SACRED HEART UNIVERSITY&

IFCC

Global Trends: Opportunities for Europe

in Emerging Asia-

Tuesday May 30th, 2006Dr. Balbir BhasinAssociate Professor of

International Business

John F. Welch College of Business

Global Trends: Population Perspective – Top 15

Largest Populations:1. China (1,300)2. India (1,100)3. USA (300)4. Indonesia (245)5. Brazil (188)6. Bangladesh (147)7. Pakistan (143)8. Russia (143)9. Nigeria (132)10. Japan (127)11. Mexico (107)12. Philippines (89)13. Vietnam (84)14. Germany (82)15. Egypt (79)

Asian Populations:1. China (1,300)2. India (1,100)3. Indonesia (245)4. Bangladesh (147)5. Pakistan (143)6. Japan (127)7. Philippines (89)8. Vietnam (84)9. Thailand (64)10. South Korea (49)11. Burma (47)12. Afghanistan (31)13. Nepal (28)14. Malaysia (24)15. Taiwan (23)

Global Trends: Asia’s Rise

Asia’s rise is the fourth big transformation in relative economic power since the industrial revolution:

Early 19th century: rise of the UK Late 19th and early 20th centuries: rise of US and Germany Post-second world war: Japanese miracle 1970 onwards: rise of the rest of Asia, including China and India

What Caused Asia’s Rise?

Asia’s success due to: Deregulation, Liberalization and Reform – same as US & Europe

South Korea and Taiwan

Hong Kong and Singapore

ASEAN 5 – Thailand, Malaysia, Indonesia, Philippines

China, India, Vietnam

Problems in Bangladesh, Pakistan, Nepal, Sri Lanka, Burma

Source: Business WeekSpecial Issue, China/India 2005

2025

2050

2004

Global Trends: A New World Economy

Based on the IMF’s World Economic Outlook database, The Economist concluded that “In 2005 the combined output of Emerging Economies rose above half of the global total”

In 2005, their combined GDP grew in current dollar terms by

$1.6 trillion, more than the $1.4 trillion increase of developed economies

Their share of exports has jumped from 20% in 1970 to 42% last year; over the past five years, they have accounted for more than half of the growth in world exports

Emerging economies are now sitting on two-thirds of the world’s foreign exchange reserves

Developed economies’ trade with developing countries is going twice as fast as their trade with one another

The EU exports twice as much to the emerging markets as it does to America and Japan combined

Source: Emerging Economies “Climbing Back” The Economist 19 January 2006.

Global Trends: Outlook for Major Economies

Country 2005 2006 2007

Euro Zone 1.3 2.1 2.1

United States 3.5 3.3 3.1

Japan 2.7 2.9 2.4

Source: Asian Development Outlook 2006,

Asian Development Bank, ISBN 971-561-603-8

Global Trends: Outlook for Asia

Country 2005 2006 2007

India 8.1 7.6 7.8

China 9.9 9.5 8.8

Indonesia 5.6 5.4 6.0

S. Korea 4.0 5.1 4.9

Thailand 4.5 4.7 5.5

Malaysia 5.3 5.5 5.8

Singapore 6.4 6.1 4.6

Source: Asian Development Outlook 2006, Asian Development Bank, ISBN 971-561-603-8

Trends in Asia

China is poised to overtake the US as the major trading partner of Japan. China is now Japan’s largest source of imports

South Korea’s prime export market is China

China-India trade growing – “Hand Across the Himalayas”

10 years ago - $100 million2002-2003 - $7.6 billion (up 3.6%)2004 - $10 billion2005 - $15 billion

ASEAN (500 million population) and China agreed to set up a Free Trade Area by 2010

Global Trends: Developments in Emerging Markets

Growth in current account surpluses

Rise in capital inflows

Substantial rise in international reserves

Improved domestic fundamentals and liquidity

Rising demand for energy, food, and raw materials by 2.5 billion Chinese and Indians is already having ripple effects worldwide

The US still consumes three times as much grain per person as China and five times as much as India

Will this lead not to a global resource squeeze?

