© 1998 BridgeNews

Asia Needs A Vision For The Future: Financial Solutions Are Unlikely To Sustain A Long-Term Recovery

By Keith W. Rabin, a US-based consultant

New York -- Recent market volatility suggests that Asia has yet to move past the financial turmoil of the past year. Financial liquidity continues to represent an immediate concern. Most of the Asian economies that have been seriously affected have cut costs to support their financial burdens. In many cases, this has been accompanied by a decrease in exports. This is unlikely to prove sustainable. While the need to remain solvent should not be minimized, more attention must be focused on strategic and social concerns if these economies are to retain and expand their long-term competitiveness. This will be essential to put these economies back on the growth track and to restore the confidence of global and domestic investors.

IN THE END, there is little choice. The genie is out of the bottle. Troubled Asian economies can no longer return to low-cost strategies. This would be similar to an attempt by the United States to regain textile and other low-wage industries that began to move offshore into these Asian economies decades ago. Other economies, such as Vietnam, Bangladesh and most importantly China, have now taken on this role. Asia's solution must extend beyond cost-cutting and financial restructuring. It must offer a vision that will position these economies to compete in information, technology and service-driven industries.

ASIAN COMPANIES have typically been strong in manufacturing, and their focus has generally been on the development of export capacity. Large quantities of products and parts are manufactured and marketed under the brand names of U.S., European and Japanese firms that possess established channels of distribution. This has allowed Asia to rely on its core competences in engineering and production. Therefore, while Korea became the fifth-largest trading partner of the United States, few Americans could identify a Korean product, not realizing their televisions, consumer appliances, personal computers and favorite designer labels were totally or partially made by Korean or other similarly unrecognized Asian manufacturers.

IRONICALLY, many of the problems now troubling Asian economies arose as a result of their success in implementing production-oriented strategies. "Tiger" economies such as Korea, Taiwan and Singapore generated unparalleled growth using methods that were emulated by Malaysia, Thailand and Indonesia. This gave rise to a development model that was admired throughout the world. U.S., European and Japanese firms and investors became progressively more intoxicated by Asia's potential as a consumer and industrial market and its ability to provide educated, low-cost labor. Economies that had been pejoratively viewed as Third World or developing countries suddenly found themselves incorporated into an exciting new asset class - the dynamic, high-growth "emerging markets."

EASY ACCESS to credit facilitated an unprecedented expansion. Many critical business and policy decisions were made without adequate economic justification. Consumption, wages and living standards rose dramatically - along with the expectations of an emerging middle class. Inadequate regulatory and financial infrastructure encouraged asset inflation, particularly in real estate. Bank loans were based on relationships rather than on the strength of a business plan or cash flow. Debt was favored over equity, market share over profit and size for its own sake. Nevertheless, foreign and domestic financial institutions, corporations and investors continued to forecast rapid linear growth and continued to overweight their allocation of resources into the region.

ALL OF THE TROUBLED Asian economies, with varying degrees of commitment and success, are now attempting to address these issues. Given their increased size, complexity and dependence on international capital, it is vital that they implement measures to promote greater transparency. It is also critical that they develop sound corporate governance, accounting and financial practices; banking and credit frameworks; and the regulatory regimes that will provide the institutional framework to serve as a foundation for further development.

WHAT APPEARS LACKING, however, is a clear overarching vision that will build on existing foundations and draw on rich Asian traditions and hard-earned achievements to define the market niches that will allow for future growth. An approach that is overly preoccupied with financial issues will likely prove as unbalanced as the production-oriented path that preceded it. It is also unlikely to provide the capabilities and direction these economies need to regain and expand their long-term competitiveness.

TROUBLED ASIAN ECONOMIES must look beyond the current turmoil. More attention must be paid to delivering added value through emerging technologies, improved product design and customer service. More flexible management and labor structures must be introduced. The capabilities and sensitivities of investor relations, public relations and public affairs must be expanded. The need to build competitive brands, clearer corporate identities and stronger marketing capabilities must be recognized.

THE PATH FORWARD will not be easy. Asian firms and nations must position themselves carefully. They will need to compete against lower-priced competitors as well as Fortune 500 and other multinationally oriented, technologically adept firms. They will need to compete in service industries and other sectors in which they lack the experience, resources and capitalization of more established competitors. This will require a new, more balanced approach to organizing and conducting almost every aspect of their business operations. Financially driven components are undoubtedly part of the solution. However, in and of themselves, they do not offer the vision or means by which these troubled Asian economies can regain the economic dynamism they have exhibited in the past.

KEITH W. RABIN is president of KWR International Inc., a New York-based consulting firm. His views are not necessarily those of Bridge News.