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The Spirit of Entrepreneurship in Asia

Jaime Faustino1 Introduction The future driver of the global economy is Asia and entrepreneurship is playing a central role. Even though the majority of Asia's economies are developing ones, the region boasts 90 of the world's 691 billionaires.2 India boasts of 12 billionaires the same as mainland China. India's entrepreneurial spirit helped Indian-born Lakshmi Mittal, the chief executive of Mittal Steel, become number three globally. Mittal is now estimated to be worth $25 billion. But there are enormous challenges. Despite its rapid growth, Asia has many of the poorest citizens in the world. Out of the 1.2 billion poor people around the world who live on less than a dollar a day, about 800 million live in Asia. In a sea of rising incomes and rapid economic growth, widespread and pervasive poverty is the principal challenge in Asian development. The importance of entrepreneurship -- the process of recognizing opportunity and addressing it through an organization3 -- to foster economic growth has been emphasized for many years. Leibenstein (1968) discussed the role of entrepreneurship in the economic development process. He explains that, in the presence of market imperfections, entrepreneurs are needed to "search, discover, and evaluate opportunities, marshal the financial resources necessary for the enterprise, make time-binding arrangements, take ultimate responsibility for management, (and) be the ultimate uncertainty and/or risk bearer." Many public officials around the world have also supported the intuitive notion that entrepreneurship has a positive impact on gross domestic product (GDP) growth and employment.4 The United Nations leads the international community in stressing the importance of a vibrant private sector for economic development. In its 2004 Report, the UN Commission on the Private Sector and Development believes that poverty alleviation requires a strong private sector. It is the source of growth, jobs and opportunities for the poor.5 The Monterrey Consensus of the G8 countries also made clear that achieving lasting development requires the use of all relevant resources, including the role of the private sector as a vital engine of economic growth, job creation and poverty reduction. Thus, enabling the private sector to help poor people prosper should become systematically integrated into development assistance efforts. To achieve this, developing countries need to create the conditions in which entrepreneurs can build successful businesses and families can access formal financial markets at reasonable prices.6 In Asia, entrepreneurship through small and medium-scale enterprises (SME) is a major economic phenomenon. 7 According to an Asia Pacific Economic Cooperation (APEC) Survey in 1994, SMEs play a major economic role in all of its member economies. They make up well
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The author would like to acknowledge the research assistance provided by Mary Grace Mirandilla.

The Worlds Richest People, Forbes, Feb. 25, 2005;

Entrepreneurs Toolkit: Tools and Techniques to Launch and Grow your New Business, Harvard Business School, 2005.

Tang, Linghui, Venture Entrepreneurship, Innovation Entrepreneurship, and Economic Growth, Norfolk State University Foundation, August 2004. 5 Commission on the Private Sector and Development, Unleashing Entrepreneurship: Making Business Work for the Poor, March 2004. 6 G8 Action Plan: Applying the Power of Entrepreneurship to the Eradication of Poverty, 30th G8 Summit at Sea Island, Georgia on June 8-10, 2004.

over 90% of all enterprises and cover 32% to 84% of the employment in individual APEC economies.8 According to the Organization of Economic Cooperation and Development (OECD), SMEs account for more than 90 % of all firms outside the agricultural sector and constitutes a major source of employment in Asia. This looks surprisingly similar to the United States where small businesses: Represent 99.7 percent of all employer firms. Employ half of all private sector employees. Pay 44.3 percent of total U.S. private payroll. Generated 60 to 80 percent of net new jobs annually over the past decade.9 This paper examines the environment and factors that influence Asian entrepreneurship. Influenced by its colonial past and a strong central state after independence, many of Asias contemporary local entrepreneurs now thrive in an environment where the individual and the private sector are not as empowered as Western counterparts, formal institutions are still relatively weak, and new market opportunities for the middle class in a competitive environment are just beginning to unfold. Capital in Asia is in the hands of the elite, which has tremendous power over the state. In some countries, the private sector is inward looking and lacks entrepreneurial training as well as international exposure. In others, the private sector is focused on export-oriented growth. There are also many cultural practices and factors that influence the spirit of entrepreneurship in the region. 1. The Role of the State in Entrepreneurship In Asia, the state has played a central and definitive role not only in politics and governance but also in private sector development. Due to the diversity, this section examines individual countries to draw lessons about the role of the state in entrepreneurship. China. Prior to 1978, China had a centrally planned economy where economic activities were controlled by the government through large state-owned enterprises. In 1978, the Communist Party led by Deng Xiaoping began to open the Chinese economy. Small enterprises began to sprout in the countryside. These startup firms drove Chinas reform momentum, arguably the main source of Chinas growth. In the years that followed, a series of central and local regulations on the licensing and controlling of individual and private businesses, taxation, product quality and hygiene, and free markets were introduced, resulting in the rapid development of the private sector. By the year 2000, the total number of firms was more than 312.5 million, including 1.76 million private firms and 311 million individual business units. Private firms hired more than 20 million workers while more than 311 million of the labor force worked in individual business activities. Vietnam. In Vietnam, the early years of transition after 1986 showed that private enterprises are more efficient in the allocation of scarce resources and are more effective in generating

Kabria Anderson, Defining Entrepreneurship, CELCEE Kauffman Center for Entrepreneurial Leadership Clearinghouse on Entrepreneurship Education, December 2002. 8 C. J. Lee, Chi-Keung Li, and Trace S. Hwang, The APEC Survey on Small and Medium Enterprises, APEC Committee on Trade and Investment, APEC Secretariat, Singapore, 1994. 9 U.S. Bureau of the Census; Advocacy-funded research by Joel Popkin and Company (Research Summary #211); Federal Procurement Data System; Advocacy-funded research by CHI Research, Inc. (Research Summary #225); Bureau of Labor Statistics, Current Population Survey; U.S. Department of Commerce, International Trade Administration.

