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Graduate School

IBT: International Business in the Asian Emerging Markets 2013

Exam 7 June 2013

Question 1 (2 points; max 2 pages): (Overseas Chinese and Indian business networks in Asia)

Ethnic Chinese and ethnic Indian entrepreneurial networks constitute an integrating force in
Asia. Provide an outline of the main characteristics, advantages and disadvantages, and future
prospects of such networks.

Little differentiation between family and the firm
Strong familiar and informal networks
Institutional embedded (good relations)
Highly diversified firms
Entrepreneurial initiative
Trust and loyalty
Started from scratch
Indian secrecy

Advantages Informational voids in Asia (see from BG-perspective and western perspective)
Fast decision making
Hands on experience
Lateral transfer of knowledge
Qualitative information (connections)
Holistic information processing
Emergent planning (ad-hoc)

Disadvantages (future outlook)

Suitable for foreign markets?
Institutional upgrading declining influence?
Too diversified?
High bargaining power (disadvantage for countries)

Question 2 (4 points; max 3 pages): (Development experience of China and India)

Provide a brief background to recent trends in the economic development of China (since c:a
end of 1970s) and India (since c:a early 1990s). Try to identify similarities and differences in
overall strategies and economic development patterns between the two countries with
examples from key economic sectors.

o Open market reforms (good timing, globalization and deregulations)
o SEZ (FDI) (PN)
o Labor-intensive industries
o Export-led growth
o Heavy investments in industries and infrastructure
o Manufacturing (from labor-intensive to capital intensive)
o Technological upgrading (heavy investments in R&D + education)
o Urbanization (industrial manufacturing cities)
o Organizational capacity

Balance of payment crisis in 1991
o Liberalization
o Skipped the second industrial stage
o Still regulated market
o Limited FDI + low integration in PNs
o Poor institutions and infrastructure
o Slow urbanization
o Boom in BPO and IT-services (increase in FDI after 2000)
o Rigid labor market

Acknowledged the importance of liberalization FDI
Import substitution
Fast growth
Both resilient to financial crisis

The Chinese organizational capacity is more pragmatic (India slower)
China has focused on manufacturing while India has focused on services. China has
used the comparative advantage, not India (labor-intensive).
India less integrated in PNs
Slower urbanization in India
Rigid labor market in India
Low investments in infrastructure and industry

Question 3 (4 points; max 3 pages): (Asian intra-regional trade)

Asian economies have to large extent been integrated without forming any legal boundary
such as the EU and NAFTA. Organizations such as ASEAN and other institutional
arrangements such as ASEAN+3 (China, Japan, South Korea) do not cover the whole Asian
region as a legal framework for building a single and common market. Nevertheless, Asian
intra-regional trade has been on a rising trend over the last several decades and has become a
mainstream to build its own pattern of trade.
Explain and discuss the roles China and India have played in forming intra-regional trade
relationships with other major Asian counties such as Japan, South Korea, Taiwan, Hong
Kong, Singapore and Malaysia!

High and increasing intra-regional trade in East Asia (South Asia lagging behind)
Global production networks (vertical specialization). Countries such as Japan, Korea
and Taiwan (moved labor-intensive production to China) exports parts to China, who
are the final assembler. Electronics, machinery and transport
Indias participation relatively low
China imports resource-based and pp from middle-income Southeast Asian countries.

Backward integration in PNs.
o More locally suppliers in China.
o Chinas intra-regional trade has decreased since 1999.
o Chinas go west strategy.
Since the global quotas for textiles and garments disappeared in 2005, the intra-
regional trade has declined since China is less reliant on ASEAN countries.
China competes with Southeast Asia as a final assembler and source domestically

Question 4 (2 points; max 2 pages): (Industrial strategy at a crossroads)

The global recession in 2008-09 is forcing a reappraisal of development strategies in Asia.

One potential scenario for the near future is a concentration of economic activities in China
and India. Discuss briefly the implications of this scenario for the industrial geography of the
Asian region.

