The Obama strategy and the Asian emerge: a new economic model?

By the end of last year 2009, I had the opportunity to assist to an event organized by ACC1Ó the Catalan agency for competitiveness specialized in innovation, internationalization and attracting inward investment, part of the Catalan Ministry of Innovation, Universities and Enterprise. The event named interacció, enhanced several discussion boards, one of which discussed the new iniciatives and possible scenarios of the economic model changes, taken from the US and Asia points of view. It was a very interesting conference which had two excellent speakers:

David J. Rothkopt (DR) Expert in international markets and commerce, was part of the Clinton Administration in 1993 as Deputy Under Secretary of Commerce for International Trade Policy and Development.

Claude Smadja (SM) Expert in global economy and politics, specially on the Asian market. Former Managing Director of the World Economic Forum, with overall responsibility for the Davos annual meeting, and the Forum's activities in Asia.

Effect and roles caused by the economic crisis.

The G8: Germany, Canada, United States, France, Italy, Japan and United Kingdom and Russia have nowadays no sufficient power to solve the crisis situation by themselves. There is an increase intervention and dependence on the emerging potentials, being the mentioned G20 really the one who will turn the situation, Saudi Arabia, Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Republic of Korea, South Africa and Turkey. – Spain is just an observer, not a participant.

USA has an inverse G shape model. The situation will not be as good as before due to:

· Population ageing (% increases)

· Less access to capital

· Buy/Spent less = Economy decreases

· Wall Street will have less money, works with less risks, less invest in innovation.

On the meantime the US also has the big debate of the Health System reform.

China on the other hand has an increased middle class population of 60million people who will become potential consumers.

What to do, where to focus?

· Greening of planet. There is a market of 1.5 Trillion dollars. Brazil is the actual leader of biofuels, and India has the highest increase rate.

· Urbanization. China’s population growth and economic growth (more movement from rural to urban) requires the urbanization of cities to satisfy about 1 million new citizens every two years. Similar situation as in India. Good potential opportunity for Spain who have experience and practice with urbanizations, example Barcelona Olympics.

· Demographic Change. World is ageing, will require resources to sustain the increase % of elderly people.

· Rise of emerging markets. Increase number of millionaires coming from Russia, China and India.

How do companies in Asia act?

· There is a new economic model emerging from the crisis. Consider the western supremacy and domination as a closed chapter.

· Overview a new economic order with the increase influence of the Asian economies.

· It is the first crisis ever that the US (alone or with Europe) has not been able to solve by themselves, even though the crisis originated from them. It required the active participation and intervention of the emerging economies.

Seems that China will be the overall winner of the post-crisis:

· China is the first country/economy to emerge from the crisis in 2009. It has a guaranteed annual growth of 8%, even though the Stimulus Program held by the Government of China had a risk of creating a bubble.

· For the last 25 years, it has established a solid pattern of economic management, learnt from their mistakes and improved their business flexibility.

· For 2009 is has claimed its new legitimacy as the emerging countries.

From the mid 90s there has been an important legitimisation of Asia with China on head.

· No devaluation of YUAN

· China joins the WTO World Trade Organization.

· Have gain respect of the western part.

· When you make business with Asia, the west has lost their legitimacy or right to teach or run economies, or even politics.

India changed from a pessimistic opinion of their situation, to a more upbeat, optimistic feeling.

· Have begun expansion and acquisition of international companies.

· Change of election.

Effects of the crisis on Asia:

· New merges/acquisitions made by India/China companies. Example Tata bought Jaguar and Land Rover from Ford.

· Enhance competitiveness.

· China has accumulated an important growth of commodities/resources/energy.

· 2 months ago China needed to go abroad, an international scene, has as target the microprocessor industry.

· Move up of value changed - China does not want to be just basic manufacturers. They have started to acquire brands and retails to be a competitive selling name.

· Become an intense presence on international market, not just a low quality player.

· Investment on Asia has been done by Western actors as well as Asian actors established abroad.

The new economic roles.

The US situation:

· Imbalance structure of economy.

· US bought things they did not need with money they did not have.

· Not sustainable.

· Less growth.

China situation:

· Domestic consumption has grown and increased.

· Population in China had domestic savings. The government created saving nets to promote the safe consumption. 138Billions$ safety nets.

The last and forthcoming 5 years:

· China’s export growths exponentially.

· Domestic consumption increases.

· Intensive competition (quantity and quality).

· Yuan- dollar balance.

On the last 10 yeas, there has been a partnering of the three big Asian economies. China has become the number one partner of Japan and Korea, not the US. Increase of company’s collaboration and technical/financial exchanges.

There have always been a risk and uncertainties on the China market, but big OPPORTUNITIES has always been the key word.

What will be the role or European companies? Opportunities? Advantages?

