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Asian Business Environments

Dr. Markus Taussig, NUS Business School

Friday, January 16, 2015

Our Path Today

!

My Self Introduction
What is Asia and Do
Countries Matter?
Country v. Firm
Perspectives
Course Design, Goals,
and Assessment

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About Me
11 years in Vietnam, 3.5 years in Singapore, extensive Asia travel
Work experience:
Assistant Professor (NUS): special focus on emerging
economies, global sourcing, private equity; Vietnam
Consulting (Vietnam):
- National surveys of Vietnamese entrepreneurs for World Bank,
International Finance Corporation, among others
- Operational audits and business planning for state-owned
enterprises in rubber and sugar industries
Entrepreneur (Vietnam): tourism, rubber trading
Freelance Journalist (Vietnam): Asiaweek, Marketplace
Education: Strategy DBA (Harvard), SE Asia MA (Johns Hopkins)
Personal: husband, dad (5 y.o. son), traveling, eating, basketball

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Greater Asia

Defining Class Scope

Probably should include Russia and Central Asia too!

Asia is Still Rising!

Back to the Future

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Some in the West See a Threat

Several decades ago, my
parents told us to eat
because the children in
China and India are starving.
Today, I tell my children to
learn because the children
in China and India are
starving for their jobs.
- Thomas Friedman,
New York Times Editorialist

What is Asia?
!

How meaningful is Asia as a

shared space?
Is there really such a thing as
Asian values? Why? How
does it matter for business?
Would one Asian country
necessarily cheer for another,
e.g. South Korean for
Bangladesh, the way
seemingly all Africans cheered
for Ghana at the World Cup?

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Uh oh but
does the
professor
maybe have
a personal
bias on this
question?

Asia = Asian Economic Miracle?

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But Asias
not all
success
stories
Country matters.

An Asian Half Century

(1963-2013)
Fastest Growing Countries
1 China
2 South Korea
3 Botswana
4 Singapore
5 Indonesia
6 Malaysia
7 Sri Lanka
8 India
9 Seychelles
10 Japan

GDP per capita growth

7.7%
6.2%
5.8%
5.2%
3.8%
3.8%
3.6%
3.2%
3.0%
2.9%

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Less Dominant 2 Decades

(1993-2013)
Fastest Growing Countries
1 Equatorial Guinea
2 China
3 Liberia
4 Armenia
5 Azerbaijan
6 Cabo Verde
7 Albania
8 Macao
9 Cambodia
10 Vietnam

GDP per capita Growth

17%
9%
7.6%
7.3%
6.4%
6.3%
6.1%
6%
5.5%
5.5%

Unpredictable"
Myanmar

Considered highest potential

country in Southeast Asia after
WW II
Irrational policy and lack of
growth in following half century
rivals North Korea
Today, huge excitement (and
uncertainty) around possibility
government may be improving

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Which Matter More Today?

Countries or Companies?

Friedmans Inspiring Flat World

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Two Main Themes in

Related Arguments Saying
Countries Dont Matter

Powerful Companies: resources far greater

than country governments and they can go anywhere

Weak Governments: limited capacity and

incentives, desperate need for resources, and no
viable alternative to relying on business

Global Value Chains

MNEs like Walmart, IKEA, Nike can contract with

multinational suppliers and produce anywhere

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Race to Bottom?
Poor supplier country governments will continue to
relax standards to increase capital investments

Firms Decide Own Tax Home

Governments losing battle to control strategies
like transfer pricing and offshoring of resources

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Big Firms = Big Influence

Firms shape legal/regulatory landscape to access
resources, create oligopolies and monopolies

Just Buy It!

While some country-specific factors clearly do

matter, firms can just buy or rent needed resources

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Politicians = Great Partners

Even the most nationalistic looking industrial

policies are about wealth accumulation for a few

Substituting for Governments

MNEs and local firms alike often know they
cannot assume rule of law when they need it

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Innovative
Market
Solutions
Private sector
stepping in for
government even
among the poorest
of the poor

Consumers Expect More

Wealthy country consumers hold MNEs to higher
standards than poor country governments

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On the
Other
Hand !
Why borders do
still matter (and
thereby this class
still matters!)