employment opportunities.10 Vietnam adopted its Company Law and Law on Private Enterprise in 1990, a first step towards the creation of a new environment for entrepreneurship. For eight years after the implementation of these laws, more than 35,000 enterprises were established, 61 percent during the period of economic boom in 1993, 1994 and 1995. Although the growth rate for start-up enterprises declined after the Asian financial crisis in 1997, the momentum for entrepreneurship has already begun. Clamor from within Vietnams government for equal treatment of private, collective, state-owned and foreign-invested enterprises led to the adoption of the New Enterprise Law (NEL) in 1999. The NEL fosters entrepreneurial spirit in Vietnam by clearly defining the governmental administrative function, promoting independent entrepreneurial activity, and adopting the principle of equality for private, collective and state enterprises. It revoked unnecessary business license restrictions in 145 industries, trades and services, and eased private entry in the market. The NEL also created new channels for private investment funds instead of the unique source of public investment capital financed by the state budget.11 Since the reforms, the development of SMEs has been a means of promoting private sector growth. Private enterprises have played an increasingly important role in job creation, investment structure, export and contribution to state budget and GDP during the past decade. It is not surprising that those who had spent their lives under central planning underestimated the impact of entrepreneurship. For a country undergoing deep economic reform, there was a sense that starting a business was especially risky. Unstable prices as a result of the reforms make it unclear which businesses are going to be the most profitable. State firms fearing competition tend to harass the new firms and corrupt bureaucrats extort bribes. With the absence of normal marketsupporting institutions, the new firms usually cannot rely on the courts to enforce their contracts; bank loans are difficult to obtain for most; and there is little legal or regulatory provision for shareholding. Several major lessons emerge from the experience of China and Vietnam: 1. Rapid economic growth can be achieved by unleashing the private sector entrepreneurship. 2. There is momentum for reform. As the initial economic reforms spurred the emergence of entrepreneurs, these new businesses in turn drove further reform. 3. An Asian-style entrepreneurship emerged characterized by self-help and substitutes for the missing capitalist institutions. For example, keeping ones reputation substituted for court enforcement of contracts. Trade credit (loans from firm to firm along the supply chain) substituted for bank credit. Reinvestment of profits substituted for outside equity. Although this proved sufficient for a few decades, the financial crisis put its viability and sustainability into question. Singapore. Prior to independence in 1965, private sector entrepreneurs contributed to economic development. After independence, the public sector represented by ministers, civil servants, statutory boards and statutory companies (now called government-linked companies) took over

In 1986, Vietnam adopted the doi moi (renovation) policy, which moved the economy from a centrally planned system to being market-oriented. The reforms included opening doors to the world economy and liberalizing domestic trade; reforming state-owned enterprises; diversifying ownership and entrepreneurial development; reforming its financial system with an orientation to a market based system; and attracting foreign investment. 11 Ho Ngoc Phuong, Entrepreneurship in Vietnam: Just on the Starting Point of the Race, Entrepreneurship in Asia: Playbook for Prosperity, Mansfield Foundation, April 2003.

entrepreneurial activities. After suffering its first recession in 1985, the country once again looked to entrepreneurship. A committee was established to chart new directions for Singapores economy by focusing on local enterprises as an important ingredient for continued growth. This led to the first SME Master Plan in 1989, which introduced measures and assistance schemes and an entrepreneurial infrastructure. The plan was renewed after ten years. The current recession that began in 2001 has led to a renewed interest in and urgency to encourage entrepreneurship in Singapore. In December 2001, the government established the Economic Review Committee to develop economic and business strategies for Singapore in response to increased market competition and the shift of focus away from Southeast Asia to China. The Singapore Productivity, Innovation and Growth (SPRING) is the lead agency responsible for domestic SMEs. One entrepreneurship assistance mechanism that stands out is the Local Enterprise Technical Assistance Scheme wherein SMEs can obtain relevant technical assistance offered by management consultants. The SMEs may be reimbursed for up to 50 percent of their costs for engaging management or technical consultants on projects approved by relevant government agencies.12 The major lesson from Singapore: The success of creating a strong civil service and an environment to attract multinationals has hampered the entrepreneurial spirit. Young people have limited interest in starting new companies; finding a job in a large corporate entity is the preferred career option. Joining the civil service is also very attractive due to an excellent compensation package. Malaysia. The Malaysian government leads a strong initiative in promoting entrepreneurship but it nurtures a particular race --- the ethnic Malays or Bumiputras --- to address the social and economic inequities resulting from a centuries-old colonial policy that assigned a race to an economic activity. Positioning the middle-class Malays as the main agents of economic growth, the government now adopts a variety of supporting mechanisms and policies for the Malay entrepreneurs, including funding, physical infrastructure and business advisory services. Beginning in 1983, the government began to reverse its earlier promotion of public enterprises and began to encourage privatization. It also adopted a series of policies ranging from privatization to the encouragement of small and medium-scale industries (SMI) development, which helped to create the conditions and opportunities for entrepreneurship to flourish. In 1995, the government established a special ministry, the Ministry of Entrepreneur Development, to serve as the lead agency for the development of Bumiputra entrepreneurs and to coordinate entrepreneurship activities in general. Nearly all of SME investments are focused on encouraging Bumiputra entrepreneurs. As a result, the number of new Bumiputra-owned firms doubled between 1995 and 1999. Eventually, the government created a Bumiputra Commercial and Industrial Community (BCIC) to foster Bumiputra entrepreneurs and professionals, and to create a Bumiputra middle class. This has become the backbone of Malaysias strategy for strengthening national entrepreneurship and is very explicit in its programs.13 Taiwan. Taiwan emerged from WWII with a weak industrial base that was capable of exporting only sugar, rice and bananas. In 1952, publicly owned enterprises were established and dominated the economy. Because of the limited domestic market, the government adopted an export-promotion policy, which favored industrial development. From 1953 to 1988, the agricultural sectors share in the gross domestic product decreased from 38% to 6%, and by 1987,

Wee-Liang Tan, Entrepreneurship Challenges Ahead for Singapore, Entrepreneurship in Asia: Playbook for Prosperity, Mansfield Foundation, April 2003. 13 Enhancing the Performance of SMEs, Economic Planning Unit, Prime Ministers Department, March 2005.

the publicly-owned sector accounted for only 10% of the total value-added in the manufacturing sector. The private enterprises that emerged are overwhelmingly small and medium-sized firms, defined as having less than US $1 million in paid-in capital. The 700,000 SMEs account for 70% of employment, 55% of gross national product and 62% of manufactured export sales. Because of the low level of capital available, labor-intensive industries predominate and SMEs engage in little research and development (R&D). To increase domestic technological capabilities, the government has established research institutions for technology development, and currently funds roughly half of Taiwanese R&D. The two key organizations, the Industrial Technology Research Institute (ITRI) and the Institute for the Information Industry (III), are responsible for developing new information technology and software, transferring it to private firms, and forming alliances with foreign partners.14 The major lesson in Taiwan: public policy initiatives such developing the computer industry as part of a cluster approach can be successful. Indonesia. The state has always played a central role in shaping Indonesias economy. After independence, Sukarno introduced a brand of "socialism la Indonesia" through a Guided Economy where the government gained complete control over most private markets, including foreign trade and bank credit. The old regime went beyond available resources and funded ambitious government expenditures by restoring to the central bank for credit. Large budget deficits and intrusive economic controls led to mounting inflation and a stagnant economy. As a result, private sector growth was stunted in the early years of nation building, from 1950 to 1957. Although a variety of moderate policies were pursued to support the pribumi through subsidized credit from the state-owned Bank Rakyat, or People's Bank, and through limiting certain markets to pribumi business, the nation's first five-year development plan (1956-60) offered little regulation or overall guidance to the private sector. When Suharto assumed power in 1966, the New Order that he institutionalized heralded a return to private market development. The reforms resulted in dramatic economic transformation and the concomitant formation of middle classes. The countrys reliance on the natural abundance of the tropics and thousands of hectares of plantations during the colonial period was shifted to growing industries such as steel, aluminum and cement, and modern technology. Throughout the 1980s and much of the 1990s, Indonesia enjoyed high rates of economic growth, a reduction in poverty, and improvements in the health and education of the population. But this rapid growth was discontinued in mid-1997 when the currency crisis began to sweep Southeast Asia. The Indonesian rupiah fell dramatically, enormous private sector debts emerged, and the banking sector was paralyzed. The monetary crisis that ensued saw the economic growth rate drop from an annual average of 8 percent (1970 to 1996) to 14 percent in 1998. The nation also experienced its worst drought in fifty years, causing famine. Soon, public insecurity mounted and led to the fall of Suharto. India. Indias new leaders after independence in 1947 sought to use the power of the state to direct economic growth and reduce widespread poverty. The public sector dominated heavy industry, transportation, and telecommunications. The private sector produced most consumer goods but was controlled directly by a variety of government regulations and financial institutions

