SUBSCRIBER'SCOPY NOVEMBER-OECEMBER1998

THrASraxER

ott

JBFCENTER

"7beenirc pnt of .f i a cial i stitutictns islol dn eulf onellsesedats... lbelieLelbatuhilesonenn.)' neetl att ettra belping hantl in order to stot it e the dillicult settiltg. othets u'ill pass the test on

theit ou\ and etnerye.lj on sh gqle as stt onger itstilLlio s lhat harc lrcen nnde note fit fu healtht'

e\e,ra"...."(,{]{, 1981)GoY. Jose B. fernandez,Jr.t snr " . r l B r rk ' i rh r Phr l rp l rn t '

Join the gurusand practitioners to find out -

wHo'S . ,*afraid of financing?

How fo overcomeFear of FinancialRl S KS ?

The Gov Jose B. Fernandez, Jr. Center for B:rnkinS; and Finance Lecture Scries is a monrhly gathering ofthe AIM

famil,v-social invesrors, alurnni and friends. 'I'he

Center as a marketplace of innovative thinking on banking and

finance sarisf ies the concern ofthe late Gov. Fernandez that the task ofmanaging f inancial insrirut ions today de-

mands nental alertness and vigilancc. Its programs and projects are designed to improve the capabiliry ofpractition-

ers ro srrike a balance bccveen satisfuing clients and observing classical credit principles. The dialogue round rs

spearheaded by rhe Asian Inst i tute of Management's Area ofExcel lence Finance & Economics faculry. .

November 26, 1998Corporate Governance -

Public and Private Sector

Finance

Credit

Local Government Unit

(LGU) Financing

Scheduled evcrl' last Thursday ofthe month from 6100 pm to 8:00 pm ar the Philippine Conferencc Hall, 3/R Asian Insritute of Management,

l 2J Pa r " Jc Rox : ' . M ;k . r r i ( i r ' .

J nquiries ancl reservations fbr complimentary seats should be adtlrcsscd to the Asian Institute of Management, Itl. No. 892401 l -25 - Scientific

Research Foundation, Ext. l5l, 344: Public Affairs Oftlce, Lrt. 387, 113; Pl.rcement and Alurnni Relarions Office, Ext. f60; JBF Center for

Banking & Finance, Tel. No. 7501010, Fxt. 2100,2101; FAX: 893-3341/893-7562; Ernai l : scarino@aim.edu.ph , mrirona@aim.edu.ph or

obisnar@aim.cJu.oh.

'This public serrice is sponsor€d bythe Gor.lose B- F€rnandez.J'. centerfor Banknsdnd Fin ccand theAsian Instnute ofM asem€nt

in oider to plovide continuing €du.atio. oppodunnics in financial managemerr'

SAIMTHE ASIAN MANAGER Published bimonthlyby the Asian Institute of Management. MITA (P)042/ 1A/SB KDN PPfSi 107 6/s/97 rSSN 01 1 6"77901 Editorial and Advertising Olfice: Asian In'st i tute of Management, 123 Paseo de Roxas,Makati City, Philipplnes. Tel: (632) 892 4011-25; 892 0435-43; Ba3334 l Fax : $32) 817s240.Intemet Addr€$s: tam@aim.edu.phSelections ffom past and current issues foundin http:,//www.aim.edu.phCopyrightO 1998 The Asian Manager. All rightsreserved. Reproduction in any manner in wholeor in part in Engiish or other languages withoutprior written pefmission prohibited. Printed byTimes Printers Pte. Lrd., Singapore. Opinions ex-pressed in this publication do not reflect the officialvlews of the Asian Institute of Management.

Eotronrlr Bomn:Chairman: Jesus G. Gallegos JrMembers: Rene T. Domingo, Victor S. Limlingan,

Patricia L. Lontoc. Eduardo A. Moratd.Ashok K. Nath

Eonom.lL DrplnrvrNt:Editor-in-Chieft Patdcia L. LontocEditorial Director: Gertie Ampil TironaManaging Editor: Jocelyn de JesusF€atutes Editor: Peaches S. CastilloArt Editor Manny L. Espinola€ontibudqgAdst Sahsah M. Villalba

Busrrurs Drplnnrwr:Publisher: Felipe B. AJfonsoCo-publisher: Patficia L. LontocOperations Director: Millie C. FerrerMarketing Manager: Edythe L. BautistaAdvertising Officer: Vanessa M. laballasCirculation Officer: Eden S. Cardenas

Mpon RnpnnsrNratwE OFHcEs:Philippines: Deiia Gutierrez, 1632) Ba4 4809

Alumni Association of AIM Inc.(632\ 893 7 408

Hong Kong: Pamela Ctroy, (852) 834 5980Singapore: Teddy Tan, {65) 440 8760Indonesia: Rama Slamet, (6221|7Sq 2W0

(62211757 3784Malaysia: Connie Ng, (603\ 717 5370India Subcontinent Media South Asla {Pi Ltd.

19771t227 330Pakistan: S.l. Salahuddin, {52211 5682271Korea: Y. K. Chun, 102) 738 7970

Japan: Tokuji Niinuma, {B13) 35 829 104Thailand: Dr. Anthony Shama, (662)3319303LJnited Kingdom: Brian Taplin Association

{0442}24603/Ftance: St€phane de Rdmusat, {331 )3S896341

No(h) Way!

l ) r : m : t i r t h p u i : r r l h p r ^ r r r r p n . i p c

have been gyrating. Businesses big, smalland medium have either stopped shoot-ing f rom the h ip . o r s imp ly s ropped.stunned at the economic, political andsocial repertoire that needs to be masteredand stage-managed. And you still can't tellthe ner fo rmer heh ind the Noh mask.Shakespearean theatre was never like this.Nor was the theatre of operations of theglobal strategsts until the Asian cdsis camealong.

