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In this Issue

M S Swaminathan

How a regional foodnetwork could protect

Asia’s small farmers

Tsunami: For Asia,a momentary blink

Thailand scrambling tocover energy shortfall

BUYING THEBRANDBUYING THEBRANDChina’s short-cut to world markets

ASIA TODAY INTERNATIONAL FEBRUARY 2005 3

CHINA’S SHORT-CUT TO WORLD MARKETS: In quick succession, larger Chinese companies have acquiredsome of the world’s best-known brands, including the personal computer business of IBM. Knowing that globalbrands can take generations to establish, China is taking a short-cut to world markets — and they’ll be chasingworld-best advertising and marketing experts to help chart their expansion plans (9-12).

US CHINA WATCH AS JOB LOSSES GROW: A new report suggests 1.5 million US jobs were lost to lower-wage Chinese competition between 1989 and 2003, and that the US car and aerospace industries are now underthreat. The USTR has established a separate unit to focus on China trade issues (13).

REBUILDING AFTER TSUNAMI: The tsunami has scarred Asia, but in economicterms, Asia has blinked only momentarily. The two regions hit hardest — in Sri Lankaand Indonesia — contribute just two per cent of their countries’ total economic produc-tion. Now, five-year rebuilding programmes are under way, with repair and reconstruc-tion where possible carried out at community level (5-7, 21-22).

A FOOD NETWORK FOR ASIA: Food scientist M S Swaminathan wants regionalgroupings such as SAARC and ASEAN, together with individual countries, to addressa long-term strategy to provide regional food security (17).

THAILAND SCRAMBLES FOR ENERGY: For Myanmar, gas exports to Thailand now represent 40 per cent of totallegal exports. Expanding energy needs could see Thailand develop a closer relationship with Myanmar, and also Cambodia (26)

ON OTHER PAGES: India may emerge as car export hub (15), Asia’s trade credit ratings under review (15), Vietnam focusses on WTO(19), FDI flow to Asia to reach US$279 billion in 2005 (23), S&P may upgrade Indonesia, India (23), China ups ante with Taiwan anti-secession law (24), Taiwan’s ICBC eyeing China bank (25), Pollution China’s greatest challenge (27), Business Travel (29-30).

ASIA TODAY INTERNATIONAL Volume 23, No.1, February 2005 22nd Year of PublicationPublished in Australia since 1983 by East Asia News and Features (Australia) Pty. Limited (ABN 48 343 588 913). Office address: Level 29Chifley Tower, 2 Chifley Square, Sydney NSW, Australia. Production Office: Level 1, 1463 Pittwater Road, Narrabeen NSW 2101, Australia.Telephone (612) 9970-6477. Fax (61 2) 9913-2003. Mailing address (all correspondence): Box N7, Grosvenor Place Post Office, Sydney NSW1220, Australia. E-mail <asiatoday@asiatoday.com.au>. Website <www.asiatoday.com.au >.

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INTERNATIONAL

M S Swaminathan:Farmers to benefit

Prof. Peter Williamson:China will employ the best

All contents copyright © ASIA TODAY INTERNATIONAL 2005

SRI LANKA and Indonesia — thetwo countries worst-affected by

the Boxing Day tsunami tragedy — havebold plans to rebuild provinces ravaged bythe giant waves. In both instances, theprovinces that bore the brunt of thetsunami were held by rebels, engaged in along, debilitating struggle for freedom.

Now, both countries hope the devasta-tion will open the door for the govern-ments to move in with new developmentplans that can bring the shattered com-munities into the national fold.

But it is a long shot. If peace was to comefrom the catastrophe, it would be trulyunexpected compensation for the suffer-ing of the tsunami victims.

In their initial estimates, the two gov-ernments have outlined broad plans torebuild the regions in three-stage pro-grammes, to be undertaken over fiveyears. Humanitarian and welfare relief isunder way. Rebuilding will start soon and,finally, development will bring new eco-nomic activities to these regions.

Sri Lanka estimates its cost at US$3.5 bil-lion over five years to rebuild the easternstates, while Indonesia’s preliminary fig-ures suggest the cost could be US$4.5 bil-lion. Both are preliminary assessments.

Both countries willreceive additionalaid support frominternational finan-cial institutions andbilateral loans. TheConsultative Groupon Indonesia (CGI),which met in Jakartalast month, haspledged US$1.7 bil-lion in additionalloans to help rebuildAceh. Australia alonehas pledged AUD1billion — AUD500

million in direct grant aid and theremainder in concessional loans formedium-and longer-term projects.Indonesia will have a further 10-yeargrace period, 40 years to pay.

The total damage in Indonesia is esti-mated at US$3.9 billion — US$2.8 billion inthe private sector, mostly housing andagriculture and fisheries, and US$1.1 bil-lion in infrastructure, social sectors andgovernment administration. Acehaccounts for almost all of Indonesia’sestimated 166,000 fatalities.

President Susilo Bambang Yudhoyonohas proposed a Commission to overseethe rebuilding of Aceh. Although the eco-nomic impact is small, the calamity hasconsumed a lot of time for both ministersand bureaucrats. To streamline co-ordina-tion, SBY has indicated that a Cabinet-levelposition will be created, charged with the

THE SRI LANKAN Government’sestimate of the cost of rebuilding after

the tsunami disaster is around US$3.5 billion.The Government has broadly outlined a

rebuilding programme to be undertaken inthree stages, spread over five years, and to bepartly funded by international grants and loans.

The affected region, says Alessandro Pio,Resident Country Manager of the AsianDevelopment Bank in Colombo, contributesabout two per cent of Sri Lanka’s gross domes-tic product. Although the tragedy affected fiveper cent of its population, Sri Lanka’s main eco-nomic activities — plantation crops and gar-ments — have not been affected.

But there will be some affect on the coun-try’s banking and insurance sectorbecause the tourist resorts andhotels are insured. The key eco-nomic activity in the affected areais tourism.

Pio says that according to theGovernment’s latest estimate, PhaseOne, which involves immediatehumanitarian work, will costUS$200-US$300 million. Phase Twowill cost US$1.7 billion and PhaseThree US$1.5 billion.