Ganeshan Wignaraja, Promoting SME Exports in Developing Countries, Maxwell Stamp PLC, 23 November 2003.

that provided major financing for large private-sector projects. Government emphasized selfsufficiency rather than foreign trade and imposed strict controls on imports and exports. In the 1950s, there was steady economic growth, but results in the 1960s and 1970s were less encouraging. Beginning in the late 1970s, successive Indian governments reduced state control of the economy. Progress was slow but steady, and many analysts attributed the stronger growth of the 1980s to those efforts. In the early 1990s, strong centralized planning, regulation and control of private enterprise, state ownership of many large units of production, trade protectionism, and strict limits on foreign capital was increasingly questioned by policymakers and the intelligentsia. In 1991, India embarked on a series of economic reforms in reaction to a severe foreign exchange crisis. Those reforms included liberalized foreign investment and exchange regimes, significant reductions in tariffs and other trade barriers, reform and modernization of the financial sector, and significant adjustments in government monetary and fiscal policies. The government-led reform process has had a great impact on Indias steadily growing economy, which has an average growth rate of 6% per annum since 1993. The country now enjoys lower inflation rates, an environment attracting foreign investment due to a professional business culture, a well-established corporate legal system, and English as the language of commerce. In todays India, risks can be anticipated and managed and the significant transaction opportunities increasingly outweigh risks. The result is a stable booming Indian economy. By the end of 2003, its foreign exchange reserves breached the $100 billion mark. According to an Ernst & Young report, massive investment in India is predicted in the next decade as it takes its rightful place on the global economic stage. As a new India that is young, entrepreneurial, skilled and competitive is emerging, foreign investment continues to increase. In 2005, it is expected to amount to US$15 billion in 2005, a three-fold increase on the previous year. Ernst & Young India National Director V V Ranganathan observes that a robust entrepreneurial culture has strengthened Indias position in the world economy. As Indian businesses cross borders, they foster both wealth creation and generation of employment opportunities. Given the right impetus, there is very strong potential for more Indian businesses to become truly world class players.15 2. Financing Entrepreneurship Most governments in Asia provide a range of financing programs for SMEs such as preferential tax treatment to new firms or a special financial program for SMEs. In Taiwan, for example, the government operates both a Small and Medium Business Development Fund and a SME Credit Guarantee Fund that provide working capital, credit guarantees and other forms of financial support. The Credit Guarantee Fund has been in operation since 1974, and has assisted more than 107,000 firms gain access more nearly $59 billion. The Korean government also provides incentives to new start-up businesses, although they have been concentrated on new ventures and new start-ups in high technology industries. A more recent trend has been the establishment of equity financing institutions. Both Thailand (Market for Alternative Investment) and Malaysia (MSC Venture One Fund) have recently sought to expand the availability of equity funding for new ventures. Several governments, including

Opportunities Abound for Investing in India in 2005, Ernst and Young Entrepreneur of the Year World Summit, Press Release, Singapore and Mumbai, February 18, 2005.

Malaysia and Hong Kong, have also encouraged the creation of special funds targeted to women or minority population entrepreneurs.16 An area for future research is the role of family and friends in promoting entrepreneurship in Asia. There are surprising findings regarding the source of start-up capital in the U.S. According to a new study, informal investors such as family and friends, provided $108 billion to new businesses in the U.S. That amount is much larger than formal venture capital investments, which stand at $18 billion.17 A study on how much is actually provided by informal investors in Asia could inform policymakers and others to design programs to encourage and facilitate the growth of this method. 3. Regulatory Barriers to Entrepreneurship According to the World Bank, there is a growing consensus that the quality of business regulation and the institutions that enforce this regulation are major determinants of prosperity. Despite the supporting mechanisms adopted by the different governments, there are a number of regulatory barriers that continue to hamper the development of the private sector and entrepreneurship. First, local regulations and government practices often serve as barriers to start-ups. Everything from licensing delays to burdensome taxes exists in the region. Asian entrepreneurs regularly complain of such red tape and bureaucracy, and efforts to streamline government practices are underway. These bureaucratic burdens can take many forms. In China and Vietnam, remnants of the old communist system still exist. For many entrepreneurs, stateowned or affiliated enterprises present market competition, and limit growth opportunities. In Korea, the Kim Dae-Jung government was keen on stimulating new business start-ups and promoting SMEs. A system of venture registration was introduced and various incentives were provided to firms registered as new business ventures. But this system had many undesirable side effects as bribes and corruption accompanied the registration process and incentives. Tax incentives were made available to individuals who invest in new ventures, and venture capital firms were also given preferential treatment by the government. The World Banks Doing Business in Asia 2004 reveals that one of the major factors that affect business start-up in the region is entry regulation. In Asia, cumbersome entry procedures are associated with corruption, particularly in developing countries. Each procedure is a point of contactan opportunity to extract a bribe. Empirical analysis shows that burdensome entry regulations do not increase the quality of products, make work safer, or reduce pollution. They hold back private investment, push more people into the informal economy, increase consumer prices and fuel corruption.18


Erik R. Pages, Introduction, Entrepreneurship in Asia: Playbook for Prosperity, a compendium report in preparation for the 4th U.S.-Japan dialogue on Entrepreneurship in Asia, Mansfield Foundation, Hong Kong, July 2002. 17 Brian Hindo, Money From Home: Raising Dough from Friends and Family. Businessweek SmallBiz Spring 2005. p. 30. 18 Doing Business 2004: East Asia, A Project Benchmarking the Regulatory Cost of Doing Business in More Than 130 Countries, Monitoring, Analysis and Policy Unit Investment Climate Department, World Bank Group, 2004, p. 10.