"Not very n ice , " wr i tes Ins t r tu td Etudes des Politique's David Camroux,iust when Europe had finally achieved con-sensus for the Euro. in rhe first triptych ofcover stories on Asia-Europe managementsilategies in this issue. Witty but wise inways of both Asia and Europe, Camrouxn r e c l h p " m i s - h p : r i n o " n f r h p F r r r n n p : n

voice in the crisis. As insightfulis the Asianvoice of Nihon Univerctty's MorimitsuInaba, who was formerly with the AsianDevelopment Bank, with hts Look EuropePolicy, as Asia's strategic option for thebeckoning century. Even PhtlippinePresident Erap's reflectlons intimateopenness to European exemplars, but likethe aesthetics of Noh, he is understatedand srrpeest ivp as hp advocates for t rueASEAN community.

Noh dancing may seem generaily slowby ballet standards, but leaps and tums dooccur. As Asia's recoveff is almost imper-ceptible, QT Tan's "Global Trends andPhilippine SMEs" proposes organizationaltooling that may be slow in the comingbut could jumpstart SMEs. As ln the Nohwhere techniques are hidden by their perfection, those in the know will appreciateTakao Ogawa's "When Greed Turns ToGreen" where he shares how ISO 14001can make business smooth flowing, as isideal in Noh dancing. Enter Myla Fabrefrom stage right: an Asian tour of the Euro,focused on the tourism industry like Nohchanters urging marching to the drum-mets. Nieves Confesor comes un-masked, the wakiin the Noh, arguing the

urgency of regional economic integration.Japan emerges Ihe shite, keeping Asia lnsuspense like all main characters do, in thisdrawn-out Noh Doioie of an Aslan mira-c le spurned. when you read th rough"Managing the Yen", with references toMusashi's Way of the Sword, in case youwant to slay the serpent. The denouementis do-it-yourself, as when this Noh playedout varlous endlngs at various times, withits various origins from the Asian main-land-Chinese. Korean. even Thal.

But Noh events are no-events whenthere are no kyogen, the comic relief between acts. So this lssue, in keeping withthe season, brings in Elmer Soriano's"Gifts for the Workaholic" in a new sec-t ion, The Asian Monger. JunboBorromeo begins another new seclion,Management Mentors,with fond hope forhappy endings as Christmas unfolds with-out Jim Donelan. Bob Chandran returnswith "Entrepreneur's Corner", an almostindefatlgable optimlst.

Oh yes. just when the Europeans aremore pessimistic now of Asia. But isn't "life

a stage. and all merely players"? The senseof lightness in ballet contrasted with theNoh stance of tense torso, slightly tiltedforward, arms curved downward andknees flexed gives insight into differencesin Asian and European management styles.Well, Asians aren't as pessimlstic of Asianow as the Europeans. No way will therest of Asia want the land of the dsing sunor anything catch them crying. They're notas optimistic of the Euro as the Europeansare either. And Noh is two centuries oldert h rn Shekpcnpa rp

Merry Christmas to all and let a happynew year be a sel f- ful f i l l ing prophecy!

tun#Associnte Dann Lttntoc taaclrs Ttrittatization, and

international rr:lntions in MBM anLi CDM.Ema i I : <plont oc@a im.edu.yth>.

November-December 1998 | The Asian Manaper 3

Atty. Jose Gerardo A. Alampay <gigo@mnl.sequel.ne> Takao OgawaPartner of the Alampay Gatchalian Mawis Curanza & Alampay LawOffice and Principai Researcher for Security Concerns in the Asia PacificRegion of the University of the Philippines Institute of International LegalStudies, Gigo Alampay holds a Master of Laws ( Unlversity of San Diego)and a Masters of Pacific and International Affairs (University of Californiaat San Diego) where he received the Allison Award for OutstandingAchievement. He teaches privatization law sessions in AIM.

Prof. Horacio M. Borromeorlr., MM'77 <junbo@aim.edu.ph>Junbo Borromeo, AIM's USIPHIL Professor of Business Management,joined the faculty in 1977. Cunenny Associate Dean for the Master inBusiness Management program, he also served as Associate Dean forthe Master in Management Program, Progam Director of the TopManagement Program and TAM Editorial Board Member. He taughtTotal Ouality in the University of Southem California MBA, and wasvisiting member of the Australian Administrative Staff College. His workexperiences range from being IBM fainee to being president of a Filipino-Japanese joint venture in the manufacture and sale of stringedinstruments. He designs and conducts training and seminars allover Aiiaand is director of Paclfic Dynamics Pte. Ltd., Singapore.

Dr. David CamrouxDirector of the Asia-Europe programme at the Institut d'EtudesPolltiques. (lEP) in Paris, David Camroux teaches contemporary South-east Asian society, recently co-authoing L'Asie retrouvee (Asia Rebound,Le Seuil, Paris, 1997).'He has been the European Conesponding Editorof The Pacific Reviewand, continues to be a popular regular commenta-tor on Southeast Asian and Paciflc affairs for the French press, radio andtelevision. Of Austalian and French parentage, he is a French national.

