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