The study identifies the following as the main indicators for starting a business, which include regulations that either enhance or constrict business activities: all procedures required to register a firm, average time spent during each procedure, official cost of each procedure, and the minimum capital required as a percentage of income per capita. The table below shows the result of the assessment of starting a business per region:
Region or Economy East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa OECD: High income South Asia Sub-Saharan Africa Number of Procedures 8 9 11 10 6 9 11 Duration (days) 52 42 70 39 25 46 63 Cost (% GNI per capita) 47.1 15.5 60.4 51.2 8.0 45.4 225.2 Min. Capital (% GNI per capita) 100.5 51.8 28.9 856.4 44.1 0.0 254.1

Source: BenchmarkingEntry Regulation, East Asia Compared to Global Best / Selected Other Countries, Doing Business in 2004: East Asia, World Bank.

An earlier study conducted in 2001 by experts from the World Bank and Harvard University say that the world average time for a start-up is 47 days. In 2004, when there should have been expected improvements, Asia still fares poorly compared to OECD countries, Europe and North Africa. Measuring the regulatory steps, a survey of select countries shows that Asia ranks poorly in terms of number days to start a business. The Philippines and Indonesia, ranked poorly in terms of the processes involved in starting a business. It takes 59 days to start a business in the Philippines while it will consume 168 days of an entrepreneurs time to establish an enterprise in Indonesia. The Philippine business registration system is considered one of the most expensive and inefficient in the Asian region.19 Similarly, Indonesia had one of the lowest ranking in the Global Corruption Perception Index of 2004.20 Not surprisingly, the two countries are also considered two of the most corrupt nations in Asia. There is a consensus among entrepreneurs around the world that regulatory barriers dampen the entrepreneurial spirit. A recent Ernst & Young survey of participants in its annual Entrepreneur of the Year World Summit conducted in February 2005 confirms this: entrepreneurs felt that authorities should do more to encourage further enterprise, such as reduce bureaucracy and red tape and improve education and training within the workforce. To ensure a vibrant private sector and high entrepreneurial activity, there is a need to lower the barriers to the entry of new firms into an industry. The appropriate competition policy should also be put in place to create an enabling environment for entrepreneurial development, an essential prerequisite for a vibrant economy.21

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Cassandra Garcia, SEC-BIR in data exchange team-up Philippine Graphic, 2004. Johann Graf Lambsdorff, Corruption Perceptions Index 2004, Global Corruption Report 2005.

Asian Culture and Tradition on Entrepreneurship Apart from the economic context, culture and traditional practices influence the attitude of a country towards entrepreneurship. Asian values based on philosophy, religion or historical experiences also play a role. Education serves as the tool that helps instill values, which either encourage or thwart the development of the entrepreneurial spirit and ideas among Asians. Importance of Family-Owned Businesses Many of Asias corporate colossuses today started as family firms. Time magazine calls business in Asia a family affair. It characterizes an Asian economy as a diagram of an extended family tree connecting clans, with dotted lines sometimes leading to the government. Family-owned businesses dominate the economic landscape of different Asian countries for decades. For more than 30 years, the Indonesian archipelago was run by a mom-and-pop operation called Suharto Inc. South Korea's economic miracle was engineered by some 30 ambitious conglomerates (chaebols), almost all family controlled. Today, the majority of Asia's publicly owned companies are still family controlled. The operations are normally done by family members, with boardroom positions and top jobs being passed down from fathers to sons and daughters, not to professional managers outside the clan. Profits are used to fund a sister (or cousin) company, instead of going to shareholders. Financial matters are usually internal to the family. And since a family-owned business is the familys business, personal relationships tend to be thicker than meritocracy.22 George Yip, Professor of Strategic and International Management from the London Business School, explains that the importance of family is key to Asian business. Family controlled firms exist not only to make profit but also to provide employment and to uphold the familys prestige and honor.23 During the 1980s, most of Asias industrialization emphasized the role of larger corporate entities: Koreas chaebols, Taiwans computer and semiconductor manufacturers, Japans global conglomerates, and the like. These huge corporations stifled the importance of SMEs as a core component of each economic base. The collapse of many of these larger institutions in the 1990s served to increase interest in entrepreneurship and to open up new economic opportunities. In Korea, for example, family-owned chaebols historically dominated the economy. Although they were a major force in the economy before the financial crisis, about one-half have gone bankrupt or been seriously weakened due to the liquidity crisis and poor competitiveness. When its economy faced near collapse in 1997, Korea had to ask the International Monetary Fund (IMF) to provide emergency financing and undergo structural reforms. Many of the chaebols lost market share and were forced to lay off tens of thousands of trained managers. The demise of these large firms had a profoundly positive effect on the Korean economy as the influx of new talent and creative energy helped found new companies and foster new innovations. This period coincided with the rapid spread of the Internet. During this period, the government also provided several measures to promote venture start-ups and developed an institutional framework for venture capital and other financing schemes for new business.


Pradeep S. Mehta1, Competition Policy in Developing Countries: An Asia-Pacific Perspective, Bulletin on Asia-Pacific Perspectives 2002/03 22 Anthony Spaeth, Clans on the Run, Time Asia, February 16, 2004. 23 Speaking at the Ernst & Young Entrepreneur of the Year World Summit, Singapore, 17 February 2005.

An entrepreneurial boom is now transforming Korea. Beginning in 1999, there has been an upsurge of new business registration, which could mean that Koreas traditional business model may be replaced by a new model where new ventures and SMEs account for a bigger share of the economy and contribute more to the countrys economic growth.24 From 1998 to 2002, a large number of new corporations or legal persons were established. For some reason, the entrepreneurial spirit among the Korean people was awakened after the economic crisis in 1997. This seems to fall under the contingency school, which argues that entrepreneurial activity depends very much on the economic situation. According to this approach, as more human resources are made idle or unemployed, more new business start-ups will take place. Amidst past reforms to significantly reduce the role of government in all sectors of the economy, several major state-owned firms labeled strategic industries, which offered few employment opportunities, were protected from any threat of privatization. Ironically, the most visible beneficiaries of the growing economy during the 1970s and 1980s were the Chinese minority and members of Suharto's own family, whose business interests multiplied with lucrative government contracts and led to fortune worth $15 billion in cash, property, art, jewelry and jets.25 Big business in Indonesia was owned and operated by Suhartos cronies and his offsprings. His six children are known to head up various large corporations, which won contracts for huge government projects and for providing services exclusively. They have significant equity in at least 564 companies, and their overseas interests include hundreds of other firms, scattered from the U.S. to Uzbekistan, the Netherlands, Nigeria and Vanuatu. Thus was born Suharto Inc. Each child was connected with one or more conglomerates with diverse interests, and like their Chinese minority counterparts, they based their business success at least partly on lucrative government contracts. For example, the Bimantara Citra Group owned by son Bambang Trihatmodjo, reportedly the largest family conglomerate by the 1990s and Indonesia's fifth largest company in 1992, took off in the early 1980s selling allocations of overseas oil to the National Oil and Natural Gas Mining Company (Pertamina) --- the government oil monopoly and the nation's largest company. Outside the family, the steel and plastics industries symbolized the intricate relationship between government and business where a business group will agree to invest in a government enterprise if granted a monopoly in a particular industry. The conglomerates were able to adapt quickly to the new environment resulting from the reforms. For example, the Bimantara Citra Group lost its plastics import license held through Panca Holdings in 1988 but gained new interests in sectors that had previously been closed to private investment. The group became the first Indonesian company permitted to establish a privately owned television station--Rajawali Citra Televisi Indonesia (RCTI)--and, in the early 1990s, was poised to invest in petrochemical plants, a government stronghold for a long time. The scenario is quite similar in the Philippines where old rich clans normally operate major businesses and families control provinces. Patronage, influence peddling and cronyism became rampant during the Marcos regime wherein the support of political clans and warlords were sought and rewarded through political power and economic benefits. The nucleus of the major families and their businesses are clustered around a bank. These provide preferential lending practices to family and friends. Today, patriarchs and scions of the families that own business empires in Asia also say that it is no longer business as usual. For the past several years since the 1997 Asian Financial Crisis, they
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Ku-Hyun Jung, An Upsurge of Entrepreneurship in Korea and Its Possible Reasons, April 2003. John Colmey and David Liebhold, The Family Firm, Time Asia, May 24, 1999.