<okda@iaco.cojo>Japan's nominated expert to the APEC Internatlonal Ouaiity AssuranceSystem (IOAS) SME Workshop on Standards Based Managementorganized by AIM, Takao Ogawa is the Senior Chief Engineer for theEnvironmental Certification Division of the Japan Audit and CertificationOrganization for Environment and Ouality 0ACO). He worked withSumitomo Chemical Co. Ltd.'s Technical Department of Nagoya Works,and was involved. in the production of high purity aluminum metai atthe Ehime Works of the company. He then became manager of theEnvironmental & Safety Department of Ehime Works of Sumitomomoving on to become its General Manager. He represents Japan invarious conferences on ISO 14001.

Dr. Morimitsu InabaFormerly with the Asian Development Bank as Senior Proiect Econo-mist and Senior Investment Officer, Morimitsu Inaba is cunently Pro-fessor of Development Finance at the Graduate School for InternationalRelations of Nihon University in Japan. He also served as Senior Associ-ate Member of St. Antony's Coilege in Oxford. He holds a Ph.D. ftomthe Department of Political Economy of the University of Toronto, andhas done post-doctoral study in economics at Harvard University. He isa Japanese national.

Dr. Patricia L. Lontoc <plontoc@aim.edu.ph>AIM's Don Andres Soriano Professor in Business History Patt Lontoc isAssociate Dean for International Relations, overseeing AIM's activitiesin ASEM, APEC, ASEAN and UN. After being general manager of awire manufacturing corporatlon, and investor and contributing editorfor an international fashion magazine, she worked with four Philippinepresidents (Marcos, Aquino, Ramos, Estrada) in senior posts like SocialReform Council Secretary-General and Presidential Assistant(Undersecretary rank); Commissioner for Culture and the Arts; EconomicDMsion Director , Ofice of ASEAN Affairs, Department of Foreign Affairs;and National Security Council Secretary focused on crisis management.

Dr. Elmer S. Soriano, MDM'97After working with cooperative hospitals allover the Philippines, withheadquarters based in Davao, Elmer Soriano, the medical docto4 de-cided to take the Master's in Development Management pro$am atAIM to enrich his field of expertise: healthcare financing. He is nowheavily into consulting for cooperatives, NGOs and government agen-cies and hospitals. He also co-founded the interuniversity kmpus Maga-zine, wherc he continues to serve as Chairman of the Board and Gen-eral Manaqer.

Prof. Ouintin G. Tan <qtan@alm.edu.ph>OT Tan, who holds AIM's Canadian Professorial Chair of BusinessManagement, speclalizes in Business and Corporate Entrepreneurship,and recently co-authored Subcontracting in the Philippines and Japan.He represents the academe in the Small and Medium EnterprisesDevelopment Council of the Philippines. Ford Foundation grantee tothe Internationai Teachers Program at Harvud University, he is recipientof the 1988 Productivity Excellence in Education award. CurrentlyEminent Person ln the Board of Advisors of the Philippine Network ofSma1l and Medium Enterprises, he served the Government as Directo!Bureau of Small and Medium Industries, MinisWof Trade and Industry.

Robert V. Chandran, MBM'7 4 <RVC@chemoil.com>Founder and president of Chemoil Corporailon, Bob Chandran teachesentrepreneurship uound the world. Immediate Past Chairman of theFederation Qf AIM Alumni Associatlons and Triple A Awardee, he servedon the AIM Board of Governors. He is also member of the FinanceCommittee of the Worcester College of Oxford University. He com-pleted an M.Sc. in Chemistry (Madras University), before going to AIMand Harvard. Born in India. he is a naturalized American.

Prof. Ma. Nieves R. Confesor <nc o nfe s o @ aim. e du. p h>The flrst Asian and first woman to ever serve as Chairperson of theIntemational Labor Organ2ation (lLO) Governing Body, Nieves Confesoralso served as Presidential Adviser on fluman Resources Developmentand International Labor Affairs, With the rank of AmbassadorExtraordinary and Plenipotentiary and Secretary of Labor andEmpioyment in the Ramos Government. Curenfly, she is core facultyof the AIM Master in Management Program and Chairperson of KybernanGroup, internationai consultants for institutional reform and governance.

Myla Ll. Fabre <mfab re @ datas e rve. aip. e du. p h>Holder of an M.A. in International Relations(University of Wollongong,Australia), Myla Fabre recently completed the Sciences Po Asia-EuropeProgramme at Institut d'Etudes Politiques des Paris, graduating withHonors. Cunently AIM International Relations Officer, she served inthe diplomatic service as Technical Assistant to 1996 APEC Meetings.

4 TheAsianMan4g'er I NovemberDecember 1998

TI{EASIANIVTAI\TAGER

VOL. XI, NO. 6November-December 1 998

ESfER STORIES

The "Asian Miracle" RevisitedBy David CamrouxA European expert on Asia shows howthe colonial experience has coloredthe perceptions-and misconcePtiof one about the other

Toward a True ASEAN CommunitvBy H.E. Joseph Eiercito EstratlaThe Philippine President urges Chinaand Japan to lead the way to Asianintegration in the wake of the crisis

Look Europe Policv: Strategic Optionfor Asia in the 2l"tentuniBy Morimitsu InabaA Japanese professor challenges Asiato look more closely at how EuroPeis redefining its presence in the next century

