Wednesday, September 8, 2010

The Past, The Present & The Future of Asia.

We all love keenly contested battles. Isn’t it? Such contests can take place on the sports ground, in the academic setup, on the battlefield etc. The one such battle that I am going to talk about, is taking place on the global scale. It’s the battle to become the next economic superpower of Asia. In this blog I’ll discuss the three countries that look set to stake their claim for the Numero Uno tag. The great thing about this contest is that we could have three different leaders at three commonly classified points of time i.e. the Past, the Present & the future. So, let me break the suspense on the trinity (if there was ever one). They are Japan, China & India. Let’s us analyze their strengths, weaknesses and the possible road ahead.

Japan is the country that kept the Asian flag flying high at the global economic forums. It maintained its position as the second largest economy in the world since1968. It’s commendable for a country that was literally ravaged during the World War-II. As they say in strategy that the three common turfs of war are cost (you can produce the cheapest good), quality (your product quality makes you stand apart) or innovation (you make the most innovative products). Japanese products have symbolized quality for decades now. The car firms namely Toyota and the Japanese electronic goods   are the testaments of that glorious past. Its export focused industries, helpful government policies and skilled manpower made it a role model for various other nations. Absence of cosmopolitan culture meant that it didn’t have to suffer an onslaught of cheap labour and thus could chug along merrily as a closed economy. “Protectionism” worked wonders for this nation.

Now let us focus on the weaknesses. Unless and until your system has developed some structural flaws, you can’t be surpassed by an economy that was half your size five years ago. That’s exactly what happened to Japan. Japan has an ageing population which means decreasing productivity and increasing dependence. The debt to GDP ratio is highest among the developed nations. After propelling the business growth in the past, the government in the form of bureaucracy has been responsible in infusing inertia whereas change is the need of the hour in the new global set-up. Protectionism leads to infusion of funds in loss making government units. For now it seems that seems that the system has become “too big to fail”. Remember the TBTF concept in our earlier blog. So we can say that Japan for now is the “Past” of Asia.

It’s the turn of the dragon now, the People republic of China, the economy that dethroned the Japanese. If quality was the hallmark of Japan then cost has set the Chinese apart. Increasing Chinese efficiency and cost-consciousness of the manufacturing firms round the world have proved to be the shot in the arm for China. Even if Japan committed mistakes, there is general consensus that China does deserve the number two position nevertheless. Its export led growth (visible in its positive balance of payment (BoP)), focused government, pragmatic business policies and ruthless foreign policies have been instrumental in its growth. It has shown to the world that doing what “one is best at” is the best model. The famous book, “The Beijing Consensus” rightly credits their success to the unique qualities of China’s culture, demography, geography and governing philosophies.

But even the Chinese have their share of flaws. One important one is “the one-child” policy. This has meant that its population is ageing faster and the portion of dependent population is increasing. It might hurt them in the long run. The one-party rule or the lack of democracy can lead to an inflexible system. The reforms that initially reduced the rich-poor divide have a different story to tell now. Wealth distribution has not been that equal. Even corruption and environmental issues have been in the news lately. The relative lack of transparency in its policies vis-à-vis other superpowers can too play spoilsports. But there is no doubt whatsoever that China is the Present Asian superpower.

Now let’s consider India, the erstwhile golden bird. Its strength lies in a relatively young population, cheap skilled labour force especially for the service sector, large English speaking population and a vibrant democracy that’s more open than Japan or China. Technical education nowadays attracts the best talents in India thus tech giants now see India as a R&D hub. India also has competitive advantage in key sectors like pharmaceuticals. The economic set up, even though under-developed, is more transparent and has shown flexibility. It has made giant strides in the recent past to open up and liberalize. Add to that more and more Indian firms are now acquiring firms globally and successfully running them thus enhancing India's economic clout. Even in the global forum, it has tried to assert itself on various issues. Growing proximity with the reigning superpower i.e. US could also help. The Indian version of innovation i.e. jugaad is admired the world over.

Even with impressive strengths, India has a long list of weaknesses. The poor performance on most Human development index because of poverty, illiteracy and high child mortality does its image no good and corruption too irks. Unlike Japan and China, India is not very competitive in exports so its a net importer i.e. it imports more than it exports. The unequal distribution of wealth and inadequate credit penetration haven’t helped the poverty figures. So India may not have the past success stories of Japan or the present success that’s as magnificent as China but with its fundamentals and underlying strengths, India could well be the Future of Asia.

Do post your comments on this royal Asian contest. (By the way you can find an exhaustive coverage of Indian Financial Markets in The Money Manager-8, the finance magazine I am closely involved with.)


  1. Super Post.

    Anyways a little doubt.

    "Absence of cosmopolitan culture meant that it didn’t have to suffer an onslaught of cheap labour and thus could chug along merrily as a closed economy."

    How does an absence of cosmopolitian culture contribute to Japan being a closed economy ? Doesn't Government economic policies et al affect the nature of an economy ?


