Chapter One: There Are No Asians
My first trip to Asia was in 1985. After returning home, I believed I had gained great insights into the five countries I had visited. How naive I was. I came to realize over the following years how little I actually knew. I did, however, learn one important lesson that has stuck with me ever since, and that is to be humble. No one can or will ever know everything about Asia or any individual country in Asia. Accept the fact that the person sitting on the other side of the table is at least as smart as you are and is likely to know just as much, if not more, about any proposed transaction. You cannot finesse or manipulate a negotiation in Asia. Try it and you will be eaten alive. Your only hope is to be as prepared as possible. This means you will have to leave all preconceived notions about how business is conducted in the Far East at home. The fact that you are successful where you live has no bearing at all on how you will perform overseas.
If you remember just one thing after reading this chapter, remember that Asia is merely the name of the Earth’s largest continent—there are no Asians. Because Asia is made up of the most diverse mixture of individuals and cultures anywhere on earth, the term Asians is misleading. Asians simply do not exist. Everyone who wishes to have any sort of dealings in that part of the world must recognize and appreciate the unique characteristics of each country in Asia which help to distinguish it from its neighbors.
One common trend, though, is clear—business is becoming increasingly interdependent and internationally driven. Few companies have the luxury of focusing exclusively on their domestic markets, regardless of where they are located, and no business hoping to prosper can afford to ignore competitors that operate internationally. Tyson Foods provides one example. When it was formed thirty years ago, Tyson was an American poultry business that sold exclusively within the U.S. market. Then one day China presented itself as an opportunity for Tyson’s products. Seemingly overnight, Tyson went from having no business in China to more than $750 million in sales in 2010. Tyson’s story is emblematic of how companies in order to grow, and in many cases survive, must expand internationally.
As the worldwide economic recession slowly winds down, new opportunities in Asia will present themselves, creating professional challenges for in-house legal counsel and private law firms when they are asked for practical and timely advice on doing business throughout Asia. The basic challenge for lawyers, which this book seeks to address, is recognizing how drastically business methods and laws vary among Asian countries. A joint venture structure that works well in one country can be disastrous in another. Negotiating techniques are culturally driven and must be specifically tailored to each country. The degree of government involvement in regulating business, tax implications, social expectations, staffing questions, dispute resolution, and so forth must be addressed separately for each country. Unless legal counsel are attuned to these wide variances among the countries of Asia and prepared to advise clients appropriately, chances for a successful venture are slim.
The chapters of this book focus on specific Asian countries. The four most comprehensive chapters describe China, India, Japan, and Korea, which are currently the most dominant players in the region. Other chapters reveal the unique aspects of doing business in smaller but important economies such as Indonesia, Thailand, Singapore, Malaysia, and Taiwan. Finally, sometimes overlooked economies, but ones with a great deal of potential—such as Vietnam—re-explored.
In short, this book provides in-house counsel and lawyers in private practice with practical advice on what to do and what not to o from country to country in Asia. While common themes such as negotiating techniques, use or avoidance of local court systems, and the scope of intellectual property protection appear in most chapters, the subject matter cannot justifiably be addressed in a compare-and-contrast format. Each chapter is distinctive as it attempts to present the intricacies, complexities, and unique aspects of doing business in the particular country addressed.
To be successful in the long run, business executives and lawyers must take the time to educate themselves, plan carefully, and prepare extensively. This book provides the first step on the journey.
Chapter Two: China and India: The Elephants in the Room
The face of Asia is fundamentally changing in ways that were not foreseen even ten years ago. Before examining the individual countries, I believe it is best to start by assessing current developments in Asia. There appear to be two emerging powers—China and India—which will collectively dictate what direction Asia will move in the future.
America in Asia: 1945 to 1990
When the Pacific phase of World War II ended with the Japanese surrender in Tokyo Bay, all of Asia lay in ruins. Even those countries that had "triumphed" basically had nothing. As a result, for the next thirty-five years American businesses paid little attention to Asia. Even as recently as the 1980s, the U.S. government looked at Asia more from a geopolitical and military than an economic perspective. This attitude came back to haunt America’s prestige in Asia in the following years.
Underlying America’s indifference was what I view as either ignorance or arrogance toward its Asian counterparts. Prior to the 1990s, most American industries expressed little concern for the head-to-head competition coming out of Asia. How naive America was to not see what was coming. First Japan, then Korea, and later the "Tigers" of Southeast Asia and Taiwan; one by one the countries throughout Asia began to emerge as increasingly competitive economic threats to American dominance.
