Wuhan UniversityInternational Business and ManagementSeptember 89:00 – 12:00

Managers must be able to analyze structural changes in domestic, regional and global economies and adjust their firm’s strategy accordingly

Can Asian economies remain so dependent on exports?

Export based, exchange rate controlling, foreign reserve accumulation economies are prone to asset bubbles and dramatic investment distortion, along with being deeply vulnerable to wide swings in exports.

Witness Japan and the impact of the 1980s asset bubbles

The effects of these policies can be seen in China’s housing bubble

China and most ASEAN nations need to develop alternative outlets for their manufacturing productivity

Regional goal: A more effectively integrated Asia with investment and consumption able to counterbalance economic fluctuations across the region

Managing Across ASEAN

ASEAN defines much of the immediate region for China

Essential for China’s global economic and security position

Region of enormous economic benefit, promise and opportunity for China

Torn between unity over economy and business and conflict over security

China is the focal points for economic integration of ASEAN via importing components produced across the region

Regional production networks are controlled by TNCs

Preferential trade agreements – economics and security

High and growing levels of intra-regional trade  ASEAN: 550 million population with $1T GDP ($2.8T PPP)

Great diversity in population and ethnicityo Bruneio Burmao Cambodiao Indonesiao Laoso Malaysia

o Philippineso Singaporeo Thailando Vietnam

Dynamics of Intra-regional relations – effects of PTAs

Rapid expansion of Free Trade Agreements/Preferential Trade Agreements by ASEAN between 2000-2012

45 in place; 84 in negotiation ASEAN-Plus 3: China, Japan, Korea; Plus 6: Australia, New Zealand, India Regional economic integration through production networks results from

trade agreements Increasing role for SMEs in regional production networks (23%)

ASEAN Economic Community as a goal for 2015 ASEAN will not be an EU or Nafta Preferential Trade Agreement status No common external trade policy

Tariff reductions on some goods near zero; more difficult areas are heavy industry and food

Trans-Pacific Partnership TPP and China-ASEAN negotiations:

Process of subtle maneuvering to capture greatest economic and political gains from Asia region: China versus U.S.

Free Trade versus Hierarchical Region of managed markets ASEAN – China will remain deeply dependent on U.S. and EU markets 71% of

final export destinations China remains an assembly point for production networks operated by non-

Chinese transnational firms Cross-national production networks are incompatible with Preferential

Trade Agreements Rebalancing of ASEAN economies toward domestic demand is uncertain ASEAN market will require significant innovation in products from those in

developed markets – opportunity for China?

China and ASEAN

China as a regional player Asian Financial Crisis 1997-1998 – stabilizing role Rise of regional production networks centered on China Preserve market access and investment access across Asia

2002 – China-ASEAN FTA Efforts to economically bind ASEAN states to China Trade dynamics offset by security conflicts

South China Sea (Vietnam, Philippines, Indonesia, Malaysia)

Trans-Pacific Partnership

TPP is largely an effort to use trade relations to enhance U.S. strategic relations in Asia

Counter to ASEAN-Plus + Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore,

Vietnam, United States Focal point of TPP for the US is Vietnam Trans-Pacific Partnership: restraints on State-Owned Enterprises – negotiate special

access to the US economy for reducing the position and capabilities of SOEs

TPP and Market Access

A successful TPP provides leverage for TPP nations in trade negotiations with China What changes does the US want from China? Chinese procurement policies discriminate in favor of domestic firms Intellectual property protections Open more economic sectors to foreign firms

Services Finance

Break connections between SOEs and state-owned banks U.S. will reward China with high tech, investment opportunities in the U.S. and

market economy status

Rebalancing of Asian Economies – What does this mean?

Rebalancing should take place on both the supply side and the demand side.

Supply side - increase productivity and raise wage rates and living standards. Increase productivity by leveraging production networks to graduate to higher value-added, knowledge-intensive activities.

Demand side - look more to Asian consumers as an engine of growth: Asia has 930 million people who are in the middle class and above. Achieve in part through a region-wide FTA.

Basic structure of ASEAN trade and economic systems

Only about ¼ of Asian trade is for final demand inside Asia Almost ¾ of Asia trade is for final demand outside Asia, with 2/3 of that total to the

US and Europe

Great diversity of economic levels in ASEAN – pluses and minuses?

ASEAN logistics capabilities

What are the Industries with largest role in global production networks?

Machinery

ICT ProductsOffice MachinesTelecommunicationsSemiconductorsElectrical goodsAutos and road vehicles

Managing Supply Chains Across Asia

Complexity of relationships in global supply chains

Market-based relationships of buyer-supplier are common in labor-intensive, standard technique and standardized products.

As production and process requirements increase, or as final products become more differentiated, buyers, or the lead firms’ chain management needs increase as well, thus the buyer-supplier linkage tends to become stronger.

The rising complexity in supply chains and the increasing turbulence in demand across supply chains has led many companies to develop more sophisticated information management systems through the cloud.

Cloud-based systems provide greater capabilities at lower cost:

Cloud system permit firms to collaborate with suppliers to make more accurate delivery forecasts, minimize excess inventory build-ups and avoid nasty last-minute surprises for their

end users. Suppliers become close partners in providing high quality production and delivery of products. Cloud systems provide an end-to-end information, communication and collaboration system across the supply chain.

The biggest barrier to success is the management mindset of adopting companies: open and transparent across the supply chain. Sharing and collaborating provides strategic advantages.

Strategic value in fragmenting the supply chain is large.

Fragmentation requires new management and information capabilities. Preserving JIT capabilities requires even more sophisticated management and information systems.

Competition among supply chains is as important as competition on price and among products.

The Walmart strategy:

Minimize inventory in the pipeline

Maximize options on the shelf

Just in time product