The structural transformation of the business:
During the Asian crisis, the weakness of government financial support to domestic conglomerates has been recognized. It is the close relationship between large conglomerates and banks. Moreover, the poor governance of banks has led to a huge amount of nonperforming loans from conglomerates. As the result, most of conglomerates had a massive debt and could not pay. Finally, those conglomerates went to bankruptcy or collapsed such as Daewoo and Salim. In addition, with the globalization trend was developing quickly in some major Asian economies, the business structure required some changes. There are 3 big shifts in the Asian structural business. They are ownership shift, corporate governance shift and shift in the mindset and mode behavior of dominant shareholders. With the ownership shift, it accepted for the investment of potential foreign investors from Europe and USA into the conglomerates. For example, the US automobile company General Motors acquired Daewoo Motors at US$251 million. At that time, the trend of acquisition between Asian companies and Western companies are really booming. It is given opportunities for Western companies to enter into a potential market and Asian companies globalize their businesses. Moreover, the ownership shift would lead to the improvement in the corporate governance model.
In 1990s, there is a common characteristic between Asian economies. It is the dominance of family-controlled conglomerates such as Samsung and Hyundai in Korea. In Korea, the owners of these conglomerates were able to control over a whole company. In addition, they made other unrelated investments by using borrowing funds from banks or other financial institutions. It would make the company to encounter serious financial difficulties. Finally, the conglomerate would go to bankruptcy and collapse. Therefore, an appearance of the independent directors or outside directors was going to limit the influence of company’s founders. The most important role of the independent directors was to protect the rights of shareholders in a conglomerate.
However, it still has some disadvantages. From the perspective of corporate governance, in the conglomerate with multiple investors, especially from foreign investors, there was always a fight by the divergence of ownership and control between group of dominant shareholders and western investors. In globalization era, dominant shareholders realized the importance of modernizing governance and management systems to meet global standards. Therefore, they have been splitting the conglomerate into amount of small divisions in unrelated businesses and recruiting skilled professional managers from western countries like US for major positions in a conglomerate. They would responsible to make best strategies to develop and retain the conglomerate’s position in global market. Li Kai Shing and his conglomerate Hutchison Whampoa Ltd is a good example for this style.
The structural transformation of Labour Relation:
During the Asian financial crisis, a lot of companies in Asia got financial problems related to their funds, capitals or trade exports. Therefore, there are a lot of companies have made their labour downsizing to keep their business stably. It caused to the increase of unemployment ratio Asia. For example, 84,000 workers lost their jobs in Malaysia (The star 2009). However, after Asian crisis, Asian economies were going to the era of globalization. Therefore, the transformation in labour relations has been changing to meet new standards. The economic globalization have made a big influence to the human resources management and employment practices in major East Asia economies like Korean, Japan and China. With the acquisition booming in Asia, there are a lot foreign companies entered to Asia to build their business infrastructures in there. Therefore, the demand of skilled and qualified employees has increased. Besides, Asian companies have tried to apply a US model as the new standard in human resource management. For example, using intrinsic and extrinsic motivators to convince employees more motivated in order to get more productivity in works.
In addition, the tendency of study overseas have been rising strongly in Asian countries would create the western corporate culture effectively for both domestic and foreign companies in Asia. However, under the impact of current global financial crisis with caused to the slowdown of growth, it has influenced strongly to foreign workers in Asia. For instance, 8 percent of 120000 workers who lost their jobs in Malaysia are foreign workers (World Bank, 2009). The Malaysian government have limited the foreign workers recruitment and offered a chance for local workers hiring.
Regional integration of the Asian economies:
During the Asian crisis, the importance of the effort to shape Asian economies as the community has been recognised. It would speed up a regional economic integration between East and South East Asian economies in order to make interdependent market for the products from those countries. In December 2005, the first East Asia Summit in Kuala Lumpur between the leaders of ASEAN+3 has introduced the creation of Asian Free Trade Area as a medium-term policy to promote the trade cooperation between those countries in order to establish a New Asia in the future. This policy could help to lower the transportation costs and also the price of products would be cheaper. In addition, with the fair and good competitive environment, the Asian market was not only attracted more foreign direct investment from extra-regional but also the intra-regional FDI. For example, Southeast Asian countries are the most important region of Japan’s ODA. Around 30% of its total financial help is offered to this region (Pushpanathan). It might to say that this region play a crucial role in the development of Japan in terms of political and economic.
Four key opportunities and challenges in Asia
Four opportunities:
Firstly, faster growth of East Asia in economies improves living standards. For instance, number of people has access to a wider range of products due to cheaper imports which are beneficial to open countries (The World Bank 2004). This means open trade reduces poverty because East Asia has many products easily available for their everyday life. Commonwealth of Australia (2001) mentions, if faster growth in economies stops imports of a particular product, the living standards will be improved. Therefore, Australia will have more choices in cheaper import and even can export products to these countries with reasonable price.