If there is any excuse for America’s overlooking the economic potential of Asia, one can argue it was America’s involvement in the Vietnam War. Vietnam, which was viewed by Presidents Kennedy, Johnson, and Nixon as a direct challenge to America’s military strategic position, consumed the attention of Americans, including the business community. By the time the Vietnam War ended, Japan was well on its way to becoming a world economic powerhouse. From 1986 to 1992, Japan entered what is known as its Bubble Period. During the Bubble Period, Japan appeared poised to surpass the United States as the world’s largest economy by the end of the century. Unfortunately for Japan, the bubble burst, and by the early 1990s Japan fell into a decade of recession. Fortunately for the rest of the world, other Asian economies did not suffer a similar fate. In fact, except during the widespread 1997 Asian financial crisis, Asia as a whole continued to grow; Korea emerged as a major economic force, as did Taiwan and Singapore. More recently, countries like Indonesia and Vietnam have begun to surface as real players on the world stage.
A Slow Sunset in Japan?
Japan today is the third largest economy in the world (China surpassed Japan and took the No. 2 spot to the United States in August 2010). The challenge now facing Japan is that it has reached a peak in its growth cycle as a result of several factors. First, Japan is an aging society with a birthrate so low that it no longer replaces itself on an annual basis. Japan has come to be known as the World’s Greyest Society. In coming years, Japan will need to extract tremendous resources out of its national wealth to pay for the needs of its elderly who are no longer working and will have increased health care needs. Another factor influencing Japan’s stagnation is its relatively small geographic size compared to other countries in Asia. With about half the population of the United States, Japan finds itself competing with major players such as China and India, both of which have growing economies and much larger populations.
The Elephants in the Room: India and China
With all due respect to Japan, it is India and China that will define Asia in the 21st century. Even after being displaced as the world’s second-largest economy by China in 2010, Japan unquestionably will remain a strong economic power. Most economists project that China will ultimately surpass the U.S. economy in size within the next fifteen years.
Is it an accident that China and India have grown so quickly? Definitely not. Looking at China and India in 1980, both had approximately the same size economies with large populations living in poor, technologically backward conditions. Who could have guessed thirty years ago that China and India were destined to dominate the world’s economy? Few experts back then predicted it. How each country went about transforming itself is an interesting story.
Since its Revolution, China has had a centrally controlled economy, but thirty years ago China decided to radically change course. The central government decreed that Chinese entrepreneurs would be permitted economic freedom, with the caveat that individual political freedom would not necessarily follow suit. The reason for this new philosophy espoused by Deng Xiaoping was China’s realization that it needed to attract massive amounts of foreign direct investment. In order to accomplish this goal, Chinese leaders began a sustained effort to build a world-class infrastructure.
Beginning with Special Economic Zones such as the Pearl River Delta in the South, and later with other carefully targeted efforts throughout China, the Chinese government pulled out all the stops to attract foreign-based manufacturing into China. The Chinese spent billions of dollars constructing ports, bridges, roads, railroads, and a power grid in order to provide the key resources every manufacturer needs to succeed. With new industrial parks and special areas targeted for investment, China has boomed in a way no other country has since America in the late 19th century during the height of the Industrial Revolution. China’s approach to growth was to build infrastructure and supply low-cost, efficient labor pools.
It is hard to argue with the success of this plan—China has experienced anywhere between 8% and 12% annual growth over the last thirty years. To put it into perspective, if an economy grows at 8.5% per year, over a period of eight years, it doubles. You can see how many times the Chinese economy has doubled, and then doubled again, since the 1980s.
The Indian Path
India was far slower off the mark than China. Since gaining its independence, India has exhibited a deep-seated aversion to foreign direct investment. Part of this attitude is due to remnants of strong anticolonialism feelings, which is understandable following the many generations of British colonial rule the nation endured. Once India finally achieved its independence, the Indians believed they would do things their way with no need to involve outsiders. It was essentially "India for Indians."
From the 1950s through the early 1990s, India followed an NIH philosophy—that is, "not invented here." India’s bureaucracy strongly opposed foreign direct investment or the licensing of technology that Indians had to pay for. The Indians continued to believe that they could develop whatever they needed themselves.
The results are better described in the chapter of this book focusing on India, but basically in the 1970s and 1980s India grew extremely slowly (i.e., about 3% a year as opposed to China’s growth, which was three or four times as high). In the early 1990s, though, the Indians began to realize they had to change their way of doing business or else they would continue to lag behind China, Korea, and Japan. Over the last fifteen years, India has become much more open to foreign direct investment and is now growing at between 5% and 7% per year.
The Chinese Are Here; The Indians Are Coming
When thinking about Asia from 30,000 feet, the one thing to remember is that while Japan remains its second largest economy, Asia’s future lies in India and China.