O G-15 formado por

Brasil, Argentina, Colmbia, Chile,

Jamaica, Mxico,
Peru, Venezuela,
Arglia, Egito, Qunia, Nigria, Senegal, Zimbbue,
ndia,
Indonsia, Ir, Malsia e Sri Lanka.

Could Asia Create an Economic Union?

February 23, 2004
A formal Asia bloc along the lines of the European Union is not
likely, panelists said. But expect Asian countries to find other ways
to benefit each other.

Feb. 23, 2004 Issue

It's Back to Business-Basics for Nonprofits
2004 Asia Business Conference
Retooling 360s for Better Performance
Summing Up: Leadership: A Matter of Sustaining or Eliminating
Groupthink?

by Sean Silverthorne, Editor, HBS Working Knowledge

An Asian bloc could be one of the most powerful economic
institutions on earth, but social and historical differences between
Asian nations make such a pact unlikely, panel experts at a recent
Harvard Business School discussion agreed.
But that doesn't mean Asian countries won't find other ways to
leverage their weight in the marketplace.

Panelists were asked to assess the likelihood of Asian countries

banding together along the lines of the European Union, where
member countries delegate some of their sovereignty to establish
institutions that regulate commerce, law, finance, and other issues
surrounding a unified market.
Clearly such a bloc would foster cooperation and improve the
economic climate of the region and let East Asia companies compete
more effectively globally, said Milan Brahmbhatt, a lead adviser for
The World Bank's East Asia and Pacific region.
But he doubted an EU-type bloc is in the offing in Asia because the
local economies depend as much on the outside world for success as
they do with each other. Also, most blocs have a dominant leader,
and that would not be the case in Asia, where key players could
include China-Hong Kong-Taiwan, Japan, India, and South Korea.
Panelists pointed to a number of cultural differences that work
against establishment of an economic super-authority in Asia.
Dajin Peng, associate professor of International Studies at the
University of South Florida, said Western countries rely on law and
formal agreements to tie parties together, while East Asia cultures
use personal connections to build informal networks based on
cooperation.
Although very powerful, the downside of informal networks is that
they can lead to ambiguity, and you can't have ambiguity in a formal
arrangement such as the EU.
"There never will be an EU or NAFTA type of formal integration,"
Peng said. But there "quite likely" will be more integration and
trade agreements and treaties between Asian players.
That's already beginning in Greater China (China, Hong Kong, and
Taiwan), Peng added, where ethnic Chinese networks are building
"informal institutions" among highly clustered industries even as
the respective governments refuse to talk with each other. "These
networks will be the predominant force in integration,' he said.
Even without a formal bloc, there are many opportunities available
to Asian partners to improve their economic relations with each
other and with global markets. Regional institutions are already in
place such as the Association of Southeast Asian Nations (ASEAN),
the Asia Development Bank, and the South Asian Association for

Regional Cooperation, which are slowly making headway in reducing

trade barriers, panelists said.
Several panelists focused on China as a potential lynchpin of Asian
regionalism. In 2005, China is expected to consume half of the
region's exports, up dramatically from 11 percent in 1999, said Gary
H. Jefferson, the Economics Department chair at Brandeis University
and director of the school's China Economic Research Program.
Certainly, Asian companies would benefit by having China as a bloc
partner, Jefferson said. Access to China's markets would allow
partners to achieve scale economics and recapture some of the
foreign direct investment that has migrated to Northeast China.
But rallying around China could also backfire for those partners, he
continued, if China's structural financial problems implode or the
Taiwan question damages China's relations with the U.S. Another
unknown, he said, is uncertainty regarding China's transition from a
central government into a competitive, multiparty system.
There is also the argument, Jefferson said, that China would not
reap sizable benefits by being a member, because the country is not
capital- or technology-constrained, enjoys a labor surplus, can
capture huge gains simply by redeploying resources, and is already
a member of the World Trade Organization.
In addition to the uncertainties about China, a question remains
about another nation that could be a major part of an Asian bloc:
India. Richard Cooper, a Harvard economics professor, said India
would have to change its strong protectionist policies, and that the
issue of globalization is a topic of hot debate in the country.
The discussion took place February 14 at the 2004 Asia Business
Conference.

What It Takes to Succeed in China

February 23, 2004
The recipe for business success in China is complex, but a few of the
ingredients are common among successful players.

