with Dr. Frank-Jürgen Richter,
Business Executive / Author of The Dragon Millennium:
Chinese Business in the Coming World Economy
|Dr. Frank-Jürgen Richter was based in Beijing for
several years developing and managing a European Multinational's China
business. A fluent Mandarin and Japanese speaker, he now supervises his
company's Asia operations. In addition to his senior management
positions, Dr. Richter
is a frequent commentator on issues related to Asian economies,
international management and global competition. His most recent books
include The East Asian Development Model:
Economic Growth, Institutional Failure and the Aftermath of the Crisis
Macmillan; New York: St. Martin’s Press), The
Dragon Millennium: Chinese Business in the Coming World Economy (New
York: Quorum) and The Asian Economic
Catharsis: How Asian Firms
Bounce Back from Crisis (New York: Quorum).
are Dr. Richter’s responses to our questions.
1. Insight: First, thank you for agreeing to talk with us. As you are a business man living and working in Asia, your insights will be of great interest to our readers. Could you tell us a little about your personal background and why you have chosen Asia as your field of activity?
Answer: When I first came to Asia - as a PhD.-student in Tokyo in the early 90s, I witnessed the Japanese , bubble economy‘. At that time, Japanese firms not only challenged Western firms in terms of market share and global dominance, but also questioned the fundamental assumptions of how business was conducted. Like many others, I have been fascinated by Japan and Japanese management practices. After completing my studies (and after the bubble burst), I set off on the Asia trail to build on my knowledge of Asia. During this time, I spent six months on the famous Silk Road which links Asia with Europe. This trip – virtually a survival trip - triggered my decision to return to Asia. When I came to Beijing, in 1996, China’s economic boom was at its height. This was the time of the gold rush in Asian business with double digit growth in China and Southeast Asia. Shanghai’s Pudong district had some of the most expensive real estate locations on the planet. Later, I experienced the Asian economic crisis and its tremendous impact on Asian business, cultures, and ambitions.
2. Insight: As a manager-scholar, you have translated your personal experiences of observing and conducting business in Asia into research and publications. What is your rational behind this endeavor? There are already hundreds of books about Asian business in print. Do we really need further insights on Asia?
Answer: Many books about Asian business are not first hand but are developed from a second-source and from a rather academic or journalistic perspective. I try to reflect a more hand-on or practical approach. While few in the West really know Asia, that does not seem to restrict the number of opinions. My books try to give vital knowledge about business practices, market conditions, business organizations and economic policy from a practitioners viewpoint. They present a stock-taking of Asian management practices as they have been experienced so far, and discuss strategic propositions of how Asian management could be re-designed in the future. I have always retained an enormous interest in research and have published much over the past years. There is extensive interaction and cross-fertilization between practice and research, so I now have a foot in both worlds.
3. Insight: Let’s now come more specifically to your experiences during the Asian economic crisis. How do you assess the impact of the crisis?
Answer: The Asian economic crisis now seems safely in the past. While much remains do be done, a lot has been learned from the crisis, and governmental policies as well as business practices are being altered. Nonetheless, unfinished skyscrapers in cities across Asia stand as silent monuments to an era gone wrong, and the reputations of many of the protagonists of the, Asian miracle‘ lie in the dust. From the early 1990s, Asian governments pursued economic growth at any cost and Asian firms targeted increasing turnover instead of increasing profits. Heavy lending lead to speculative real estate ventures, overambitious corporate globalization and unreflected diversification. In the financial sector, a pawnbroker mentality prevailed. This translated into a tendency to lend against asset value rather than focus on cash flow. By the mid 1990s, the Asian financial markets were inflated by a major bubble that had to burst sooner or later. The pampered industries and firms could no longer compete efficiently on the world stage and the crisis took its toll.
4. Insight:It is often argued that the Asian model of capitalism has been the main source of the Asian economic crisis. Could you please explain the pillars of the Asian model?
