Asia in the future: A market to invest?

Table of Content

1. Introduction

2. Main factors for growth
2.1 Low Government Debt
2.2 Pro-Business Government
2.3 Savings
2.4 Authoritarian Government
2.5 Productivity
2.6 People (Education)
2.7 Foreign Investment

3. Predictions for Asia
3.1 Chances
3.2 Problems

4. Potential in Asian markets
4.1 Asia in general
4.2 China and Hong Kong
4.3 Indonesia
4.4 Malaysia
4.5 Philippines
4.6 Singapore
4.7 South Korea
4.8 Taiwan
4.9 Thailand
4.10 Vietnam
4.11 Japan

5. Conclusion

6. Bibliography

7. Graphs
Exhibit I: GDP Growth Rate
Exhibit II: Blistering Pace
Exhibit III: GDP per Capita 1960-1985
Exhibit IV: US Exports
Exhibit V: Tax Rates
Exhibit VI: Changes in real trade/GDP
Exhibit VII: Export Growth Rates
Exhibit VIII: Savings Rate Exhibit IX: Inflation
Exhibit X: Export Growth, Wages, Productivity
Exhibit XI: Literacy Rate
Exhibit XII: Proficiency Test Scores
Exhibit XIII: Average weekly hours of work Exhibit XIV: US investment
Exhibit XV: Foreign Direct Investment in China
Exhibit XVI: Real GDP growth 1976-99
Exhibit XVII: Sectors in % of GDP
Exhibit XVIII: Hong Kong Youngsters say:
Exhibit XIX: GNP per Capita 1994
Exhibit XX: US exports to China
Exhibit XXI: Annual growth of GDP
Exhibit XXII: Hong Kong
Exhibit XXIII: South-east Asia Economic Indicators: 1996-2000
Exhibit XXIV: Foreign investment in Vietnam

8. Tables

1. Introduction

This paper seeks to investigate the main factors for the economic growth in Asia. It tries to divine the `secrets' and explain the `miracle' of Asia's success. This paper will also indicate the newest predictions, which are made by different people and organizations for Asia, and the impact for foreign companies. The last part attempts to show foreign companies the possibilities and problems in each country. I tried to use only materials, which are not older than three years to show the actual situation in Asia. When Asia is mentioned in this research paper it includes the countries Singapore, Malaysia, Thailand, Vietnam, China, Hong Kong, Taiwan, Indonesia, Philippines, South Korea and Japan.

By 1957 Japan had reached export levels still 20 per cent below her pre-war figures, whilst France and Germany had doubled their pre-war exports. Isamu Shimura, managing director of Toyo Menka Kaisha, explained in 1957 this difference very accurate with the difference in productivity. Therefore the goals for Japan were to increase her exports and labor productivity. He also saw the high population not as a burden, but a chance. "The scale of our economy is too small for our population." The economic resources for Japan are human resources with hard-working and well-educated people [Shimura 1957]. 40 years later his prediction came true and we will later see, that education was indeed one of the main reasons for Japanese and Asian economic success.

The economic rise of Asia was unique in world history. The countries appeared to have almost no advantages, but many disadvantages. East Asia is generally poor in natural resources and oversupplied with people, who are, largely illiterate.

Nevertheless over the last 10 years, the Tigers' (Asia except Japan and Vietnam) growth rate has more that of the U.S. or Japan - growing at five times the growth rate achieved during the Industrial Revolution. It took Britain nearly 60 years to double per capita output; it took America nearly 50 years to achieve the same. Even Japan needed 33 years, but South Korea did it in 11 years and China in 10 years. At 7% compounded, East Asia doubles per capita output every decade. Trade between the Tigers is growing at twice the rate of world trade [Rohwer 1996]. In fact, since the 1960's, Asia has produced more economic growth per capita than any other region in the history of humankind [Guiness]. (See also Exhibit I, II + III) In 1995 123 of the world's wealthiest business families came from Asia. Of these, 82 are non- Japanese. Five years ago there were only 27 non-Japanese Asian billionaires. You can see from this figure the direction in which wealth is moving [Tanzer 7/15/97].

Over the last two years US exports to Asia have risen by 37% to $191 billion. The US now exports nearly as much to South Korea as to Germany. (See Exhibit IV)

Lee Kuan Yew states, "Japan decided to become a rich, happy country, which she has become. China wants a place on the main table."

Thomas L. Friedman claims that, "It was Asian capitalist talent - harnessed by a professional civil service - that made Japan, Singapore and Hong Kong rich and stable." [Friedman 1995] The explosive growth of East Asia has been based on manufacturing Western goods cheaper and ultimately of a higher quality. The ability to imitate is not much different from the ability to learn from others and it is actually much more than the simple copying of someone else's product: it leads to a process of manufacturing which itself facilitates product development. But what are the factors for growth in Asia? There is no single easy answer. An authoritarian politician like Lee Kuan Yew of Singapore explains the region's success in terms of self- discipline and hard work, whereas in Japan success has often been attributed to the cultural and genetic homogeneity of the country [McRae 1994].

Nevertheless in the following I have attempted to split the factors for growth as good as it is possible. Despite of it many factors are interrelated to each other and no single factor can be determined as the key factor for growth.

2. Main factors for growth

According to John M. Leger the following way to explain Asia's magnificent achievement of the last 20 years: Hard Work + Low Taxes + High Savings Rates + Minimal Government = Economic Boom. [Leger 1994] We will see if these are the only explanations.

2.1 Low Government Debt

Hong Kong, Singapore and Taiwan have no government debt at all. With high savings rates, export surpluses, and extensive foreign investment, the Tiger governments incur very little debt. East Asia's public spending is significantly lower as a percentage of its GDP than it is in Europe [McRae 1994]. Over the past two decades government spending, as a percent of GDP was 17% in Singapore, compared with 50% in Europe and 36% in the US.

Most countries have a fiscal and monetary discipline [Tanzer 7/15/1996]. An exception to this is Japan, which has one of the world's largest debt-to-GDP ratios [Li, Richard 1996].

2.2 Pro-Business Government

William Overholt, managing director of Bankers Trust Asia claims that, "Politicians in Asia decided to give economic efficiency priority over everything else because they were scared."

In many Tiger countries low corporate tax rates and lack of capital gains taxes help to stimulate the creation of capital. They do not have tax systems that penalize savings. The top corporate tax rate today is 26% in Singapore, compared with 52.5% in Germany and 39% in the U.S. [Tanzer 7/15/96]. "When we {Singapore} started, we started with British punitive rates of personal income tax. It was the influence of British education. Then we had to learn that was the way to demotivate the people at the top, the wealth creators. So we have brought the top tax rates down the past 30 years. Now 27% is our highest marginal rate." [Tanzer 8/12/96] (See Exhibit V) People save, but their actions are heavily influenced by government policy. East Asian countries rely less on income taxes and more on consumption taxes than the United States does [Fallows 1994].