have increasingly come under fire for inefficient, outmoded and nepotistic practices. The crisis triggered a wave of scrutiny and demand for reform of family-controlled companies. The once revered taipan became closely associated with crony capitalism, and crony capitalists were heavily blamed for the region's collapse. The Asian Financial Crisis created pressure for family businesses to change their old practices. According to Jamie Allen, secretary general of the Asian Corporate Governance Association in Hong Kong, a nonprofit organization that monitors the behavior of Asia's company managers, "the rules of the game have changed." Today, free trade, looser controls of capital flows, the information and communications technology (ICT) explosion, and global competition are making it harder for family businesses to keep their old ways. Asians are clamoring for more choices and competition. Shareholders are demanding "transparency" and genuine financial data, and that publicly owned companies be run for the benefit of all stakeholders. In Korea, for example, where conglomerates have been run to maximize political power for the leading families, rather than as normal businesses to maximize profits," things changed after the crisis, says Morgan Stanley economist Andy Xie. The crisis caused the breakup of powerful conglomerates like Ssangyong and Hyundai and fostered in the public a persistent anti-chaebol backlash. This puts pressure on politicians to lead the crusade for chaebol reform by conducting special investigations into chaebol-related bribery, stock manipulation, illegal campaign contributions, tax evasion and fraud. Trends in the international market after the Asian financial crisis also require a more transparent and credible business model. According to CFO Asia, institutions in the region will soon usher in a new culture of due diligence, not out of will but of compliance with global standards.26 For example, by 2008, banks will have to follow a new international regulatory requirement, called Basel II, that allows them to adjust their capital according to risk exposures - the greater they are exposed to risky borrowers, the greater capital they must set aside as a buffer for credit loss. This will force banks to beef up their own credit-assessment skills, where transparency of financial accounts is crucial. Brian Cahill, managing director for Asian corporate ratings at Moody's Investors Service, says bond-market investors are growing wary of opaque issuers, notably family-controlled conglomerates that are some of the region's biggest borrowers. Cahill predicts that the crossshareholdings common to chaebols in South Korea will have eroded in favor of clear-cut holding companies in the next ten years due to a deep degree of suspicion in the chaebol structure that lacks transparency about their affiliates. The Hong Kong conglomerate model, where a family controls a holding company that in turn controls several listed and non-listed companies, will also see dramatic changes: those that have a track record of inappropriate related-party transactions will not be forced to restructure, but pushed out of the radar of institutional investors. "The trend we're seeing is that mid-cap companies are using good corporate governance to get noticed by institutional investors," says Jamie Allen, secretary general of the Asian Corporate Governance Association. There will be more scrutiny and that will lead to better transparency, management, and governance. It is still too early to tell if the reforms in corporate governance will have any lasting impact. In many cases across the region, minority shareholders continue to have no recourse and voice in major corporate decisions.

Abe De Ramos, Future Tense: Macro Trends that are Shaping the Future of Asian business, CFO Asia, December 2004.


Cultural Values and Educational Practices According to the Global Entrepreneurial Monitor, the general attitude of the public toward entrepreneurship and the understanding and support of the importance of entrepreneurship in society are key social and cultural norms.27 In Malaysia attitudes toward enterprise creation have been previously divided along racial lines (due to the identification of race with economic activity). However, the situation is beginning to change as the whole of Malaysian society begins to modernize and social restructuring begins to take effect. The Chinese Malays and to an extent the Indian-Muslim community have had a long tradition of entrepreneurship. In fact, the handing over of family businesses from father to son was the norm for these groups. This was in contrast to the Bumiputra community who, as a whole, did not have a tradition of entrepreneurship. Rather, they were used to being either employed in the government service, or self-employed as agricultural farmers or smallholders. Nevertheless, there were exceptions to the rule where Bumiputras were involved in business, although the numbers were small. Some argue that traits of Asian culture undermine the entrepreneurial spirit. During a Harvard Asia Business Conference in 2001, speakers James Root, President of NetCel360 Limited and Victor Wang, President of GWCom, Inc. asserted that Confucian values inhibit the entrepreneur to risk failure and engage in maverick behavior. Not only do the familial responsibilities associated with Confucianism discourage risk-taking but the respect for authority and hierarchy discourages challenging or bypassing the establishment. They argue that traditionally low social status of Chinese merchants further complicates the entrepreneur's task.28 This culture is still so deeply entrenched in the Asian society that today, although 20% of all young people have the potential to become entrepreneurs, only 5% do. Former Indian Prime Minister Atal Bihari Vajpayee said in his speech at the Asian Summit on Youth Entrepreneurship and Employment that Asias governments and citizens need to reset their mindset regarding entrepreneurship, starting with its youth. The young, educated generation must explore beyond the traditional government employment and governments should encourage the youth to look into entrepreneurship. 29 There is a growing consensus that the absence of a risk-taking culture affects the lack of interest in entrepreneurship. Education can either promote or discourage creativity and risk-taking attitude through the curriculum. By giving youth the proper entrepreneurial tools through educational and training programs, a vast and crucial segment of the global population can become a key element of the economy.30 The Global Entrepreneurship Monitor (2001) emphasizes that education, and more specifically, training that enhances entrepreneurial capacity, were the most important ways that communities could expand local entrepreneurial activity. But Francis Chigunta from Wolfson College says promoting young peoples involvement in entrepreneurial activities has
27 28

Global Entrepreneurial Monitor 2000.