“The Government has taken theapproach that it wants to use thisopportunity (of rebuilding) to bringdevelopment to the coastal belt inthe eastern part of the island,” Piotold ASIA TODAY INTERNATIONAL.“It means the work will go beyondsimple repairs to upgrading of infra-structure and redevelopment.” Thefinal phase, he says, will involvedevelopment of the region. The SriLankan Government will handle thefirst phase, which will include offer-ing assistance in the form of creditand small cash grants to help those affected getstarted immediately.

The most important tasks are housing, basicinfrastructure and roads. Pio says the immedi-ate priority is to help ease the suffering of tensof thousands of poor people who have lostfamilies and their livelihood. The number ofdeaths at the time of writing was 40,000. “Thefirst task is human welfare. These people needhousing and they need to restore their liveli-hoods. Most are fishermen and they have losttheir boats and equipment. Some 80 per cent offishing boats have been damaged,” he says.

In this phase, Pio says Sri Lanka has the

ASIA TODAY INTERNATIONAL FEBRUARY 2005 5

S E T T I N G T H E P R I O R I T I E SAFTER THE TSUNAMI

FLORENCECHONG

COMMENT

➛ Continued page 6

➛ Continued page 7

BANKERS and insurers will be hit, but Sri Lanka’s main economicactivities — plantation crops and garments — have not beenaffected by the tsunami. Now the Government is moving on athree-phase, five-year rebuilding programme . . .

Rebuilding Sri Lanka — A$3.5b. 5-year programme

capability and resources to meet the needs ofthe people. Sri Lankans in other parts of thecountry have been mobilised to help their own.Pio believes materials and resources needed torebuild are available within Sri Lanka. He citesincidents of water being shipped from anotherpart of the world when perfectly clean water isavailable from a neighbouring village whichhas not been affected by the tsunami. He sayslocal factories are cranking up to supply thematerials needed to rebuild houses.

International aid, the World Bank and theADB will become involved in the second andthird phase. Before multilateral agencies andoverseas governments agree to funding of thereconstruction programme, they are expected

to go through the plan to assesswhether the projects are tsunami-related or are additional. “We willneed further analysis to see if theprojects proposed are plausible andif they are linked to tsunami. We willdo that in the next couple ofmonths,” Pio says.

Among issues that need to berefined will be standards. For exam-ple, the question of how far build-ings should be set back from thecoastline — 300 metres or one kilo-metre? Pio says that whatever stan-dards are adopted should be practi-cal because fishermen, for example,have to live close to the water. Whatis important is to have buildings thatcan withstand floods and heavystorms and also to install an earlywarning system for tsunami. He saysit would be too expensive andimpractical to try to fully protectproperties against another massivetsunami, which may not occur foranother 2,000 years.

Pio says the Government has promised todevelop a national platform through which thevarious parties (including the rebel LiberationTigers of Tamil Eelam, known as LTTE) can beconsulted on best solutions for rebuilding.

“The one thing that struck me is the gener-ous response from everybody. Sri Lankanshave been mobilised to collect water and food.The volume of aid received has been massive.It has been overwhelming the logistics neededfor distribution.” One good sign, he says, isthat a predicted second wave of deaths frominfection and hunger has not materialised.

Whether the disaster will lead to a permanent

ADB’sAlessandro Pio

(top), IMF’s Anne Krueger:

Pledging moresupport.

THE BUSINESS IMPLICATIONS FOR INDONESIA — PAGE 21

For Asia, just amomentary blink

task of rebuilding Aceh. The main tasktoday is still relief operations to provideabsolute necessities — water, food, medi-cine and shelter. The governments in bothcountries anticipate moving gradually intorebuilding in coming months, then intoreconstruction.

But the situation is quite different fromreconstruction of Iraq after the war, wheninternational commercial firms from coun-tries that were part of the coalition, includ-ing Australia, sought contracts for recon-struction work. With the exception of sometourist hotels in Thailand, Sri Lanka and theMaldives, the bulk of tsunami damage wasinflicted on micro and small enterprises,fishermen and some farmers.

In a preliminary assessment preparedfor the Indonesian Government, the WorldBank said the private sector suffered 78 percent of total damage. The loss of roads, gov-ernment buildings, and other public infra-structure accounted for just 22 per cent.

The report says about 1.3 millionhomes and buildings were destroyed inAceh, and that repairing and reconstruct-ing then will be less costly when carriedout at the community level. Thisapproach will also generate income at alocal level. Pretty much the sameapproach is being adopted in Sri Lanka.

When Japan was struck by the Kobeearthquake in 1995, Australian firms, forexample, won tenders to supply pre-fabri-cated housing for those who lost theirhomes. The humble abodes swept away bythe tsunami are a different propositionaltogether. They were simple structuresmade of local materials. Prefabricatedhomes are not even under consideration.

Certainly in Sri Lanka, the AsianDevelopment Bank believes both buildingmaterials and labour are available locally.The same holds true of Aceh. Local con-tractors are likely to be able to rebuildroads and repair damaged power lines,although some of the materials may haveto be imported.

But longer term, as the governmentsseek to undertake more ambitious devel-opment plans, perhaps there will be a rolefor foreign enterprises in partnership withIndonesian or Sri Lankan agencies.

Overall, the tsunami has scarred Asiathrough the horror it inflicted and the sheernumber of casualties. But the two worst-affected regions contribute just two per centof their countries’ total economic produc-tion. Economically, Asia has only blinkedmomentarily. Business goes on as usual.

PUBLISHERBarry Pearton

EDITORFlorence Chong

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➛

ASIA TODAY INTERNATIONAL FEBRUARY 20056

A MOMENTARY BLINK

From page 5

❝ The two worst-affectedregions contribute just twoper cent of their countries’total economic production.Asia has only blinkedmomentarily. Business goeson as usual❞

ASIA TODAY INTERNATIONAL FEBRUARY 2005 7

I N D I A G O E S I T A L O N EAFTER THE TSUNAMI

ceasefire in civil war that has ravaged Sri Lankafor more than a decade, Pio says, only time cantell. But one can be optimistic and hope for thebest — although, realistically, there are alreadyrumblings that the tsunami has caused a set-back to the peace process.