In Asia private businesses make two-thirds of all investments [Guiness]. In addition, with minimal trade barriers, exports are rising and the trade ratio to GDP edged forward in East Asia [Brahmbatt 1996]. (See Exhibit VI + VII) Exports earn foreign exchange, create employment and wealth, and force local businesses to learn to compete in the world economy. Asia's governments protect some industries, but more common is the practice to force participants in the economy to live up to world standards of performance [Rohwer 1996]. East Asia reduced their average tariffs, to a range of 10-15 percent [Brahmbhatt 1996]. Even if an industry is protected it is not safe for this industry, because when the government thinks it is a mistake to protect this industry, it will remove the protection [Rohwer 1996]. Most countries including China followed export-led growth and free-market economic principles [Leger 1994] [Li, Richard 1996]. Governments played different roles in the Asian countries. In Korea, the government played a large part in industrial strategy, selecting particular industries for export promotion, and raising much of the external capital needed to finance the expansion. In Singapore, the government actively promoted the region as a financial center and owns shares in 450 companies. In Taiwan, the mass of small and medium-sized companies would not respond to this sort of central direction of economic activity. In Hong Kong there is no government influence at all [McRae 1994]. In the industrialization of Japan, government intervention was a major factor [Kunio 1988]. In nearly all countries macroeconomic management has achieved a greater degree of equality in the distribution of wealth [Li, Richard 1996]. This helped to establish a middle class, which has a high purchasing power.

Most East Asian nations have no capital gains tax and no inheritance tax [Tanzer 7/15/96]. In Malaysia superattentive local officials, unbeatable tax breaks and subsidized training institutes were some of the main reasons that it is nowadays the manufacturing mecca for high-tech giants [Engardio 1996].

The East Asians believe the best solution for poverty is not income distribution, but income generation. The Asian mentality is everyone has to fend for himself. The political pressure is not there for governments to tax the rich to pay the poor [Tanzer 7/15/96]. Very little of the governments' spending goes for transfer from one class to another. Conversely, proportionally much more money goes into investments, especially education [Rohwer 1996].

2.3 Savings

On average, people in the Tiger countries save significantly more than people in the U.S. and other countries. The gross domestic savings rate is between 15% in Philippines, 33% in Japan and 48% in Singapore compared to 5% in the U.S. [Tanzer 7/15/96]. (See Exhibit VIII)Therefore East Asian countries have some of the highest levels of savings in the world, while the US has the lowest [McRae 1994]. The savings are used by banks to help businesses develop the best factories and equipment. It also allows countries to finance domestic investment like education and infrastructure [Leger 1994].

With national savings rates ranging from 30% to 45%, the region is already generating nearly as much new savings each year as the US and Europe combined. It is saving, the creation of capital, that generates economic growth. Entrepreneurs have little trouble finding capital [Tanzer 7/15/96]. The reason for high savings rates is not higher interest rates, but the result of mainly two factors. First, Asian countries generally do not provide much pension or welfare support. Second, Asian governments encourage savings by maintaining low inflation [Guiness]. (See Exhibit IX)

2.4 Authoritarian Government

Jim Rohwer thinks that one reason for the success of Asia is its authoritarian governments, and their ability to discipline their people. "In modern Asia, unlike modern Europe, authoritarian government has often brought not hardship and war but instead peace, prosperity, and equality." [Rohwer 1996] This is questionable. The best evidence against this thesis is Japan, which has had a democratic government since the end of the Second World War. Countries like Taiwan and South Korea started their economic success under authoritarian governments, when a specific level of wealth was reached these countries turned into democracies. The reason for this is that people who have economic power also want to have political power, and the more people, which have economic power the more people that are fighting for political power. Singapore may be an exemption to this as it is only a town the size of New York, where it is easier to control people.

2.5 Productivity

The authors of the article `Time for a reality check in Asia' (Business Week 12/2/96), believe that the main reason for Asia's strong growth rates are focusing on manufacturing exports and mobilizing their immense pools of savings and cheap labor. Paul Krugman, economist at Stanford University, echoes the belief "East Asia was good at mobilizing cheap labor and foreign capital but lacked the productivity and innovation to guarantee continued growth." [Engardio 1996] Many people believe that low-cost labor is the major reason behind Asia's success. If that were the case, Africa, Latin America, and Eastern Europe would be experiencing growth similar to that of the Tigers, but they are not. Productivity is the result of effectively combined capital, technology, and labor. This productivity factor has caused Singapore and Hong Kong to rank among the three most competitive economies in the world [Engardio 1996]. These and many other countries concentrated in higher margin/higher value- added production of goods and services [Li, Richard 1996]. The high productivity therefore is the most competitive factor for the western countries. Companies do not invest in Asia just because of cheap labor, but they can produce there as efficiently as in western countries for less money. This is still true, even though the labor costs at the moment are rising much faster than the region's productivity [Engardio 1996]. (See Exhibit X) Countries like Singapore have even higher labor costs than the United States, nevertheless comparatively more foreign investments are taken in Singapore than in the US, because the productivity is higher.

Strongly related to productivity is the possibility to be flexible. The nimble nature of East Asian industry is perhaps its greatest strength. Japan has given the best demonstration of the way in which a country can move in and out of different industrial sectors. Asian industry is remarkably flexible, it does not suffer at all from the `Not Invented Here' syndrome of North American and Europe [McRae 1994]. One very important part of this flexibility is Asian management. Morita Aiko, chairman of Sony Corporation claims that "These difference of management philosophy is responsible for creating a pricing structure that is impossible for Western companies to beat." [Johnson 1995]

2.6 People (Education)

East Asia's developing countries educate their work forces [Tanzer 7/15/96]. They concentrate on human capital [Li, Richard 1996]. (See Exhibit XI)

Lee Kuan Yew claims that "The basic underlying reason for the success is the people, who are disciplined, take education seriously and have cultural habits of high savings and high investments." [Tanzer 8/12/96]

A survey from 1991 shows that 13-year-old pupils in China have the best knowledge in mathematics followed by Korea and Taiwan. In science Korean and Taiwanese pupils had the best test score, while the US ranks only at fourteenth [McRae 1994]. (See Exhibit XII) Japanese high school students come near the top in any international assessment of achievement, and the nation's ability to educate the bottom half of the high-school class is unmatched anywhere [Thurow 1992]. In 1990, half a million people graduated from Asian universities with degrees in science and engineering, more than twice as many as in America [Guiness].

For international companies invested in Malaysia it is very important that the workers are fast learners [Engardio 1996].

Instead of public institutions, the family is the social institution that absorbs the risks. This explains why individual freedom is reduced. People are encouraged to work harder and save more; insecurity is a great spur to effort. Education is a worthwhile investment, since the parents gain from the children's income.

A society organized like in Asia is better equipped than the average Western society to embrace and absorb change: If a powerful government will not conserve the patterns of the past on your behalf, you learn quickly that you must cope with the future.

The people are changing their jobs very often. Even in Japan most workers are working now in establishments which can provide no job security. Therefore, education is very important, because education improves your possibility to find a new job [Rohwer 1996].

In 1995 over half of the population was less than 25 years of age [Guiness]. Roughly 62% of non-Japanese East Asia's population is over the age of 15 but under 65, meaning the region enjoys a high ratio of workers to non-workers.