Feb. 23, 2004 Issue

It's Back to Business-Basics for Nonprofits
2004 Asia Business Conference
Retooling 360s for Better Performance
Summing Up: Leadership: A Matter of Sustaining or Eliminating
Groupthink?

by Sean Silverthorne, Editor, HBS Working Knowledge

Focus, execution, and a thorough understanding of the local
competitive dynamics are keys to running a successful business
venture in China, panelists said at a recent Harvard Business School
executive roundtable.
The discussion, "Getting to World Class: The Path to Success of
Model Asian Companies," was held at the 2004 Asia Business
Conference at Harvard Business School on February 14.
Setting the stage for the discussion, Bain & Company director Paul
DiPaola said a Bain study of 150 high-performing public Chinese
companies found four keys to business success:
Sharp focus. All the companies focused on and invested in a strong
core business. DiPaola said this finding surprised him. He had
believed that leading Chinese companies would be broadly
diversified.
Operational excellence. Chinese companies take full advantage of
low labor costs, low costs of raw materials, and linked supply
chains. They also capitalize on IT to leverage those advantages.
Astute technology acquisition. The companies are adept at either
buying the right technology outright or doing technology transfer
deals to get what they need.
Strong partnerships. Chinese companies find the right partners and
build strong relationships. They also tend to avoid joint ventures

with MNCs, which are often nightmares to negotiate and difficult to

execute.
But Chinese firms also face significant challenges as they walk onto
the global stage, DiPaola said. For example, they risk losing that
very same focus that made them so successful. Legend Holdings, a
Hong Kong PC maker, has expanded into cell phones, MP3 players,
and cameras, DiPaola said. "They are moving out of their very
strong core business, and this will be very tough to manage."
Other challenges identified by DiPaola for Chinese companies
include:
Reliance on CEOs to make all company decisions, and a shortage of
executive development programs.
Lack of investment in R&D to create highly differentiated products
and business models.
Little experience in acquiring and integrating companies.
Christina Zhu offered the perspective of an MNC, Honeywell
International, which has grown a successful business in China
despite unexpected roadblocks. She is director of strategy and
business development.
Historically, the first MNCs into China found success by "cherrypicking" the most lucrative and profitable markets whose customers
matched the appetites of those in the U.S., Zhu said. But then the
pickings got slimmer. Companies looking to broaden their business
poured in lots of investment but were frustrated by Chinese culture
differences, complex regulations, fragmented and heterogeneous
markets, poor distribution networks, confusing governance and
control issues, and increased competition from local firms,
according to Zhu.
Local competitors know how to compete
That local competition, which sprung up "almost overnight," was
particularly vexing. While MNCs had to learn the lay of the land and
adapt business practices to the Chinese way of doing things, the
native companies were able to exploit a dramatically lower cost
structure and, most importantly, focus on customer needs.
Chinese companies don't have a legacy; these companies start with
a clean sheet of paper.
Christina Zhu, Honeywell International
"Chinese companies don't have a legacy; these companies start with
a clean sheet of paper," Zhu said.

An example, she said, is Honeywell's business in turbochargers,

equipment that increases engine performance. In the company's
traditional markets, turbochargers have been purchased for use on
heavy-duty trucks. But in China, the biggest market for
turbochargers is in passenger cars. "We're still trying to figure that
one out," Zhu said.
She said Honeywell is formulating a strategy to do more M&A deals
in China. Acquisitions of Chinese companies have been difficult
because of a lack of transparency on deal sources, difficulty in
researching due diligence, and the complexity in valuing companies
that get sweetheart government deals.
Two of the panelists were executives from Chinese companies
representing different parts of the economic spectrum: a large
state-owned company making the transition to global competitor,
and a young start-up digging a foothold in China.
State-owned China National Cereals, Oils & Foodstuffs Import &
Export, established in 1952, is one of the largest importer/exporters
in China. As of 2002, the total import and export value reached
$143.5 billion. CEO Mingchen Zhou said the company and country
have managed a vast transformation from even ten years ago, when
people used government food coupons to purchase necessities and
now choose products off the shelf.
COFCO would like to do more business and partnerships with U.S.
companies, he said. Already COFCO runs a Coca-Cola bottling plant
and has a joint venture with Archer Daniels Midland to create edible
oil products. He singled out McDonald's and KFC as brands that
have made a large impact in China.
On the startup side, CEO Xingsheng Zhang provided the history of
AsiaInfo Holdings, a provider of telecom infrastructure equipment
and services, based in Beijing. The company was actually started in
1993 in Dallas by Edward Tian and James Ding, who then moved the
company to China two years later in search of a huge market
opportunity.
Along the way AsiaInfo transformed from a system integrator to a
software development company. The company's top line has grown
from $37.3 million in 1997 to $121 million in 2002. (In the bubble
year of 2001, the company's revenue was $189 million.) The
company is listed on NASDAQ.

China has been able to provide the company with a talented and
educated workforce97 percent of its 1,000 employees have college
degrees, Zhang said.

2004 Asia Business Conference

Regional Security Issues and the Asian Economy
Could Asia Create an Economic Union?
The Picture's Improving for Entrepreneurs and VCs in Asia
How Corporate Responsibility is Changing in Asia
SARS Jumpstarts Healthcare Opportunities in China
What It Takes to Succeed in China