FE NE

Demand x Supply=RegionalEconomic IntegrationBy Ma. Nieve"s Confesor, AIMGovernments' willingness to competefor hurrtan resources on a worldwidebasis can be a source of competitive advantage

lf,l$,lGHT

Manaeing the YenBy Pdtt Lontoc, AIMA 16tn-century strategist's lessonsmight actually contain pricelessgems for the 21"'-century manager

lN&lIsTaY UFF{-reAn Asian Tour of the EuroBy Myla Ll. Fabre, AIMThe euro brings both good andnot-so-great news for the Europeanand Asian tourism industries

BUSINESS OPTIONS

Global Trends and Philippine SMEsBy Quintin Tan, AIM

- -

SMEs play a large and vital rolein the global scheme of things

MANAGEMENT UPDATE

When Green Replaces GreedBy Takao OgawaISO 14001 catches fire among small-and medium-enterprises worldwide

THE ASIA-PACIFIC

When War is Good for BusinessBy Gigo AlampayLocal and international governmentand private groups try their handin an info-tech "war game"

ENTREPRENEUR'S CORNER

Learning OptimismBy RobiertGhandran, MBM '74Why the optimist will alwayswin-.and possibly save-the daY

MANAGEMENT MENTOR

Christmas without IimBy Horacio Borr6meo Jr., AIMThe spirit of Fr. Jim Donelanwill warm Christmas'98

AIMLINK

THE ASIAN MONGERGifts for the WorkaholicBy Elmer Soriano, MD, MDM '97The most practical Christmas presentsfor the world's busiest workers

TALKABOUT

TALKBACK

1326

4728

20

48

31

17

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6

November December 1998 | The Asian Manager 5

C,earning with The Asian Manager

Enjoying TAMJust to tell you I greatly enjoyed your

editorial of July-August 1998 in The AsianManager. You do care for your readers.You strive to give value for thelr time.

Cordially,

N.H. AtthreyaIndia

T}IBASIANMANAGER

Congratulations on your excellentmagazine. I attended an AIM program in1994 and have enjoyed The Asian Man-ager ever since. I am also interested in con-tributing to the magazin€. Please give meyour feedback about these and their suit-ability to your readers.

Thank you,

Scott ArbuthnotArbuthnot and Associates

Oueensland, Australia

Letters to the editor must in-clude writerfs fuil name, addressand home teiephone, and may beedited for purposes of clarity andspace.

Address letters to:

TALKBACKThe Asian ManagerAsian Institute of Management123 Paseo de RoxasMakati City 1260 Philippines

Or e-mail us at:

<tam@aim.edu.ph>

Selections fiom past and cur-rent issues found at:

http ://www.aim.edu.ph

To influence

Trust TalkIt was interesting to watch you turn

readers into thinkers. Analytical minds arewhat we need in these difficult times. Theturbulence in the environment has be-come quite commonplace.

I made a handful of copies of.the Learn-ing with TAM for my managels.MIASCOR has 17 managers who are inneed of managerial training and deveiop-ment. I forgot passing on the article untilthe Philippine Alrlines (PAL) oisis. Oneof my managers approached me about Mr.Ayala's article and said that she was $adour company had the "goodwil1 trust".This was just the beginning of a long dis-cussion wherein several managers broughtup contractual trust and competence trust.

Yes , we be l ieve tha t a key tosustainability and success is all of thesetrusts. Now that I am getting the feedbackfrom the managers, I am interested lnmore of these articles. I am looking for-ward to reading the succeeding issues ofThe Asian Manager.

Sincerely yours,

Ms. Evelyn del RosarioVice-President and General Manager

Manila Integrated Airport ServicesCorporation (MIASCOR)

Philippines

managementthought and

practicein Asia

from the Mission Statement of

Tpa Astaa MeNncsn

6 The Asian Manaeer I NovemberDecember 1998

and philippine

SMEs

Organizational models reveal the strengths and development

needs of globalizing Philippine firms

he era of globalization is uponus,such that each country, largeormall, will affect and be affectedby events everywhere else in the

world. Global trends have implications onbusinesses worldwide and will influenceprofound changes in society. These trendsand sorqe evident implications include:

A Borderless World, wherc trade poli-cies have permitted the removal of tradebarriers. As such there's an easier entry offoreign products and services into domes-tic markets, more product choices forcustomers, and more providers of person-alized product. Consequently, domesticproducers do not have much of choice:they must Sobalize, as a foreign productmay simply take their market away.

Fast Changing Technologlt, which cuts,across all fie1ds of sciences, has progresseddramatically, from electronics, fiber optics,1aser, to clones. This has introduced newproducts, spawned an infinite variefy ofpossible products adapting new technol-ogy, which in tuln, ploduces new or im-proved models that shorten product lifeof displaced items.

Fast D eve lo ping I nfo rmation k c hno l-og1t, which provides easy access to infor-

mation and fast communication that keeppeople everywhere updated with what isnew everywhere else in the world. Thiscreates a condition of buy-and-sell conve-nience, one in which product specifica-tions wi11be global-products developed inone country may be immedlately knownand desired by other countries.

Growing market economies that posses large 'can affotd' buyers, large nichemarkets, and more'customized' productsthat are in demand. Advances in technoi-ogy have increasingly allowed people ev-erywhere to know and desire products thatwouid improve their welfare, standards ofliving, and access to opportunities. These

J

ooJo

=o :tscl

.EF

LivelihoodCottaoeMic16

Medium LarqeFirm FirFr

Global conrpanies are defixid e$ thore that hav€ pfes€nce in more than onecountry 4rld i]4n deltver quatitY good$ and.sertiees at lower costs than can be

.provided by domestic companioc in the countrywhere tlrey operate.

ftF*Uffi

Community-Based

^,

f\\w

Specialized' Firm

A

SmallFirm

wMaterialFirm

l'

November-December 1998 | The Asian Manager 7

significant developments may have con-tributed more to the early dismantling ofrestrictive governments and the growth ofthe market driven economies. Comple-mentation and collaboration, rather thancompetition, will thus characterize thestrategies of global players for introducingnew and innovative products to satisfy thereal or perceived needs of specific or fo-cused malkets worldwide.