Asian worker's are generally working harder than in Western countries. A survey from 1991 shows that Japanese workers are working an average of 45 hours a week, and Korean workers even 48 to 49 hours, while American workers only 37 hours [McRae 1994]. (See Exhibit XIII) Another survey from the Union Bank of Switzerland indicates as well, that the people in South Korea are working the most hours and get the fewest paid holidays. Important to know is that no government tries to limit the hours they could work and the wages they could earn [Leger 1994].

illustration not visible in this excerpt

2.7 Foreign Investment

Asia attracts approximately 30% of all global direct investment. The relocation of Japanese industries to the newly industrialized economies had a cascading effect. Japan already places 50% of its offshore direct investment in East Asia; up from 12% in 1985. It seems to be that Japan is again one step further than the western countries. Lee Kuan Yew: "Japanese have already established subsidiary bases throughout Northeast and Southeast Asia. They're earlier and more aggressive." [Tanzer 8/12/96] But the President of Toshiba Corp, Taizo Nishimuro, predicts that Japan's expansion will slow down, because many factories in Japan are now operating profitably at 110 yen to the dollar [Engardio 1996].

It is no longer true that foreign capital dominates the super-layer of the economy of Southeast Asia, but under some circumstances, foreign capital is necessary. Singapore, for example, welcomes foreign capital more so than other Southeast Asian countries. It welcomes foreign capital that is looking for an offshore production base. But all the other Southeast Asian countries are also open to export-oriented investment [Kunio 1988]. (See Exhibit XIV) Foreign direct investment in China, for example, increased from 2% in 1983 to 12% in 1992 [Lilley 1994]. (See Exhibit XV) Many states internationalized their finance system to attract more foreign investment [Li, Richard 1996]. Foreign investment is so important, because a 1 percentage point increase in the ratio of foreign direct investment to GDP associates with 0.4- 0.7-percentage point increase in per capita GDP growth [Brahmbhatt 1996].

Toshihiko Kinoshita, Executive Director of the Research Institute for International Investment and Development, also sees the factors for Asian's success in high domestic savings rates, macroeconomic management, expansion in trade and education. But he has some additional factors in mind. Asia has comparatively stable political conditions and the system in Asia is able to motivate people to get richer. He also believes that financial assistance from foreign countries and international institutions helped Asia. [Kinoshita]

3. Predictions for Asia

3.1 Chances

The first quarter of the next century in East Asia will see a contest for influence between Japan and China, fought on the battleground of economic growth. On the one hand Asia will continue to be the fastest growing region of the globe. On the other, the motors of that growth, principally the building up of light industries which export a fair proportion of their output to Europe and North America, will not be so powerful in the future as they have been in the past [McRae 1994].

Kenneth Courtis, Tokyo-based senior economist of Deutsche Bank Capital Markets (Asia):

"The feeling I have when I travel to the cities of Asia now is what people must have felt when they went to New York 100 years ago. There is a sense that everything is possible." [Tanzer 7/15/96]

Asia's Tigers are expected to grow at over 7% through the year 2000, while world growth is expected to continue at less than 3% during the same time period [Tanzer 7/15/96]. (See Exhibit XVI)

Lee Kuan Yew, former prime minister of Singapore, predicts East Asia, adjusted for purchasing power, could account for half of the world's economy in 20 years, up from about 25% today. The flow of information and capital cannot be stopped and we will have one world market for labor. The wealth will go to the top. And the wealth that was at the bottom of the rich countries will now be spread to the poorer countries. "The diffusion of knowledge is going to take place, either with your [USA] participation - and you enjoy the benefits of your copyrights - or against your wishes, with people breaching your copyrights." [Tanzer 8/12/96]

The World Bank forecasts 8%-9% annual compound growth during the next decade [Li, Richard 1996] [Tanzer 7/15/96].

Jim Walker, chief economist for Credit Lyonnais Securities (Asia): "Internally driven growth will take over as development extends into the hinterland. Asia will have the world economic dominance within the next 20 or 30 years." [Tanzer 7/15/96]

Michael Walton, the World Bank's chief economist for East Asia and the Pacific: "Asia is growing at a rate of 8%, but the market there for the kinds of goods and services the US provides is growing in the teens." [Tanzer 7/15/96]

The Asian economy cannot expand by 6% to 10% a year forever - many experts do anticipate a slowdown at some point early in the 21st century - but the factors that have driven Asia's rapid growth up to now are still in place and likely to remain significant in the decades ahead. The International Monetary Fund predicts that the GDP of the East Asian economies will expand by $3.75 trillion between 1990 and 2000, accounting for half the world's economic growth. By 2010 the Asian middle class will number nearly 1 billion people and command as much as $10 trillion in spending power. By 2020 some 2 billion Asians will create the world's largest industrial consumer society [Guiness].

David K.P. Li from the Bank of East Asia tries to predict how China will be in 2046. The global economy will be far more integrated. A "made in ..." label will have little significance. The most populous nation will be India, followed by China. The further inland will be less wealth, but the differences in income levels will be similar to those today between northern and southern Europe. China will not be self-sufficient in food and many other commodities. Therefore friendly trading relations and cooperative development with the rest of the world will be essential. After English, Mandarin will be the most studied language around the globe. China will attract more tourists and business travelers than any other country, whilst the Chinese will form the world's biggest nation of travelers. Many new brands are likely to have their roots in the joint ventures being created today between Chinese and foreign companies. Hong Kong will be the world's leading financial center and the world's currencies will be unified. China in 50 years' time will be at the forefront of environmental research and the cities will have mass-transit systems that leave other urban areas standing [Li, David 1996].

The United Nations estimates that by the year 2020, some 56 percent of all Asians will live in cities [Guiness]. With rail ideally suited to the needs of a country that is both large and heavily populated, China will have high-speed train technology. All this is may be hard to believe, but four decades ago, in its 16th June, 1955 edition the Far Eastern Economic Review wrote: "It is probable that the standard of living in Hong Kong can never be raised very much above that on the mainland." May be in the future this prediction will be reality, when the mainland became as reach as Hong Kong is nowadays, [Li, David 1996] and may be it is Hong Kong that is taking over China. William Rees-Mogg, former editor at The Times of London, thinks that China will be the greatest economic power on earth, and Hong Kong the richest city, in the second quarter of the next century [Leger 1994].

John Naisbitt thinks that Asia will be the dominant region in the world in the 21st century. Asia will profit the most from the Globalization of the world. Globalization will harmonize taxes, accounting and prizing, but it will also mean that everyone has to become world-class to compete [Naisbitt 1996].

Other people think that Asia has less future, because Japan has now been in stagnation for 4 years and growth forecasts for most Asian countries have been shaved as much as two percentage points. [Engardio 1996] But if you predict, for example, for China 10% annual growth and the actual growth rate is 8% than you can not speak of a real problem. The growth rate in Asia is still higher than anywhere else in the world. Even the same authors predict a growth rate of 5% to 8%.

The Economist Intelligence Unit predicts a GDP growth rate for Indonesia, Malaysia and Thailand of between 7% and 8% for the next five years. The consumer price index in Indonesia will reach a high of between 7% and 8%, but Malaysia and Thailand will have only an annual change of 4% to 5% [EIUL 1996].

Whether Asia is on the brink of greatness depends on two factors; firstly, if Asia can strengthen its weak institutions and secondly if the West maintains a free and open system of world trade, and the United States exerts the role of great-power leadership. If things go reasonably well during the first decade of the new millennium, Asia will make up the biggest middle class in history. That is why Asian markets should prove so vital to any Western company that wants to grow fast [Rohwer 1996]. This is also one reason why the American government should be unstinting in its support of the open-world trading system and reluctant about maintaining its role as the holder of Asia's balance of power.