Would Friedmans dishware business

really do well in a flat world?

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Flatness Cuts Both Ways

Da Vinci press statement: "We have realized that ... we failed to clearly
inform our customers of the places of origin of that furniture."

(Green&bars&represent&HBR&readers &beliefs,&blue&represents&true&numbers)&

Source: Pankaj Gemawat@HBR

Is Flatness Globaloney?
Evidence of systematic bias, over-estimation of globalization
among managers and other elites

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YaleNUS: Flat World Example?

The opportunity and the controversy actually lie
in the fact that geography still matters

Important concepts
1. Country A self-governing political entity.
2. State Often used interchangeably with country but
applies specifically to a sovereign government with
fixed borders.
3. Nation A group of people with similar language/
culture/history, but do not necessarily have
sovereignty.
4. Regime Set of rules, cultural norms, that regulate
interaction with society (modern connotation is
negative).
5. Nation-state: Coincidence of a nation within a state.
6. Imperial state: Two or more nations under a single
political authority.

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The Westphalian State System

Scholars date the origin of the modern state system to
the Peace of Westphalia, which ended the Thirty Years
War in 1648, when signatories agreed to protect the
principle of territorial integrity.
After this date, states become the primary agents in the
international system (core principles: self-determination,
legal equality, non-intervention).
Max Weber defined a state as, the body that
monopolizes sanctioned force within its borders.
Japan, China, and Thailand became fully functioning
states early. In Southeast Asia, however, the rise of the
modern state coincides with the end of World War II and
decolonization in the 1950s and 1960s.

Many Competitors to the State

Multinational Corporations (Apple, Toyota,
Samsung)
International Organizations (World Bank,
IMF).
Non-Government Organizations (Green
Peace, Save the Children).
International Cartels (OPEC)
Terrorist and Criminal Organizations (Al
Qaeda, Shanghai Triad)

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Reasons Why the State Still Matters

1.
2.
3.
4.
5.

Property Rights and Contracting Institutions

Public Goods Provision
Peace and Stability/Law and Order
No evidence for Race to the Bottom
Obsolescing Bargain/ Hold Up Problem

Property Rights

Investors rely on the knowledge that their

land, factory, or ideas will not be stolen
from them after they start their business."

Take away this fundamental knowledge and
they will invest less, while growth declines."

Remember, the state has the monopoly on
the use of force. It is the only organization
capable of protecting property rights on a
broad scale."

This raises the fundamental puzzle of
political economy. The only institution with
power to protect property rights, also has
the power to violate them (Douglas North).

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Property Rights and

Development
Protection of property is
strongly correlated with wealth
and growth (See Fig. 1 and 2)."

States differ dramatically in
their levels of protection."

Institutional design of the state
matters (checks and balances
mean greater protections).

Source: Besley and Ghatack (2009). [http://www.voxeu.org/article/

reforming-property-rights-and-economic-development

Contracting Institutions
Property rights protects
business from the state, but
who protects investors from
each other?"

Contract disputes have to
be settled."

Only one body has the
power to arbitrate these
disputes and (importantly)
enforce the decisions.

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Public Goods Provision

Most companies can t afford to pay for
infrastructure and education in their
communities.
It would be great if they could pool
their resources, but often they face
collective action (e.g. free rider
problems).
To adequately provide public goods,
you need an organization powerful
enough to collect taxes and make
tough decisions about how to best use
that revenue to improve the economy.
A lot of variation in quality of public
goods across countries

Definition: A public good is a

good that is both non-excludable
and non-rivalrous in that
individuals cannot be effectively
excluded from use and where use
by one individual does not reduce
availability to others.

Law & Order/Peace and Stability

Political unrest, instability, or crime can
damage economic performance.
War/Civil War can do damage to
infrastructure and human capital in ways
that may take generations to recover.
Because states have a monopoly on the
use of force, only they have the resources
(army, policy) necessary to provide security.
The current unrest in Thailand is a great
example of how lack of stability is hurting
economic performance today.
You only see a state s "
importance when it is missing

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No Race to the Bottom

Great idea in theory. Problem is
countless studies have failed to find
any evidence.
Think about it: How many countries
do you know with 0% taxes and no
regulations?
Most economic analyses of
investment decisions show investors
care far more about market size,
proximity to new markets and
materials, infrastructure, and labor
quality. Taxes and regulations
always rank far behind.

