As Asia now dictates 51 per cent of the total world’s economy and Asia’s rise looked faster than anyone expected, in the argot of role-playing game (RPG) aficionados, the Asian market needs to level up this year to be sustain this growth.
SINGAPORE (1 January 2011). Just like in many RPGs where characters start as fairly weak and
For one, China’s trade surplus already peaked in 2008 at almost $300 billion and now it’s estimating $28 billion in trade deficit for the first quarter of 2012. Another severe downturn in the West has effected decreased European orders for Chinese goods by 22 per cent. And India experienced a 5.1 per cent drop in production at India’s factories, utilities and mines in October last year, compared to 2010. Not to mention that India’s growth is overly reliant on domestic demand and growth in services rather in labour-intensive manufacturing.
The rest of Asia’s economy is comprised of slow or modest growth, aspiring economies with 18 per cent of Asia’s population and generating 6 per cent of its GDP. Economies like the Philippines and Sri Lanka, says Asian Development Bank, exhibit the classic signs of the middle-income trap. These make Asia’s growth vulnerable.
Here are where we think Asia can increase its health points and strength, and may permit it to level up for the game that is 2012.
1. Productivity and Liquidity
Asian markets have matured over the years–becoming bigger, more liquid and better governed, yet
2011 was a trying year for many markets, prompting a more cautious approach to investing as it remains prone to sudden outflows of money. Investors also chose to short stock in deep, liquid markets like Hong Kong to hedge exposure, save Southeast Asian markets of Indonesia (up 2.8 per cent) and the Philippines (up 4.1% per cent) finishing the year on a positive note, due to its smaller size and liquidity.
Despite this ebullience in 2011 markets, we see companies taking over 6 months to a year deciding to make a purchase and keeping an austere attitude towards taking up technologies for productivity, enhancing workforce capability, toolkits and capacity or releasing marketing spend. The problem occurs when the cuts are eating into your capacity to drive revenue. For instance, on deciding to increase or reduce your marketing spend, Lee Oden from TopRank Blog warns about marketing being seen as a
The European stimulus-vs.-austerity debate raging throughout 2011 warns Asia about adverse impact of extreme belt-tightening. Frugality can backfire, says Peter Coy of Bloomberg Businessweek, and in 2011, it did. Government retrenchment sucked demand out of the economy, depressing tax revenue and making balance even harder to achieve; private forecasts of European growth sank throughout the past year. John Maynard Keynes calls it the “paradox of thrift.” One person’s spending is another’s income; so the more people try to spend less during recession and save, the more the economy slows and the harder it gets to put money aside. Gauti Eggertsson at the Federal Reserve Bank of New York, adds to this the “paradox of toil.” When an economy is stuck in a rut, with interest rates at or near zero, cutting wages can backfire because wage cuts lead to expectations of deflation and cause employment to fall rather than rise.
Already we are seeing this frugality transpiring in Asia. At the backdrop of India’s high inflation and unemployment, there’s already a 67 per cent decline in purchases of the $2,800 Nano, India’s mini car, whilst in China, 60 per cent of Chinese millionaires have considered emigrating or have already done so. What Asian firms need to continue to do is informed investing and not to clam up due to worries of another severe downturn in the West and developing nations getting stuck in the “middle-income trap.”
2. Technology and Innovation
Learn from Silicon Valley, who escaped by a mile high unemployment and crippling debt. “We live in a bubble, and I don’t mean a tech bubble or a valuation bubble. I mean a bubble as in our own little world,” says Google Chairman Eric Schmidt. Look at how innovation and technology brought Silicon Valley to exist in alternate reality—companies can’t hire people fast enough, young people can work hard and make a fortune, homes hold their value and Occupy Wall Street doesn’t come up in daily discussion.
The bubble of prosperity is apparent in Silicon Valley, where progress marches forward even amid the utter dysfunction and gridlock of governments in California and Washington, D.C. Google, Facebook and Twitter each have hundreds of millions of users. Linked In and Pandora Media have actual profits going public in 2011. Startup Color Labs was lavisly funded with $41 million from investors such as
Sequioa Capital and Bain Capital.
Asia can move forward too and adopt the Valley’s overwhleming bias toward optimism in technology and innovation whilst not ignoring the rest of the world, lest it becomes out of touch. But these tech companies at the Valley are reaping the benefits from the value they provide; companies like Zynga, Groupon, Facebook, and LinkedIn all have real revenues, real growth, and in some cases, real profits.
Chinese social game developer, Happy Elements, now has funds totaling US$35 million which will be used to expand its reach to Western markets, launch smartphone games and hire more staff. Social games startup, Nubee, is looking to expand its developer pool to create more offerings for customers following the injection of 1 billion yen (US$13 million) from a Japanese venture capital firm. Location-based shopping technology app for iPhones and smartphones, MobiSinga, are also now making waves
in Singapore, where it is now reaching 3,000 merchants and 1,000,000 subscribers. Technology is about to improve the prospects of millions of Indians through the Unique Identification system that provides the public with improved access to public benefits.