3.2 Problems

The environment is being degraded by headlong growth; infrastructure supply is lagging behind economic expansion and the urban population in Asia will bloat by 600 million over the next 25 years, according to the World Bank. East Asian imports of oil, food, minerals, timber and other natural resources will balloon, perhaps pushing up world prices and creating neighborly tensions [Tanzer 7/15/96].

Kinoshita sees the problems first in the entrepreneurs, who are generally weak. South Korea, Taiwan, and Hong Kong are exceptions, but especially in the Philippines and Indonesia skilled managers still have yet to emerge. In many countries people think the way of "Isn't there some easier way to make money than investing in industry?" Second problem is the dependency upon exports and highlights the extreme vulnerability of Asian economies. Third problem is the frailty of the legal system. Fourth problem is the infrastructure problem. Many countries cannot produce enough electricity to cover their needs, or they have not been able to build port facilities fast enough to handle increasing demand, or in some cases, do not even have water systems that work reliably [Kinoshita]. Guiness Flight, an investment company, however thinks that environmental damage has been a problem early in the industrial development process, a problem countries moderate and even reverse as living standards rise [Guiness].

There is also always the risk of trade protection in the West, since millions of workers will have to seek new jobs because of rising production in Asia [Tanzer 7/15/96]. In Asia the problem is that countries will continue to protect their industries. "The problem with having a global economy is that nobody knows the costs and benefits for individual societies," says economist Chira Hongladarom of Bangkok's Thammasat University. But the rational thing would be for different Asian countries to specialize in certain components, and trade these with one another instead of hinder the Intra-Asian-Trade [Engardio 1996].

The authors of "Time for a reality check" see the problems as well in pollution, poor infrastructure, corruption, but also in bad housing and a lack of sufficient innovative technicians and managers. The last point is especially interesting, as most Asian experts claim that education is a strength for the Asian countries. On the one hand it is true that the Asian education system assists young people with a lot of knowledge in mathematics and science.

On the other hand the education system rewards memorization more than innovation [Engardio 1996]. The East Asian educational model has been extremely effective in making the worst trained students competent, and extremely ineffective in fostering freethinkers and individual talents [Fallows 1994]. Japan already recognizes this problem and tries to change their education system towards a more individualistic approach, which helps innovation. Of course it will be a long process, because it involves a change of the society, but if Japan is able to combine the innovative part of the western education system with the memorizing part of the Asian system, Japan will have the best education system in the world. It is very important to look at each country individually. Singapore's Prime Minister Goh Chok Tong says: "Singaporeans are not strong on innovative thinking." In Southeast Asia, schooling is far below the standards of first-wave Tigers such as Hong Kong, Singapore, South Korea, and Taiwan. The impact is being felt in Thailand, the world's fastest-growing economy over the past three decades. Behind the plunge in export growth (expected to be a meager 3% this year vs. 23% in 1995) is an exodus of garment, shoe, and toy plants to lower-wage havens such as China, Vietnam, and Burma. But Thailand has an acute and growing shortage of engineers. Education is the key factor to upgrade the industry to the next level. Only 60% of Thai workers have more than the compulsory six years of education [Engardio 1996].

Another serious issue is the problem of over-capacities in such key areas as petrochemicals, consumer appliances, passenger cars, and computer chips, and therefore no profits in many Asian companies. Many Asian countries have based their strategies on the experience of Japan, South Korea, and Taiwan, which graduated to higher value-added industries through skillful use of protection and subsidy after losing competitiveness in garments, shoes and toys [Engardio 1996]. I do not think that protection and subsidy were the key factors for the switch of Japan, South Korea and Taiwan to higher value-added industries. The other factors explained above were much more important. Another thing is that garments, shoes and toys are not produced in Japan, South Korea and Taiwan anymore, but they are produced from Japanese, Korean and Taiwanese companies and therefore bring revenues into the home country.

South Korea is still increasing its capacities. Steve Tagtmeier from McKinsey & Co: "Once Samsung and Hyundai get into petrochemicals, they will overbuild like they do in autos. They're going to crash the world market" [Engardio 1996]. This is exactly the problem for the established companies. Korean companies have enough financial resources to build up huge capacities and generate losses for some years, but in these years they can flood the market with cheap products - because of the high production volume - and gain market shares which allows them to increase the prices after some years.

Hamish McRae sees the problem in a narrow product range of East Asian exports, a heavy dependence on the North American market, dependence on imported raw materials, and a weak infrastructure. Asia must also change its education system to generate original research and it must develop service exports [McRae 1994].

Nicholas Negroponte, director of the Media Lab at MIT, says, that many Southeast Asian countries and those on the north of the Pacific Rim are very much leaders in the design and development of integrated circuits and their manufacture. "But the people in general don't lead a very digital life." [Zyla 1996] Therefore it will be necessary for Asia to implement computers into peoples daily lives to keep up with the fast development in the computer sector.

Richard Li thinks the main problems for Asia are bureaucracy, excessive countermeasures against inflation, over-protection of money-losing state enterprises, anti-foreign investment, mismanagement, protectionist policies and account deficits, which scare away investors [Li, Richard 1996].

Most Asian countries must still shift their economy from the industrial sector to the service sector. Manufacturing accounts for 28% of the U.S. economy, but it reaches 43% in Indonesia, 45% in South Korea and Malaysia, and a full 55% in China. This shift phase can cause many problems, especially for the employees [Engardio 1996]. (Compare to Exhibit XVII) Some countries like the US and the UK may have allowed too rapid a switch from industry to services, which has left them with a balance of payments problem, nevertheless strategically these countries will be better placed to benefit from economic growth in the future. Thus Japan, in seeking to preserve its industry, has a significant problem, which could put them at an economic disadvantage for at least the next decade [McRae 1994].

The problems of weak institutions in many Asian countries run from opacity of company governance to lack of political accountability to paucity of infrastructure to the inability of Asia to maintain peace among themselves through their own power. A lack of infrastructure is, for example, the reason why many companies do not invest in Vietnam. Very important also is a functional court system. Lack of laws is not the problem in China, but rather the weakness of the court to control whether their judgements will be executed. Another major problem of the institutions is the deficiency of money. In Vietnam and China it is a common practice for the army to lease land and to run companies. This can lead to a disregard for military matters [Rohwer 1996].

The rise of modern Asia depends on personal trust and connections. Such a system has many advantages for instance speed and informality of decision-making, but it makes transactions with those you do not personally know almost impossible. There is an inherent conflict between loyalties based on personal ties and loyalties based on institutions [Rohwer 1996].

Whether the system in Asia of dependence upon personal trust and connections is really a problem for the economic growth is questionable. Also in the Western society personal connections are very important and become increasingly important as the world is becoming more complex. The bigger and more open the world economy becomes, the more the world will be dominated by person-to-person communications [Naisbitt 1996].

Corruption as a problem continues to grow. All countries have laws aimed at fighting corruption, but very few governments apply such laws as strictly and consistently as Singapore. A survey from 1996 shows that Singapore was the least corrupt country in Asia, followed by Japan and Hong Kong. The highest level of corruption was registered in Vietnam and China. However this does not mean that foreign investors have to practice corruption if they want to do business in China [Asian 4/96].

