Tuesday, January 26, 2010

Asian Miracles Part II

Hong Kong

In the late 60s and early 70s, big corporations in the western, developed economies accosted a new problem: increasing operational costs. Labour costs in the US and other economies rendered the profits of businesses very thin. These developments motivated the management of such organizations to seek some viable alternatives. Enter the second wave or model of Asian miracle!

Hong Kong was a trading hub for decades after Britain attained its operating lease from the Chinese. Now, there was an abundance of budding entrepreneurs such as Li Ka-Shing, Lee and Fung etc , who were ready to jump on this opportunity to help MNCs cut their operating costs by offering them a manufacturing outsourcing option. China had always rendered a source for cheap labour. But, there were structural problems within the economy: lack of infrastructure, lack of skilled workers, and a communist Government. Some entrepreneurs from Hong Kong decided to overcome these hurdles and established manufacturing plants in the province close to Hong Kong. Soon, many companies followed this course and profited from the trade with Hong Kong and China. Hong Kong initially evolved into a manufacturing outsource center for large MNCs. Hong Kong and later China started to attract significant amount of foreign direct investments (FDI) and new factories opened up in Hong Kong. After the liberalization of Chinese economy by Deng Xiaoping in 1978-1979, China also started to benefit from the foreign capital and technology.

Hong Kong was operated on the free market capitalist fundamentals. In the 70s and 80s after China became the global manufacturing hub, Hong Kong became an international financial center. China, after the economic liberalization, allowed entrepreneurs and multinational corporations to open significant manufacturing establishments in China. Poor farmers from rural areas were lured to the highly paid manufacturing jobs. Government promoted further FDIs by allocating Economic Zones (EZs) for exports. Companies were encouraged to export goods and were offered subsidized land and electricity for such ventures. The export oriented approach combined with the FDI and technology transfer via MNCs enabled China to become a magnificent economic powerhouse in a time of two decades.

After separation from Malaysia, Singapore inherited a wetland devoid of any natural resource. But, Singapore’s leaders were not deprived of visionary ideas and ingenuity. They put forward a plan to develop Singapore into a manufacturing and trading hub. MNCs were attracted and were presented with a superior infrastructure, un-unionized work force, and business friendly Government, which understood economics very well. These factors enabled Singapore to take initial steps to slay poverty. In the next wave of modernization, Singapore’s leaders realized that China’s emergence as a manufacturing hub would threaten Singapore’s competitive advantage. In the 90s, the Government visionaries shifted to transform Singapore into a services and technology center. Singapore currently hosts multitude of research centers for Biotech and Pharmaceutical companies. It also is slowly becoming a regional center for Information and Communication Technologies (ICT). Education is the new growth industry and Singapore has positioned its quality educational institutions and infrastructure to benefit from the increasing demand of quality education in other part of Asia such as India, China, and Indonesia.

Well, I tried my best to summarize the contents of the book “The Miracle”. Each Asian miracle economy has its unique features and story. Japan and Korea developed as more introvert and protectionist economies. Their focus on manufacturing created brands such as Honda, Toyota, LG, Sony, Samsung etc. But, they have not achieved global integration in the services sector as achieved by Singapore and Hong Kong. Singapore, Hong Kong, and China developed in a different path by attracting FDIs and MNCs. Steadily these economies diversified and developed a local ecosystem of entrepreneurs and businesses.

There are some lessons for India and other countries from these stories.

1. Government must play a significant role, at least in the initial stages.
2. Global integration of economy is a necessary condition. To manufacture products/services that are competitive in global markets should be an attainable goal for all the companies (public/private) in an economy.
3. Economy needs technology transfer and training of personnel, MNCs may play a critical role in garnering these pragmatic skills at a job.
4. Government needs to be create a business friendly environment: render good infrastructure, less red tape/bureaucracy, if possible low taxation, lower import and export taxes etc.
5. Government must develop strong law enforcement organization and a culture of respecting contracts.

I cannot refrain from the temptation of stating the obvious with a sense of discovery. In the current environment, there are certain natural advantages for the Indian economy. Large domestic market, growing purchase power, access to natural resources, entrepreneurial spirit among citizens are a few that come to my puny mind. The Government of India must employ a more economy friendly policy to harness these sources of development and growth. Indian citizens must also develop a culture of voting for the right economic policy, not for petty affairs such as state separation or menace to our culture by globalization. I think the change in a pseudo-democratic society like ours needs to come from the smallest unit of the structure: us!

“Its always economics, stupid!” – Bill Clinton(during his election campaign in the 90s)

No comments:

Post a Comment