Meanwhile, following a visit to Sri Lanka inJanuary, the First Deputy Managing Director ofthe International Monetary Fund, AnneKrueger, has pledged more support.

She says the Fund has already approved anextension in the repayment schedule of previ-ous assistance provided to Sri Lanka: this willhave the effect of reducing debt service pay-ments by about US$114 million this year.

She adds that the Sri Lankan Governmenthas also requested emergency financial assis-tance; this can be made available quickly andwithout being linked to an IMF programme. “Iexpect this request to be considered very short-ly by the Executive Board, and we would hopeto be able to provide this assistance — whichcould amount to about US$160 million — onconcessional terms.”

The IMF will also consider providing tech-nical assistance to Sri Lankan authorities asthey seek to assess the macro-economicimpact of the tragedy, and the budgetaryand balance of payments needs that mightarise as a result. As soon as is practical afterthe humanitarian relief and reconstructionplanning has been addressed, Krueger saysthe IMF will resume discussions on an eco-nomic recovery programme that can be sup-ported under the Poverty Reduction andGrowth Facility.

India refuses aid,sends help to others

➛

From page 5

NEW DELHI — When news of thetsunami broke, India put its bravest

face forward. Not only did it refuse foreign aidand relief from other governments — NGOsand international agencies like the World Bankand International Monetary Fund excepted —it rushed a hospital vessel to Indonesia and aidto Sri Lanka.

In part, this was due to a guilt-ridden past —India has always been at the receiving end offoreign aid in times of crisis and tragedy. Nowthe Indian economy is doing well, and it wouldhurt national pride for India to be regarded asinternational basket case. At the same time, itis true that the tsunami has not hurt the Indianeconomy as badly as that of Thailand andIndonesia. There were no foreign tourists inthe coastal areas of South India’s — or in theremote Andaman and Nicobar islands in theBay of Bengal — when the tsunami hit.

Indian tourism is unlikely to be hurt — noforeign tourists were killed, and the coastalareas of South India have yet to emerge as amajor tourist destination.

The Government has provisionally estimatedtotal damage at nearly US$1.8 billion or 0.3 percent of GDP. The trouble with that estimate isthat it is not a loss featuring in theGovernment’s account books — rather, the

From RAJENDRA BAJPAIASIA TODAY INTERNATIONAL Correspondent

damage was suffered by individuals, exceptwhere Government-owned buildings, bridgesand highways were washed away.

Morgan Stanley believes the damage was“largely confined to rural areas rather than keyeconomic and densely populated urban centresand industrial hubs”. Saumitra Chaudhuri, amember of the Prime Minister’s EconomicCouncil, says GDP growth will not be affectedas “the loss is only of capital stock”. TheGovernment has made no changes in its fore-cast for the year to March 2005, and the growthexpectation remains at 6-6.5 per cent of GDP.Michael Carter, World Bank Country Directorfor India, said he would not significantlychange India’s outlook for fiscal 2005.

The trouble with most estimates and fore-casts is that the full picture of devastation hasyet to emerge, and the Government is still busydistributing relief material to affected people. It

has not had time to make a fullestimate of damage, and noeffort has so far been made toreconstruct damage to infra-structure.

Some Indian banks may suf-fer losses, especially those thathave advanced loans to peo-ple in rural areas. Fitch Indiadirector Ananda Bhoumik saysbanks may have make a provi-sion for non-performing assetsfor loans to people in villages,but these would be less thanRs1 billion or 0.01 per cent of

their total loan portfolio.

Thai tourism impactBANGKOK — The new resort townof Khao Lak was devastated, but only

10 per cent of Phuket was affected, and Krabi,somewhat protected from the tsunami wave byPhuket and Phi Phi Island, has had all hotelsoperating since December 31, according to theTourism Authority of Thailand. One side of PhiPhi Island, where three – and four-star resortshave private access only, was not affected.

However, travel industry sources say hoteloccupancy in Phuket is about 10 per cent andthat Khao Lak, where the luxury German-owned Sofitel Khao Lak was badly damaged,may not recover as a luxury tourist destination.Other resorts, such as Patong Beach, arereturning to near normal occupancy levels.

Qualitative Assessment of the Effects of the Earthquake and Tsunami of December 26.

Tourisma Agriculture andFisheriesb Poverty

Overall Economy

Maldives HIGH HIGH HIGH HIGH

Sri Lanka HIGH HIGH HIGH HIGH

Indonesia MEDIUM HIGH HIGH LOW

Thailand LOW LOW LOW LOW

India LOW LOW LOW LOW

Malaysia LOW LOW LOW LOW

Myanmar LOW LOW LOW LOW

Bangladesh LOW LOW LOW LOW

a This refers to theimpact on the overall economy.b This refers to theimpact on the affected areas.Source: Asian Development Bank

ASIA TODAY INTERNATIONAL FEBRUARY 2005 9

CHIEF EXECUTIVES from eightleading Chinese corporations met

recently in the beautifully-restored 14th centu-ry Chateau de Touffou near Poitiers in Franceto find out more about the intricacies of goingglobal from some of the best gurus in interna-tional marketing.

Peter Williamson, a leading consultant oninternational business management and a pro-fessor at the Cedex, France-based INSEADbusiness school, was a presenter at the four-day gathering. Williamson, a regular visitor toChina, led two discussions – one on Buildingan international organisation and the other onUsing acquisitions and alliances to speed up theprocess of becoming global.

Williamson, Professor of Asian Business andInternational Management at INSEAD, saysChinese executives have become more seriousabout entering the global market in the lastyear or two, and they will employ the world’sbest advertising companies and marketingexperts to help chart their global expansionplans — which is why Ogilvy and MatherInternational hosted the meeting.

Chinese companies may be seen as simplyfollowing the path worn by their Japanese andKorean counterparts in the 1980s and 1990s interm of the global market, but Williamson toldASIA TODAY INTERNATIONAL there is a funda-mental difference. “China is so much biggerand moving so much faster,” he says.

