1/16/15
1
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
1/16/15
2
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
1/16/15
3
Defining Class Scope Greater Asia
Probably should include Russia and Central Asia too!
Asia is Still Rising!
Back to the Future
1/16/15
4
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?
1/16/15
5
Uh oh… but does the professor maybe have a personal bias on this question?
Asia = Asian Economic Miracle?
1/16/15
6
But Asia’s not all success stories… Country matters.
An Asian Half Century (1963-2013)
Fastest Growing Countries GDP per capita growth 1 China 7.7% 2 South Korea 6.2% 3 Botswana 5.8% 4 Singapore 5.2% 5 Indonesia 3.8% 6 Malaysia 3.8% 7 Sri Lanka 3.6% 8 India 3.2% 9 Seychelles 3.0% 10 Japan 2.9%
1/16/15
7
Less Dominant 2 Decades (1993-2013)
Fastest Growing Countries GDP per capita Growth 1 Equatorial Guinea 17% 2 China 9% 3 Liberia 7.6% 4 Armenia 7.3% 5 Azerbaijan 6.4% 6 Cabo Verde 6.3% 7 Albania 6.1% 8 Macao 6% 9 Cambodia 5.5% 10 Vietnam 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
1/16/15
8
Which Matter More Today? Countries or Companies?
Friedman’s Inspiring “Flat World”
1/16/15
9
Two Main Themes in Related Arguments Saying Countries Don’t 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
1/16/15
10
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
1/16/15
11
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
1/16/15
12
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
1/16/15
13
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
1/16/15
14
On the Other Hand… ! Why borders do still matter (and thereby this class still matters!)
Would Friedman’s dishware business really do well in a “flat world”?
1/16/15
15
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."
Is Flatness Globaloney?
(Green&bars&represent&HBR&readers�&beliefs,&blue&represents&true&numbers)&
Source: Pankaj Gemawat@HBR
Evidence of systematic bias, over-estimation of globalization among managers and other elites
1/16/15
16
YaleNUS: Flat World Example? The opportunity and the controversy actually lie
in the fact that geography still matters
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.
Important concepts
1/16/15
17
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)
1/16/15
18
Reasons Why the State Still Matters
1. Property Rights and Contracting Institutions 2. Public Goods Provision 3. Peace and Stability/Law and Order 4. No evidence for Race to the Bottom 5. 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).
1/16/15
19
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.
1/16/15
20
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
1/16/15
21
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.
1/16/15
22
The Role of National Culture? This is very tricky territory!
Class Design
1/16/15
23
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? What
factors lead a firm to be more innovative? ✓ 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
1/16/15
24
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
1/16/15
25
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
1/16/15
26
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
1/16/15
27
Yan “Jackie” Zheng
Tutorials Team
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
1/16/15
28
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
1/16/15
29
QUESTIONS?
Looking Forward to a Great Semester Together!