Secondly, Westerns have opportunities to exchange culture more widely with many countries in the world even with Asia. For example, Chinese Internet information center (2003) says ‘China-France Culture Year is a great event in the history of Sino-French relations, and also the largest cultural exchange activity ever hosted by China and a foreign country’. Therefore, Western in turn can introduce their cultural products to the world and traditional and cultural products of the Western could be known worldwide.
Thirdly, East Asia provides environmental benefits to Western business. East Asia now promotes new technologies which use less minerals, gas, and petroleum to reduce air pollution in Asian countries. For instance, developing countries such as Indonesia and The Philippines have successfully reduced factory pollution by applying new pilot projects based on public disclosure of information (Clearance Center 2001). By the careful use of available energy, harmful emissions can be reduced (Commonwealth of Australia 2001). As a result, people in Asia are profiting sustainable environment for their health and better ways of life. Then Australia will learn how to protect their country and can invest in Asia.
Lastly, trade in East Asia creates employment and finance. For example, Organization for Economic Co-Operation and Development countries had their employments increased in 2007, the average unemployment rate had been reduced by 1.6% from 1995 to 2007 and the share of gross domestic product had increased by 9% in trade of goods and services (OECD n.d). Also, trade in East Asia could create more skilled jobs and high salaries (Dixon & Mahony 2006). At this end, Westernization is needed in term of technology, machinery and building up manufactories in East Asia. Presumably East Asia will be globally developed in near future.
Four challenges:
Firstly, East Asian countries are leaders regarding income inequality and poverty. Obviously, agricultural subsidies in rich countries are putting famers out of business in poor countries. Their incomes are also driving down by the fact that local produces in rich countries pay much less taxes than the ones import from poor countries (Make Trade Fair 2004). The inefficiency of allocation of FDI leading to the rising problem of inequality in labour costs, originate in 2000 from the 500 million poor people in Asia (Erenstein 2010). Therefore, Western investors had to face many challenges in East Asia.
Secondly, severe shortage of water mainly in northern parts, and pollution causing risk of diseases are important factors in environment issue (Erenstein 2010). Many China’s rivers had been turned into open sewers by decades of waste poured from factories and cities. A quality index of 3 or worse, of about 40% of water had been noted in the country’s river systems, so the human consumption becomes unsuitable. Environmental problems of China are difficult to resolve. As expected by analysts, U.S. will be surpassed by China, Home of one-fifth world’s population. It will become, by mid century, the greenhouse gases largest emitter in the world (ELAW 2010).
Thirdly, another big problem to consider is the Counterfeit goods. In 2006, China had been identified by European businesses as by far the most problematic market for counterfeiting and abuser of intellectual property right for European companies (Harvey & Morgan 2007). Counterfeit goods are supplied by many manufacturers, according to Yao (2006). The net difference between sales revenue and costs is their profits. Despite the risk of possible loss and being caught by law enforcement, investor will move in when the produced counterfeit goods profits are on the same level with average returns from the general market. In Chinese society, their life is a big problem, and their products offer less quality than quantity.
Lastly, a big problem in East Asia is actually reflecting intellectual properties rights. The world production department is China. Nevertheless copied products increasing rapidly every year make China lose its reputation. In China, senior executives do not understand the complexities of intellectual properties, yet they make many “complaints” about intellectual properties system. They do not realize their own companies made possible mistakes in creating problems. For example, filing a weak patent application is similar to failing to register their intellectual properties at all (Harvey & Morgan 2007). In consequence, Australian companies possibly have their reputation fading away by cooperating with East Asia like China.
Conclusion
The major transformation of Asian countries after financial crisis in 1997 and the recent developments including the Global Financial Crisis was a big problem. The appearance of the financial crisis had actually brought advantages and disadvantages to Western businesses because of the structural transformation of the state, the business, the labour relation and the appearance of the regional integration of the economies in East Asia. In the change of state, it has been played an important role in East Asian economies. In the change of business, the weakness of government financial support to domestic conglomerates has been recognized during Asian crisis. In the change of labour relation, it has been introduced that labour relations are westernizing, conventional practices are changing, the crisis had actually played a part of changing the culture, and a new HRM system. In regional integration of the Asian economies, it has been to more interdependent to each other in the region, and FDI interdependence. Furthermore, the perspective of Western business seeking to enter the Asian market has four opportunities because of labour cheap, exchange culture, environmental benefits, and creates employment and finance. However, it also has challenges because of income inequality, pollution problems, Counterfeit goods, and intellectual properties rights. All of this, the opportunities in Asia are huge and so are the challenges.
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