Chinese players come from a position ofconsiderable strength because they have econ-omy-of-scale in terms of the production and

Continued page 10

IN QUICK SUCCESSION, larger Chinese companies have acquired someof the world’s best-known companies. To date, the most spectacular dealhas involved the personal computer business of IBM, acquired by theChinese company Lenovo, formerly known as Legend, for US$1.25 billion.This will catapult China into the top of the global market for personal computers. giving Lenovo both one of the world’s best-known brandnames and the high technology that supports the brand.

In another ground-breaking deal, China’s second-largest TV manufacturer,TCL, has become the majority partner of the French company Thomson,which also owns the venerable US brand name RCA, for US$520 million.And most recently, in December, China’s TPV Technology acquired RoyalDutch Philips’ flat-screen television operations for US$358 million.

Such bold multi-million dollar deals have eventuated after careful planning by Corporate China to go beyond manufacturing for the globalmarket. Chinese companies want to own the brands themselves and willpay to achieve their ambition, knowing that global brands can take generations to establish (as Japan and South Korea discovered). Chinawants to take a short-cut.

Chinese companies have long invested overseas to secure supplies ofraw materials, and these investments continue unabated, with suggestionslast month, for example, that CNOOC was eyeing Unocal, a long-estab-lished US energy company with extensive exploration activities in Asia. A full takeover could cost US$13 billion.

Peter Williamson, a leading consultant on international business man-agement and a professor of Asian business at INSEAD, addressed CEOs ofeight Chinese corporations at a four-day presentation hosted in Francerecently by advertising and PR firm Ogilvy and Mather. Williamson saysChinese executives will employ the world’s best advertising and marketingexperts to help chart their global expansion plans...

M A R K E T E R S E Y E C H I N A ’ S G L O B A L N E E D STRENDLINES

BUYING THEBRANDBUYING THEBRANDChina’s short-cut to world markets

By FLORENCE CHONGEditor, ASIA TODAY INTERNATIONAL

IBM, RCA, PHILIPS, NOW UNOCAL...?

Going to Lenovo: IBM facility in Shenzhen.

P A R T N E R I N G C H I N A I N W O R L D M A R K E T S TRENDLINES

ASIA TODAY INTERNATIONAL FEBRUARY 200510

supply chain. Their labour cost is a fraction ofwhat is being paid in other countries, they canleverage off their enormous domestic market,and they are able to access the latest marketingand advertising expertise readily available in anincreasingly globalised age.

The issue facing the Chinese is to either buyinto a Western brand and to build a Chinesebrand alongside it, or to spend time and moneyto develop their own brands. The Chineseknow how long it can take to develop aninternationally-recognised brand and the cost:South Korea’s Samsung is an example. It tookSamsung decades to become a global house-hold name.

Cashed-up Chinese companies are short-cir-cuiting the long brand development processthrough mergers and acquisitions outsideChina. Perhaps the most notable deal, to date,is Lenovo’s purchase of IBM’s personal com-puter global business. In one sweep, Lenovo(formerly known as Legend) will catapultitself to the forefront of the global PC mar-ket, controlling one of the best-knownbrands in the world and the technology anddistribution that back the brand.

In another ground-breaking deal, the sec-ond-largest Chinese TV manufacturer, TCL,has become the majority partner of theFrench DVD manufacturer Thomson.Thomson also happened to own the RCAbrand, a venerable American name (RCAinvented colour television). The transactiongives TCL access to the EU market – usingthe Thomson distribution network andaccess to Thomson’s technology and brands.

TCL International holds 67 per cent whileThomson holds 33 per cent in the venture,which produces TV sets under the brands ofTCL, Thomson and RCA at Shenzhen inSouthern China’s Guangdong province. Thepartnership has become the world’s largest tel-evision company by sales volume.

Thomson has put all its mass products intothe joint venture, known as TCL-ThomsonElectronics. The French company has kept

PETER WILLIAMSON isProfessor of Asian Business and

International Management at INSEAD, theFrench-based business school which alsonow runs a campus in Singapore. He consultson business strategy and international expan-sion to companies in Asia, and has beenactively involved in a number of joint ven-tures in China since 1983. He is a non-execu-tive director of Glenmorangie Plc, IntegemPlc, Euronet Ltd, Imparta Ltd (Chairman) andTGM Ltd (Chairman).

He began his business career in bankingwith Merrill Lynch in London, Singapore andNew York and later spent four years with TheBoston Consulting Group in Europe, Asia andLatin America. Before joining INSEAD in 1995he taught at the London Business School (hebecame Dean of MBA Programmes in 1990)followed by an appointment as VisitingProfessor in Global Strategy and Managementat Harvard Business School.

His latest book, Winning in Asia: Strategies

higher-end DVD manufacture and digitalmedia outside the joint venture. The US$520-million transaction gave TCL, which has onlybeen in television manufacture for 11 years,access to plants in France, Mexico, Poland,Thailand and Vietnam. The Chinese companyaims to achieve sales of 70 billion yuan(US$8.64 billion) in 2005 and 1,560 billion yuan(US$18.12 billion) by 2010. TCL is understoodto be planning to lift its overseas sales tobetween 60 and 70 per cent of total sales.

While the IBM-type deals may be few andfar between, Chinese companies are scoutingfor small leading-edge technology companiesoffshore. Williamson says a big change thathas occurred since Japan and South Koreaventured into the global market is thatChinese companies can buy technology, dis-tribution networks and skills from around theworld. Some leading-edge technologies arebeing developed by smaller companies, and

they are willing to sell, he says. For example,Pearl River Piano, said to have 60 per cent ofthe Chinese market, acquired a small Britishpiano maker which exported pianos under aGerman brand, Ritmuller.

But, Williamson says, as in all mergers andacquisitions, the Chinese face many issues inhow to integrate newly-acquired businessesinto their own operations. They will have tolearn to manage businesses outside their homebase. Indeed, the world will watch closely how

China beds down the massive IBM deal.As foreign companies big and small prepare

to hitch their futures to the China juggernaut,more deals with foreign companies are likely tounfold in coming months.