Corruption in Asia in 1996

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Source: Asian 4/96

Note: Grades range from zero to 10, with zero being no corruption, or the most favorable assessment possible, and 10 being the most corruption imaginable, or the worst assessment possible.

The financial system could cause a problem in the future, because it guides savings to powerful corporations, rather than to dynamic new entrepreneurs [Engardio 1996].

Because the Southeast Asian countries do not have a strong technological base, they need foreign capital. The only way to replace foreign capital with domestic capital in these fields is to raise the level of technology, but the South-East Asian governments do not seem to be concerned [Kunio 1988].

4. Potential in Asian markets

4.1 Asia in general

The successful countries will no longer gauge success exclusively by the growth of the GDP but will also take into account their development of human capital. It will be very important for Asian countries to improve their management skills and especially the development of a global thinking. For example this is an acute scarcity of Singaporean managers who are willing to live overseas. In general the education level in Asia is very high. Therefore it is considerable for companies not only to invest in low quality products but also in middle or even high quality products. Another opportunity is to buy Asian companies. Trevor MacMurray, McKinsey: "[Asian entrepreneurs] haven't really invested in management systems", and therefore have now problems to compete with multinationals [Engardio 1996].

Asian countries have followed a pattern in industrial development. Countries start with relatively simple, labor-intensive industries that pay low wages. As modernization takes hold, wages and education levels rise. Countries then graduate to more complex, capital-intensive industries, often moving their labor-intensive businesses to less-developed neighbors. In the final stage, countries enter technology- and service-based industries, such as computer and telecommunications equipment, software, banking consulting and finance. At present countries like China, Vietnam and Thailand are in the first stage, whilst Korea and Malaysia are in the second stage, and Hong Kong, Taiwan and Singapore being in the final stage [Guiness].

The Asean Free Trade Area will take effect by 2003. "This gives us a new opportunity to think through each of these countries and analyze where to specialize our manufacturing," says Kenneth Brown, president of General Electric Southeast Asia. One single factory in the entire region can in the future exploit the coming single market. The member countries have agreed to reduce tariffs to a maximum of 5% on almost all goods. The fall of the barriers is especially an opportunity for consumer goods makers [Holloway 1997].

When you advertise in Asia you must be aware that the family is very important. Therefore advertisement should reach the opinion leader of the family, because he has a big influence on the consumer behaviors of the whole family [Rohwer 1996]. Newest surveys indicate family relations are still one of the most important values of Asian people, even for the new generation [Elegant 1996]. (See Exhibit XVIII) It is also important to know that the new generation (18-35) often has more money than their parents [Laris 1996], and that middle- class children account for 80%-90% of the spending in major categories from motor bikes to brand-name clothes. "The teen becomes the badge by which parents can reflect their own increased wealth and position," says Dave McCaugham at McCann-Erickson in Bangkok. Status is a leading consumer behavior in Asian societies. That is especially good news for makers of high-end luxury products [Vatikiotis 1996].

General distribution trends in Asia are that manufacturers and retailers increasingly are not bound by national boundaries. In most countries a finite number of retail customers will cover 80% of the market, leaving the thousands of other outlets to cover the remaining 20% of the market. The drift seems to be toward global sourcing at global pricing. Companies that own luxury brands are taking control of their own distribution and marketing. Agreements between manufacturers and independent distributors are becoming more standardized in terms of legal specificity. These trends indicate the importance of big western retailers to enter the Asian market with a lot of investment. Only the fittest and biggest will survive [Asian 3/96]. There are no Asian-wide retail chains yet, but large outlets have started to spring up in some countries during the past six months. In Jakarta, discount chain Wal-Mart opened its first store in Asia in autumn 1996. "Asia's distribution system is on a fast-forward replay of American's own evolution to mass retailing. US producers can make that an advantage," says Brown from General Electric [Holloway 1997]. But John Naisbitt thinks that the bigger and more open the world economy becomes, the more small- and middle-sized companies will dominate [Naisbitt 1996].

Asia is an expanding market for medical equipment and services, entertainment, computer hardware and software, financial services and franchising. Insurance have a very big market potential, because of the lack of public security. Japan's insurance payments are three times higher than Germany's for example. Therefore many foreign insurance companies eagerly await the day that they are allowed to enter the Chinese and many other markets [Tanzer 7/15/96].

4.2 China and Hong Kong

Strength of China is its light and medium-tech industries. After the reunification of China with Hong Kong, China now has a very strong trading, financial, and management center, which will make it easier for foreign companies to invest in China [Tanzer 7/15/96]. The problems China is faced with are the state enterprises, which have to be privatized or reformed to be competitive in heavy and high tech industries. Therefore it will be interesting for foreign companies to invest in these areas, if they are allowed to [Engardio 1996]. At the moment the reform of the state enterprises seems to be going badly and government's control on foreign firms' transactions remain strong [Asiarisk 1997]. A long-term problem is the education problem in China. In 1993 China's higher education facilities had a decline of 16.4% in the total number of faculty. Teaching is no longer a favored occupation among the young, due to low wages. Therefore a future problem will be having sufficient supply of well- educated Chinese staff [Saywell 1997]. The per Capita GNP of China is estimated anywhere from $425 to over $2000, depending on which method of calculation is used [Broadfoot 1995]. (See also Exhibit XIX) China has become Asia's fastest growing economy. $34 billion in foreign investments were poured into China in 1994 [Guiness]. In 1996 the overall foreign investment numbers fell, but the overall number is still impressive [Asiarisk 1997]. In particular the Chinese Overseas are investing in Mainland China. If counted together the economic activities of all Chinese Overseas, the GDP is the third largest in the world [Naisbitt 1996].