These emerging global trends have pro-vided insights on the nature and rule androle of global firms, as well as how theyrelate to each other Validated by experiences at the local setting (Philippines), andusing the traditionally defined cottage,micro, small, medium, and large firms asthe basis for design, models of global com-panles - the CB (community-based) firm,S (specialized) firm, M (material) firm, andthe L (logistics) firm - can be developed.

Global companies have been defined asthose that have presence in more than onecounfiy and can deliver quality goods andseryices at lower costs than be providedby domestic companies in the countrywhere they operate.

CB FirmsThe CBs, or Community-Based Firms,

are material-based with simple equipmentand high labor inputs. These firms drawupon natural materials and indigenousskills and offer the biggest potentiais toproduce labor-intensive products. Someenterprises, such as those in garmentsand in wire harness production, can evenbe considered large exporters. Theseindustries import the textile materials,as v/ell as some of the eiectrical wiresand connectors required in harnessmaking.

The full potential of the CB sector canbe realized if M firms can supply their high-tech, lower cost material needs, such assynthetic leather for bags, belts, shoes, etc.,synthetic texlile for garments, undergar-ments, umbrellas, etc. made of ny1on,rayon, polyester, and glass, metal, or plas-tic for containers for food products thatinclude processed fruits and marine prod-ucts. For exampie, Thailand exports gar-ments, bags, and shoes, jewelry cannedfood, etc. much of which were producedby their cottage industries.

In the Philippines, more than 80 per-cent of the enterprises are community-based firms. These firms should. therefore.

Companies that can sustain globaloporations are those whoae prcducts are stamped with

the three seals of entrepreneurial excellence:

fiHighest Quality fiLower Cost fiFastest Detivery

HIGHEST QUALITYcan be supplied byspecialized and high techcompanies

S , M , L

LOWER COSTcan be achieved byhigh technology firms incontinuous flow ormass production

M , L

FAST DELIVERYcan be made bylogistics firms

L

The companies that fit the global model would be L flrmswhich have wcrld clsss logistics capability and whose prod-uct$ aro sourd, asaembled,and mass produced from highlyspecialized firrps with competitively low cost, high technol-ogy materials from M firms

Some successful export aggregation models are:

o Contractor-Subcontractor linked firms Japano Confederation of firms USAo Center Satellite Taiwano Cluster proposed for the Philippines

8 The Asian Man4g,er I NovembenDecember 1998

Ss, or Specialized Firms, provide thedistinctive advantage of global firms, asthey generate new products and quick toadapt to new technologies in their opera-tions. Their flexibility in operations andspecializalizations allows them to focus oncustomized or personalized product manu-facture for profitable market niches.

Their technical skills are derlved fromtheir equipment. For instance, no amountoftechnical experience can duplicate theprecision cutting that a laser machine iscapable of.

Access to modern, high-precision equip-ment and the means to acquiring themwould be the key to developing highlyspecialized S firms.

A good example of how to help the Sfirms was made by Japan during its mod-ernization era, during which the govern-ment essentially purchased the old andantiquated equipment in the possession ofsmall firms so they could buy "modeln"

machineries and upgrade the quality oftheil operations.

M FirmsM, or Material Firms, are not merely

larger S firms. M fitms are high technol-ogy, continuous-flow process firms thatprovide the material needs of the CB, S,L, and even other M firms.

A critical factor in the establishment ofM firms is the choice of process technol-ogy and its source of equipment. Both caninvolve considerable investment for thepatent or licensing rights and type ofequipment, whlch may depend on outputcapacities.

An immediate beneflclary of establishedM firms would be the SB sector. However,many S firms can be developed so thatmore value-adding can be incorporated inthe manufacture of export products. Cur-rently, M products, such as coconut oil,malble, carrageenan, and sugar, are di-rectly exported rather than used as inputsto higher value-added products of S firmslike detergents, cosmetics, candies, foodf l ^ , , ^ - i - ^ ^ r ^udvur l r l t i , t rLL .

The cost-competitiveness of many ex-port products is derived from the inputsof M firms. High-technology, continuous-flow process operations often result inlower unit cost of output. For instance,the iatest technology in producing Polyes-ter yam for garment, which bypasses threeprevious operations and can be installed

in a smaller place, has rendered obsoletea number of old established Polyesterplants whose cost of producilon is higherthan the landed cost of an import from amodern piant.

Selecting the appropriate technologyand providing incentives for the establishment of M firms would be the key towardsencouraging business entrants to this es-sential $obal requirement.

L FirmsThe L, or Logistics Firm, is not merely

larger than M firms nor is it simply madeup of S and M firms. The L firms are dis-tinguished by theil automated assemblyoperations capable of mass production aswell as strong logistics capabililies and distribution networks. For instance, whilesma1l operations can produce beer, whichis an M product, it takes a firm with logistical capability to deliver it to stores na-tionwide. Many L flrms operate on three-shift basis with high productivity and out-put.

Logistics has been defined as "getting

the right goods to the parties in the rightamount and specifications, at the righttime, to the right p1ace."