Williamson says western companies aregradually changing their mindset. They arenow prepared to go into partnership withChinese companies rather than compete direct-ly. A good example, he says, is the partnershipbetween Huawei Technologies and the UScompany 3Com Corporation, formed in March2003. The joint venture, 3Com-Huawei, domi-ciled in Hong Kong, has located its principaloperations in Huangzhou. Huawei’s contribu-tion to the joint venture included enterprisenetworking business assets, involving LANswitches, routers, engineering, sales/marketingresources and personnel, and licences to itsrelated IP. 3Com’s contribution includedUS$160 million in cash, assets related to itsoperations in China and Japan, and lines to its

related IP. Together, says Williamson, they will have

a chance to stand up to CISCO, the marketleader in systems networking. Alone, neitherhas the strength to beat CISCO. 3Com doesnot have the capacity, while Huawei lacksthe technological edge.

“I think there is a big shift in the thinkingof companies. They now see China not justas a market or a source of supply but as alikely alliance in the global market.” Thesedays, Williamson says multinationals seeChina as part of their global network, not amarket. They realise that having to defend

their positions – whether as fourth or fifth inthe global market — will become more difficult.

Chinese and Western companies are startingto adopt what Williamson calls a ‘metanational’strategy, where they link up with the best inthe world. Williamson has coined the termmetanational to describe companies whichtranscend the global market by overlookingnational borders and pick the best in technolo-gy, marketing and others skills from around theworld. A metanational will form opportunisticalliances with the best in field to penetrate newmarkets and develop new products.

The time has come, suggests Williamson, formultinationals to consider entering into part-nership with Chinese companies for mutualadvantage. If they take on a highly-competitiveChinese partner, the partnership gives themaccess to the Chinese market, access to theChinese cost of products, and a slice of a muchlarger pie.

The same strategy applies to Chinese com-panies. It will help them go the next step in theeconomic development of the country.

Today, China is the largest global productioncentre for generic products. Chinese networks(collectives), like Chenghai and Shenzhen inGuangdong, now generate export revenue ofmore than US$5 billion in toys. Wenzhou inShejiang province had a 70 per cent of theglobal share of lighters in 2002. The Wenzhou,Jinjiang and Dongguan networks together havecornered 50 per cent of the global shoe market,with export sales totalling more than US$10 billion.

Some Chinese manufacturers have managedto establish their own brand by targetting nich-

Continued page 11 ➔

From page 9

for Competing in the New Millennium, waspublished by Harvard Business School Press inMay 2004. He is currently undertaking researchprojects on the internationalisation of Asiancompanies, strategic innovation and the use ofalliances and acquisitions to accelerate growth.

❝ The issue facing the Chinese isto either buy into a Western brandand to build a Chinese brand along-side it, or to spend time and moneyto develop their own brands. Ittook Samsung decades to become aglobal household name ❞

Focus on China

T H E D I L E M M A F O R M U L T I N A T I O N A L S

ASIA TODAY INTERNATIONAL FEBRUARY 2005 11

es in the market. By 2002, the large Chinesehome appliance maker, Haier, had capturedalmost half of the US market for small refriger-ators, managing to place its products in all butone of the 10 largest retail chains in the US. USmanufacturers have abandoned this marketsegment.

Galanz, which makes one of every threemicrowave ovens in the world, has carved a 40per cent share of the European market. AndChinese International Containers (CIMC) had a40 per cent share of the global market forrefrigerated containers by 2002. CIMC got towhere it is partly by acquiring refrigerated-con-tainer manufacturing technology from Hyundaithrough a takeover of Hyundai’s container-making operations in China in 1997.

Williamson says names to watch includeSichuan Changhong Electric, Wanxiang Group,Huawei Technologies, Shanghai Zhenhua portmachinery and Shanghai Bright Dairy. The lat-ter is starting to build its brand of yoghurt andother milk-based products in Southeast Asia.Midea and BYD Battery, two of the world’slargest manufacturers of fans and rechargeablebatteries respectively, have also started to buildtheir brands.

The presence of Chinese brands is alreadystarting to be felt in the US and Europe. In apaper titled The Hidden Dragons, Williamsonand co-writer Ming Zeng say the ChineseGovernment supports 22 companies with glob-al potential, and that six of these plan to beamong the 500 biggest companies in the world.Fifteen others want to build global brands.

The rise of Chinese corporations poses prob-lems for multinationals which have, over theyears, invested tens of billions of dollars inChina. Williamson says some of the earlyarrivals have done well. He includes in thisgroup Nokia, Unilever, Volkswagen, Motorola,Hewlett Packard, General Electric and IBM.“They don’t tell the world how much they aremaking in China because they don’t want tocreate an impression that they are bleedingmoney out of China,” he says.

The key to success is not just deep pockets.Williamson has seen Western companies,

of expatriates in China.The leading Australian rural services

provider Elders Ltd is one of the most success-ful Australian companies in China. Williamsonsays it has done things right because it adopt-ed a strategy to go into China as a buyer.“Everyone will talk to a buyer and it gives youan opportunity to find out information aboutthe market,” he says. Having developed anunderstanding of the market, it has built up anorganisation to service that market. Eldersestablished a presence in Shanghai in 2001 andnow exports around AUD400 million annuallyin products, including dairy herds, to China —a figure the company hopes will increase toAUD1 billion over that three years.

Williamson says that, increasingly, leadinginternational companies are finding that tomatch what Chinese companies are capable ofdoing, they must relocate engineering, product designs and research and develop-ment to China.

He agrees there are “elements of deflation”in commoditised products in the global market.“You are looking at a market with 800 millionworkers who can enter the workforce in man-ufacturing and services. You’ve got big down-ward pressure in wages – even if wages start torise, the huge number of workers waiting toenter the market will dampen demand.”

And he has seen new evidence of pricedeflation in the more branded end of the mar-ket, but comments: “I am not sure that it is inthe interests of the Chinese in the long-term to

TRENDLINES

centre in Taiwan as well as its manufactur-ing facilities in China, Europe and Brazil,within 12-18 months.

Hsuan said: “In three years, I expect thesynergies to be brought about by the stream-lined operation to result in savings of at leastUS$100 million annually.” He added that theacquisition would see TPV’s turnover morethan double to more than US$5 billion a year.