Answer: Indeed, the crisis took place against a background of a debate about the so-called "Asian model" versus the " Western" or more precisely – "Anglo-Saxon model". The Anglo-saxon model describes and demands the ability of well-functioning and transparent markets to allocate resources freely and efficiently. Individuals make the majority of decisions on economic activities and transactions but the market is the venue in which these transactions are executed. As a result, the market becomes an important medium for governing the terms of transactions. The Asian model, on the other hand, accepts that governments play a proactive part in the industrialization process. The original version of this model was initiated by Japan’s Ministry of International Trade and Finance (MITI). Other countries in East and Southeast Asia soon developed similar institutions and principles of "administrative guidance". Features of the Asian model include high insider shares and weak roles for outsiders in corporate governance, close bank-firm relations and weak reliance on stock markets in investment financing, a monopolistic domestic market with little foreign firm presence and the importance or personal relationships. The decision making process of Asian firms, as "nemawashi" in Japan, "noonchi" in Korea, "musjawara" in Malaysia, "pi-nong" in Thailand, or "tonguo houman" through "guanxi" (connections) in China is rather intransparent and may lead – in Western eyes – to biased and non-comprehensible decisions. The Asian model could survive in an environment where laws are poorly drafted and contracts merely enforced.
5. Insight: Do you think that the Asian model has only flaws? Are there accomplishments as well?
Answer: Until the early 1990s, the Asian model surely produced accomplishment, leading to an average of 5.5 per cent per capita income growth for East Asia as a group during the period 1960-90. The model favored a long-term orientation which allowed firms to steadily expand their operations. This was a major advantage compared with the Anglo-Saxon tendency to focus on quarterly profit reports and to obey the dictate of market analysts. Asian firms acted within a very special frame of interlinked economic agents, a high degree of trust among these agents, and collective enhancement of society in general. Confucianism as the common link of East Asia’s main economic powers, Japan, South Korea, and the Overseas Chinese communities in Southeast Asia, is part of the region’s social texture of business. Until recently, management thinking originating from Asia has often been regarded to be superior, and many management gurus and consultants have been eager to tell Western CEOs to adopt Asian management techniques. Before the Asian crisis hit "confidence" in Asian economies, many Western commentators praised Asian management practices or even warned of an economic threat from Asia. Some scholars had envisioned a "Confucian challenge" to the West, by emphasizing the increasing importance of East Asian culture and economic power.
6. Insight: Which lessons can be learned from the crisis? Is Asia on the way of recovery?
Answer: The economic crisis has provided a rare opportunity for institutional reform. Many institutions and firms took advantage of the crisis to reinvent themselves. Rapid expansion had a place while the economy was developing, but the situation has changed. Today, those who are willing to forgo expansion in favor of building focused, productive businesses that create value for shareholders will be those that have the brightest future. San Miguel, the Manila based beer brewer, is one striking example. The economic crisis left the company weakened, with shrinking profits and decreasing market share. From mid 1998 onwards, a new management team however turned the company around, focusing on core competencies and key markets. Furthermore, the rule of law is increasingly getting enforced. New accounting regulations render the much demanded transparency. The dominance of conglomerates such as the Korean chaebol, the Japanese keiretsu and the Overseas Chinese network groups is broken. Most Finance Ministries of the regions economies no longer choose borrowers for banks; some countries lowered restrictions on acquisitions of domestic firms by foreign rivals; and Beijing declared war on bribery and corruption. The economic fundamentals are strong again - with the possible exception of Japan where economic prospects are still rather shaky.
7. Insight: Japan has just elected a new parliament – and the Liberal Democratic Party (LDP) has retained power again. Don’t you think that the LDP is a roadblock to reform?
Answer: You are absolutely right. In many cases, the pace of change is rather slow. Strains of Asian capitalism will continue to exist in most Asian economies. Sometimes, however, management systems with hybrid characteristics are emerging, whether in Southeast Asia, Japan, South Korea, or even China. As Asian firms are in the midst of change, the business models are subject to change, too. The future could be a hybrid of Asian and Western capitalism and management styles rather than the domination of one system. The Asian economic crisis is driving governments and business alike towards a more market-oriented version of capitalism. However this does not mean that Asia should mindlessly adopt a 100%-copy of the Anglo-Saxon model. The long-term orientation of the Asian management and policy processes do still have their merits. My personal vision is to tell Asian CEOs, government officials and venture capitalists to consider and harness the cultural profile of East Asia. Creative adaptations of Western management practices are needed to reflect East Asia’s unique organization of business.
