Doing Business in Asia

Last Updated: 16 Jun 2020
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The growth of the Asian markets has resulted in much international interest. These markets have provided ground for much economic study and interest. The general influence of communism in this area paved way for different economic philosophies due to the inefficiencies experienced by full scale communism. This region has experienced one of the fastest growth spurts in economics, a phenomenon that has baffled experts leading to the coining of the phrase the Asian Miracle.

However, this growth was not without the hitches that characterize the global business cycle. The business environment has experienced both bad and good times in this part of the world. This paper aims to trace the developments of these emergent economies that have risen and collapsed and establish what that means to the business community.

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These Asian economies started to develop as soon as they changed their principle economic policies. S&P (2009) note that these economies exhibited a basic characteristic of their emergence: the change of their governing economic philosophy. The switch from extreme communism to a regulated version of capitalism was the beginning of the growth.

This did not mean, however, that the government ceased to regulate the economic wellbeing. This meant that the regulation occurred within a different framework. The World Bank (1993) identified about four intervention strategies adopted by these emerging economies that were considered positive. The first intervention strategy was ensuring that there was economic discipline at the macro levels. Macroeconomic elements such as inflation were kept at regulated levels (Gunnarsson, 173, 2003).

The second was the provision of infrastructure facilities, both economic and social infrastructure. Social infrastructure such as education provided the basis of human resource development. There was also increased privatization of physical infrastructure, a positive investment sign. There was also the good governance aspect. Good governance here refers to the ability of the government to coordinate activities within the economy to achieve good economic output.

The region also encouraged savings and investments in the economy. This fourth factor generally causes the economy to experience continuous input of capital. In this case, the investments did not just come from the household; a large proportion came from the corporate sector. This shows that the companies not only had enough income to save, partly as a result of good government policies, but were motivated to do so by the prospects of increased returns. This fact alludes to the good governance principle cited earlier on (Gunnarsson, 173, 2003).

One of the other policies practiced that were noted in S&P (2009) is the restrictive policies on external investment. These restrictions may include the restriction of ownership in companies within the economy and the restriction of repatriation of profits. These two practices enable the economy to experience less foreign interference in the form of taking out profits from the economies.

However, in most of the emerging markets in Asia at that time, this was not the case. In Malaysia and Singapore, for example, there was increased favorable policy toward foreign development investments. The economy already had the population to provide labor and demand for the industries that were to be established (S&P, 2009). This coupled with sound and attractive industrial policies led to the growth of the industrial segment (Gunnarsson, 174, 2003).

The rise was unexpectedly large and rapid. Taiwan’s rapid growth spurt, for example, saw their market capitalization rise from 101 billion dollars in 1990 to 187 billion in 1995, an impressive 85% capitalization growth within five years (S&P, 2009). The average investment ratio, both from the public and private sectors saw a rapid rise within these economies. Throughout the region, there was a significant increase in the level of investment. As stated by Gunnarsson (2003), the area’s increase in investment by the private sector marked the rise of monopoly and aggressive capitalism.

However, the figures show that this trend led to the increase in output i.e. an increase in the GDP of the region. Traditionally, an increase in investment is a good economics indicator. The stock market was not left behind. There was a large investor rush in this segment by both local and foreign investors. There was a rush as the investors wanted to take a part in this rapidly growing economies.

In fact, by 1998, the combined capitalization of these markets was an astounding 1.9 trillion dollars with about 8% of the world’s stock being traded in these stock markets. The economic growth in other sectors allowed corporate listed firms to enjoy enormous and rapid growth, a lucrative yet risky factor for investors (International Finance Corporation). All the same, they went to share in the quick returns from these economies.

The spill-over effects were enormous. The life expectancy in the region significantly improved (Barro, 2001).  Though this is a social effect, it has a great telling on the economic performance that is prevalent during the time period of the improvement. Apart from the life expectancy, the human capital improvement that this region met was outstanding. The overall education levels significantly improved as the governments went to improve the physical infrastructure to cater for this growth (Barro, 2001; Gunnarson, 2003, 173).