Source: World-watch Institute’s State of the World 2006 Report

Why Asia Holds a Special Interest

Asia market growth = emergence of world’s largest new middle class

Asia as a source of highly educated, skilled labor (at low cost up to now)

Result: Asia has special place in business globalization (supply chains)

Result: Asia is becoming a world incubator for new high-tech businesses

Increasing Affluence – rising middle class, disposable income, consumption patterns, services, convenience, luxury items

Rising Educational Standards – leads to changes in demand for goods and services

Increasing Number of English speakers – better able to trade and participate in business activities

Improving Infrastructure – information through television, print media, internet, and travel

Increasing Availability – better distribution, packaging, advertising, standardization

Changing Trends in Asia

Growth Industries in Asia

Legal, Banking and Finance Consumer Goods Infrastructure Development Building and Construction Materials Tourism and Hospitality Communications Health Care Marketing and Management Entertainment Contract Manufacturing

Emerging Asian Countries with Potential

China and India – one third of the world’s population 2.5 billion!

Annual Growth Rates 8–10 % through 2010

Asian Tigers: Taiwan, South Korea, Singapore, Hong Kong – newly affluent

Asian Non-Tigers: Indonesia, Malaysia, Thailand, Philippines, Vietnam – 400 million

Europe’s Advantages in Asia

Long history – established presence and trade

Better understand cultures and social structures

– language, food, religion

Better at relationship building

Transfer of technology – high demand

Resources to compete with North America

Asia Europe Ties – Progress? Asia Europe Meeting (AEM)

Proposed by Singapore in 1994: means for breaking deadlock between ASEAN and Europe. Established in 1996 – EU and 13 countries.

ASEM: a means of promoting an imaginary of Europe in Asia to maintain economic presence

ASEM to be a project of ‘common grandeur’

Vehicle for widening involvement and expanding cooperation in new areas

Lack of progress due to disagreements over human rights and neo-liberal globalization

Main components of ASEM process: political dialogue, security and the economy, education and culture

Concerns for Asia

Need to check Inflation - due to rising prices, especially energy, transportation, labor

Need to check Debt – while at the same time improving public service and infrastructure

Need to boost consumer buying power – education, healthcare and pensions needed improvements so that people could reduce their saving

Bird flu could represent the biggest risk to the region, depending on how well the region is prepared - something which has not yet been tested

Need to discuss how to stop currency turmoil and strengthen their financial systems

Source: IMF – May 2, 2006 (BBC Report)

Asian Development Bank

Established in 1966 – aim to help build Asia

Owned by 66 member countries = 45 from within the region and 19 from outside

Japan and USA hold 12.9% of voting power each

17 European countries hold 17.6% cumulative voting power

European member countries recently contributed 32.5% of replenishment to Asian Development Fund

At the European Banking Congress in Frankfurt, ADB VP described relationship as “European Bull meets Asian Tiger”

Need to cooperate!

Asian Development Bank:Unique Opportunity for Europe

18 January 2006 : Speech by Phillipe Benedic, Resident Director General, European Representative Office, Asian Development Bank at the Colloquium Humanum, Bonn, Germany:

Title: “Asia – The New Economic Competitor of Europe, Risks and Opportunities”

Message: “Asia’s economic strength is also a great opportunity for Europe.”

17 February 2006: Speech by Haruhiko Kuroda, President, Asian Development Bank in Washington D.C. to the Council on Foreign Relations.

Meeting was chaired by Gerald Seib, Washington Bureau Chief, Wall Street Journal

Message: “Asia’s growth over the past half-century has been dramatic.” This provides challenges and opportunities. Asia is full of money, but Asian countries need support – various know-how and technologies.”

