ASIA PROSPERED OVER the past two decades by following a different economic model from the West’s. But if it wants to continue to do well over the next 20 years, it will have to reform. What that involves will vary from place to place. Myanmar, a big country with a difficult past, is beginning to pull itself out of the mire. India and Indonesia, two chaotic democracies, have to create enough order to attract factories and industrial jobs. In China the government needs to ease its grip on the economy. Japan is embarking on the world’s biggest experiment to see whether a society can shrink and still remain prosperous.
The task for Asia’s companies is similarly varied. Selling shampoo sachets in rural Java is quite a different undertaking from making smartphones in South Korea or writing computer code in Bangalore. But as this special report has argued, all Asian firms will be affected by a range of important trends: the impact of higher labour costs in China and ageing in East Asia; higher consumer expectations; the disruptive power of the internet; and the rising barriers to entry in many global industries as they become ever more concentrated. Rising military tensions in the region will also play a part.
To the extent that Asian companies face similar problems, their response should be similar. They need to professionalise, focus, internationalise, improve R&D and create widely recognised brands. That will threaten the traditional ownership pattern of Asian firms—state firms, family conglomerates and companies controlled by Japan’s manager-kings. Such change is to be welcomed. The status quo has worked, after a fashion, for the past two decades, but it has many flaws and may now lead to sclerosis. Emerging Asia’s best firms are already adapting; those that do not may be gone within a decade.
Asia Inc is not about to become America Inc, but big Asian firms will increasingly come to look like global multinationals. No one has yet invented a better model for the company. At the same time Western multinationals will become more Asian, with a large chunk of their sales generated by the region’s huge consumer markets and their ranks increasingly populated by Asians. They should inculcate some Asian business values, from restraint on executive pay to longer planning horizons.
Many things could spoil this happy scenario. One is war between China and its neighbours, the risk of which is higher than at any point in the past few decades. Another is a public backlash against inequality and corruption. Asian countries score badly on The Economist’s Crony Index, which measures the wealth of tycoons in sectors close to the government. China, India and Indonesia have all seen politically motivated attacks on foreign firms in the past three years. Such attacks could spread to local firms. One happy side-effect of more dispersed company ownership is that more people have a stake in companies’ future.
Innovation also needs a push. There is much talk in Asian business circles about the massive entrepreneurial potential of young Asians. Yet in much of Asia powerful incumbents enjoy special privileges. The financial apparatus to bring on lots of new firms—and particularly the venture-capital industry—is very immature. Despite the hype over “new” Asian industries, such as green energy, health care and the internet, the number of firms investing serious amounts of capital in them is small.
Asia Inc’s next two decades will create losers as well as winners. As China’s firms become more sophisticated, more Western rivals that have so far had the field to themselves will face competition. The shift in basic manufacturing away from China and the automation of factories across the region will destroy jobs. If South Korea and Japan get better at services and creative industries, Hollywood screenwriters, French designers and Australian pop stars might be in trouble. But more competition and more innovation is good for consumers everywhere. If China successfully rebalances its economy, it will buy a lot more from the rest of the world. And more global Asian firms should also create more jobs outside their own countries.