3. Regulation and Market Openness
Used to be known for its open market policy, Singapore Ministry Of Manpower (MOM) have further tightened measures on the middle range of foreign workers. Middle range of foreign workers are those with Employment Pass and their competition on the white collar jobs with Singaporeans was one of the hottest topics in Singapore. These measures address one of the primary concerns of white collar Singaporean workers who seem increasingly uncomfortable and vocal about the influx of foreign workers. Prime Minister Lee Hsien Loong has said that the tightening on mid level foreign workers will include “raising the salary thresholds for Employment Passes and tightening the educational qualifications”.
India’s flow of money is still relatively tight, as it is still not allowed to bring rupees into India or take them out of India. Individual foreign investors are also finding it difficult to invest in Indian markets as they have to come either through participatory notes or through Sebi-registered brokers. There is also a registration cost involved if they are coming through foreign intermediaries. A majority of the country’s leading CEOs have muted investment plans both in India and abroad, reflecting the difficult environment for investments, a study said on Sunday. “It is worrying to note that a majority of CEOs have muted investment plans both in India and abroad, reflecting the difficult environment for investments,” Confederation of Indian Industry (CII) Director General, Chandrajit Baneerjee said. “While the global crisis has made Indian companies more conservative towards investing abroad, many companies will continue to expand abroad.”
Some foreign businesses have complained over the past year that the business environment in China
has become less friendly. Beijing’s National Development Reform Commission, responsible for economic planning, recently announced it would stop supporting foreign investment in car manufacturing.
This tightening has to be calibrated correctly, if not foregone, or it will lead to slowing down of markets. Slowing growth prompted the Singapore’s central bank at its review meeting in October 2011 to loosen policy by guiding the Singapore dollar on a less steep appreciation path. India and China will have to do so to be able to catch up.
4. Workforce and the Next Generation Leadership
The world’s population reached 7,000,000,000 (7 billion) in 2011. Yet 2012 will still be a difficult year to find talent. The economic advancement that the world enjoys are made available to us by inventions and hardwork of the industrialists, technocrats and innovators, that are becoming scarcer and scarcer by the minute. In 2011, a survey by Manpower found that 34 per cent of employees worldwide were having trouble filling jobs, with technicians, salespeople, skilled-trades workers and engineers the hardest to find.
As the planet gets ready for big data—peta, exa and zetta—more than ever, we need people who can analyse these data so firms can optimise supply chains and monetise customer relationships. Social media are adding to the flood of data, such as Twitter, expected to exceed 500 million Twitter messages per day.
The energy industry is experiencing a big shift of employees too, as their mature workforce starts to retire starting this year, the number of hard to find talent in geology and geophysics and deepwater engineers are decreasing by the day and the leaders are getting younger.
In politics, people going for leadership roles are getting younger, even in gerontocratic India. In
Thailand, Yingluck Shinawatra is the youngest, not to mention, the first woman prime minister in Thailand. Tin Pei Ling won a Parliamentary Seat in Singapore last year at age of 28. In the Philippines, the politicians are also getting younger, but the worry is that their politics remain old as they are often substitutes for parents and relatives who are dubbed as “old porkers”—politicians receive hefty funding, called pork barrel, when they win Senate and Lower House seats.
In the 2012 talent battlefiled, Asian firms who are able to raise engagement levels will reap the benefit on their bottom line. Firms will have to keep investing in training and development, international benchmarking on pay and benefits and openness to young leadership to be able to compete and thrive in global markets.
5. Cooperation and Sustainability
Tense relationships between Asian countries will have to be dealt with to ensure sustainable cooperation and stability in Asia. North Korea shelled the South Korean island in November 2010 and these countries officially remain at war. In the East China Sea, tensions have grown between China and Japan over disputed islands northeast of Taiwan. Taiwan has been upgrading its military aircraft and air defenses as Beijing modernizes its military. At the Strait of Malacca, piracy is a persistent threat to this shipping lane and in the South China Sea, China, Vietnam and the Philippines have made competing claims over waters believed to contain large quantities of oil and gas. All these tensions are something to watch out for as this can easily derail the growth prospects of Asia as a bloc.
In a cost-conscious world, large multinational companies will have to change profoundly, in the way you design your products, market them and continuously become adaptable. In order to remain competitive, firms have to become multi-local players, more open to innovation and quicker.
Arc Media Global and our partner organisations will bring you exciting platforms this year to help you achieve just that and bring you innovative platforms to market to a frugal markets. Peter Löscher, president and CEO of Siemens, says it very well, “The frugal customers of today are the high-end consumers of tomorrow. Scarcity of resources is not an impediment but an enabler for frugal innovation.”
Let’s all level up for 2012!