Analysis of Business in Asia - Research Paper Example

BUSINESS IN ASIA Contents Introduction 3 Changes that the Asian economies face after the Asian Financial Crisis of 1997 3 Asian Economies during the Global Financial Crisis 7 Opportunities and Challenges for Western Business Seeking to Enter Asian Markets 9 Conclusion 11 References 12 Introduction The contagious effect of the global financial crisis during 1997 hugely affected the working of the Asian economy. The Asian economies had an apprehension that owing to the presence of a subtle economic and corporate position the region, it would rightly shield itself from the harmful effects of the financial crisis. Investments flowing from the western world to Asia sharply declined after the closure of Lehman Brothers affecting the economic potential of the region dramatically. The crash of the Asian markets brought to light some significant facts which reflected the true position of the Asian economy. Firstly, the economy of the Asian region was not only dependent on the revenues of internal trade but was also significantly dependent on the cash flows from the western nations. Asian economy greatly thrives on huge volumes of both export and import trades. Secondly the apprehension of the Asian economies in remaining insulated to the global financial turmoil proved fallacious for its increased presence in global financial institutions. Thirdly, Asian economies also had the feeling that large amount of financial reserves would help them to shield against the global financial crisis. However the financial reserves also render a restricted effect in shielding the effects of the global financial crisis. (Kato, 2009). The paper in this context aims to find the opportunities and challenges of western companies in entering the Asian market and the transformation of the Asian economies after the financial crisis. This paper would be formatted in essay type highlighting separate sections with regard to the research points. Changes that the Asian economies face after the Asian Financial Crisis of 1997 The Asian Financial Crisis which happened during 1997 in stark continuation with the happening of the global financial crisis rendered significant implications on separate economies of Asia. The paper in this connection endeavours to understand the impacts of the Asian Financial Crisis on economies of Japan, South Korea and Taiwan. Japan entered the realm of financial crisis owing to the decline in the currency of Thailand. During the era of financial crisis, both the currencies of Asia and America became overvalued leading to mass scale investments in the region of Thailand. Investments which were driven to Thailand mainly catered to the development of construction industry leading to the rise of the property bubble. However, the situation of the financial institutions in Japan deeply worsened which lead to the region’s further dependence on international funds. As compared to the Japanese effect economic and financial situation of other economies like Taiwan and Singapore also reflected similar slowdowns. The growth of the Asian Financial Crisis also leads to the final demise of economies like Indonesia and Southern Korea. The Asian countries like Malaysia, Thailand, the region of Hong Kong and the Philippines Islands were all swept by a huge recessionary wave. Further, the decline in the currencies of the Asian economies also made these economies highly dependent on foreign currencies making them equally expensive. Thus, the financial institutions of these Asian economies started finding it difficult to meet the debt of the external borrowings. (Moe, 2004, pp.231-232). Thus, it is found that the happening of the global financial crisis changed the face of the Asian economies. Leaving the Chinese and Taiwanese economies, the Gross Domestic Product of other Asian economies like Korea, Indonesia, Hong Kong, Japan, Thailand and the like was adversely affected owing to the wave of global financial crisis. Several policy decisions were taken at the regional level to counter the growing effect of the financial crisis. The policy decisions framed on that accord intended to find out the reasons behind such economic crisis in the regions and thereby suitable actions were taken to reduce dependency on foreign funds. Asian economies affected by the financial crisis to pen a recovery note also started to alter their policies pertaining to exchange rates. Japan in the above context focused on globalising the Yen to help the country recover from the effects of financial crisis. Internationalisation of the regional currencies was carried out to help the nations lessen their dependence on the American currency. Internationalisation helped the countries to counter weighted average of several currencies to counter the economic threat rendered by foreign currencies. (Hiwatari, 2003, pp.346-350). In the wake of the financial economic crisis, business corporations belonging to certain regions like Korea got affected in a profuse manner. Observation made shows that out of total 30 business corporations of the Korean region, 13 suffered in an adverse manner owing to the rise of the financial crisis. These business corporations countered many policy changes to revive their position to the days before the