Interview with Michael Backman

Author of Asian Eclipse

Exposing the Dark Side of Business in Asia

First, I would like to thank you and your publisher John Wiley & Sons in Singapore for the opportunity to talk with you today. 

1.) Your book Asian Eclipse was first published in late 1999 but wasn’t really available to most readers until this month when the issue was updated and republished by J. Wiley & Sons with much new material. In the introduction you state “This book isn’t about the Asian Economic crisis of 1997-98 but about the corporate practices that led to the crisis and that have survived it.” What led you to write this book and why do you think the book is something that International businessmen and women should read? (Click here for Michael Backman's Bio)

I first considered writing the book when I was researching and writing a report called ‘Overseas Chinese Business Networks in Asia’ that was published by the Australian Government. While working on that I became aware of many business practices in Asia that were unfamiliar to business people who are used to operating in more structured and regulated economies. I wanted to write about these practices but such things were not appropriate for a report to be published by a government. Shortly after, I moved to Jakarta where I worked in business consulting. Again, I saw more business practices that I felt needed to be examined.

All too often books are published about Asia, which talk about the huge populations, the growing middle class and so on. All the emphasis is on the positive aspects. Too little attention is given to how difficult it can be to succeed in business in Asia, especially if you are an outsider. I wanted to redress this with ‘Asian Eclipse’. It simply seemed to be a responsible thing to do.

2. In the book you talk of the effect of corruption, weak or no enforcement of bankruptcy laws, weak auditing and a corrupt business news media and the excess that weaknesses in these areas have created for many Asian companies. Aren’t most of these deficiencies found to some extent in all developing economies, not just in Asia? What makes Asia’s situation more complex or more onerous than that found in other developing economies? Of course no economy is perfect. When it comes to enforcement of rules though it is the degree that is important. The notorious Australian businessman Alan Bond engaged in many of the sorts of practices that I talk about in Asian Eclipse, but the difference between Bond and all too many business people in say Thailand, Indonesia or even say, Malaysia, is that Alan Bond went to jail. He was punished, he was made an example of and his misdeeds were endlessly reported on and exposed in the media. If Bond was an Indonesian or a Thai he’d still be in business, or perhaps would now be in politics or most probably be in both.

The situation in much of Asia (Singapore is usually the notable exception) is similar to other developing economies. The cultural overlay of course differs but the same lack of enforcement of rules applies. The difference though with Asia is that particularly in the boom years, westerners particularly were rushing in to invest as much as possible and did insufficient homework.

I have never accepted notions of the mystical East or the inscrutable orient. Asia is just as answerable and accountable for its business environment as anywhere else. Asia is not impenetrable. Analysts use notions of the mystical East as an excuse for not doing their research properly. The mystery to me is not the East, but why have the efforts of so many analysts been so poor for so long?