An L fim would be capable of market-ing globally, and thus would have avery significant role in exporting and na-t ion development. Real iz ing thatexporting was its route to development,Korea immediately developed its own ship

ping industry after the war. Its exportscould not be dependent on but are com-petitive in, costs and deliveries to that ofJapan.

An L fim that is mereiy a grouping ofS and M firms is vulnerable to lower costs,and higher quality products of outsidecompetitors. The fast-changing technolo-gies that spawned the independent S andM firms capable of producing products ofsuperior quality and lower costs suggestsoutsourcing or subcontracting as a viablealternative to in-house S and M operationsoflarge and high overhead-burdened com-panies.

Note that each of these categories offirms require different specific needs orcriticai needs. The CBs would require low,cost material, the S firms would requiremodern and highly specialized equipment,the M firms would require the latest pro-cess technology, while the L firms wouldrequire automation technology, as well assupport for export marketing and for developing strategic joint ventures.

Dist inct ion, Except ions andOverlaps

The common feature among the S, Mand L firms is that they are technology-based firms, whereas the CB is not. Thereare more opportunities for the productsof the S, M, and L to enjoy higher mar-gins by virtue of the many discreet, value-adding operations involved in their manu-

Community-based industries offer the biggest potentials to produce

November-December 1998 | The Asian Manaser 9

MODELS FOR GLOBAL PLAYERS

nffn

i.li::iti:.,j:1i

l;,r,r:'ai]i:,ttr1:,lrr::lraii:

PreviousFtrmCategories

LivelihoodCottageMicro

SMALLFIRMS

MEDIUMFIRMS

LARGEFIRMS

Traditionallv definedaccordino tbAsset an[Labor Force Size

Assets =less than P1.5 M

Assets=P1.5-15 Mi l l ion

Assets =P15-60 Mil l ion

Assets =oreater thanPoo Milt ion

FinaneialResources

SmallsavinosMaterial/Cre"diVInformalcredit

PersonalCapital/Loans

Corooratestockholders

Public offerinosshares of stodk

Assels/PlantEquipment

Hand tools, General-purpose equipment,AppliancesHand-made equipmentPrecision tools

Too ls /D ies Mach ineshop equipmenturngre-purposeequrpmenvSpeciatized equipment

Process plantRaw material inventorvMaterials handlinoTransportation vehiclesTechnical Brand/Licensing agreement

Specialized. hioh-cApacity autom?tedequrpment / roots,dies, fixturesAssemblv linesBrand ndmeiPatent

OperationsIntermittentSeasonalMade-to-order

Job lotPiece workSample/Prototypes

Continuousprocess flowMaterials handlinoWarehousing

Automated AssemblvLooisticsSupply sourcing

Manpower Skilts Indioenous skillsMan-ual

TechnicalskillsTool & Die design

Process EnqineersLaboratorv iechn iciansQuality Controltechnicians

Machine operatorsQualitv controltechnibiansProduct R & DHighly specialized skills

Managqment Family Head Operations Manager Shift Engineer

Functional ManaoersProduct DevelooftentLooisticsExbort marketinoNeiworkinoHRD/Multi6ultural

Output Hand-processedIndigenous materials

Durable, functionalcomposite materialsMult i -oroducts 'Multi-technologies

Technical oroductSpecific technology

Hiqh volumeMrilti-technoloovMass oroduced'

Product Standards Material-basedStandards

Government StandardsProduct StandardsBuyer specifications

International technicalstandards

G l o b a l l v - a c c e p t e dStandard-sCountrv of entrvTotal-i n-cl uding packag-Ing, Insurance, etc.

Key Success Factors Low cost material Customized workrHigh value-adding

Continuous operationCapacity to meetoemano

LoqisticsHij'h productivityLow costFast delivervQuick Changeover

Criiieal Needs Regular demandMaterialsupply

Modern equipmentTechnical traininoTechnology available

Access to latesttechnologyIncenlrves

Export marketinqsubport Incentiv6sfor outsourcinoSupport & oud'ranteesfor'ioint ven-tures

I 0 The Asian Manager I November-December 1998

facture. The nontechnology-based prod-ucts of CB fims do not have those fea-tures. Simply stated, CB products' marginsare basically cost-plus.

There will be exceptions and overlaps.For instance, a garment factory plocess-ing yarn or textile material like a CB firm,but utillzing general purpose equipmentsuch as sewing machines, and is thereforelike an S firm, yet has continuous-flowooerations like M firms. should still be cat-

NATIONAL GLOBAL EXPORT MODEL

egortzed as a CB firm. It is a material-de-pendent firm, and is not a technology-based firm. This types of operations can-not sustain global competitiveness and willalways iind shelter in low-cost labor coun-tries.

Some large firms that are but a conglom-eration of sma11 and medium operationsand lack the automation capability and lo-gistical clout to export, may benefit fromioint venture arangements that may usher

the merged firms into globalization. Thecost adyantage provided by mass produc-tion and a distinct competence in $obalmarketing provide an L firm competitiveadvantages over S and M firms that mayventure into exports.

In general, the global model suggests amindset geared toward interlinkages andinterdependencies among the networkedfirms, each of which has a specializationand a distinct competence. It suggests

FOREIGN COUNTRIES

FOREIGN BUYERS

November-December 1998 | The Asian Manager I I

I

1) Electronics Firm is an off-shore operation of a ParentFirm in another country.