Asian Development Bank: Opportunities for Europe

Asia offers huge unsaturated export markets with over 4 billion consumers and growing income

Cheap labor calls for sourcing for sourcing from and investing in the region

Manufacturing (in China) and Services (in India) – now represent over 50% GDP

The demand for technology and know-how from Europe is tremendous.

The competitiveness of European companies includes among others cutting edge in science and technology, infrastructure, energy, water, transport, environment, and financial services

Source: ADB, European Representative Office, 18 Jan 2006

Asian Development Bank:Loss of Jobs or Benefits to Europe?

European companies investing in Asia improve their global competitiveness = save European jobs

Low costs = lower prices = control inflation and keep interest rates moderate, boost demand in Europe

Asian countries sell and also buy goods and services in Europe

Many Asian companies owned in whole or in part by European companies. Earnings are repatriated and invested in Europe = supports economic growth.

Productivity gains = new jobs with higher value added. Taking advantage of their comparative strengths

Through Joint Ventures, European and Asian companies can step up exports to “third” countries in the region

Rise in standards of living in Asia will result in rise in cost of labor and reduce the gap compared with European labor cost

Source: ADB, European Representative Office, 18 Jan 2006

European Bull and the Asian Tiger:What Must Europe and Asia Do?

Europe must help develop Asia.

Long industrial tradition and efficient system for keeping a free market economy

Europe has a strong banking sector, a strong corporate governance system, legal stability and a welfare system allowing the population to benefit from economic success

Asia can and wants to learn from Europe.

Learn to combine rapid economic growth with environmental protection, energy efficiency, balanced urban growth and sustainable rural development

Learn to strengthen resilience from external shocks and build regional economic programs

Learn to better use its huge foreign exchange reserves and regional savings for creating global balances

Source: ADB, European Representative Office, 18 Jan 2006

Asia-Invest II 2003-2007 EU-Asia business co-operation

What is Asia-Invest II?

Opportunities for EU-Asia business co-operation:

Primary initiative to support business co-operation between the EU and Asia

Strengthen the EU’s political and economic presence across Asia

Raise awareness of Europe in Asia and vice versa

Strengthen mutual trade and investment flows

Reinforce Asian private sector and new business development opportunities

Support new business partnerships

Enhance export capabilities and foreign direct investment prospects of the less prosperous countries in Asia

Promote the integration of Asia into the Information Society

Asia-Invest I : 1997, Commission contribution of €32m

Asia-Invest II: 2003 to 2007, Commission contribution of €35m

More than 260 projects supported to date across a range of sectors, involving hundreds of organizations

Asia-Invest II

EU and Asia: Eligible countries

ASIA:AfghanistanBangladesh

BhutanCambodia

ChinaEast Timor

IndiaIndonesiaLao PDRMalaysiaMaldivesMongolia

NepalNorth Korea

PakistanPhilippines

Sri LankaThailandVietnam

EU:Austria

BelgiumCyprus

Czech Republic DenmarkEstonia FinlandFrance

GermanyGreece

Hungary Ireland

ItalyLatvia

Lithuania Luxembourg

Malta Netherlands

Poland Portugal

Slovakia Slovenia

SpainSweden

United Kingdom

Organizations from Brunei, Hong Kong, Macao and Singapore can fully participate in projects as associates, provided they do not receive Commission financing

Global Trends: A New World with Asian Characteristics?

Westernization, particularly Americanization, was a distinct feature of the 20th Century

Western domination prevalent in music, clothing, entertainment, fast-food, language

The 21st Century Global Village will have Western and Asian characteristics

30 million non-Chinese are learning Mandarin. Chinese is already the second language on the Internet – 100 million Chinese netizens

In vogue now: Asian food, fashion, music, martial arts, yoga, movies, religion

Adapted from: David Gosset, Asia Times Online, 7 April 2006

SACRED HEART UNIVERSITY&

IFCC

Global Trends: Opportunities for Europe

in Emerging Asia-

Tuesday May 30th, 2006

Dr. Balbir BhasinAssociate Professor of

International Business

John F. Welch College of Business