Obsolescing Bargain/"
The Hold Up Problem "

Companies may think they have
bargaining power, but usually
this power is strongest before
entry."

After entry, the firm s sunk costs
work against it: Countries can
raise taxes, change regulations,
ask for anything, because they
know its expensive for
companies to leave.

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The Role of National Culture?

This is very tricky territory!

Class Design

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Review of Building Block Concepts

Countries and even subnational regions do matter

Asia is a continent with as diverse as any region in the
world and thereby a fascinating laboratory for study
It is crucial to clearly delineate between two levels of
analysis: country-level and company-level

Country: public policy for societal benefit

Company: strategy for maximizing firm performance

Levels of Analysis
!

Company level analysis

E.g. What factors lead to higher firm profitability?

factors lead a firm to be more innovative?

What

Key level of analysis in management research

!

Country level analysis

E.g. What factors lead to higher GDP growth?

What
factors make a country produce more patents?

Key level of analysis for public policy, economics, political

science

The two levels clearly influence one another

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YaleNUS: Example of 2 Levels

Week

Topic

Jan 16

Introduction

Jan 23

The Asian Miracle

Jan 30

Market Institutions & Economic Growth in Asia

Feb 6

Political Institutions & Economic Growth in Asia

Feb 13

Culture, Business, & Economic Growth in Asia

Feb 20

COUNTRY STUDY #1: Japan [LUNAR NEW YEAR]

Feb 27

RECESS WEEK

Mar 6

Institutions and Firms in Asia

Mar 13

COUNTRY STUDY #2: India [E-LEARNING WEEK]

Mar 20

The State as Equity Owner in Asia

Mar 27

COUNTRY STUDY #3: China

Apr 3

Innovation in Asia [GOOD FRIDAY]

Apr 10

Business & Society in Asia

Apr 17

COUNTRY STUDY #4: Singapore

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Evaluation Weights
Pre-class assessments

20%

Participation

20%

Group presentation

20%

Final exam

40%

Pre-Class Assessment (20%)

This is designed to motivate consistent engagement with

the class material across the semester
Will be posted on IVLE by around noon on Wednesday,
due Friday 6am
Questions will generally be multiple choice and based on
weekly readings
Some questions will also aim to help instructors
incorporate student perspectives in lectures
Answers to survey will provided weekly and individual
survey grades will be reported before final exam

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Participation (20%)

Participation is intended to motivate discussion, especially

in tutorial sessions, and build self confidence
Key to participation is quality; though quantity does matter
as well
20% may understate impact: what matters is variance
Students will be told their placement across the class
distribution (by quartile) by the end of the Recess Week
Individual participation grades will be reported before final
exam

Presentations (20%)

As with participation, presentations are intended to

help students build public speaking skills
They also involve research beyond the assigned
readings and, importantly, analysis and organization
Each student will select into a presentation group
during the first Tutorial session (Week 3)
Presentation issues/questions are listed by week in the
syllabus and guidelines will be provided Week 3
As with participation and pre-class surveys, grades on
presentations will be given before the final exam

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Tutorials Team
Yan Jackie Zheng
Tan Hongbin

Xiao Fenglong

Final Exam

Final exam scheduled for Monday, 27/04/2015 at 5pm

Exam based on assigned readings, material in lectures

Exam will be multiple choice, with some questions

resembling those seen earlier on the weekly pre-class
assessments

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Class Communication

This is a big class! Participation in the lecture is

welcome, but tutorials offer the best opportunity for
more personalized interactions

Given class size, students interested to participate in

lecture are advised to sit closer to the front

I will have office hours (MRB 06-34) Fridays, 1-2 pm

This is especially a great opportunity for open-ended

intellectual discussion around class topics
As such, multiple students can come in at a time

Syllabus is our Contract

Always look first to the syllabus for answers,
use IVLE Discussion Forum as second option

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QUESTIONS?

Looking Forward to a Great

Semester Together!

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