3. You discuss the organization of Asian companies, the problems created by unfocused growth, lack of arms length banking, the problems created by Asian conglomerates operating their own stock-broking firms, etc. and give examples of a number of particularly egregious situations. Given these problems, would your recommendation to non-Asian investors that they pass up Asia as a location for investment? My recommendation is simply that all investors must do their research. Information is the one commodity that cannot be economised on. Information reduces risk and the aim should always be to reduce risk as much as possible. If you’re not prepared to pay for sound research, due diligence, or whatever, then don’t invest in Asia. 4. Following up on the last question, can you give counter examples of Asian companies that you believe are particularly well-run and that have moved beyond these tendencies for weak or at times corrupt operations? I believe that all companies when pushed, will engage in unethical behaviour if the legal system and other modes of enforcing accountability and transparency are weak. I’ve given up trying to nominate good companies in Asia. Whenever I do it, someone turns up with a story of how they were ripped off or someone they know was treated poorly by the company concerned. Companies that operate in sound legal environments on average will behave in a way that is more fair than those that do not on average, that’s about the best I can say. 5. In the book, you note that in general an Asian company values services – such as legal, accounting, consulting, etc. to a lesser degree than other regions. Given the importance of intellectual property in the high-tech, biotech and so called New Economy and the importance of services as a key component of many more developed western economies and even Asian ones such as Singapore or Hong Kong, how can such a divergence of views on this issue really continue? The new edition of Asian Eclipse has a new chapter that deals with these sorts of issues. Briefly, as economies mature an increasing proportion of their national output is derived from the production of services. Rich economies are those with lots of services and countries that want to be rich need to develop a strong services base. Singapore and Hong Kong have grown rich by providing services to their neighbours – services which the neighbours themselves need but which they are yet to provide for themselves. In this regard, Singapore is to Indonesia and Malaysia what Hong Kong is to Guangdong. If Asia’s economies continue to undervalue services as a national input then they will continue to under-perform. At the very least they will hit a growth wall beyond which they can expect consistently lower rates of economic growth unless the cultural and structural biases against services are broken down. 6. Your book has a table listing 25 key differences between management and corporate structures in Asia and the West (click here to view the table). Many of these differences say for example the second one which notes the difference between a focus on profits and a focus on growth would strike many as not necessarily a matter of one being right and one being wrong. Can’t these also be looked in some of these cases as in effect solely being a difference in focus and as just another way to reach the same ultimate goal? Yes. The table merely looks at differences in styles. It contains no value judgments. 7. Also in your book you look at the two major economies in Asia – Japan and China and your assessment for both is really quite negative. Can you explain why you see Japan as more or less in terms of business practices as being little better than Southeast Asia and China as essentially a black hole? Japan is something of an anomaly. It has grown wealthy on a framework of third world corporate governance. It did very well out of having the United States write its constitution after the second world war and having various regulatory agencies established by the Americans that were modelled on US agencies. On top of that, Japan has had a comparatively long history of significantly investing in education which South-East Asian countries do not have. These factors were very important to Japan’s economic success post-world war two. However, eventually problems derived from Japan’s systems of corporate governance, inadequate common law procedures and competition enforcement accumulated and what had been the relatively efficient machine of the Japanese economy simply fell apart and was unable to demonstrate the agility and flexibility to adjust to changing external conditions.

China has a big population but not much else. A big population without a comprehensive and enforced legal system does not make for a good economy, it merely makes for a big population. The necessary ingredient for sustained economic success is a comprehensive and enforced legal system. Until China has that it will continue to disappoint.

8. Every society and every nation has its problems. Have there been developments in any of the Asian countries over the last two years since the crisis that you believe bode well for Asia? Could you give us some specific examples on these? The awareness of the need for better corporate governance has been raised in most Asian economies. The Kuala Lumpur Stock Exchange for example commissioned a study on corporate governance awareness among Malaysia’s listed companies. The report that was produced is quite impressive. The arrogance of some of Asia’s leaders too has been curtailed by the economic crisis. That is important. Economic growth was masking all sorts of abuses but now these have been laid bare. Leaders in the west often don’t develop the sort of arrogance that some leaders in Asia developed because they tend to be routinely removed from office by due electoral processes. 9. How do you assess the future of Asia? Patchy. In the boom years, all of Asia was lifted by the enthusiasm to invest in the region. Now, investors will pick their companies and countries much more carefully. Those Asian countries with better and enforced legal structures, Singapore and Malaysia particularly, will do well. Those that do not will under-perform. Consequently Asian economic development will become even more disparate and uneven than it is now. This will ultimately have regional security implications. 10. In your book you make a strong argument for the reality of globalism and argue that Asia can’t have a separate set of rules. As you well know the whole concept of globalism is under criticism by a broad coalition of forces that came together visibly to oppose the concept both inside and outside major international meetings like those in Seattle, Prague and elsewhere. Despite the vocal nature of these groups, do you see any option to a global set of norm in business? No. Globalism means jobs, trade and cooperation. Barriers to trade and investment mean isolationism, unemployment and wars. The benefits of a global economy are too great. In the region, the Malaysian government has been prominent in voicing its concerns about globalisation but Malaysia has done particularly well from the flow of foreign capital. In 1985, for example, when the Government there was very keen to attract foreign money to pull itself out of recession, one study demonstrated that 13 American semiconductor manufacturers spent more than US$100 million in that year in Malaysia on training Malaysians, mostly technicians and engineers. By the late 1980s, more than 85,000 Malaysians were employed in the electronics industries and many of these were formerly poor, rural Malay women. That is what globalisation is really about. 11. At this point I’d like to ask you a question you pose in the last chapter of your new book because I think it is one that many of the readers must be asking themselves at this point. The question is “Given how business has been and will continue to be done in Asia, what should outsiders look for when seeking to do business there?” As I said before, information is gold and should not be economised on. Be better informed than your competitors and you will make better quality decisions about where to invest in Asia and with whom. 12. Lastly I’d like to complement you on Asian Eclipse. It is not only insightful and educational, even for someone like me who has spent over 30 years in Asia, it also is a good read because of your use of real life examples and the keen descriptions of personalities and events. Could you let us know about the future projects that you are working on and when we can look for another new book? Thank you. I currently write several regular newspaper and magazine columns that focus on business in Asia. I’m also close to completing a book that looks at Malaysia’s capital controls and the policies of Malaysian finance minister Daim Zainuddin. I’m also writing a book set in Europe. To that end I currently divide my time largely between Paris and Kuala Lumpur.

