American and Asian management models.

Coming to the question of modifications to Anglo-American business practices for Asia, the answer is not exactly a change in the business practice as much as an effort to gain knowledge of an Asian country. Any business practice obviously needs to adjust to different business environments, but their key to success lies in addressing the needs of the customers. In this light, I believe there is nothing as distinct as an “Asian” management model, except for the fact that such business models adjust to politics and people. I shall mention some of these aspects that businesses need to be aware of to make better and informed decisions in regional business.

The Politics of Asia

Diversity in Asia just doesn’t stop with people, but is in its political system too. The political systems in Asia have adapted from the past through dynastic kingdoms (Indian provinces, China, Japan, Thailand) and have been heavily influenced later by Anglo-American ideals through colonialism (India, Philippines) and growing trade. The past has also defined the level of risk that people are willing to take and this is in turn reflected in the political system.

Countries with multi-party democracies and regular change of government are an example of how a political system has been formed based on the risk-averse nature (trust) of its people. India (1947), Philippines (1986) and Indonesia (1998) are examples of such behavior. Countries that gained freedom from colonial or imperialistic rulers have adopted a more socially oriented system based on protecting people’s interest. Such systems have been primarily communist regimes with closed economies to protect themselves from outside interference (India – partly socialist with a closed economy until the 1990’s, China – before reforms, Burma). Certain other countries have chosen religious systems based on a “perceived” fear of persecution (Pakistan – more of a political move for power by its founder M.A. Jinnah, Afghanistan).

Such political systems built on the premise of “fear” have led to practices both in the economic and business environments that promoted- corruption, nepotism, religious and social intolerance, social injustice and restricted freedom. Multinational or local businesses in a region have to understand and adapt to these systems if they wish to be successful. Several East Asian countries have new democracies with evolving institutions such as constitution and judicial system. Hence political policies are not ideology based and lack predictable outcomes. The Human Development Indicator for Asian Countries (2003) shows how unstable governments have also led to poor human development when compared to the GDP growth (Bangladesh, Cambodia and Pakistan).

Business relationships between Asian countries have also been influenced by past events. Military and political issues have affected Japan-China relations and several countries suffer from unrest and risk (Philippines –communist uprising, India – communist and Islamic tensions, Thailand –Islamic tensions). Following the financial crisis in 1997, Korea has taken a strong position on FDI and multinationals operating in the country. Again, the fear of being affected by foreign powers has led to the country taking a very careful stance with multinationals to protect its assets. Anglo-American business practices need to adapt to these complexities as they select partners, customers and businesses while operating in a country. Businesses should be aware of such repercussions when they set out to make unfavorable deals by taking advantage of weak political systems. Singapore’s Temasek Holdings faced such a situation when it tried to acquire Thaksin’s Shin Corp, Thailand’s largest telecommunication and media firm. Hence, political risk is not just created by regional constituents but is also a result of bad business practices by companies that flout rules to gain undue advantage.

Corruption & Culture

Corruption, as would now be evident, has been a derivative of political system influenced by a risk-averse population that favored easy wealth for better prosperity. Broadly speaking, it has been defined as the misuse of public office for private gain. Several Asian countries have dealt with and are still dealing with corruption, especially the type that links politics and business. With less economic freedom in certain countries like India or Indonesia (In the 1990’s), government regulation had been high and with that came greater incentive to be corrupt. The Socialist “License Raj” policy in India (1947-1990) was considered as a major reason for restrictions on business (even for locals) and the birth of the parallel economy in the country. But even with the recent rapid economic growth, corruption has been on the rise. With wealth unevenly distributed among the citizens, the growth opportunities are still being vastly utilized by the privileged, in turn killing competitiveness – a powerful repellant for corruption.

The concept of “fear” mixed with corruption also lends to some unique Asian business practices. Personal trust and credibility are high in the mind of local businesses and legal rules (set by a discriminatory judicial system) are not considered reliable. Asian countries also have high populations and lesser land. Hence, given that most Asian countries built their base from farming, land is valuable and so is the perception of wealth with respect to greater possession of land. Having a high density of people in societies has also led to greater relationship building among people, which for businesses means better customer relationships. Such crowded societies have also built strong cultural and social ties that in turn lead to emotionally charged relationships. These societies hence build businesses that value reciprocity and mutual obligations as a sign of closeness. Multinational and local businesses can put a check on corruption by not being a participant in such practices and setting up strict measures to prevent them in their business. Again, there is no major change to the Anglo-American model of business.

Coupled with corruption is the continuous change that Asian societies are going through with rapid economic development. Cultural influences have a significant impact on business practices. People of Chinese descent control a lot of businesses in East Asia. Confucianism has influenced the culture of countries such as Japan and Korea and form the basis for respect of tradition and strict code of conduct. Coupled with them are some commonality between Chinese, Indian and several Asian cultures – a holistic mind (a mix of yin/yang or both), ritualistic obligation to the family, seniority and respect with age, personal contacts (ningen kankei in Japan, guanxi in China) and trust (High in Japan, low in China and India). A lot of cultural behaviors come from religion and these in turn influence how businesses are conducted. An example is how Muslim traders avoid borrowing loans (the food for capitalism) as it is against their religious principles.

Economics & Finance

The GDP of most Asian economies has been consistently on the rise since the past ten years. China (10%) and India (8.3%) have the fastest GDP growth rate in the world. The reason for Asia’s rapid growth has been due to high savings and investments attributed a lot to the growth of the female labor force and the “demographic gift”. Businesses following the Anglo-American model can thrive well in these economies by being active participants in the growth of the local economy. The private sector has been opened in a lot of South East Asian nations and so has the government interference in large public institutions eroded in countries such as India.

In East Asian nations, exports constitute 43% of the country’s GDP (2004). This lends to a healthy Current Account (CA), which in turn leads to a healthy economy. Business firms can understand the viability of their investment in a local region based on these macroeconomic indicators. Multinationals also need to be aware that Asian countries maintain a high-value for the dollar by investing in US treasury bonds with the ultimate goal of protecting their exports. China also does that to devalue the yuan and help its domestic banking sector to improve in the meantime. The risks that they need to be aware of are- the dependence on US economy for exports (China, India – services, Bangladesh, Pakistan, Vietnam), high costs of energy, war or political tensions (India-Pakistan, Taiwan Straits, Korean Peninsula), exchange rate pegging (China – but so far a government with strong macroeconomic influence has helped prevent a crisis like the peso fall for Argentina) and protectionist policies such as trade barriers (possibly by US), remittance restrictions (Philippines, India- through export oriented services).

To summarize, there is no need for any significant modification of the so-called “Western” or Anglo-American business practice to succeed in Asia. All it needs is a change in mind-set and a much broader perspective on Asia’s biggest asset– its people.