8. Insight: Could you tell us more about Western firms‘ approach to post-crisis Asia?
Answer: Asia still offers one of the most important contexts for business and management in the world today. But conducting business in Asia and understanding Asian management practices presents a daunting practical and intellectual challenge. There are plenty of new opportunities in Asia to play the new game, but they must be grasped and productively channeled. Traditionally, East Asia has been closed to Western firms, but the crisis has prompted governments to deregulate and liberalize investment regulations, giving multinationals a significant opportunity to gain market access. Recent acquisitions of Asian firms like Nissan by Renault, Mitsubishi Motors by DaimlerChrysler, and the potential take-over of Daewoo by Ford – to quote a few examples from the automotive industry – are just the beginning of a new wave of cooperation between Asia and the West. From the Asian point of view, acquisitions can save a domestic firm and maintain job and social stability rather than letting the firm go bankrupt. Formerlly, acquisitions by foreigners have been a taboo, reflected for example in the Japanese word for Merger & Acquistion (M&A) miuri which literally means, prostitution‘.
9. Insight: How do you assess the future of Asia?
Answer: I am rather optimistic. Asian managers and politicians are pragmatic by nature - and they will find solutions to revitalize their corporations and their economies. East Asia probably does not need too much in the way of theory – a new, specifically "Asian model". Rather it needs to be entrepreneurial again. The Asian economies have been created by thousands of entrepreneurs from the bottom up. And a new entrepreneurial wave – mostly centered around the Internet and biotech industries – is being triggered. The Asian New Economy is represented by such corporate heroes as Richard Li of Pacific Century Group (see Insight interview with Mr. Li) and Masayoshi Son of Softbank. Governments should continue to move aside and allow the economic power and vigor of Asian entrepreneurs to be unleashed. The real action is taking place in the smaller and more creative enterprises that will bring prosperity to Asia. And in the end, the Asian economic crisis, or catharsis, may well be a blessing in disguise.
10. Insight: You spoke above about the Internet. What opportunities does the Internet offer managers of Asian firms and do you see the current role or the future role of the internet as being different in Asia to that it has played in the West?
Answer: The Internet could have a lasting impact on Asia’s economies. Guanxi in their traditional form may be getting less important, although they will be sustained as a virtual link facilitating the diffusion of personalized transactions. Once Asian firms venture into e-commerce to sell their goods or source parts, they will further change their management practices to meet the challenges of a Web-based world. Traditionally, Asian business people preferred dealing face to face and relying on relationships cultivated over years rather than through intermediaries they have never met. Although this attitude will still be important because it constitutes the social web of business in Asia, the virtual web of the Internet will certainly further impact.
11. Insight: Could you tell us about your future projects? Will you stay longer in the region and will you continue to do research on Asia?
Answer: I left China a few months ago and I am currently based in Europe. But I am planning to relocate to Asia rather soon – this time I will work from Japan. From my company’s perspective – a Fortune-100 representant of the Old Economy - Tokyo is still the place to be if you want to expand your businesses in Asia. One of my new research projects is on human resource policies in Asia. This forthcoming book attempts to reach out to the managers of multi-national firms in their quest for a better way to deploy their staff in Asia. I am doing this project together with John Kidd, a Management Professor at Aston Business School (UK), and Xue Li, a senior fellow at Guangxi University in Nanning (China). We understand the Asian , rule‘ of guanxi, and how in choosing managers in the West we have to bear in mind cultural antecedents and psychometric profiles. Personal relationships and the human side of management – at the personal level – is still much more important than in the West.
Insight: Dr. Richter, thank you for your time to talk to us.
Readers who want to further exchange views can email Frank-Jürgen Richter at firstname.lastname@example.org. For those of you who would like to read Dr. Richter’s recent book, his new book The East Asian Development Model is available through www.amazon.com .
About the Author:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
Copyright, 2007 ©
Runckel & Associates