financial crisis. Business Corporations in the Korean region prior to the period of financial crisis countered many diversification programs to venture into new areas. This huge diversification into untapped areas made it difficult for the business houses to manage their prospects at times of recession. Thus, policy decisions were taken to alter such movements. Further, policy directions were also involved in setting strict governance policies to better manage these business units. These Korean business corporations countered many policy directions to enhance the transparency parameter of the industries. Moreover, close monitoring polices were framed to help in the efficient operation of the business units. Moreover, the creation of external body of directors was rendered huge focus by the Korean business groups or Chaebols than singular operating firms. (Choe & Pattnaik, 2007, pp.233, 244-247). The following graph shows the dependence on external body of directors by both the Korean business groups and other singular firms. Figure 1 (Source : Choe & Pattnaik, 2007, p.247). Similarly other policy directions were also involved which made the business groups enhance their accountability to protect the interests of the minority groups of the shareholding community. This practice thereby helped the owner of the individual business units largely answerable with regard to bettering up the position of the individual shareholders. Here, also the Korean group business holdings reflected an increase in shareholder cooperation than that of singular firms. (Choe & Pattnaik, 2007, pp.248-249). The following graph depicts an increasing trend to such end. Figure 2 (Source: Choe & Pattnaik, 2007, p.249). The incidence of the Asian financial crisis along with changes in the structure of the existing industries also worked to form new industries in the Asian economies. The period after the occurrence of the financial crisis year marked the growth of industries advocating changes in the technological paradigm. Thus, new industries started appearing on the bloc which extensively used the dimension of internet technology to communicate with a larger market. Thus, along with changes in the business processes the industries pertaining to information and communication technology also countered similar growth in the Asian markets during the period. (Ahlering, 2000). Asian Economies during the Global Financial Crisis Like the Asian Financial Crisis, the Asian economies also were largely affected by the happening of the Global Financial Crisis. The Asian economies in the first stage countered turmoil in their stock and financial positions owing to the emergence of the global financial crisis. Again, the Asian economies were struck by recessionary moves owing to the fall in demand for Asian workforce and decline in trade and tourism revenues. Owing to the above reasons, many Asian countries reflected a decline in the Gross Domestic Product along the periods ranging from 2007 to 2009. (Chibber, Ghosh & Palanivel, 2009, pp.26-28). The same can be shown through a graphical representation as follows. Figure 3 (Source: Chibber, Ghosh & Palanivel, 2009, p.28). Further effects of the global financial crisis also led to the fall of exports across the Asian region which resulted in the decline of the trade balances of the different economies. (Chibber, Ghosh & Palanivel, 2009, p30). The same is reflected in the following figures. Figure 4: Fluctuation in Exports (Source: Chibber, Ghosh & Palanivel, 2009, p30). Figure 5: Changes in Trade Balances (Source: Chibber, Ghosh & Palanivel, 2009, p30). Opportunities and Challenges for Western Business Seeking to Enter Asian Markets Opportunities Western business units operating in developed markets like United Kingdom are seeking to enter Asian markets owing to some significant opportunities. Business units in United Kingdom are eying the Asian markets as fast growing sectors where they can easily venture for augmenting their business revenues and market shares. Asian countries like China and India are countering huge growth opportunities of around 10.5 percent and 9.7 percent which is seemingly attractive to the foreign companies located in United Kingdom. (Elliott, 2011). Similarly, the economy of Thailand also greatly revived from the recessionary period to attract large amount of foreign investors. Foreign companies like Ford are investing large amounts of around $800 million to construct a huge factory in the region. Foreign automobile companies like Ford are viewing the Thailand region as a potential market of automobile buyers. The region of Thailand with a developing market also has potential human resource base which reflects a great opportunity for such manufacturing companies to easily flourish. (UK Trade and Investment, 2011). Foreign investors are also seeking to counter large amount of investments in the region of Hong Kong owing to certain significant opportunities. The region of Hong Kong depicts several opportunities to the investors in terms of liberal regulatory paradigms for market, transparent spheres in the market sectors, a better communication paradigm among the different market sectors and other cooperative regulatory and legal parameters. Moreover, Hong Kong also has low tariff rates for imported