2) Electronics Firm is a Subcontractor of a foreign firm(material, equipment, technology supplied by Contractor)

MaterialsTechnology=O"rr^y )

-/

,/ Parts' ComponentsProducts

1 )

2)

F]t ionsOff-shore opera

MaterialsTechnologyEquipment

SubcontractorTechnically, the above firms are not Global Exporters

PARENT FIRM(abroad)

L

CONTRACTORfabroadl

L

interlinked operations similar to a cluster,where the ultimate product is of the highest quality, lower cost, and can be deliv-ered very quickly. It suggests that a coun-try like the Philippines need not competeas the markets are there, and it can estab-lish niches globally whue Philippine ex-port products can excel.

In order to accelerate the advent of12 The Aslan Manager I November.December

NON-GLOBAL EXPORT FIRMS

these kinds of S, M, and L flrms, it is nec-essary to address their developmentalneeds and provide the environment thatencourages them to develop into the kindsof firms and aggregation demanded by theglobalmodel.

The success of an economywill dependon the number and composition of S, M,and L f i rms in cluster modes. each

1998

special ized in i ts core competence,adding value to a part of a product orsystem that is delivered to a focused mar-ket that will allow margins of profit.Ultimately, success will be measured intheir ability to grow. Growth can only beprovided by an expanding market baseand can only be achieved by exporting

Ior globalizing.

WhenSreenREPLACES GREEDAs the globally surging tide of ISO 14001reaches Japan and SMEs, consumerconscience censures environmentally

unhealthy business

ment Is Getting Under Way." At last, theglobally surging tide of environmentalmanagement has reached Japan. This im-pression is keen because Japan has beenlagging behind the United States and theEuropean nations after participating coun-tries reached an agreement at the 1992Brazil giobal environmental summit tocooperate with one another in addressingenvironmental issues.

"Environment" WinsThe Japanese government has tightened

legal environmental control by en-acting the Basic Law for EnvironmentalPol lut ion Control ; the Law forPromotion of Sorted Coi lect ion andRecycling of Containers and Packaging;and revising the Waste Disposal andPublic Cieansing Law. Concurrently, thegovernment has encouraged voluntarycorporate activities such as the implemen-tation of environmental programs andthe development of environmentallyfriendly products. However, corporateenvironmental consciousness still appearsto show "trai ts attr ibutable to thetraditional practice of following the pathlaid down by the government."

At this point, one is convinced that cor-porate leaders at last recognize that theenvlronment is a key management issue.They have thrown away their traditionalnotion that environment is of secondaryconsideration as compared to corporatemanagement or revenue generation.

The newspaper article says in part,"Consumers, local residents and share-hoiders have begun calling on enterprisesto impiement environmental control mea-sures through the market without waiting for scientific verification or juridicalverdict." It may be not too much to saythat to appropriately understand the con-tent of this passage is a requirement forany corporation to survive through thenexl cenrury.

In the past, Japanese enterprises madedecisions on key policy issues only aftergetting guidance from the relevant minis-tries and other government offices. Butlooking more closeiy into environmentalissues such as illegal disposal of wastes,dioxin contamination, environmental es-Uogens (chemicals that, when taken intohuman body, disturb the normal functionof human hormones), a corporation thattakes no action until the essentials of ad-

I t nas been three years since the

I International Organization for Stan-

I dards (lSO)'s environmenrai standard,f ISO I 4001 , came into being. Con

forming to the ISO environmentai standardhas now become a global trend, and hasgown into an important eiement of pro-moting,corporate achievements. Thenumber of enterprises that have obtainedthe relevant environmental certificate nowstands at more than 5,000 worldwide.Many of these enterprises are of large sca1e,while small- and medium-sized enterpriseshave generally been unaware of the mer-its of conforming to the ISO 14001 stan-dard. The acquisition ofthe ISO environ-mental certificate, however, offers a smail-and medium-sized enterprise (SME) agreat chance of obtaining a competitiveedge and higher sales.

New environmental information is in-creasing daily, calling upon corporationsto meet rapidly growing environmentalneeds of the society. Environmentalawareness is also gaining momentumamong a gowing number of citizens. OnAugust 16, 1998, the Nikkei newspaperpublished a fiont-page serialized articleentitled " Environment-Oriented Manage

November-December 1998 l The Asian Manaser 13

ministrative guidance on these issues atedetermined will no doubt fail to take ef-fective countermeasures against hatmfuleffects.

Take the dioxin issue, for instance. Inthe environmentally advanced countriesin America and Europe, strict legal con-trol of the exhaust gas fiom incineratorshas long been applied (since 1993 in Ger-many). It was only in December 1997,however, when control on the dioxin wasenforced in Japan. As clearly indicated inthis case, it is too late for enterprises totake action when government policies areannounced in such forms as legislative con-trol and administrative guidance.

In this age of rigorous competition, it isessential for any enterprise to acquire thecapability of making a decision on the di-rection it wants to take by collecting in-formation from a wide area and the far-seeing wisdom.

In Japan the cases of conformance tothe EMS certification came to 1 ,01 B as ofJune 1998. This shows a phenomenai in-crease of more than threefold as comparedto the past year. The corresponding figurein the world stood at 5,742 as of June 30,1998, of which Japan enjoys the largestshare. Rapid growth is also observed in

various countries in America, Europe,Southeast Asia and other parts of Asia.

In terms of the kinds of business, con-formance to the ISO environmental stan-dard has more frequently integrated intocorporate activities in the electric, me-chanical and chemical industries. It is note-worthy that the areas in which the Inter-national Standard has been introducednow includes local government, fi5dinghouses, and the distribution, retail, foodand insurance industries.