Philips’ Executive Vice-President, GottfriedDutine, said that in today’s world of digitalisa-tion, Philips recognised it was no longerenough to launch new products into anincreasingly-commoditised market.

According to ICEA Securities’ analystBertrand Chui, the larger economy of scaleand higher margin of production for Philips’brands should lift gross margins and earnings.

HONG KONG — China’s TPVTechnology’s purchase of Royal

Dutch Philips Electronics’ monitor businessand part of the Dutch giant’s flat-screen tele-vision operations for US$358 million is aimedat bolstering TPV’s economy of scale andproduction efficiency — and allowing Philipsto concentrate on product innovation andsales — according to experts in the computermonitor business.

TPV is the world’s second-largest manufac-turer of computer monitors.

TPV Chairman, Jason Hsuan, said hiscompany would fully integrate Philips’Global OEM (original equipment manufac-turing) sales platform and development

Why Philips opted outFrom JAMES YAPPASIA TODAY INTERNATIONAL Correspondent

From page 10including whitegoods maker Whirlpool andbrewer Fosters, invest vast sums – only tostumble. “These companies tried to run beforethey could walk,” he says. The successful com-panies are patient and have taken the troubleto learn the Chinese market and culture.Unilever, he says, now employs just a handful

Continued page 12 ➔

ASIA TODAY INTERNATIONAL FEBRUARY 200512

A R I S K O F M A R G I N A L I S A T I O N TRENDLINES

THE STORY of scien-tist Liu Chuanzhi is

something of a legend in itself.The founder of China’s Legend

computer manufacturer, renamedLenovo in 2003, came virtuallyfrom nowhere just a couple ofyears ago to head what is now setto become one of the world’slargest manufacturers of personalcomputers. Lenovo acquired thePC business of the global giantIBM in December.

The acquisition has catapulted Lenovo froman Asian brand to a leading internationalbrand, leveraging off its IBM deal with rightsto its sales/distribution network and researchand development. It has a five-year brandlicensing agreement with IBM, and has inher-ited the globally-recognised “Think” family oftrademarks. Lenovo will pay US$1.25 billionin cash and equity and assume liabilities forabout US$500 million of net balance sheet lia-bilities from IBM.

The US company will have an 18.9 per centshare in the Lenovo Group. IBM has said that,in Lenovo, it has a partner with powerfulcompetitive capabilities in China and Asia andin consumer and desktop PCs.

The new Lenovo PC business will have rev-enue of US$12 billion and a worldwide marketshare of eight per cent, based on 2003 results.The business will have approximately 19,900employees, including 10,000 IBM employees.

Its global headquarters will be in New York,with principal operations in Beijing andRaleigh in North Carolina. The company hasthe back-up of the IBM network in sales andresearch and development.

The transaction, pending official and shareholder approvals, is expected to be completed in the second quarter of this year.

Exactly 20 years ago Liu-Chuanzhi recognised theopportunities that economicreform in China would bring. He was then working on mag-netic storage in the ChineseAcademy of Sciences. He saw theopportunity to form a small company, called Legend, to distribute personal computer for brands such as IBM andHewlett-Packard.

Liu needed 200,000 yuan forthe start-up. In those days, it was a sizeableamount, but the Chinese government came tothe party and he opened for business fromsmall premises located in a Beijing campus.

Legend started making motherboards in1989 and provided systems integration forlarge Government clients. The first Legendbranded PC rolled off the production line in 1990.

Liu took Legend public in 1994, listing onthe Hong Kong Stock Exchange. Although itis still a State-owned enterprise, 10 per centof Lenovo staff hold shares in the public company. Today, Lenovo has a market capitalisation of about US$2.5 billion and anannual turnover of US$3 billion.

Liu has always had big dreams for Legend.“Over the last 20 years, I’ve watched it develop into the leading IT company both inChina and through Asia,” he said in the statement announcing the IBM mega deal.“Since the beginning, however, our unwaver-ing goal has been to create a truly interna-tional enterprise.”

(Peter Williamson and his colleague Ming Zeng worked with Legend and Liu in China on the plan to expand overseas. The IBM deal did not come as a surprise to Williamson.)

Liu Chuanzi:‘Creating a truly

international enterprise’

Building his own LegendFrom page 11

deflate prices in higher-end products. You can-not hold the price level you need to improvetechnology and build a brand. There is no evi-dence to show that the Chinese intend to forcea long-term price reduction because it wouldonly reduce their profitability in the end.

“They want to be cheaper, perhaps by 10 percent — but certainly not 50 per cent,” he says,pointing out that when Japanese and Koreanbrands first entered world markets, they toowent in on a price strategy. Over time, theymoved up prices.

China poses a risk to other Asian countrieswhich must adjust to China’s emergence or riskbeing marginalised, says Williamson. SmallerAsian countries will have to specialise and tar-get niches in the global market — or becomepart of China’s global networks. He suggeststhat the car industry in Thailand, for example,should specialise in certain components andsell part of its production to China. Malaysia canspecialise in back-end assembly and packagingin semi-conductors, but its car industry will findit increasingly difficult to survive. He is con-cerned about Indonesia, which was complicat-ed by its own domestic political problems untilthe recent Presidential election. It is not suffi-cient to rely on resources, he says. Indonesiamust quickly pick up some specialisation.

Williamson believes that having a bilateralfree trade agreement with China has the poten-tial to improve market access and protect mar-ket share. But for Australia, which is set tobecome the first developed country to negotiatean FTA with China, he advises against trying tonegotiate a wide-ranging agreement over 20 or30 areas. Australia needs to narrow down itspriorities to two or three key sectors, whether inintellectual property protection for its technolo-gy or on other issues. It must be clear what itwants and negotiate hard to get the best con-cessions. Australia does not really have the bar-gaining power, and therefore will be forced togive away more than it receives, he says.

FOOTNOTE: Prof. Williamson addressed anAustralian Graduate School of Managementprogramme in Sydney on the potential of meta-national strategies for Australian companies.

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WASHINGTON — The United Stateshas signalled closer scrutiny of unfair

trade practices by China as well increasedengagement on trade-related issues to averttrade friction.