Ilya Garger, The Nature of Entrepreneurship in Asia, Plenary III, Harvard Asia Business Conference, Harvard Asia Quarterly, Feb. 2-3, 2001. 29 Asian Summit on Youth Entrepreneurship and Employment, Parliament House, New Delhi, 30 October 2003. 30 Larisa S. Shambaugh, Whitney Houston, Economist? The Power of Youth Entrepreneurship Programs in Asia, Foundation for Enterprise Development/Beyster Institute, 2003.


many other social benefits. The marginalized and disadvantaged youth can find a place in the economic mainstream. Innovative and resilient qualities in young people can be reinforced. Most importantly, new ideas and innovations in business opportunities can invigorate the individual and the larger economic community. Entrepreneurship Education In Asia, entrepreneurship education was once seen as a contradiction in terms. There used to be a divide between entrepreneurship and advancement in education. The Mandarin tradition, deeply rooted and still alive in much of Asia until today, dictates that those who did well in education work in the government or the professions. But the traditional divide is blurring over due to the emergence of a knowledge-based society. Innovative economic system requires a culture that respects risk-taking. A society with high levels of knowledge and skills will not produce the breakthroughs in products or processes needed for economic advance without a culture of entrepreneurship that extends across society. Without the willingness to take risks, people cannot create value from knowledge. 31 This attitude can be inculcated in a curriculum that supports risk-taking, tolerates failures, and give high regard to business ventures. Schools and universities play a crucial role in promoting a new wave in education beginning with the young generation of entrepreneurs. Veering away from the culture of submission, academic and non-academic programs can help nurture an entrepreneurial culture by encouraging students to think for themselves, to question things as they learn, and to experiment and take the initiative at the risk of failing. The proliferation of business schools and academic institutions that promote entrepreneurship is helping change the attitude towards entrepreneurship. The Asian Institute of Management based in the Philippines houses an Asian Center for Entrepreneurship and offers a Masters in Entrepreneurship, a degree program launched in 1999 designed exclusively for practicing entrepreneurs running SMEs, aside from its traditional management degrees. The Gujarat Centre for Entrepreneurship (CED) and the Entrepreneurship Development Institute (EDI) in Ahdemabad, India are similar government-supported schools that aim to foster entrepreneurship. The EDI, an autonomous body and not-for-profit institution set up in 1983, is sponsored by apex financial institutions, namely the Industrial Development Bank of India, the Industrial Finance Corporation of India, the Industrial Credit and Investment Corporation of India and State Bank of India. Around the world, inventive entrepreneurship and technology-driven SMEs have come of age under the knowledge-based economy. SMEs are now the backbone of most economies especially in developing the world. In this context, it is interesting to point out that aside from the traditional entrepreneurship education, entrepreneurship programs are opening up to students in science and engineering disciplines to respond to the demands of todays knowledge-based economy. There is also a strong consensus emerging that entrepreneurship education has to go beyond the traditional classroom to incorporate more experiential learning -- through internships in industry, mentoring with experienced entrepreneurs, business plan competitions and the like. Singapore is leading the way in imbuing the young generation with entrepreneurial instincts and attitudes, through school education and life experiences. In fact, it is reaping considerable


Keynote address by Mr. Tharman Shanmugaratnam, Acting Minister for Education, at the Inaugural Roundtable on Entrepreneurship Education Asia 2004, National University of Singapore, 29 July 2004.


dividends from heavy investment, made since the early 1990s, in research and development activities. The National University of Singapore (NUS) Entrepreneurship Centre is a good example of a school offering academic courses related to technopreneurship. The University conducts a wide range of continuing education programs on entrepreneurship and innovation for NUS alumni and the larger venture community in Singapore. Its Overseas College Program sends students to a number of technology hubs around the world to undertake internship in high tech start-ups, and to take courses in entrepreneurship in partner universities like Stanford in Silicon Valley, University of Penn in Philadelphia, and Fudan in Shanghai. The NUS also jointly organizes the Roundtable on Entrepreneurship Education (REE) Asia, a conference that gathers business, science, and engineering faculty from leading universities in Asia with the goal of accelerating entrepreneurship education for scientists and engineers, together with Stanford and the University of California, Berkeley. Some governments have followed Singapores path by directly incorporating youth entrepreneurship programs somewhere into their education system. For example, Bruneis Ministry of Culture, Youth and Sports initiated a Youth Development Program that gives small business and entrepreneurship training to young people who are unable to continue with higher education. In an effort to spark a dormant entrepreneurial spirit in their country, Japans local governments and schools have implemented entrepreneurship education as part of the standard school curriculum. Hong Kong is also seeking to improve science and engineering education, but it also strives to bring a new spirit to educational institutions more conducive to entrepreneurship. Recent studies of the local system found that its curriculum is too narrow and exam-focused. As a result, it fails to inculcate creativity and risk-taking among young people. Similarly, Malaysias Binary University College, its first management and entrepreneurship school, aims to produce young and ambitious Industry Specialist Professionals (ISPs), hybrid professionals that have in-depth knowledge about a particular industry such as engineering, biotechnology, IT and science. In addition, there are new efforts to bring creativity training into the schools to help previously underserved groups. In Malaysia, specialized training for women entrepreneurs is provided through the Womens Entrepreneurs Fund and other programs. Special industry associations for women entrepreneurs were established to provide other means of support. The Indonesian government has also launched an entrepreneurship program to increase the role of women in small industries (P2K-IK) and to train women entrepreneurs. Initiated under the Department for Industry, the program targets to help women in small-scale businesses, women workers cooperatives, women in farming and fishing, female entrepreneurs and managers of joint small business groups. Apart from government initiatives, many private organizations and civic clubs have also taken the reins on the issue of youth entrepreneurship. Singapores Youth Entrepreneur Network allows young people to network and interact with real entrepreneurs in order to generate a young entrepreneurial spirit. The LEARN Foundation in Bangladesh recruits young people from minority communities and provides entrepreneurship training and on-the-job experience. There is also the Young Professional Development Program in Indonesia and the Youth Entrepreneurship Foundation in the Philippines.


Regional and International Organizations Promoting Entrepreneurship in Asia Aside from a countrys government and non-profit organizations, regional and international organizations have programs to help encourage private sector development and kindle the entrepreneurial spirit in Asia. These include: APEC. The Asia Pacific Economic Cooperation has an SME Survey that aims to understand the dynamics and role of SMEs in its member economies, and avenues for cooperation.32 ASEAN. The Association of Southeast Asian Nations has support programs for SMEs on entrepreneurship development and innovation, included in the ASEAN Foundation Plan of Action.33 ADB. The Asian Development Bank does not have an explicit project on SMEs but it does have a program on Private Sector Finance. ADB supports private sector projects with clear development impact in the financial or infrastructure sector. Its role is to mobilize funding from local and foreign sources. In providing assistance to catalyze investments, ADB uses equity investments, loans, guarantees and complementary financing scheme. UN. The UN created a Commission on the Private Sector and Development that stresses the crucial role that business plays in poverty alleviation, job creation, and economic growth. The International Labor Organization (ILO) and the UN Industrial Development Organization (UNIDO) conduct joint trainings for SMEs and support the formulation and implementation of overall industrial strategies conducive to strengthening private sector development and promotes SMEs. OECD. The Organization of Economic Cooperation and Development has a Centre for Entrepreneurship, SMEs and Local Development, which disseminates best practices on the design, implementation and evaluation of initiatives to promote entrepreneurship, SME growth and local economic and employment development. IFC. The International Finance Corporation provides investment, technical assistance and advisory work to support and promote SMEs, which is a core part of its private sector development strategy. This includes providing (1) access to finance by investing in financial institutions; (2) linking SMEs to investments to strengthen local suppliers and support community development programs; and (3) provide project development facilities that support private sector development through technical assistance geared towards strengthening the regulatory environment, building the capacity of business service providers, and strengthening business and financial institutions. Private foundations such as the Maureen and Mike Mansfield Foundation, the CELCEE Kauffman Center for Entrepreneurial Leadership Clearinghouse on Entrepreneurship Education, and the Harvard Asia Business Conference also contribute to the discussion and promotion of education in entrepreneurship. The Impact of China and India on Asian Entrepreneurship