China does not really have a common denominator, only different parts which have to be balanced. Nothing is ever really settled. Despite this China has some very interesting possibilities for foreign companies. China has already overtaken Germany to become the second largest beer consuming country in the world. 50% of the growth of world demand for beer in the coming decade is likely to come from China. China will also be installing nearly 10 times more telephones than the second leading growth market in Asia, India. In power, China has been installing an average of 12,000 MW of capacity annually for the past five years, and it will have to construct 150 new power plants before the year 2000 [Broadfoot 1995]. Boeing projects that Asians will account for two-thirds of the growth in air travel between 1995 and 2005 [Guiness]. But no matter which scenario you paint for China's future, it will entail significant risks as well as opportunities [Broadfoot 1995]. (See also Exhibit XX) A problem for foreign companies is the difficult access to capital this problem may be solved by a strong financial market in Hong Kong. The problem with the reunification of China with Hong Kong is the uncertainty, of China changing the legal and political system, which would weaken Hong Kong as an investment place [Engardio 1996]. People are also concerned that China's corruption could spill into Hong Kong [Capitalist 1997]. Another concern is that China could take the form of a tightening of visa requirements for foreigners in ways that make it more difficult for foreign firms to recruit staff who meet the necessary criteria [Asiarisk 1997]. A business confidence survey in 1996 indicates that nearly 100% of the asked companies in Hong Kong expect to stay in Hong Kong well beyond the 1997 transition, and the majority plan to expand their presence in Hong Kong. There is strong desire to use Hong Kong as a base to support this business since there are no really good alternatives [Swiss 11/96]. A strong signal that it will be business as usual after 1997 is the Preparatory Committee, which will oversee the transition from British to Chinese rule. Over half the committee's members are influential local business people, owning companies which account for one-third of the capitalization of Hong Kong's stock market [Guiness]. The current economic down-cycle has provided more moderate annual wage bill increases and a slowdown of the still sky-high prices of office and residential rents in Hong Kong. But in some years it could be even lower, because many companies will be moved to China, where real estate is much cheaper. Only 16% of the respondents indicated any intention to invest in either office or housing markets of Hong Kong. But 25.3% plan to invest in property in China [Swiss 11/96]. Despite this the real estate prices are moving up and some people fear a speculative bubble [Asiarisk 1997]. Hong Kong employs three-quarters of its population in services [Guiness]. Manufacturing has taken a decreasing share of national income (GDP), falling from more than 30% in the 1960s down to around 12% in 1994, [Davies 1996] and 9% in 1996. The number employed in manufacturing has more than halved from 1980 to 1996, but the number employed by Hong Kong manufacturers increased from 879,000 in 1979 to 5,400,000 today, because Hong Kong companies opened so many plants in China [Capitalist 1997]. The biggest problem Hong Kong has is its negligible R&D, which makes manufacturing vulnerable. For a high cost place such as Hong Kong it will be more and more important to invest in R&D, because only high-tech products can produce the value to pay the high costs [Engardio 1996]. But Howard Davies thinks that Hong Kong's key to success was to use cheap technology. He says that technological advance is not simply a matter of R&D expenditure it is much more the question of making a series of small improvements to increase productivity [Davies 1996]. Alwyn Young shows that Hong Kong's annual growth of total factor productivity is higher than in any other Asian country [Young 1994]. (See Exhibit XXI) His explanation for this is that in other countries a larger proportion of the population moved into the labor force due to demographic changes so that the annual growth of output per capita increased, but not the productivity [Davies 1996]. Nevertheless the Harvard Business school says that also the gross output per employee increased. They argue that Hong Kong's manufacturing sector is stronger than ever, and they see Hong Kong's future advantage in the combination of flexibility and the access to the Chinese market [Capitalist 1997]. (See Exhibit XXII)

In the Philippines, Malaysia, and Indonesia problems arises from the low quality of government intervention. This has created massive inefficiency in the economy and a large number of rent-seekers [Kunio 1988].

4.3 Indonesia

The number of abjectly poor Indonesians has fallen from 68 million to 18 million over a 20- year period. [Guiness] Indonesia's strength is its light industries and abundant natural resources in oil and timber, but the weaknesses rise above the strengths. The local producers of cars and electronics are heavily protected and will have big problems to compete in a free trade market. For foreign companies this could be an advantage if Indonesia removes its trade barriers, but red tape, corruption, and poor infrastructure are still factors which will deter many foreign companies to invest in Indonesia, even when labor is cheap [Engardio 1996]. Foreign investors in the automobile sector have put their expansion plans on hold, because some battles started between presidential family members. But Indonesia is not about to collapse into political chaos [Asiarisk 1997]. The tariff protection for a number of high-cost industries is a reason for the high inflation of 8%. Besides this exports will continue to grow and will help to increase the per capita GDP from $1,031 in 1995 to $1,600 in 2000 [EIUL 1996]. (See Exhibit XXIII) It is also important to point out that the country still offers many attractive long-term investment opportunities [Asiarisk 1997].

4.4 Malaysia

Malaysia's past and future seems to be bright. Inflation will be stable at a level of 4% and the GDP growth rate is predicted for 8% over the next five years. Import growth will remain strong, driven by a demand for intermediate and capital goods. Export growth will remain impressive until the end of the decade [EIUL 1996]. (See Exhibit XXIII) Malaysia cut its personal-income taxes, which could relate to more private consumption [Leger 1994].

Malaysia has a higher skilled workforce than many other developing countries and an attentive government. This will remain to more investment in Malaysia, according to it the costs are rising twice as fast as productivity and an acute shortage of production workers and engineers is developing. Malaysian plants are shipping in workers from villages as far as two hours away, because the unemployment rate is only 2% [Engardio 1996]. Malaysia's capital market reforms in 1995 have attracted international money management business [Guiness]. Recently risks relating to nationalism have been rising. In one case a British bank tried to block a purchase of a well-known British sports car manufacturer by refusing to accept a check from the Malaysian company for the purchase [Asiarisk 1997].

4.5 Philippines

Investments in electronics and auto parts seem to be the best sector in the Philippines. Its literate, English-speaking workers and engineers, and abundance of cheap land is drawing investments. An open society with creative talent makes the Philippines interesting for media and marketing investment [Engardio 1996]. It is also a more open economy than many other countries, [Leger 1994] and the economic liberalization continues. Tax reform is a priority in 1997 for the government to overhaul the personal and corporate income tax systems so that the wealthy pay a greater share [Asiarisk 1997]. The weaknesses on the other hand are a poor infrastructure, low productivity and weak R&D [Engardio 1996]. It also has the lowest savings rate in Asia, which can explain why the Philippines' economic performance has lagged behind that of other Asian countries [Leger 1994].

In the richer economies like Japan, Singapore, and Hong Kong, the ever-growing middle class is turning towards a consumption-oriented lifestyle similar to that of their peers in the West [Li, Richard 1996].

4.6 Singapore

Singapore is the ideal place for research and development in Asia. It has first-rate facilities, training institutes, a skilled workforce, and a lack of corruption [Engardio 1996]. The government also offers tax breaks to companies using Singapore as a regional base [Asiarisk 1997]. The weakness is the typical Asian way of learning with rote education, the high costs and a small domestic market. The relationship to Malaysia is developing very well - sometimes it is not easy to distinguish between Malaysian and Singaporean tycoons in terms of the location of their major assets [Asiarisk 1997] - so that entering of the Malaysian market from Singapore is no problem [Engardio 1996]. But more and more Malaysians talk about Singaporeans as arrogant. Singapore's business culture has been moving closer to the West than to its Asian neighbors and there is a world of difference between the way business is conducted in Singapore and the accepted way of doing things in mainland China [Asiarisk 1997]. Therefore Singapore seems not to be the ideal place to start businesses in Asia anymore. Japanese companies already do not invest in Singapore strongly.

Singapore's government has now an active program of privatization, which could be interesting for foreign companies [Leger 1994]. An interesting survey from 1996 compares the consumers in Hong Kong and Singapore. Singapore respondents were generally more home-oriented, placed a higher values in education and were more concerned with the environment. They showed a positive attitude towards advertising, and were more concerned with the quality of the product than its price [Tai 1996].

4.7 South Korea

South Korea will be also in the future one of the main competitors in semiconductors, petrochemicals, and cars. For investors the soaring costs are a problem and the fixation of big groups on commodity products hinders competitiveness in fast-changing markets like computers and software [Engardio 1996]. South Korea will open more and more markets for foreign investment, because it wants to enter foreign markets itself. In 1997 the government wants to liberalize the telecommunications, energy and construction industries [Asiarisk 1997]. This is a great opportunity for foreign companies, because the GDP per capita is very high and very equally distributed, therefore the purchase power is among the highest in Asia. It has also one of the best skilled workers in the world, who are hard working. It can be a problem to find employees, because the unemployment rate is only 4% [Guiness]. Hamish McRae even thinks that Korea will be reunited in 2020 [McRae 1994]. This would be a great chance for foreign companies to develop the North Korean market.

