Asian Business and Global Challenge - Essay Example

Running Head: ASIAN BUSINESS AND GLOBAL CHALLENGE Asian Business and Global Challenge [The Writer’s Name] [The name of the Institution] Asian Business and Global Challenge Introduction With the Asian economy receiving much praise what actually went wrong? Part of the answer seems to be that the countries within the Asia pacific became victims of their own success. The high rate of growth had led domestic and foreign investors neglecting the Asian countries economic weaknesses. It wasn't until the second half of 1997, several East and South-East Asian economies fell victim to some of the pitfalls associated with closer integration into the international economy. The effects of the crisis were felt far beyond Asia's perimeters, their was evidence that the global economy was heading towards a period of slower growth, during this time already a quarter of the world economy was experiencing recession. (Noel Tracey, 2000, 22-27) It all started with the Thai baht, the currency came under heavy selling pressure. It is reported that the Thai currency was feeling the pressure as early as July 1996, following the collapse of the Bangkok Bank of Commerce. Discussion and Analysis The Asian financial crises had severe social consequences, unemployment rates were on the increase with Korea having reported the largest. Korea reported a rise from 2.3% to 7.4% in 1998. In Malaysia unemployment rose from 2.5% to 3.9% and in the Philippines, unemployment went from 7.9% to 9.6%. Unemployment didn't just affect the nationals it also hit a lot of migrant workers. The number of migrant workers who left Indonesia increased by 392%, Philippines saw departing migrants rise by 1% compared to 13% increase in the previous period. (Pierre Richard Agenor, 1999, 110-14) The Asia crises had consequences on income distribution and poverty. Income inequality had increased in some countries for example in Thailand the income of the rich increased from 20.5% to 22.5%. In the Philippines saw the rich increase their income from 39.3% to 42.9%. Korea saw an increase from 22 to 24.5%. There was evidence of poverty in Indonesia, a rise of 11% during the years 1996-1997 to 14% in 1998-1999 and again there were reports that Korea had more ten doubled in poverty from 3 to 7.5%. (Gerald Tan, 2000, 11-14) Free health cards had been distributed to many low-income households in Thailand and Indonesia. The crises had varying effects on social capital. Crime rates had also increased in Thailand, Korea, and Malaysia. Huge loan losses by the banks in all the crisis nations caused subsequent deterioration of bank balance sheets. As banks struggled to remain solvent following its heavy lending to speculative real estate ventures and unrealistic corporate expansions, the money dried up causing credit crunches and currency crises. What turned the currency crises into financial crises was the enormity of the short-term debts and their denominations in foreign currencies. Asian currencies depreciated rapidly increasing the debt burden of banks and firms alike. In the case of Indonesia, this was enough to cause a banking panic, placing even more pressure on the besieged banks. (Gregory Winnable, 2000, 177-80) A currency crisis, fuelled by fundamental flaws, led to a banking crisis, a contraction in lending and severe economic downturn in the region. Financial markets were left dry and a prolonged self-fulfilling financial crisis had surfaced. Much needs to be done to reform the international financial architecture in order to avoid and assist recovery from crises in the future. Governments and the private sector in emerging markets must take steps to strengthen their banking and financial sectors. Measures must be taken to prevent the potential rapid reversals of capital flows. Healthy macroeconomic policy must be adopted along with a viable exchange rate system to facilitate sustainable growth and low inflation without over-investment within their economies. Governments and financial institutions globally must tackle the information flaws creating the lack of transparency between investors, borrowers and lenders worldwide. The common hopes of developing countries are to keep high economic growth rate. When the growth getting fast the conditions become insufficient, in order to the speed development, these countries turn to depends on external borrowing to keep economic growth. Because of economic development was not good, some Asian countries do not have the margin of solvency or not enough power to repay. (Karl Jackson, 1999, 88-93) In Southeast Asian countries, the real estate foam makes more bad debts and Bank Loans. The second is the market system not maturity. It is include the government intervention is too excessive on the allocation of resources, especially the loans projects of the financial system; on the other hand is the financial system or regulatory system is imperfect. The third is the disadvantage of the Export Promotion Strategy model. Most of Asian countries were not succeed with export promotion strategy because when the economic developing, the cost will increase, maybe it affect the output, caused by imbalance of the International balance of payment. And when the strategy becomes a common development strategy, it will have the competition between them. Also the competition is not only look at the lower prices but also attention to the quality of the products. The world economic factors: the first is the negative of the economic globalization. Economic globalization make all over the world getting closer, but the negative effect cannot be ignored, such as conflict of interests among the countries or nation, increased of capital flows and difficult to prevent crises and so on. Secondly, in the area of production the developed countries are still mainly the produce the higher technique products, the technical content was decreased. Developing or undeveloped countries can only produce the primary products. When they exchange, the developed countries can purchase low cost to buy primary products, and higher prices to sale. In the international financial and monetary fields, almost the global financial systems are good for the strong financial country. In 1998, the Asian financial crisis affected Russia, and shocks the Latin America and Europe. (Jao, 2001, 44-49)Even it also affected the top most American economy. Conclusion Globalisation in a sense is just a social change; it's an increased connectivity among societies. What happens in one society or country will have a direct or indirect affect on the other country. Now that we have easy access to other countries, we have easy access on information through better communications, the internet it has allowed us to facilitate international cultural and economic exchange. So the term Globalisation can mean: the formation of a "global village" closer contact between different parts of the world, with increasing possibilities of personal exchange, mutual understanding and friendship between world citizens. If there was no interaction between the rests of the world then it could be fair in saying the Asian disaster would not have been severe in terms affecting other countries or it could be said that it may have been prevented. As mentioned the crisis occurred due to selling prices of the currency. If there was no globalisation would they be trading currencies or comparing against the dollar? The Asian disaster may have still happened and not all faults are on globalisation. If there were no Globalisation that doesn't mean to say the Asian countries would not be trading, it may have not been on such a big scale, trading may have just occurred within the Asian regions. Globalisation gave Asian regions an opening with the West, this opening caused pressure within the Asian countries. The pressure could be blamed on individual governments of the countries who wanted to show the West that they can compete on the same level. If they can prove to the rest of the world that trading with them would be beneficial, and to show investors that the new wave economy lies within Asia then they will be more powerful. You can see how more or less every aspect of trading, investing all is connected to globalisation. References Gerald Tan, 2000, 'Asian currency crisis', Times Academic Press, Singapore. 11-14 Gregory Winnable, 2000 'The Asian financial crisis and the architecture of global finance', Cambridge University Press, Cambridge. 177-80 Karl Jackson, 1999, 'Asian contagion: the causes and consequences of a financial crisis', Westview Press, Boulder, Colo. 88-93 Noel Tracey, 2000, 'The East Asian Financial Crash: Causes and Consequences', Chinese Business and the Asian Crisis, eds. D.lp et.al. Gower London. 22-27 Pierre Richard Agenor, 1999 'The Asian financial crisis: causes, contagion and consequences' Cambridge University Press, Cambridge. 110-14 Y.C. Jao, 2001, 'Asian financial crisis and the ordeal of Hong Kong', Quorum Books, Westport, CT. 44-49 Read More