In fact, Gunnarson states that the improvement of the general economy is touted to have been pillared within the concept of better human resource. With more qualified personnel the area was able to drive technical sectors of the economy with more expertise. The rule of law index also reflected positively on this growth, showing that with an improvement in the general economy came a drop in crime (Barro, 2001).

This run, however, was not long running. The financial systems of these emerging markets started to show weakness with the devaluation and subsequent floating of the Thailand currency, the Thai baht. This decision came in the light of a severe financial crisis that had hit the Thai real estate market causing a financial melt-down that was felt all over the world (Hardy). The crisis carried on, not due to economic policy weaknesses, but due to the speculator activity that riffed the region’s economies (Hardy).

The crisis started off with a bubble burst in the Thai real estate market caused by large and unsustainable inflows of capital. The capital inflows were so large, they constituted 52% of the GDP between 1988 and 1995 (Hardy). This large influx of capital in the real estate sector was due to the high returns speculated within the economy. The government’s efforts to control this foreign influx of capital failed, resulting in a swell and eventual bubble burst. This was because the amount of capital could not be effectively absorbed into the economy at the rate it was coming in.

There was a huge depreciation of asset prices in the economy after the bubble burst. This asset collapse caused the stock market to experience shock as stock prices plummeted. The investors were in a rush to liquidate their assets in the economy and convert the currency into dollars causing a depreciation of the baht. The government, in a bid to curb this crisis, exhausted its reserves of foreign currency to the tune of 33 billion dollars. Finally, on July the second, the Thai government announced that it would have a managed float of the baht (Nanto, 1998).

Local debt payable to external investors became unpayable, since the value of the exchange rate of the local currency had become very unsuitable. The value of the debt in terms of the local currency rose causing the debtors to be unable to repay their liabilities. The crisis spread throughout the region due to a number of factors, but chiefly due to speculative attacks. Other countries were affected to different degrees. The most affected were Indonesia, South Korea, Malaysia, and the Philippines. The other countries within the Asian segment were affected, but to a lesser degree.

The first factor that caused the spread was the speculator activity (Garay, 2003; Krueger, 1999, 18). Most of the investors in this segment were foreigners, due to the foreign friendly policies and high returns expected from these economies. The speculation as to whether or not the other markets in the region would collapse with the collapse of their neighbor caused these markets to experience a similar liquidation within their markets. This rapid race for liquidity caused the collapse and depreciation of other currencies, just as in the Thai case. Another reason cited is the interconnection that exists within the economies, especially within a geographical region (Garay, 2003).

The ascent within the region caused there to be increased trade between countries within the region. In fact, at one point the trade volume between the Asian countries was greater than the trade volume between the US and Canada (Barro, 2001). It therefore follows that if one of your major trade partners collapses, you will also feel a major pinch (Garay, 2003). There is also the issue of trading securities within the region. With new and improved economic tools of trade and technology in the modern world, the trading of securities have been greatly enhanced (Nanto, 1998). This has resulted in increased interconnection between various economies. With such kind of interconnection, there is no doubt that an upset in one market will affect the other markets that it trades securities with.

There are many arguments as to whether the market collapse showed a sign of inherent weakness in the system or not; or whether the tragedy was inevitable or preventable if governments had put in place more stringent measures. Hardy, for example argues that the structures that were in place were good and effective. He adds that the collapse was not due to the government’s inefficiency but rather it was due to the aggressive investment by foreign investors in a market they expected to yield high returns. This aggressive spending resulted in the creation of the bubble that eventually caused the collapse.

He further states that the government’s efforts to stabilize the situation were frustrated by the influence of the speculative activity, a view shared by Kreuger (1999, 18-19). As shown by Gunnarsson (2003, 175), countries like Malaysia and Singapore were affected because of their increased dependence on foreign investment, a factor that caused them to get hard hit when the speculative motion got into play.