Go to Mr. Michael Backman's Bio

About the Interviewer:   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.

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.

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Michael Backman's Bio

Michael Backman specialises in Asian corporate practice and has a reputation for thorough, independent and highly-detailed Asian business analysis. Currently, his time is divided between writing, consulting, and speaking engagements. He has a monthly Asian business column with Asia Inc magazine and a fortnightly column with the Melbourne Age newspaper. He is the author of the best selling Asian Eclipse: Exposing the Dark Side of Business in Asia (John Wiley & Sons, 1999), which was named by The Economist magazine as one of the sixteen “finest” general non-fiction books published for the year. (A Chinese edition will be published shortly in China, and an abridged and updated version will be issued in late 2000.) He is also the principal author of the landmark Overseas Chinese Business Networks in Asia, published in 1995 by the Australian Government.

He has also authored numerous articles, including for The Times of London, the International Herald Tribune, the Asian Wall Street Journal, the Far Eastern Economic Review, the Melbourne Age, the Australian Financial Review, and the Business Times of Singapore. He is a frequent speaker at seminars and conferences in Asia, Europe and Australia and a regular commentator in the media on Asian business matters, having appeared in publications such as Euromoney, Time, Fortune, the New York Times, and the Financial Times. He was quoted by the Prime Minister of Singapore in the latter’s 1998 National Day Address as an “expert” on overseas Chinese business.

Mr Backman is a recent past fellow of the Brunei-based EC-ASEAN Management Centre and in late 1997, he undertook an EU-sponsored speaking tour of eight European countries, where he lectured on Asian business, in association with the Centre.

Mr Backman currently divides his time between Paris and Asia. He lived in Jakarta (Indonesia) in 1996 and 1997, where he was research director at a business consultancy. His time spent living in Asia and frequent travel to the region has given him in-depth insight into the inner workings of Asian business and corporate governance issues.

He was a Senior Economist with the East Asia Analytical Unit of Australia's Department of Foreign Affairs and Trade from 1993 to 1995. During his time with the Unit, he researched and wrote Overseas Chinese Business Networks in Asia. Called a "publishing triumph" by Asia Inc. magazine, the study was cited in the Far Eastern Economic Review by Australia's Trade Minister as one his favourite books of the year. It received many other reviews and citations, including in Fortune, the Economist, the New York Times, the London Financial Times, Le Monde, and the Asian Wall Street Journal, and now is viewed as one of the classic pieces of research in the field.

From 1990 until 1993, Mr Backman was the Senior Advisor to Senator Richard Alston (conservative Liberal Party), the then Shadow Minister for Social Security, Child Care and Retirement Incomes and then the Shadow Minister for Communications and Deputy Opposition Leader in the Senate. Mr Backman’s primary responsibility during this time was policy development and expenditure review for the Opposition Parties. He also served as a member of the Opposition's Expenditure Review Committee secretariat. Senator Alston is now Australia’s Minister for Communications and the Information Economy, and Deputy Senate Leader of the Government.

Mr Backman tutored in economics at the Flinders University of South Australia in 1989. He holds a First Class Honours Degree in Economics from the joint economics honours program of Flinders and Adelaide Universities, for which he was awarded the ANZ Bank Prize in Economics.

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