4.8 Taiwan

Taiwan is the sixteenth largest economy in the world [Guiness]. Taiwan's edge is its computer, telecom, and multimedia equipment, but high costs, traffic congestion, restrictions on expatriates, and a lack of direct trade with China make it unlikely Taipei will emerge as a regional hub for multinationals [Engardio 1996]. But Taiwan is the second largest investor in China, after Hong Kong [Broadfoot 1995] and has many relations with China, Japan and USA. Recently Taiwan has been considering a proposal to set up a joint venture bank with China in Hong Kong and in the year 2000 Taiwan and China plan to establish direct telephone links [Asiarisk 1997]. Taiwan also invested strongly in Vietnam, Malaysia and Indonesia [Guiness]. Therefore Taiwan could become the business connection center for Asia. It has also one of the best-educated people, who are often able to speak Japanese, Mandarin and English fluently. In 1994 Taiwan decided to rely on the private sector to fill its power gap, because the demand for electricity is keeping pace with economic growth, but generating capacity not [Clark 1997]. Therefore building up power plants in Taiwan could be a market for foreign companies. The state also whishes to privatize its alcohol and tobacco monopoly by the year 2000.

4.9 Thailand

p>Thailand's future seems to be very uncertain. The number of households earning $10,000 a year has jumped from just 160,000 in 1986 to one million todays [Guiness]. Its strengths are its most advanced production base for cars in Southeast Asia, strong ties with leading Japanese multinationals, and a free press, which helps to develop a media industry [Engardio 1996]. "I'd bet an Asian car would be made in Thailand, or the Philippines or would come out of Japan," says Tom Mattia, director of Ford Asia [Holloway 1997]. The weaknesses are especially its low productivity gains and an inadequately trained workforce together with rising wages [Engardio 1996]. In the last year the biggest negative feature was the rise in labor unrest resulting in numerous strikes [Asiarisk 1997]. Corruption, an unstable political system and bad infrastructure are additional problems [Engardio 1996]. Thailand must be aware that some manufacturing operations will be transferred to cheaper centers throughout Asia according to the rising wages. Therefore Thailand must invest more in education to attract high-tech industries to Thailand. The various economic ministries are all forecasting a significant upturn in exports, but import is also expected to remain high. Reduction in the import of equipment for infrastructure and other key development projects is not likely, but for military equipment according to the cuts in defense spending [Asiarisk 1997].

4.10 Vietnam

A recent survey on direct investments asked which countries looked most promising. Most companies said China and Vietnam [Kinoshita]. In 1996 Vietnam realized an estimated $2.3 billion in actual investment, up 30% from 1995. Approved investment rose by 29% to $8.5 billion [Keenan 1/16/1997]. (See Exhibit XXIV) For industries which need cheap, literate, hardworking labor forces like light industry, Vietnam is a good place to invest [Engardio 1996]. Private entrepreneurs in Vietnam have created some 4.7 million new jobs in just four years [Guiness]. The large, untapped domestic market is an opportunity for nearly every consumer product. Problems in Vietnam are the bureaucracy to invest as a foreign company and very bad infrastructure. High taxes, corruption and dismal universities are additional problems [Engardio 1996]. Foreign companies, like the American-controlled Phan Thiet Golf Club, have often problems with the legal system that foreign lawyers describe as opaque. Nithi Vasunirachorn, general manager of Bangplee, says "charges of corruption amount to insulting the court." [Keenan 1/30/1997]

4.11 Japan

Japan's image is of high prices, exorbitant wages, and abundant regulations. Since the US trade deficit was growing year after year, the US trade representative office was in permanent search of a "closed" market so that it could negotiate its opening [Camargo]. Therefore the majority of American business people will answer that the rest of Asia is more attractive than Japan. There may be also political issues behind their attraction to the rest of Asia [Kinoshita].

But the reality says something different. MITI, cabals, bent businessmen, and unfair trade practices are mostly excuses of Westerners to rationalize their own failures [Leger 1994]. The US Asia-Pacific trade is worth $400 billion, of which $155 billion is with Japan [Kinoshita].

Japan is already the second largest market for US exports [Jetro]. (See Exhibit IV) The Japanese market is becoming noticeably more open - a deregulation plan was issued in 1994 [Tradecompass] - and 70% of US foreign assets in the Asia-Pacific region are in Japan. Japan will continue to be a very important country for the United States. According to Chairman Welch of GE, his company runs $1 billion surplus with Japan and you can hear the same thing from other managers. None of this is said very loud or featured very prominently. The voices calling Japan unattractive stand out and get more attention [Kinoshita]. But Japan's average industrial tariff rate (about two percent) is one of the lowest in the world. Japan also opened its huge public works construction sector, the cellular telephone market, financial markets and pension markets for foreign companies [Tradecompass]. Many companies do not want to show high profits to avoid client comparisons. An American investment banker in Tokyo said his company tries to shift profits back to US headquarters every time a transaction is made.

"We don't want to give the Japanese the impression we are making a lot of money here, since there is pressure for us to cut our commission." Therefore it is difficult to compare the balance sheets of Japanese subsidiaries and more companies make profit than it seems to be [Camargo]. Japanese companies still invest three or four times the amount in the US than it does in Asia, [Kinoshita] and I think American companies should invest more in Japan than in Asia, because the Japanese market is the second biggest market in the world - with more than $4 trillion GDP -and it will be for at least the next 20 years. Another difference between American and Japanese investment in Asia is that Japanese companies do business in the region, but US firms go through Hong Kong or Singapore [Kinoshita]. When you enter the Japanese market you must be aware that it is the most competitive country in the world and commitment requires both time and money [Camargo]. The cost of land and the difficult distribution system raise the costs [Tradecompass]. The executive's nationality is much less important than an ability to speak both English and Japanese and many changes of bosses are hurting the operations in Japan. Due to the highly competitive nature of the Japanese market, it is hard to do well with a me-too solution, therefore constant innovations are necessary [Camargo]. Foreign car makers share of the Japanese market, after rising strongly for several years, slid from almost 10% in June to just over 7% in November 1996. The reason for this is innovations of Japanese carmakers to launch lots of models. In 1995 Toyota launched 11 models. Japanese carmakers try to offer cars for each life style, because consumers are increasingly choosing their cars according to their lifestyles. Combined with many new models are aggressive marketing campaigns [Economist 1997]. This example shows very clearly how competitive the Japanese market is and that permanent innovation is necessary. An important growth area has been leisure related products, because the expenditures rose.

[Jetro]

Japan itself has some problems, which must be solved in the future. The Industry needs to be restructured from manufacturing towards commercial and financial industry. The social system must be readjusted, because the population ages [McRae 1994] [Li, Richard 1996]. The Japanese economy already remains in transition. Structural change has been a market- driven response to domestic economic conditions and the changing global competitive environment [Tradecompass]. Japan will continue to develop its economy role in the world, but progress will be much slower and in many ways more difficult [McRae 1994].

5. Conclusion

You can perceive East Asia's growing economic power as a threat to the U.S. or as an opportunity. There is every reason to expect it will be a boon, not a bane.

I have the same opinion as John Naisbitt, who thinks that Networks will replace Nation States [Naisbitt 1996]. In the future it will be not important to investigate each country on its own, but rather as big companies and organizations.

