Download Case Study

Case Study 21 – Business in Asia
Table 1: China exports
1982
1992
1998
2001
2002
Billions
$ 22.32
$ 84.92
$207.24
$266.15
$325.56
Table 2: Top Foreign Investors (billions)
Hong Kong
$373
USA
$ 76
Taiwan
$ 61.5
Virgin Islands
$ 49.3
Japan
$ 49.0
Singapore
$ 40.1
South Korea
$ 27.5
UK
$ 19.6
Germany
Macao
Canada
Cayman Islands
Netherlands
France
Malaysia
Others
$14.3
$10.8
$10.0
$ 9.5
$ 9.0
$ 7.2
$ 6.0
$ 6.3
The world is transfixed by China. In a few days in 2004,




Korea’s INI Steel Co. launched a $500 million steel project in the Dalian
development zone;
France’s Saint Gobain invested another $70 million in one of its existing glass
production lines;
Germany’s Siemens opened its fortieth office in China, to develop software
applications in Nanjing, and warned that it could shift thousands of jobs from
Europe and America to China
Finnish paper giant Stora Enso invested $1.6 billion in a pulp-paper project in
South China
In the past businesses had to struggle to make profit in China, but not now. For example,
microprocessors made previously were the wrong type and sales were poor as a result. In
2004 Infineon, the giant German producer makes plenty of profit. As a result, China will
get 30% of the German’s firm’s $1.2 billion investment total over the next three years.
What makes China special? Size is one thing – it has 1.3 billion people and a $1.23
trillion economy. Its middle class is growing and consumption is booming. There is also
low inflation, cheap and plentiful labour; urbanization driving demand, and a savings rate
of 30% providing easy capital.
A US report in 2004 said that China had made great strides since joining the WTO in
2001. But deregulation had stopped and in many sectors import barriers made it difficult
for foreign businesses to operate in China. Tariffs had been reduced but officials were
accused of tweaking technical standards on issues such as safety or packaging to the
detriment of foreign firms. Counterfeiting and piracy also took place as intellectual
property rights were still inadequate.
In 2003, the SARs virus terrified millions in Asia and threatened the economies of
several nations in the region. Although the disease originated in China, consumers in
Japan and other Asian nations were taking no chances as it was suggested that SARs may
be airborne. The UN revised its growth forecast for Asia down from 5.4% to 5%, partly
because of the fall in tourism caused by SARs. Morgan Stanley estimated the virus will
shave more than $15 billion off the output of Asia’s economies. Singapore estimated that
SARs could knock off one per cent off the islands GDP (worth $875 million). The
government in Singapore announced a series of measures for the hardest hit industries.
“It’s having a negative impact but people need to put it in perspective” said Gerard Lyons
of Standard Chartered Bank. “In the short term it dents sentiment and it dents spending,
nut if SARs is contained, the impact could be short term.”
The impact of SARs was felt by airlines that would normally be carrying people to and
from China, Hong Kong and Singapore. Potential travelers were staying at home and this
was affecting business. For example, Hong Kong carrier Cathay Pacific was forced to
cut more than 40% of its flights. The airline business said it was losing $3 million a day
while the outbreak persisted.
Hotels were also suffering from the SARs outbreak. Bookings were down and staff at
hotels in Hong Kong were being encouraged to take annual leave. In the tourist resort of
Phuket in Thailand, hotels faced a 30% fall in demand. In Vietnam, restaurants were
asking staff to take early holidays because customers were so reluctant to eat out.
Tourists to Japan used to laugh at the sight of people wearing facemasks in the street.
But this Japanese custom was increasingly being adopted as a prudent measure elsewhere
in Asia as fears of SARs grew around the world. Hakujuji, the face mask business in
Japan found its products flying off the store shelves. Yoshi Izumi of the company said,
“people are buying 5 or 6 masks at the same time. Most are families traveling overseas,
others work in airports and some have relatives in China where good masks are harder to
get a hold of.” Profits were being made from the SARs outbreak in other ways. In
China, sales of traditional medicines were rising. In Thailand, home delivery pizza
businesses and shopping websites were getting more business as people did not want to
mingle with the crowds.
1. Suggest factors that might have affected businesses in the region in 2002 to 2004.
2. Analyse how these factors might have affected the international competitiveness
of businesses based in Asia and the EU.
3. Recommend possible strategies that businesses might take in these situations.