commodities and services which help foreign companies based in United States to make easy entry into the Chinese region. (Bruno, 2003). Another key opportunity that the western companies find in the Asian markets is the scope of creating brand enhancement. The western companies view the Asian markets as large power houses where they can manufacture the commodities at potentially reduced prices. Further, the Asian market is a growing market which also fosters the development of potential brands both internal and those pertaining to the international scale. Thus, international branded companies are eyeing the Asian markets as potential grounds which would help them to gain huge returns on the investments rendered on creating the market for their products and services. (Roll, 2008). Challenges One of the key challenges that western companies faces while doing business in the Asian markets is to understand the cultural and social philosophy of the region. Thus, western companies belonging to the European and American region must closely endeavour to study the cultural and social paradigms of regions like Japan to effectively gain a larger and potential share in the market. Western companies must be aware of the diversified needs of the people in the Asian markets to efficiently market their products and services. (East Asia Business, n.d.). The business companies belonging to the American region see the Asian economies as still suffering from the effects of the financial crisis which happened during 1997. A survey conducted during 2004 reflects that western manufacturers expected that the effects of the financial crisis would continue to affect the Asian economies for a long period leading to loss of business. Asia’s huge dependence on foreign funds thus, acts as a challenging factor for the western companies. (Aldred, 2004, p.8). The western companies endeavouring to carry out operations in the Asian markets are also facing potential challenges pertaining to the growth of fraudulent activities in the region. Surveys made during 2009 and 2010 reflect that the companies operating in the Asian belt are suffering from the conduct of fraudulent operations on the technological sphere. Companies are facing the threat of their internet protocol address being stolen and other types of electronic embezzlement activities. (Kroll, 2010, p.28). Challenges faced by western financial institutions and companies in extending their online service operations in the Asian countries also hover around the above issue. Firstly, the Asian consumers are found to have very little knowledge of accessing online banking and financial services. Secondly, the most important problem which the Asian consumers face during online banking operations arises from the question of internet security. Thus, financial and banking companies need to reflect a high state of internet security to attract the Asian consumers to avail their online services. (Andam, 2003, p.24). Conclusion The credit crunch which had its emergence in the American economy gradually spread its fangs to encompass many global regions including developing economies like Asia. The countries belonging to the Asian region were badly hit by the effects of such crisis which led the economy to tumble a lot. Markets and companies crashed and several economic parameters went into doldrums. Again, the emergence of the global financial crisis also impacted the region profusely making it further weak. However, with the international support pertaining to skills and finances, the Asian region has gradually come out from the era of crisis and is tending to be a region which is strongly endeavouring to invite foreign companies to render investments in the region. Foreign companies are eyeing the region to be the powerhouse for opening up potential business units. The region with attractive markets and huge resource base is gradually becoming populated by western companies. However, these western companies are also facing some significant challenges while coming to invest in these areas. The western companies need to reduce the cultural barriers to get easily imbued into the Asian soil. Further, the western companies are also facing the threat of fraudulent misconducts which would lead the company to face heavy losses. Thus, western companies need to address these challenges in order to better perform in Asian markets. References Kato, T. (2009). Implications for Asia from the Global Financial Crisis and Policy Perspectives. [Online]. Available At: http://www.imf.org/external/np/speeches/2009/021409.htm. [Accessed on April 14, 2011]. Moe, E. (2004). An Interpretation of the Asian Financial Crisis: Innovation Systems and Economic Performance in a Period of Transition. Asian Affairs: An American Review. Vol. 30 Issue 4. pp. 227-248. Available At: http://content.ebscohost.com/pdf13_15/pdf/2004/AFF/01Jan04/12912689.pdf?T=P&P=AN&K=12912689&S=R&D=aph&EbscoContent=dGJyMNLe80Sep7I4v%2BbwOLCmr0mepq9Ss6y4S7eWxWXS&ContentCustomer=dGJyMPGstE%2BvqrJMuejjhe3q41Pj3u2L8gAA. [Accessed on April 14, 2011]. Hiwatari, N. (2003). Embedded policy preferences and the formation of international arrangements after the Asian financial crisis. The Pacific Review. Vol. 16, no.3. pp.331-359. 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