Week 5: Current Issues

GMS 691: The Asian Business Environment

 Agenda
• Recap: Last week
• Proposals
• Set dated for Presentation
• Week 5
 General issues - China

• 2019 was a year of several important anniversaries for China.

• The People’s Republic celebrated its 70th birthday, reflecting with pride on the stunning economic growth of
the past four decades but facing mounting pressure to create a more equitable society and provide
better health, education, and social protection to all, especially the vulnerable and disadvantaged among the
population.
• Bilateral relationship with the US has arguably deteriorated to an all-time low. Whether the two countries
will find a middle ground on trade and resolve the Huawei CFO extradition issue in early —Ji Hongbo,
country representative
• 2020 -- COVID-19?

Source: https://asiafoundation.org/2019/01/02/2019-the-year-ahead-in-asia/
 General issues - India
• The recent breakdown of various international trade alliances (the disruption of NAFTA, the U.S.-China tariff wars, the paralysis of
the WTO) has created an opportunity for growing economies like India to play a greater role in the global and regional economic
and political arenas.
• India will need political maturity and economic prowess to exploit these opportunities and attract business and investment to its
shores.
• Pressures from higher oil prices, a depreciating currency, and the general decline of a decade-long bull market
• But these projections can only materialize with the support of significant structural reforms to aid business investment and
exports. These reforms include the new Insolvency and Bankruptcy Code, smoother implementation of the comprehensive
indirect tax on goods and services—the GST—better roads and electricity, and bank recapitalization.
• For any of these reforms to substantially aid economic growth, however, they will need to be backed by transparent governance
and a nonpartisan political climate that gives investors the confidence to invest.
• The myopia underpinning partisan and nonsecular politics must be replaced with a more inclusive, equitable, and global
economic and social perspective.
—Nandita Baruah, country representative
• However, COVID-19 has led to a sharp decline in economic growth
• Farm protest, demonetization, GST etc.

Source: https://asiafoundation.org/2019/01/02/2019-the-year-ahead-in-asia/
 General issues – South Korea
• The sense of a narrowing window of opportunity could persuade South Korea, North Korea, and the US to
compromise on the nuclear issue, despite prevailing skepticism and the growing tension between U.S.
pressure and the South’s desire to seize the last chance in a generation to engage the North.
• Economically, South Korea is wrestling with the structural implications of reorienting its economy from
manufacturing to services, while the Chaebols continue to act as both enablers of and obstacles to growth.
• They will be tested in the new year as the global economy slows down.
• The economy is showing early signs of stress, including declining employment figures and residential
property construction orders for the past two years.
• The economic risk is compounded by growing household debt, as interest rates will face pressure to rise.
• Changing demographics remain a source of anxiety as South Korea’s population ages, stoking
intergenerational tensions over jobs, public benefits, and other resources.
—Kwang Kim, country representative

Source: https://asiafoundation.org/2019/01/02/2019-the-year-ahead-in-asia/
 General issues - Japan
• As the US redefines its role in the Asia-Pacific and China continues to expand its regional influence, Japan will
have a bigger role in determining how stability in the region is maintained.
• Japan is now the rare industrialized nation that is stable both politically and economically.
• It has emerged as a global leader in pushing for multilateral trade deals and promoting global cooperation.
• It has also begun bucking the global trend of anti-immigration by taking steps to open its doors slightly to
more foreign workers.

Source: https://www.wilsoncenter.org/blog-post/what-to-look-for-2019-the-year-ahead-asia
 Business Groups
• South Korea: chaebol, a gathering of formally independent firms under the single common administrative and financial control
of one family.
• Japan: keiretsu, referring to clusters of interlinked firms bound by specific ties over a long period of time.
• India: 15 of the top 20 business groups are family-owned
• China: qiyejituan, a business group consists of legally independent entities that are partly or wholly owned by a parent firm and
registered as affiliated firms of that parent firm. According to the State Administration for Industry and Commerce (SAIC): to
become a business group in China, the core company should have the register capital of over 50 million yuan (US$6 million)
and at least 5 affiliated companies, and the total register capital of the core and other affiliated companies should be over 100
million yuan (US$12 million).

• Why are they prevalent?

• In general, the national institutional environment (state of the regulatory environment, and the capital, labor and product markets, which
define the conditions under which business transactions occur) is weak in emerging economies. Operating in such environments, firms
incur additional costs and risks related to the inefficiencies in transactions. Unlike a single company, a business group can replace the
institutional environment through internal transactions and thus reduce the additional transaction costs associated with the market
inefficiencies.

Sources:
1. https://iveybusinessjournal.com/publication/the-critical-role-of-business-groups-in-china/
2. https://www.bloomberg.com/quicktake/republic-samsung
3. https://www.rediff.com/money/report/special-in-india-15-of-the-top-20-business-groups-are-family-owned/20160818.htm
4. https://www.weforum.org/agenda/2015/06/whats-the-future-of-japans-business-groups/
5. https://voxeu.org/article/collusion-and-competition-inside-japanese-business-groups
 Market Entry – GHEMAWAT’S CAGE
• Cultural Distance
• Administrative Distance
• Geographic Distance
• Economic Distance
Market Entry