Perspectives on Economic Integration and Business Strategy in the Asia-Pacific Region

This paper analyses the evolution of the commercial relations of the following Asian countries: Japan, China, Korea, Hong Kong, Singapore, Taiwan, Vietnam, Brunei, Indonesia, Malaysia, the Philippines and Thailand. Our objectives will be:

The economic integration of East Asia appears, at first glance, to be a new tendency related to the emergence of the Asia-Pacific region during the 1980s as the new centre of the world economy. We could, however, consider this integration as a long-term trend which was thwarted over some thirty years (from around 1945 to 1975) partly by exogenous shocks (wars) and institutional constraints (the political evolution of continental China, Korea and Vietnam) but also by the economic and technological superiority of the United States.

Any Asian company wishing to do business with the European Union (EU) must take account of EU law in general and EU antidumping rules in particular, having regard to table 4.1 below.

China and India are aptly described as the Asian giants. According to census figures of the early 1990s, around 40% of the population of the world resides in these two countries. China, according to combined United Nations and World Bank statistics, has a population of 1.23 billion as against 0.93 billion in India. In the coming century, the demographic trends of the two countries will have a major impact on the overall balance of power in the world.

In July 1995, Li Boxi, a senior economic researcher for the State Council, announced her proposals for the development of China’s Special Economic Zones (SEZs) (CNS 3/7/95). Amongst the proposals were the objectives of ensuring that the SEZs ‘meet the needs of the international Community’ by keeping ‘a close watch on structural adjustment in the international community and the international market’ and an assertion that China should try to attract more investment from major transnational corporations (TNCs). Li’s comments would not be out of place in Taiwan, South Korea, Singapore or in any number of the European regions competing for investment. Although it still sounds somewhat strange to hear the Chinese Communist Party (CCP) complaining that there are not enough TNCs in China, this approach to the international economy has been an important component of Chinese policy since the mid-1980s.

Resorting to external financing is part of the policy of opening-up which has been adopted since the end of the 1970s by the Chinese Government. They have been giving preference, on the one hand, to the assisted loans (long-term and low-interest rates) that some countries and, above all, international institutions (the International Monetary Fund and the World Bank) have granted China and, on the other hand, to foreign direct investments. If at the beginning of the 1990s, international loans were a major part of the foreign capital introduced into China, foreign direct investments supplanted loans for the first time in 1992 with more than eleven billion dollars against less than eight billion in loans¹.

Before making any decision about investing in another country, business people have always questioned whether such an investment could be risky due to political factors, such as a sudden change in regime, a revolution or a coup. However, while economic and financial risk analysis has received much attention during the past thirty years, and many techniques have been developed for this analysis, this does not appear to be the case for political risk. But what is political risk? Some have defined it as the risk of a political change or political instability. Others have seen it as the result of a change in politics and the probability that certain events will occur and, therefore, change the prospective profits of an investment. Even today, there is no agreement upon the definition of ‘political risk’. Political risk is sometimes considered as a particular aspect of the broader ‘country risk’ and sometimes as the ‘probability that a political event will intervene and modify the economic situation’ (which more correctly means an evaluation of an index of political stability). Other wise, it is thought of as the more general ‘possible trends in the international credit market’. Obviously, as the definition changes, so do the variables considered in analysing political risk.

In 1992 China’s macroeconomic reforms, initiated in 1978, were intensified. Such reforms have been designed to hasten the transition to a market economy and provide an attractive environment for foreign investment China is the world’s fastest-growing economy and that rapid growth is often attributed to an authoritarian political tradition and a social cohesion born of Confucianism which China shares with such successful modernizers as the so-called ‘four dragons’ or ‘tigers’ of Taiwan, Hong Kong, Singapore and South Korea as well as, more importantly, Japan. Given richer natural resource endowments and a larger population, China will pursue a developmental path necessarily different, even though the Chinese leaders are targeting elements of Japan’s economic experience as worthy of emulation.

Asian economic integration is characterized by the revival and the relevance of regionalization. Regionalization as a supranational issue has become an object of discussion in economics relative to the international trading system.

Harsh global competition has led a growing number of companies to forge alliances with foreign partners. In their efforts to anticipate or adapt to this new environment, companies often lack the necessary means to act independently. Consequently there has been an increase in co-operation agreements between American, European and Japanese companies over the last two decades².

The frenetic levels of consumption and massive infrastructure requirements of Asia-Pacific countries are a regular focus of attention for Western economic and financial magazines. Day after day, industrialists in the construction, foodstuff and automotive sectors claim to place this region of the world at the top of their strategic priorities. It is true that the prospect of equipping and nourishing almost a billion new consumers from now to the year 2000 is enough to call the senior officers of every firm into action. The manufacturers of glues and industrial adhesives concentrated in the Triad countries, where the markets served are already mature and highly competitive, are also in search of new outlets. This intermediate industry, positioned downstream from chemicals, supplies all industrial sectors from construction to packaging, from manufacturers of domestic electrical goods to transport. The downturn in economic activity which hit these client sectors one by one after 1990 went on to shake the world of glues and adhesives, now experiencing a succession of mergers, acquisitions and reorganizations without precedent. At a time of production plant relocation, the chance to follow their industrial customers in their internationalization policy seemed attractive to many adhesive mix preparers.