But nowadays it is still interesting to know in which country it is worth investing. I divided the possibility for foreign companies into exporting to the country and producing in the country for the domestic market or also for exporting. After reviewing all actual data I tried to rank the countries. The most important thing for the ranking was how much profit it is possible to make, but also how many risks you have in the country. The horizon of the ranking will remain for the next 20 years.

Japan seems to be the country where it is easiest to make profit in the next 20 years, because the per capita income is so high and the market so big. The market share of foreign companies in Japan is remarkably low, therefore the opportunities are high.

For production facilities Malaysia seems to be the best place. For light industry Vietnam is the best place, because it has the lowest wages. In China will be the problem that the wages will increase too fast. But for each product a different country can be the best place.

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see a lot of future in the Asian market, but the question is when should you enter the market. I think that many companies enter too early especially the Chinese market. At the moment it is very difficult to make a profit in China and in countries like Japan, South Korea and Taiwan as foreign companies are not present. But in these countries it is much easier to make profit and the risk is much lower. My advice for small and medium sized companies therefore is first to explore the developed markets in Asia, because many companies do not have the financial resources to invest in all countries at the same time. It is also unproblematic to enter markets like China later, when they are developed, because Chinese c onsumers change their consumption pattern very fast, when they can purchase cheaper or better quality products. Only for big companies is it worth investing now in the developing countries, because they have the resources to develop a strategy.

6. Bibliography

Asian Intelligence Issue, "Distribution trends in Asia," # 457, March 20, 1996, http://www.asiarisk.com/library8.html

Asian Intelligence Issue, "Corruption in Asia in 1996," #458, April 3, 1996, http://www.asiarisk.com/lib10.html

Asiarisk, Country Risk Reports, January 1997, http://www.asiarisk.com

Brahmbhatt, Milan, Dadush, Uri, "Disparities in Global Integration," Finance & Development, September 1996, 47-50

Broadfoot, Robert, November 1995, http://www.asiarisk.com/library6.html

Camargo, Eduardo G., Saito, Michitaka, "Understanding the Reasons for the Failure of U.S. Firms in Japan," in: International and Global Marketing: Concepts and Cases, edited by Taylor W. Meloan, and John L. Graham, Irwin, 1995, 146-161

"Capitalist Roader," Far Easter Economic Review, January 9, 1997, 5

Clark, Robert, "Power Struggle," Far Eastern Economic Review, January 9, 1997, 85

Davies, Howard, "High IQ and Low Technology: Hong Kong's Key to Success," Long Range Planning, Vol.29 No.5, 1996, 684-690

The Economist, "Fads on wheels," February 1, 1997

Elegant, Simon, Cohen, Margot, Jayasankaran, S., Gilley, Bruce, Lee, Charles, Hiebert, Murray, "Rock Solid," Far Eastern Economic Review, December 5, 1996, 50-52

Engardio, P., Moore, J., Hill, C., "Time for a reality check in Asia," Business Week, December 2, 1996, 58-66

Euromonitor International, International Marketing Data and Statistics 1997, Great Britain: Antony Rowe, 1997

Fallows, James: Looking at the sun, New York: Pantheon Books, 1994

Friedman, Thomas L., "Foreign Affairs; Ha Noi or Ha Loi," The New York Times, Late Edition, January 15, 1995, 17

Guiness Flight, "The 21st Century Belongs to Asia,", http://www.gffunds.com/ Holloway, Nigel, "Now's Your Chance," Far Eastern Economic Review, January 30, 1997, 48-49

Jetro, http://www.jetro.go.jp

Johnson, Chalmers, Japan who governs?, New York / London: W.W. Norton & Company, 1995

Keenan, Faith, "Poetic Licence," Far Eastern Economic Review, January 16, 1997, 51

Keenan, Faith, "Rough Going," Far Eastern Economic Review, January 30, 1997, 46-48

Kinoshita, Toshihiko: http://www.moshix2.net/APER/countries/japan/kinoshta.htm

Kunio, Yoshihara, The Rise of Ersatz Capitalism in South-East Asia, Singapore: Oxford University Press, 1988

Laris, Michael, "A New World Order," Far Eastern Economic Review, December 5, 1996 55

Leger, John M., "The Boom," November 24, 1994, in: Far Eastern Economic Review, 50th Anniversary Issue, 1996, 174-176

Li, David K.P., "China in 2046", Far Eastern Economic Review, 50th Anniversary Issue, 1996, 188-189

Li, Richard, "Take Risks And Forge Ahead," Far Eastern Economic Review, 50th Anniversary Issue, 1996, 190-191

Lilley, James R., Willkie, Wendel L. II, Beyond MFN, Washington D.C.: The AEI Press, 1994

McRae, Hamish, The World in 2020, Boston, MA: Harvard Business School Press, 1994

Naisbitt, John, "Global Forces Shape Asia," Far Eastern Economic Review, 50th Anniversary Issue, 1996, 192-193

Rohwer, Jim, "Asia on the Brink," Across the Board, January 1996, 23-27

Saywell, Trish, Wong, Yu, "Brains for Sale," Far Eastern Economic Review, January 23, 1997, 23-24

Shimura, Isamu, "Reports From Japan," January 24, 1957, in: Far Eastern Economic Review, 50th Anniversary Issue, 1996, 160

Swiss Business Council of Hong Kong, "Hong Kong Business Confidence Survey," November 1996, http://www.asiarisk.com/library1.html

Tai, Susan H.C., Tam, Jackie L.M., "A Comparative Study of Chinese Consumers in Asian Markets - A Lifestyle Analysis," Journal of International Consumer Marketing, Vol. 9(1), 1996, 25-42

Tanzer, Andrew, "The Pacific Century," Forbes, July 15, 1996, 108-113

Tanzer Andrew, "Ride it! You can't fight it!," Forbes, August 12, 1996, 46-48

The Economist Intelligence Unit Limited, "South-east Asia Forecast: 1996-2000," Crossborder Monitor, November 6, 1996, 7

Thurow, Lester C., "Who owns the Twenty-First Century?," Spring 1992, in: International and Global Marketing: Concepts and Cases, edited by Taylor W. Meloan, and John L.Graham, Irwin, 1995, 173-190

Tradecompass, http://www.tradecompass.com/library/dos/ecopol/Japan.html

Vatikiotis, Michael, "Children of Plenty," Far Eastern Economic Review, December 5, 1996, 54-55

Young, Alwyn, "Lessons from the East Asian NICS: A contrarian view," European Economic Review, 38, 1994, 964-973

Zyla, Melana K., "Negroponte on Asia," Far Eastern Economic Review, 50th Anniversary Issue, 1996, 194-195

7. Graphs

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Source: Euromonitor 1997; Tradecompass; Jetro; Asiarisk

EXHIBIT II

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Sources: Euromonitor 1997, Tradecompass, Jetro, Asiarisk

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Sources: Euromonitor 1997, Tradecompass, Jetro, Asiarisk

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Sources: Euromonitor 1997, Tradecompass, Jetro, Asiarisk

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Sources: Euromonitor 1997, Tradecompass, Jetro, Asiarisk

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Sources: Euromonitor 1997, Tradecompass, Jetro, Asiarisk

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8. Tables

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Sources: Euromonitor 1997, Tradecompass, Jetro, Asiarisk