Scenario 2:
Possible scenario for max 2 years.
Increased Regional PN costs. Communication, monitoring etc. (<10% of total costs).
Difficult for JIT (planning etc.)
Sophisticated products Complex networks
Increase Value-added and GDP in countries
U.S. and EU demand decreases due to trade deficit etc.
China and India large markets and capacity (especially China)
Southeast Asian countries left outside PNs and have to increase technological capacity

Scenario 3:
Least likely scenario in the short term but not in the long term
Electronics alone is not a sufficient pathway to reach higher stages of
Green technologies
o Still unclear how it will affect investment, output, employment, production
methods and industrial geography
o Capital-intensive skills and research intensive
o Restructuring of industries, transports etc. Such as, Investment in low-carbon
economy, Urban infrastructure, transport and energy conservation, Water
conservation and management, Lean natural resource use technologies
China Foreign Trade:
Growth and Structural Changes:
A shift in export structure From labor-intensive to more capital-intensive and
technology-intensive industries, mainly transport and machinery
Imports of primary products increasing
Growth slowdown in both exports and imports
o Appreciation of RMB
o Rising resource costs
o Labor costs rising

Future prospects:
Cheap money, cheap labor, cheap resources. Things of the past > Capital and
technology-intensive products.

Post-crisis restructuring and new growth:

Different structures of the groups
More liberalized and increased FDI increased competition
Some countries tried to affect the groups during the crisis
Some succeeded with greater transparency and tougher regulations for governance etc.
Some business groups acquired the weaker groups after the crisis and thus got bigger
and stronger
Business groups have strong connection to politics in some countries and were thus
able to influence decision-making. New markets opened up, for example energy
Chaebols grew stronger in Korea after the crisis

Upsides with business groups:

Risk sharing
Reputation opportunities
Access to high amounts of capital (own banks)
Stabile survived crisis
Development of internal talents

Tunneling of capital support parents
Poor monitoring
Concentrated power Negative for the country
Management position held by family

The many futures of Asian business groups:

Life cycle:
Entrepreneurs concentration of power, decadent elite, keep profits

Infant industry argument
Crony capitalism:
Low-trust countries opportunistic politicians and protection from uncertain
Relations essential

Institutional Void:
As long as the market is imperfect and here are no institutions, BG will exist.
BGs will disappear when institutions appear

Developments in business networks in Asia:

Japanese BNs:
Pyramid industrial networks pressure on lowering costs at lower levels in order to
get more money to the top of the supply chain.
Firms at the lower levels exchange technologies and know-how.

Korean BNs:
Similar to Japan
More vertically integrated
Family-owned and controlled
Less rivalry
Family relationships rather than contractual relationships
Difficulties for single firm to survive in Korea compared to Japan firms strive to
join clusters.

Chinese BNs:
Blood, religion, dialect etc.
Family owned
Confucianism - family
Lower transaction costs due to trust
Limited firm size

Savings and investments driver in the Asian industrial economy
Increased domestic consumption?
High savings in China due to:
Poor security nets
Limited consumer financing (house and cars)
Aging population, one child policy medical services
Demand for savings
Still developing
PPP low
Urban infrastructure lagging

Increased domestic consumption in Asia

Demand for low value added products will result in slow growth

BOP crisis in 1991 --> Liberalization
Skipped the second industrial stage
Limited FDI focused on market seeking (horizontal) and low integration in PNs
Regulated market, poor institutions and infrastructure rigid labor market and labor
Slow urbanization
BOOM with BRO and ITS
Increase of FDI after 2000 mainly services
Trade liberalization but no structured policies

Industrial composition and exports

Lowtech (textile, footwear, garments)
Resource based

Competitive advantage in labor intensive still focused on capital intensive (skill and
technology) exports leading to exports to developing countries instead of developed
countries which results in lower export numbers. Developed countries prefer imports from
more quality-associated countries for importing capital intensive products.