On the other hand, other scholars tend to think that the crisis was due to faults within the system. They cite the liberal and uncontrolled policies, lack of a transparent economic system coupled with a lack of a lender of last resort as part of the reason that the system collapsed (Nanto, 1998). This is especially so with the category that supported the IMF conditions for aid. They saw these reforms as necessary to cause long-term stability in these markets (Nanto, 1998).

The collapse affected the business fraternity negatively. The devaluation of the currencies within the region caused massive losses within the region with capital losses being registered. The loss in asset value, particularly in the real estate segment caused capital losses in this respect. The loss of investment value was also registered with the crash in the stock market and devaluation of property throughout the region (Barro, 2001). The government intervention strategies led to the exhaustion of foreign exchange reserve, leading to market deregulation as a result of the government’s inability to take handle the crisis (Nanto, 1998). This also necessitated the governments having to incur international loans as they sought international intervention.

This incident teaches the prospective investor a lot in terms of the business aspect of Asia, with respect to the emerging economies. The business cycle effect in this part of the world was influenced by investor activity. The effects on business before the crash were positive. The economy was strong and the stock markets were bullish. The trade within the region was high and the policies practiced by the governments were business friendly. During this period, the business environment was conducive for investment as there were favorable indicators within these economies that the growth was sustainable. With policies such as those in Malaysia and Singapore that attracted foreign investment, the international community was lured into these economies to make a killing in these highly rated economies (Barro, 2001).

Indeed as the statistics show, the region did experience a high influx of foreign capital. The capital investment in Thailand, during the sterilized government intervention period in 1996, jumped to over 40% of GDP (Hardy). This influx was as a result of the high, and maybe overrated, expected performance of the economies within the region. Indeed, the markets were doing well with Thailand having a rating of A1 on their bond performance.

The business community, however, had to learn to be reminded of the risk-security trade off principle: the higher the risk, the higher the returns. This “quick return” mentality results in risky investment ventures that end up burning fingers, as in the instance of the Asian crisis. Therefore, when doing business in Asian emerging markets, or anywhere else in the world for that matter, remember that risky business deals can lead to quick short term gains, but they also lead to increased losses. The emerging markets, as suggested by Forbes (2009), are a segment that needs to be approached with caution. It is suggested here that one only devote 10% of their investment portfolio to such economy investment and should be done so for investments that are long-term minded.

However, these economies, since they are looking for outside funding to improve their overall status will usually have good investment policies for foreigners (Gunnarson, 2003). Also, the policies enforced by the IMF made the whole economic system of recipient countries more transparent and ensured that the government regulations in place would check on the growth rate in order to reduce the likelihood of another similar bubble burst (Forbes, 2009). In this respect, the growth rate that is witnessed in the emerging markets that is appealing to the foreign investor is trimmed. However, this kind of intervention puts confidence in the system allowing the business environment to be slower, but most importantly more stable.

Cited Works

Barro Robert. Economic growth in East Asia before and after the Financial Crisis. National Bureau of Economic Research Working Paper 8330 June 2001.

Garay Urbi. The Asian Financial Crisis of 1997-1998 and the Behavior of Asian Stock Markets. Business Quest 2003. Sourced on 30 April 2009,

Gunnarsson Christer. Development and structural change in Asia-Pacific: Globalizing miracles or end of a model? 2003, Routledge.

Hardy Chandra. Asia’s Financial Crisis. Third World Network. Sourced on 30 April 2009,

International Finance Corporation. Emerging Markets Factbook. 1998 Washington: The World Bank.

Krueger Thomas et al. The Asian financial crisis: origins, implications, and solutions.

1999, Springer.

Nanto Dick. The 1997-98 Asian Financial Crisis. CRS Report for Congress 6th February, 1998. Sourced on 30 April 2009,

S&P. Emerging Markets Investments. Standard and Poor’s Financial Library 2009. Sourced on 30 April 2009,

World Bank East Asian Miracle: Economic Growth and Public Policy. World Bank Policy Research Report 30th September, 1993. Sourced on 30 April 2009,

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Doing Business in Asia. (2018, Mar 01). Retrieved from

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