Is This the Asian Century - Coursework Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Course : xxxxxxxxxxx Title : Is this the Asian Century? Tutor : xxxxxxxxxxx @2010 Is this the Asian Century? Outline Introduction Background information Aims Body i) Changes made in the Asian Economies ii) Global financial crisis iii) SWOT analysis Conclusion Introduction This study will involve the in-depth analysis of the Asia financial crisis in conjunction with the most recent global financial crisis. It will serve to determine the effects of financial crisis on the proper running of businesses. It will also delve in the solutions of the financial crisis. It will lastly determine whether this is the Asian Century in light of the happenings in the world. Background information (Arndt, 1999) suggested that the Asian’s have seen a growth in their economy for a long time now. Their growth has however been slowed down by a few crisis here and there. The most notable crisis is the Asian financial crisis that took place in 1997. It climaxed with the plummet of the Thai Baht. The crisis then spread to Indonesia, Korea and Malaysia. This further instigated a bigger problem; a global financial crisis caused by the unstable Asian economy. According to (Roach & Lachman,2006) the global financial crisis left Brazil’s Real and Russia’s ruble dysfunctional. It led to a distinct decline in currencies, the stock markets, asset prices, it posed a threat to the countries’ financial systems, impaired their real economies and also caused a human crisis. (Stiglitz, 1999) suggested that the Asian crisis also affected areas without the Asian region; it put a lot of pressure on upcoming markets outside the region, it played a part in the virulent contagion, it contributed to the volatility in global financial markets and it was projected to half the speed of world growth in 1998 and in 1999. It was expected to cause a fall from the initially predicted 4 percent to about 2 percent (Stiglitz, 1999). Aims To determine whether this is the Asian Century. To determine the causes of financial crisis. To determine their effects on the economy mainly businesses. To determine the solutions of the crisis. Body Changes made in the Asian Economies According to the (Technical Assistance Report, 2008) Asian economies that are successful for instance Malaysia, Viet nam, Thailand and the People’s Republic of China have changed in key areas. The key area in which change has been experienced has been in their structural transformation. They have experienced a change in their employment and output. They have strategically moved their resources from agriculture and channeled them to value added sectors like the ones in industry and services. The production of the aforementioned industries has been diversified and the institutions have adopted novel ways to produce and export a sophisticated and a technologically sophisticated assortment of products. The labor activity in the transformed Asian economies has concurrently seen a surge. Increased labor activity has seen the Asian companies’ adoption of new Human Resource Practices, HRM. The type of HRM practices used on Asia is the Guanxi. In this system employment decisions are made by family members (Times Magazine, 2009). Money obtained from the business is the major means of business evaluation. The other factors such as professional development knowledge acquisition and training are not considered as highly. There is not any objectivity in the running of the businesses. The Guanxi mode of operation though biase run smoothly in Asian economies since profits in the companies was realized despite the competence of management. Despite the existence of the bubble economy there signs of a defective management system. This conclusion was deduced as a result of the review of the Chao Phraya River Rat. The column written by the Rat drew attention to the volatile turnover rates (Times Magazine, 2009). Employees easily left their initial employments due to any small raise in the amount of money paid. They moved to any high paying institution despite the type of job done by the paying institution. The aforementioned employee turnover rate was a symptom of the 1997 Asian crisis which left the Asian economies ailing. A change to better HRM practices has seen the Asian economy recovery. Asian economy was majorly run as a family business and thus non-family employees did not feel as a part of the company and as such did not give the businesses their all. This resulted in a high employee turnover. A change to non-family businesses has seen Asian businesses making more profits than before the crisis (Times Magazine, 2009). It has also been noted that economic growth emanates from cumulative economic change and the presence and proper utilization of economic resources. In a nutshell, structural transformation is pegged on economic transformation in light of the transfer of resources to sectors of higher value and the diversification of production while at the same time upgrading it, the exportation of intensely sophisticated products. The mentioned point entails; the identification of goods that a company may manufacture at a profit while making use of its capabilities, by the use of novel input and mode of production