32 33


Investors and analysts agree that China and India are two of the most influential emerging economies in Asia and the world today due to their impressive transformation from being economic backwaters to global economic leaders. After China institutionalized economic reforms in 1978, the number of individual businesses and private enterprises grew rapidly. In a span of almost 30 years, China has transformed itself into a formidable economic power in Asia and a force to reckon with in the global market. It has been enjoying an impressive economic growth averaging 8% annually for the past decade. Today, it is one of the worlds largest manufacturing and services hubs. It sailed past its ambitious target of quadrupling gross domestic product in 20 years. In 2004, it received the biggest amount of foreign direct investments (FDI) and is fast catching up with the leaders of a number of sectors like information and communications technology. According to a recently released IFC report, Chinese private entrepreneurs are driving rapid growth of the ICT sector despite limited access to domestic sources of capital. There are now as many as 450 integrated circuit design firms based in China, including entrepreneurial ventures. More than 70 companies operate online games with many more active in game development. Domestic entrepreneurial activity is driving growth in mobile data, e-commerce, security software, and software outsourcing, among other sub-sectors. The report also cites statistics showing that venture capital provided nearly $1.3 billion in foreign investment to 253 Chinese ICT companies in 2004. Venture capital has been encouraged by growing exit strategies. In 2004, for example, there were 24 venture capital backed Chinese ICT initial public offerings that raised $4.3 billion in international markets. In addition, the last two years has seen leading foreign technology firms, including Amazon, eBay, and Google, make investments or acquisitions in China34 Foreign Ministry spokesman Liu Jianchao said Chinas philosophy is to have a win-win situation for all. China would like to cooperate, not compete." The official aim is to achieve a "well-to-do society" by 2020, with a per capita income of five times the present one of about US$1,000. Convinced that what China has achieved in manufacturing, India could do for services, Mohandas Pai, CFO of Infosys Technologies, the US$1 billion-a-year outsourcing services provider, sees that in 20 years down the line when India and China see their populations have larger disposable incomes, the potential demand that will be created for the rest of the world is going to be huge. Economists at investment bank Goldman Sachs have made a bold prediction: in ten years, China's GDP will have overtaken Japan's, while India's will have surpassed Italy's. By 2040 China will be the world's largest economy, with India the third, after the United States.35 Stephen Roach, chief economist at Morgan Stanley in New York agrees. The two countries will play complementary rather than adversarial roles for years to come: China in manufacturing, and India in services. Leading global research consultant and former Chief Economist for Merrill Lynch, Donald Straszheim sees China as the global engine of growth and an agent of change. In 2005, Chinas GDP is set to expand by between 8-9% with a similar increase expected in levels of productivity. It has the worlds largest foreign direct investment inflows, which bring capital, technology and

The ICT Landscape in the PRC: Market: Trends and Investment Opportunities prepared for IFC by the consulting firms Spintrack AB and BDA China, funded by the Swedish International Development Corporation Agency. 35 Abe De Ramos, Future Tense: Macro Trends that are Shaping the Future of Asian business, CFO Asia, December 2004.


talent. Chinas economy is also showing strength across a number of industries, especially manufacturing. Roach envisions that India's services sector will be propelled by innovation, as it moves rapidly up the value chain - from processing and call centers to higher value-added professional service functions. This is already underway in the medical, actuarial, and legal functions. The impact of Chinas and Indias growth can work as an economic threat or booster for their neighbors. Southeast Asia needs to rely on commodities, its last remaining comparative advantage over China. Michael Spencer, chief economist for Asia at Deutsche Bank, explains that China is a resource-poor country with very little arable land that needs to import mineral resources, and more and more of its food. But poor investment policies in Southeast Asia are causing it to lose the opportunity in supplying commodities to China to Australia, Brazil, Argentina, and Canada. He says that Southeast Asia must catch up or they're going to end up competing with China, India, and Vietnam on cost, and that means depreciating currencies, declining real wages, and with that, social unrest. The rapid growth that is transforming society is also creating a growing number of middle class that is fueling further economic growth. Jean-Christophe Iseux, Professor at Renmin University and Special Member of the China Peoples Political Consultative Committee said that there is no real middle class in China but qualified that there are sections or interest groups that are closest to the western concept of the middle class. These are the private entrepreneurs, with about 100 million employees in about 8 million registered companies, contributing to more than 50% of Chinas industrial output and responsible for the largest increase of jobs in China.36 A three-year study by the Chinese Academy of Social Sciences on economic stratification, however, estimates that the middle classmanagers, professionals, skilled technicians and service workers earning $2,500 to $10,000 a year eachconstitutes considerably less than 5% of the national population. In other words, they are only fewer than 65 million people, still a small number in Chinese standard. But a more recent CASS study published by sociologist Lu Xueyi in 2004 predicts that Chinas economy will continue to expand as its middle class is expected to grow in number while the number of farm workers, which today still accounts for 44 per cent of the nation's workforce, declines. The attitude of people is also changing as the Communist Partys new ideology embraces private enterprise, private property and almost anything else that will help make China richer and stronger.37 The reawakening of China as an economic power has a tremendous impact on the way business is done in the region. It can either serve as a market or a competition for the same market for Asias local entrepreneurs. Hong Kong and Taiwan see enormous benefits from a rising Mainland China. Thats because they did not rely on labor-intensive foreign direct investment (FDI) to develop their export capabilities. In Taiwan, the government provided a sponsorship and financing role rather than a managerial role. Thus, capital went to the most efficient firms, including small, start-up entrepreneurial firms, and was not based on political and ethnic status of such firms.


Asia's New Middle Class: Income, Identity and Consumption, East Asia Economic Summit, October 13, 2003. 37 You Nuo, Mainland's Growing Middle Class a Sign of Things to Come, HK Edition, August 4, 2004, p. 16.