The US Trade Representative Office (USTR)has established a separate office to focus sole-ly on China trade issues — and has doubledthe resources devoted to these issues. Relatedagencies have increased staffing levels inWashington and Beijing.

Last year, the US Congress allocated addi-tional funding to the various agencies toenable them to step up vigilance on Chinatrade practices — and to manage trade issues.

“When this process is not successful, how-ever, the Administration will not hesitate toemploy the full range of dispute settlement andother tools available through China’s WTOaccession agreement,” says a USTR reportreviewing China’s commitments to the WorldTrade Organisation. At the same time, theAdministration will continue to strictly enforceits trade laws to ensure that US interests are notharmed by unfair trade practices.”

In its 2004 Report to Congress released inDecember, the USTR notes it has been threeyears since China was accepted into the WTO.It says most of China’s key commitments —including trading rights and distribution servic-es — were scheduled to be phased in fully byDecember 11, 2004.

In 2005, the Administration will continue tobe relentless in its efforts to ensure China’s fullcompliance with its WTO commitments, withparticular emphasis on ensuring effective pro-tection of US patents, trademarks and copy-right in China.

“This work will be facilitated by additionalfunding from the Congress in 2004 that hasallowed USTR and other agencies to increasetheir level of engagement and enforcement vis-a-vis China,” the report says.

The report says China deserves “due recog-nition” for the “tremendous efforts” it has madeto reform its economy, but adds: “WhileChina’s efforts to fulfill its WTO commitments

ASIA TODAY INTERNATIONAL FEBRUARY 2005 13

C H I N A E A T S I N T O U S C A R , A E R O S P A C E S E C T O R SCOUNTING THE COST

Trade Watch

USTR more vigilant onChina as job losses grow

CRACKS are appearing in the US-China trade relationship.A newreport suggests 1.5 million US jobs were lost to lower-wageChinese competition between 1989 and 2003, and that the UScar and aerospace industries could now be under threat.Meanwhile, the US Trade Representative Office has established aseparate unit to focus solely on China trade issues . . .

WASHINGTON — The rise in tradedeficit with China has come at a cost

to jobs in the United States, according to a newstudy just published in Washington.

The study found that some 1.5 million USjobs were lost to lower-wage Chinese competi-tion in the 14-year period between 1989 and2003, when US trade deficits with China rosefrom US$6.2 billion to US$124 billion. Thedeficit was expected to increase another 20 percent in 2004, to US$150 billion.

The report says the growing trade deficitwith China has had an increasingly negativeimpact on the US economy, causing job lossesthat reach into the most technologically-advanced industries in the manufacturing sec-tor — and affect every State. The pace of joblosses has more than doubled since Chinaentered the World Trade Organisation in 2001.

The US-China Economic and SecurityReview Commission (USCC),commissioned the study, US-China Trade, 1989-2003.USCC Chairman, RichardD’Amato, said: “In the rapid-ly-changing big and broadeconomic relationship withChina, it is crucial to have afull, comprehensive under-standing of the facts andscope of the relationship.With such data, we canbegin to assess the impact China is having onour economic health and our national security.”

(The USCC was created in October 2000 tomonitor, investigate, and submit to Congress anannual report on the national security implica-tions of the bilateral trade and economic rela-tionship between the US and China. It has beenset up to provide recommendations, whereappropriate, to Congress for legislative andadministrative action.)

Robert Scott, director of international pro-grammes at the Washington-based EconomicPolicy Institute (EPI), who authored the

report, says: “The assumptions we built ourtrade relationship with China on have provento be a house of cards. Everyone knew wewould lose jobs in labor-intensive industrieslike textiles and apparel, but we thought wecould hold our own in the capital-intensive,high-tech arena. The numbers we’re seeingnow put the lie to that hope — as Chinaexpands its share even in core industries suchas autos and aerospace.”

The study found that China now accounts forthe entire US$32 billion US trade deficit inadvanced technology products. It says that ifthe US exports 1,000 computers to China, manyAmerican workers are employed in their pro-duction. If, however, the US imports 1,000computers from China, a similar number ofAmericans who otherwise could have beenemployed by the office machine industry andits suppliers will have to find other work.

It says the claim that newtrade agreements will createjobs and raise incomes inthe US has been frequentlymade by supporters ofthese agreements in bothRepublic and Democraticadministrations. Specifically,it says the Clinton adminis-tration confidently forecastthat the huge US tradedeficit with China would

improve if Congress ratified the agreement tobring China into the WTO. Post-WTO, Chinaimports from the US rose by US$8 millionbetween 2001 and 2003, while exports roseUS$50 billion.

In conclusion, the study said the rate of jobdisplacement is accelerating. China’s entry intothe world trading system was supposed toopen up its vast domestic markets to productsfrom around the world. These benefits have yetto materialise. Instead, multinational companiesfrom around the world have used the protec-tions for investment and intellectual property

provided by the WTO to rapidly expand invest-ment, production and exports from China.

The US remains China’s primary market forexports. The report says that, in just 15 years,China has transformed its export profile fromone dominated by clothing, shoes, and plasticproducts to one in which electronics, machin-ery, transportation equipment, other fabricatedmetals, chemicals, and medical equipmentaccount for more than half of exports.

China’s leading-edge industries are gainingincreased market shares in the motor vehicleand aerospace sectors, which have providedthe most durable foundations for the US indus-trial base for generations.

“That shift, in turn, reduces demand forhigh-technology workers and highly-skilledbusiness professionals in the US. It is hard tooverstate the challenges posed by thisexport behemoth.”

❝ The study found thatChina now accounts forthe entire US$32 billionUS trade deficit inadvanced technologyproducts❞

New USTR office tofocus solely on China

➛ Continued page 15

NEW DELHI — Indians once had nochoice — at least in terms of what car

they owned. The roads were cluttered withAmbassador cars made by Hindustan Motorsand an Indian version of the Fiat 1100, manu-factured by Premier Automobiles. Both werebased on technology that probably becameoutdated in the early 1960s.