Important features for opportunities of western companies:

· China and India will need western partners to expand.

· China and India ensure a 7/9% year growth for the next 10 years.

· Strategic partners for growth on:

- Technology

- Education

- Manufacture traditions

DR: The size of the European economy is still important, but there is a main problem. Each European member has its own single political economy and it is hard to form economic policies fast enough. US and China have many states or provinces under the same political economy.

China is becoming the leader of the electrical cars industry, whereas India has become a strong partner for Ion/Lithium batteries.

Argentina/Chile/Bolivia are also increasing their industry on Ion Li batteries.

Spain (Catalonia) has a strong motor industry and relationship with the south-American countries. This should be a point of consideration.

CS: There are emerging sectors forthcoming:

· Healthcare sector – Unlimited opportunities.

- Not only the biotech and pharma industries.

- Services and goods for increasing ageing population.

- Europe has a strong pharma expertise and biotech advantages, hence a strong background.

· Alternative energy.

- Strong push by China/US, everyday have a new initiative and idea.

- Europe/Spain should be competitive.

· Waist Management:

- For 2000/25, China and India will have an increase of 500M people creating waist.

- Energy provision, urban transportation, healthcare requirements and waist management due to increase of urbanization.

· Education: Europe has good assets.

- China and India have an increase of private education. US institutions are active in this domain. Example: emerge of CEIBS University in China.

- Capitalize education/increase reputation.

On overall Europe could be the loser of the crisis due to its slower initiatives, active and crisis recovery.

· Worst time for Europe.

· Created high levels of debt.

· Not sustainable situation.

· Demographic transformation.

· High taxes, slow growth.

· Market efficiency.

· Countries with difficulties: Portugal, Ireland, Greece, Spain.

Specific strength and opportunities for SMEs

DR: SMEs should become global and competitive.

· SMEs in Catalonia need to grow, they are too small. Require different cultures and merges to become more competitive.

· Tiny organizations can do OK but need to grow to have an impact.

· Family – require to become public

· Entrepreneurs should have a sustain growth.

· To reach China areas, need access to capital (challenge)

Segmentation of the Production Chain – Strategy to compete by Europe

CS: Crisis impact – Put into question how global supply chain has been working recently. Globalization, allows accumulating competitive advantages from different locations.

· The distance was not a serious issue before, now consider many factors:

· Risk uncertainties

· Fuel price

· Climate change (extra taxes for carbon emission)

· Transport insurance

As an example, many companies delocalized from China to Mexico in order to serve the US market.

Catalan companies should: rethink re-localization opportunities, strategic supply chain and take advantage of geographic advantages.

Strategic Dumping (pricing policy) – differences labour/social issues Europe and Asia

DR: You cannot compete against China with pricing, that is the competitive factor of China: Lower cost business and lower taxes.

If this policy is unstable and inaccessible, it will fall back, but this is a problem western countries need to face up.

CS: China is legitimate to have their competitive advantage as Europe had with technology, education and infrastructure.

China’s competitive advantage: low currency and low labour wages.

Take into account that this should not be identified as lower product quality. As an example, 50% of US import comes from China manufactured by the own US companies itself.

The growing competitiveness of Asia is its PRODUCTIVITY

· Pressure of profit margin will grow

· The power will shift from the consumer to the manufacturer/provider.

· The only way to counter-attack the profit margin is by increasing productivity. This is a key effort for Europe.

DR: Productivity reduces the number of people required to do something, hence will have a big impact on the labour market.

· Focus on productivity will impact on a low labour growth

· Social risk will emerge, but Europe need to increase productivity to compete with Asia and US.

· Life is neither simple nor easy!!

Green energies and alternative opportunities for Spain.

CS: It is required to enhance energy efficiency, not only developing alternative solutions which might take longer and more resources.

Europe is not leading (US and China) on the revolution of green energies even though its experience and advantages.

DR: Japan technology efficiency has been introduced to energy efficiency industry. Research and development of complementary technologies towards alternative energies.

Construction techniques with fewer resources.

Save energy loss and consumption.

DR: Water supply will also be an important issue. Water stress area increases.

Population increases as well as living expectances. Need clean water.

XXI – How to do business with Asia.

CS: It is very important to understand that China is not only one single market. Inside China there is even a strong competition between its own provinces.

· There is an important difference between provinces, hence increase of obstacles.

· India has experienced a de-centralization of power to different regions, not single market.

· Understand how to go to the different places inside the country.

· Europe can be an example for foreign companies.

· There is a cultural diversity between regions which is required to understand and adapt.

Example of failures of cereal entrance for breakfast in India. In the US, cereals is an important market in every home, but in Asia, it is needed to understand that they are used to hot breakfast, not cold. It is important not to impose but adapt cultural factors.

For small companies it is required to have a support system for market intelligence due to its size limitation.