  2. Srinj, The closed economy (protectionism) was mainly contributed by the government policies but their task was made easier by the language or cultural barrier. You can consider the example of Chennai w.r.t Mumbai. Even though Chennai too is a metro, the language and cultural barriers mean that it doesn't face the kind of deluge faced by Mumbai or even Delhi.

  3. Good analysis and summary. Publish your articles in journals. I can see lot of scope for you. :)

  4. Thanks for your complements Deepa. During MBA we get a nice overview so summary is a bit easier but for journals, one might need a bit more in-depth analysis. Btw I did write once for journal of Delhi School of Economics. Can you tell me how the outer world views India economically? Especially with the kind of global exposure that you have, it would be a great value add for the readers.

  5. I am little confused over this?

    "Technical education nowadays attracts the best talents in India thus tech giants now see India as a R&D hub."

    I don't see much recruitment in the Research & Development Department in any of the global firms?

  6. Titash, Thanks for your comments:

    Here are some of the MNC initiatives:
    Microsoft, which began with 20 people, today employs 1,500 people at its Indian R&D center.
    Bangalore was Google's first R&D centre outside the US
    Adobe's global print and publishing business resides in India
    You can go through the news item at

    The recruitment may not be in sync with investments for now as top firms may be doing selective hiring for now as the centers may not yet be fully operational. But we can hope to see increased hiring in near future as that would be cost effective.

  7. Very nice post, quite informative and written in a balanced lucid manner.

    Just one thing, I think the 3 Asian Giants are actually China, Japan and South Korea and not India. India has a long way to go to match those 3 countries.

    South Korea has made its presence felt worldwide, with its technological prowess, be it in Automobiles[Hyundai] or Electronics[LG. It also boasts of having one of the fastest Internet Connections in the world. Compared to that, Broadband penetration in India is less than 1 percent.

    Moreover, other Asian countries such as Singapore, Malaysia, Thailand, etc are way ahead of India in every respect[Economy, Education, Human Development Index, Poverty, Health, etc].

    Keep writing such great articles. :)

  8. @ Satwinder, Thanks for your comments.
    You are right in a way that India lags behind on many fronts especially HDI and its tech prowess too is behind some of the nations that you have mentioned. But India does have the potential and clout (by its sheer size) that can help it in scaling new heights e.g. firms like Hyundai using India as an export hub. That's why I consider it as the "Future". Whether it will actually do it, well let's keep our fingers crossed.

  9. Saket, I do not mba or any other degree to cover me, however, in layman's term, I can explain a bit.

    You are quite close on predicting the Asia's future unless we have unforeseen factors like Wars, Terrorism or Natural Calamities.

    For Japan, I agree that due to its ageing population and closed knit culture especially when almost half of the world's nations have agreed and reaping the fruits of globalization, it would be difficult for it to catch up. But there is one very important feature of Japanese economy that had led to its rise as comparable as to USA. I will explain it in a while.

    Though China is bound by language barrier but I believe Chinese are too smart to adapt themselves with constant changes in their strategies. China have come a long way by implementing strategic policies unlike India which has just started and it will take time to ramp up.

    Let me explain a bit more as how I see the world's economy heading towards. To become a superpower, one has to play a "big game" which was common in all the superpowers so far viz. USA, Japan and China. In order to generate a big scale revenue, a nation has to develop competency in industries whose products are commonly used like Manufacturing. USA's economy expanded because they started developing expertise in almost everything and capitalist nature helped it to rise faster. When Japan which is the pioneer in "perfection" and its people slogging day and night using Lean Six Sigma Principles, their research in automotive industries gave a tough competition to US. The Japanese brands became a symbol of best quality rpoducts and all the manufacturing revenues shifted towards Japan. Now China is following the same trend and taking advantage of recession, it is growing fast. One can argue what is USA doing all the while now. Recession has hit USA with alarming rate of joblessness. This Recession is not an outcome of 10 years or so. Now that so many giant countries are playing smart, and US tried to cash-in on globalization that all the major manufacturing units have shifted in Asia regions that there is not sufficient jobs for American citizens.

    Lastly, India can take advantage amid all the rat-race since India is a giant country with large speaking english population unlike China or Japan, thanks to British!, But it has to make sure that it has stable government with all the policies aligned towards economic development.Indian Government should make a long-term strategic plans for Indian Economy like what China did, for instance, India should develop its own world class expertise in Automotive Industries and export it worldwide. Also, the upcoming future industry is "Solar Energy". USA and Europe, infact all the "awake nations" are developing their competency in tapping solar energy which could turn the dice all over again.

    I scribbled a lot! Hope it made some sense..

  10. Deepa, as insightful as always. I usually look outside the MBA domain for exciting bits of information and you keep justifying my stance. You are right in saying that Indian in order to prove itself as the Future of Asia, will have to move up the technology value chain i.e. it has to gain competency if not supremacy in high skilled technology. And solar energy (with abundant sunshine in India) could be a futuristic area. For me it should also concentrate on uplifting people BPL as that would go a long way in maintaining political stability and creating a strong footing for a vibrant democracy. So a multi-pronged approach that goes beyond economic policies is required.