and the exploration and the identification of new capabilities. It is therefore deduced that the vital key to transformation is industrialization (Arndt, 1999). According to (Pempel, 1999) the changes in the financial systems of the Asian economies are underway so as to protect their economies from future economic calamities and also to reduce the frequency of the crisis that are likely to occur. It has been noted from the Asian experience that sound macroeconomic policies are imperative for a working economy. (International Monetary Fund, 2001) suggested that among the changes to be affected are; effective surveillance on countries’ economic practices and policies which would be made possible by full disclosure of all the significant financial and economic material. In this light the International Monetary Fund has developed and will continue to improve data standards to steer its members in the right direction. The institution is trying to establish this by the having consultative meetings with interested countries. Secondly, the financial sector reforms would in-cooperate prudential directives and ultimately supervision. IMF in conjunction with the World Bank have come up with ‘best practices’ in the banking sector; the Basel Committee which deals with the Banking Supervision. Thirdly, there have been causes to ensure that the integration of international financial markets has been conducted in an orderly and sequenced manner. This move has been supported by a sound financial sector with proper macroeconomic policies in conjunction with exchange rate practices. This move was done in order to maximize the advantages from and reduce the risks brought about by international capital movements. The fourth move is the promotion of regional surveillance. The fifth effort is a worldwide initiative to promote proper governance and a motion against corruption which includes the adoption speared headed by the IMF’s Board of Governor’s Interim Committee which took place in April 16th 1998. The initiative was dubbed “Code of Good Practices on Fiscal Transparency- Declaration on Principles” to work as an elaborate guide for its members and to facilitate the accountability and credibility of the tentative fiscal policy as a vital feature of proper governance. The last measure is the use of more effective structures for proper debt workouts that include; better bankruptcy laws at the nationalized level and the use of better ways at the global level of associating the private sector creditors and the appropriate investors with official efforts to help in the resolution of sovereign and personal debt problems. The above aforementioned changes has seen most Asian economies experiencing a drastic increase in their gross domestic profit and have thus made people think that the 21st century is an Asian century. This has left analysts like (Lachman, 2006) stating that the Chinese economic boom may propel them to a level which is above that of Washington in the very near future. There have also been attempts in emulating Asian commercial policies. For instance the Stern Hu case which took place in July 2009. In the aforementioned case; an Australian citizen who was an executive in Rio Tinto; a Chinese mining group stole Chinese commercial secrets. The stealing of commercial secrets is thus a clear indication that the Chinese have adopted working policies (the rest of the world sees this too hence the buying of the secrets through illegal ways) and hence 21st century may be but their century. However, it has also been argued that they have some glitches in their policies for instance their internet censorship policies which saw Google pulling out of China (The Wall Street Journal, 2010). The aforementioned move will have the Chinese population that is dependent on the internet partially crippled. It will also mean some strained business relationships with businesses which use Google for most of their advertisements. It has been noted that there would be reduced output or small recoveries in many of the Asian countries with the exception of Indonesia. This is because Indonesia’s reform’s process is not as advanced and it suffers from major political uncertainties. There has been a symptom of bottoming out in Thailand and Korea. Thailand is experiencing some political instability which is negatively impacting on their economy. The instability is causing a strained relationship between Thailand and its prospective foreign investors who had initially steered off Asian during the Asian’s financial crisis. The strained relationship has also been as a result of Muslim insurgent activities which is concentrated on Thailand’s Southern province. The aforementioned situations are thought to affect the Thailand’s economy for a long time. The unrest in Thailand has also affected Indonesia as there have been violence such as the bombing of Indonesia’s resort; Bali. The bombing is seen to put a strain on the hospitality business. The Tsunami which took place in December of 2004 also caused a lot of damage to the tourist sector. It has further been noted that the political unrest and the surging of oil prices has negatively affected consumers and the overall business confidence. The Thai’s consumer confidence index level fell to a