On the contrary, Singapore and Malaysia view a rising China as a looming competitor for the same FDI they try to attract. Both countries relied heavily on FDI in the 1970s and 1980s because their small-scale private entrepreneurs could not access local financing. Much of domestic capital went to state-owned enterprises as there was a deliberate governmental bias against private local firms in the 1960s and 1970s. India is also seen as a growing economic power that local entrepreneurs have to contend with. Foreign investors are seeing huge opportunities in financial services after India reformed its regulatory procedures. Foreign direct investments in India have risen from US$2.3 billion in 2000-2001 to US$3.9 billion in 2001-2002. In 2003, Indias foreign exchange reserves breached the US$ 100 billion mark. The year also saw Indian companies breaking into the international corporate market, making 35 global acquisitions totaling US$450 million. There is also renewed investment focus on major infrastructure projects in the telecommunications, transport and utility sectors, among others. Indias transformation, as any Third World country, entails a considerable amount. In the domestic power sector alone, as much as US$200 billion worth of investment will be needed for the necessary improvements. Opportunities like these have sent American and European Private Equity firms flocking to the country. Ernst & Young Indias V V Ranganathan explains that what makes his country attractive is the right combination of what investors are looking for --- a young country with a growing number of young, well educated people; GDP growth rate of 6% for the past 23 years and disposable rising incomes; low inflation and low interest rates; robust capital markets; strong awareness of corporate governance; and well-established legal and accounting systems. In summary, economic conditions, government policies, demographic trends and business maturity are converging to create an India that is becoming one of the most important players in the global economy. The Future of Asian Entrepreneurship The middle class is a key agent of entrepreneurship as they possess the skills, access to resources, educational background and drive. Asias middle class emerged through political, economic and social environments significantly different from their Western counterparts influenced by: the social and political structures during the colonial period and at the time of independence; the way in which each country pursued economic development and implemented social mobilization during its nation-state building process; and the pattern of rural-urban migration that accompanied economic development. 38 Unlike Western societies where the process of modernization was preceded by a long historical process and occurred gradually over several centuries, modernization in Asia began at later points in time and took place in a much shorter period of time in the form of compressed industrialization. With the exception of Japan, Asian countries have experienced economic growth for only thirty or forty years, or for one generation or two at most, and have grown at a very rapid pace. The result is a middle class with a young historical consciousness. But, the region is witnessing the burgeoning of a new breed of middle class that is beginning to find its niche in society and contribution to economic growth. The regions favorable demographics - its growing workforce and rising incomes - are redefining the way business is done in the region. Ifzal Ali, chief economist of the Asian Development

Tamio Hattori, Tsuruyo Funatsu, Takashi Torii, The Emergence of the Asian Middle Classes and their Characteristics, The Developing Economies XLI-2 (June 2003): 12939.


Bank, calls this a revolution of rising expectations. Amidst global megatrends that are shaping the course of Asian business in the near and distant future, no factor has greater global significance than its changing human resource. Over the next 20 years, Asia will experience sustained economic growth as its working-age population peaks while that of the rest of the world declines. Alongside its manufacturing advantage, this phenomenon will give Asia the distinction of being the prime mover of global growth in the 21st century.39 Asias middle class is emerging as a major economic force. Unlike in the past when recovery depended on exports to the United States, the business recovery since late 2001 in Asia has been driven by strong domestic consumption.40 Underpinning this economic recovery is the growth in the number of the "economic" middle class. The Japan External Trade Organization (JETRO) estimates that the total number of middle class in Asia is 140 million people, 40 million of which are in China. Studies show that this figure will reach 200 million in 2006 in China alone, based on the number of people there who can buy automobiles. This is a huge population that has the resources to become consumers, investors and entrepreneurs. Indias case may be a representative of the diverse but vibrant middle classes emerging in Asia. As a result of consistent economic growth for the past decades, India's middle class has more than tripled to 250 million people. While the number of rich has certainly grown, about 1% of the poor have crossed the poverty line each year.41 A new group of Indian millionaires emerged from years of reform and growth --- professionals who had made their fortunes in information technology and the knowledge economy --- and they reflect a new social contract where talent, hard work and managerial skill play a more central role than inherited wealth. They are "secular ascetics," the likes of Azim Premji of Wipro and Narayana Murthy of Infosys, who live frugally and engage in philanthropy. These new entrepreneurs are providing better opportunities for Indias young, well-educated population. College graduates are now landing well-paying jobs in a host of emerging industries that barely existed in India when the millennium ushered in. Fast growing Indian companies especially in the service sector are providing good jobs for any one with a college degree. Wipro Spectramind for example only had 200 employees at the end of 2000. After two years, it was already employing 5,100. Like most of Asias developing economies, India is teeming with retail chains, fast-food restaurants, mobile-phone companies and call centers, data-processing firms and other businesses that perform "back office" work for U.S. companies. Yuwa Hedrick-Wong, economic advisor for MasterCard International in Singapore, predicts that Asia Pacific will be a highly competitive producer for the global market through its pan-Asian supply network and also a massive importer from the global market because of its consumption revolution. This revolution is taking place as the region reaps the dividends of the export- and investment-led growth witnessed in the 1990s, which succeeded in creating jobs and raising incomes and in turn led to higher savings that funded domestic investments. This has created a virtuous cycle wherein a country that invests more also creates the capacity to employ people. The result is the rise of Asia's first consumer generation, mostly under 30 and leading a cultural transition that embraces free spending. Hedrick-Wong estimates that the middle-class population - or those earning at least US$5,000 a year - will grow from 180 million in 2002 to 480 million by

Abe De Ramos, Future Tense: Macro trends that are shaping the future of Asian business, CFO Asia, December 2004. 40 Hirokazu Okumura, Executive Vice-President, Japan External Trade Organization (JETRO). 41 Gurcharan Das, The Respect They Deserve, Time Asia, November 29, 2004.


2010. That's an addition of 300 million people - greater than the current total population of the United States. Thats a lot of potential entrepreneurs! This raises at least two major issues confronting governments in Asia:

1. How to create a system that balances maximum support and minimum interference.
Previous growth was based largely on an activist state directing and influencing private investment decisions. For the next stage of entrepreneurial development, governments must create a vibrant and dynamic environment that allows local entrepreneurs to flourish and that adapts to the demands of the international market economy.

2. How to manage an increasingly politically active Asian middle class. Once food,
clothing and shelter are secured, some argue that there will be increasing political unrest due the desire of this new middle class to have a public voice. Some argue that the governments are so powerful and pervasive that control will not be ceded. Viewed from the rising middle class lens, the protests in Tianenman Square can be seen as a major albeit unsuccessful attempt to gain a political voice to the increasingly economically powerful middle class. The success of policies to promote entrepreneurship will heighten the pressure to reform the political arena. The region is in the midst of a profound transformation where the government is serving a guiding role while the private sector continues to flourish and drive the economy. The future of Asian entrepreneurship and its political dynamics is full of opportunity and risks. But the changing attitudes and political and economic disposition of Asians is leading the region to a future where innovation and entrepreneurship are keys to economic growth and development.


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