Imports were banned, and owning a foreign-

ASIA TODAY INTERNATIONAL FEBRUARY 2005 15

C A R M A K E R S I N I N D I A F O R T H E L O N G H A U L20% MARKET GROWTH

are impressive, theyare far from completeand have not alwaysbeen satisfactory, andChina at times has demonstrated difficulty inadhering to WTO rules.”

Among areas of particular concern for theUnited States, according to the report, areintellectual property rights, trading rights anddistribution services, insurance, express deliv-ery, telecommunications services, industrialpolicies and transparency, and agriculture.“This coming year — 2005 — will thereforeprovide a critical glimpse at what to expect ofChina as a WTO member once its full range ofcommitments are in place.”

US exports to China continued to increasedramatically in 2004, as they have done inevery year since China joined the WTO. USexports to China totalled US$35 billion for themost recent 12-month period, more than dou-ble the total for 2001. In fact, from 1999 to2004, US exports to China increased nearly 10times faster than US exports to the rest of theworld. “As a result, China has risen from 11thlargest export market five years ago to our fifthlargest export market today.”

Although the US has chalked up a hugedeficit in merchandise trade, it enjoys a sub-stantial surplus in trade in services with China,and the market for US service providers inChina is increasingly promising. However, theexpectations of the United States and otherWTO members when agreeing to China’s com-mitments to open China’s service sectors havenot been fully realised in all sectors.

Indeed, through an opaque regulatoryprocess, overly burdensome licensing and oper-ating requirements, and other means, Chineseregulatory authorities continue to frustrateefforts of US providers of insurance, expressdelivery, telecommunications and other servicesto achieve their full market potential in China.

➛

From page 13

India to emerge ascar export hub?

From RAJENDRA BAJPAIASIA TODAY INTERNATIONAL Correspondent

made car — you couldimport one if you hadlived overseas or had aspecial import license —

was seen as an ostentatious, almost obscene,display of one’s wealth and power. Mercs andBMWs awed most Indians.

Till the early 1980s, India made about100,000 new passenger cars every year. Theywere shoddily-built and expensive — wayabove the purchasing power of most middle-class Indians. Then in 1983, India allowedSuzuki Motor Corp. to set up a plant to makesmall cars. It was an exception, and the marketfor other manufacturers remained closed.

India began its economic reform programmein 1991, and by 1995 had opened its car mar-ket to foreign manufacturers. Soon, there was adeluge. Ford, GM, Toyota, Hyundai, Honda,Mitsubishi, Fiat and Skoda offered variousmodels of passenger cars and SUVs. EvenMercedes Benz has now set up a plant in India.

Car sales have become a significant indicatorof the fact that consumer incomes have goneup and that the Indian economy is doing well— in fact, at 6.5 per cent per annum it is oneof the world’s fastest-growing economies.

More than a million new passenger carswere sold in India in calendar 2004, and themarket is growing by nearly 20 per centyearly. India is still significantly behinddeveloped economies — the US (six millioncars a year), Japan (four million), the UnitedKingdom (2.2 million), Germany (three mil-lion). And China is still way ahead of Indiaat four million.

But if the Indian economy continues to growat six-seven per cent a year, and consumerincomes continue to rise, future car sales arecertain to grow at a pace that may make Indiaa significant world market.

Thanks to banking reforms, financing is eas-ily available and interest rates are diving —although still above rates prevalent in devel-oped countries.

International carmakers are looking not justat the domestic market — they hope to makeIndia a manufacturing and export hub for Asia.Volkswagen is taking a fresh looking at settingup a manufacturing base in India and so isBMW. The Indian market for luxury cars is stillquite small, but Merc and BMW have a demandfor a few thousand cars a year. Recently,Maybach brought in a demonstration car intoIndia and found it could sell a few at a pricetag of just above US$1 million.

Suzuki and Hyundai are making money andHonda and Toyota have reached break-evenpoint. Ford and GM are still recording losses,but say they are in India for the long haul, andhave the financial resources to stay on.

Trade Watch

MORE than a million new pas-senger cars were sold in Indiain calendar 2004, and interna-tional car-makers are now look-ing to offshore markets,usingIndia as a manufacturing hub. . .

Afghanistan DAustralia AABangladesh DBhutan DBrunei AACambodia DChina BBEast Timor DHong Kong SAR AIndia BBIndonesia DJapan AAKorea, North DKorea, South ALaos DMacau SAR BBMalaysia AMaldives CMongolia CMyanmar DNepal DNew Zealand AAPakistan DPapua New Guinea DPhilippines BSingapore AASri Lanka CTaiwan AAThailand AVietnam B

QBE TRADE CREDIT has severalIndian Ocean markets under review

following the tsunami events, but no changeshave yet been made to credit ratings.

Recent ratings adjustments include India,upgraded from B to BB; Nepal, downgradedfrom C to D, and the Philippines, downgrad-ed from BB to B.

The QBE rating system is a combinationof political, financial and economic riskassessment. Countries are rated on a sixband rating scale of AA (very low), A (low),BB (low-moderate), B (moderate), C (high)& D (very high).

Current ratings are

Trade credit ratingsin Asia under review

TAIWAN says it will provide fasterand easier customers-clearance and

licensing services through an online servicetagged “FT-Net”. Government agencies partici-pating in the first stage of the online pro-gramme, introduced in January, include theBureau of Foreign Trade, the Bureau ofStandards, Meteorology and Inspections, theBureau of Animal and Plant Health Inspectionand Quarantine and the Directorate General ofCustoms. Other agencies including theNational Treasury Agency and the Directorate-General of Telecommunications will beginoffering services via FT Net in 2006. At the one-stop platform, importers and exporters will beable to key in required information once onlyfor all agencies involved in the transaction.

Taiwan trade platform

■ SEOUL: South Korea’s trade-related policybank, the Export-Import Bank of Korea, intendsto increase its trade financing to 13.5 trillionwon (US$13 billion) this year from last year's11.5 trillion won. It also plans further increasesin 2006 and 2007 to 15 trillion won and 16.5 tril-lion won respectively. In addition, the bank willexpand its loans to small- and medium-sizedcompanies this year by 23.5% to 3.4 trillionwon, up from 2.6 trillion won in 2004.

Trade finance boost

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