distinct four year low in April which was attributed to the political tensions. Industrial production also fell from 12 to 8 percent. Global Financial Crisis According to the (BBC News, 2009) the world has suffered from a severe global financial crisis that is thought to have begun on 9th August 2007. The crisis is thought to have originated from the Sub-prime mortgage business where US banks gave out high risk loans to people with poor credit history. It was further propelled by a fall in house prices in the USA. This then led to a fall in the value of securities backed by subprime mortgages. The full force of the global credit crunch hit hard after a couple of years. In a nutshell, it began with credit defaulters which led to a destabilized economy. The (BBC News, 2009) suggested that first strike was felt when New Century Financial applied for bankruptcy and laid off half its workers. This was followed by credit losses in the tune of $100bn by Investment Bank Bear Stearns (BBC News, 2007), which crippled it. Liquidity decreased as banks refused to do business with each other. This was manifested by Investment bank BNP Paribas when it refused to release money to investors. This also saw European Central Bank injecting 95bn euros to increase liquidity in the market. In light of this the Federal Bank also cut the interest rate it charges on loans taken by banks by half a percentage to get to 5.75% This move was deemed as unusual for the bank (BBC News, 2007). SWOT Analysis of Australia According to the (Government of Japan, 2001) the strengths are; It has a robust economy which is at par with the big players in West Europe Its policies lay a lot of emphasis on reduced inflation Reforms and growing affiliation with China which has resulted in its 16 years expansion It has robust growth in revenue since 2002 It’s a key exporter of agricultural products fossils, fuels and metals It is endowed with over the top international telephone services It is able to withstand a big number of events; that is both internal and external. This is includes a drought, Asian financial crisis and housing boom. Weaknesses include; Systems which are socially permissible to help in the facilitation of information exchange in both the horizontal and vertical manners. Its enforcement on environmental of economic policies is also one of its weak points. Opportunities are; Australia has a friendly business environment. “According to the World Bank, Australia is the fastest place in the world in which to start a business, with regulatory procedures taking just two days” (About Australia). It has very minimal regulations when it comes to its product market which implies very small levels of public ownership in businesses For instance Australia signed a $50 billion deal with China to supply it with liquefied natural gas. This move was done so as to enable Australia to create job opportunities, help in the fostering of the Australian economy and the ultimate sustenance of the economy. It has the most lax impact on business regulation. Its deregulation of its banking sector facilitated the removal of interest rate limits which in turn allowed the proliferation of a large number of banks; U.S banks. Chase, Citibank and Manhattan have been forced to play in retail banking sector and thus cause competition in the entrenched banking system. The threats are; drought, strong import demand and robust currency which have resulted in high trade deficit in the recent years. Conclusion The economy is a very important aspect in any country’s wellbeing. It has to be nurtured by the use of proper financial systems. It also requires its enforcement by proper governance. The Asian financial crisis manifested itself due to a combination of poor financial sector supervision, inadequate assessment and management of risks that pertain to finance and the use of moderately fixed exchange rates which forced banks and corporations to end up borrowing huge amounts of international capital which were mostly short-term and unhedged. The most recent global financial crisis was caused by non-performing loan in the sub-mortgage sector. This led to more borrowing to offset the initial bad loans and as a result the ripple effects resulted in global crisis. It has also be noted that nature of businesses is directly determined by the nature of the economy. The Asian economy is now very strong. This is as a result of the adoption of the prudent financial policies by which they operate in. The Asian countries have adopted the policies in stages and also with the help of the International Monetary Fund organization. However, the recent developments such as the censorship policy in China has seen the Google moving out of China and with it loss of some business prospects. The political instability in Thailand has also led to a drag in further economic development which is thought to go on in a long time to come. Disasters such as the Tsunami have slowed down the growth of Asian economies as they used most of their resources to alleviate the effects of the disaster. The tourism industry has also seen a slow down due to the political instability. From the aforementioned mishaps the 21st century is not an Asian century. 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