TheTC2OTThe sixth meeting of. the 207 Techni

cal Committee (TC207) was held in SanFrancisco in June 1 998, in which 535 rep-resentatives of 51 countries participated.in the meeting. Of these, 54 came fromJapan. The unprecedented size of the par-ticipants underscored the growing inter-est shown globally in the ISO environmen-tal standard.

Special mention has to be made aboutthe issue of establishing a standard forsmall and medium enterprises (SME), anissue carried ovet from the previous meet-ing. The conclusion was that no standardindependent of ISO 14001 and exclusivefor small"and-medium enterorises could

The areas in which the

I ntern ati o n a I Sta nd a rd

has been introduced

now includes localgovernment, trading

houses, and the

distribution, retail,

food and insurance

industries.

yet be established to avoid possible redun-dancy and confusion.

In addition, a workshop on SMEs washeld to probe into problems from the SMEstandpoint. A common problem pointedout by SME representatives was the ac-quisition of administrative resources (hu-man resources, funds and information).The International Standard itself poses nomajor problems to SMEs.

One notable trend today is the increasein the private enterprises' voluntary prac-tice of environmental management-a sig-nificant shift fiom the traditional imple-mentation of environmental control mea-sures under the guidance of governmentoffices. The ISO environmental standardcan be called one of the exemplary mod-e1s of such practice in that each enterpriseis requlred to detide whether or not itshould conform to the International Stan-dard.

Government MeasuresThe ministers and other government

offices have also been changing their mea-sures associated with the ISO environmen-ta1 standard. Various kinds of activities arebeing carried out by them.

o Support by means of financingand environmental know-how. TheMinistry of Trade and Industry (MITI)plans to start offering by April 1, 7999,low-interi:st loans for investments in envi-ronmental control facilities to corporationsgranted or to be ganted the EMS certifi-cation. MITI's Agency of Industrial Scienceand Technoiogy extends support to enter-prises by publishing a manual enltrJed aOAabout Achieving Conformance to Inter-national Standardization.

The Tokyo metropoiitan governmentinaugurated a subsidiary system this fiscal

i&iial:4,

lilra'irii:i]::L : : :a ,a9itr,ial

In-company meritga Systematization of enviranmental managemento lmproving employee's environmentat awareness. Cost reduction by improving business pertormanceo "lnfiltration" of top management policy

External merits. lmprovement in the image of the enterpriser Acquisition of lavorable administrative treatmento lmprovement in credence from the local communitiesr Discrimination agaidst competitors in the same industryo Reduction of environmental riskso Easier acoess to financing from banks

Sates promotion effectso Greater chance of conforming to "Green procurement"o Easier compliance to consumers'environmental concemso Exploration of new environmental businesses

14 The Asian Manaper I November-December 1998

yeax to cover the half of the total cost[with the ceiling of Y1 .3 million) neededfor any enterprise to acquire the EMS cer-tification. Other loca1 governments suchas the Hiroshima prefectural governmentand theJoetsu municipal office in NiigataPrefecture are also offering financial as-sistance to aspirants to ISo 14001.

o Taking the Lead in Conforming tothe ISO Environment Standard. The Environment Agency is the first ministerial-level branch of government that has de-cided to acquire the ISO 14001 EMS cer-

tlfication so it could use its own experi-ence in advising private corporations un-dertaking the process of ISO 14001 certi-fication.

The Joetsu municipal office and theShirai town office in Chiba Prefecture havealready finished the EMS certification.While no sma1l enthusiasm in followingsuiihas been demonsffated by the Saitamaand Oita prefectural governments andFukuoka and Kita-Kyushu municipal of-fices. By first setting a precedent, the,selocal government offices aim to facilitate

Bringing with them almost a century of accumulated years ofexperience and expertise in quality, environment, and human re-sources management, 26 experts from the 13 economies of BruneiDarussalam, ehile, P.R. China, Chinese Taipei, lndonesia, Japan,Malaysia, Papua New Guinea, Philippines, Singapore, Thailand,Uniled States, and Vietnam worked together conquering a newfrontier in the design and conduct of the APEC SME ExecutivesWorkshop on Standards-Based Management Systems. The work-shop, held from September 28-October 2,1998 at the ACCEEDConference Center in Makati City, Philippines, aimed at equippingexecutives from Small and Medium Enterprises (SMEs) with skillsnecessary for implementing standards-based management sys-tems in the workplace. Highlighted was the importance of estab-lishing these management systems in pursuing internationalcerti-lication such as the ISO 9000 and ISO 14000. AIM ProfessorsFrancisco P. Bernardo, Jr. and Gloria M. de Guzman were leadfacilitators, whileAlM Visiting Professor Etsu lnaba of the Instituteof lnternational Studies and Training (llST), Japan, added her ex-pertise as the APEC Business Management N'etwork project co-overgeer's representative.

The project is an offshoot of the successfulAPEC Workshop onInlernational Quality Assurance Systems I (APEC IQAS l) in De-cember 1997 and precedes the APEC IQAS ll which finds the imple-mentation of thetraining program in differentAPEC memberecono-mies. The Asian Institute of Management acts as project organiz-ers for allthe phases. Director Jesus Motoomull (MBM'84) of theBureau of Products Standards (BPS), Philippines and Dr. NorihikoMaeda of the Institute for International Studies and Training (llST),Japan take the role of project overseers.

Highlights of the workshop could now be accessed through thelnte rnet at th is address : <http :/lwww. aim. edu. ph/alliancelapec/interim.html> . The Website also features the presentation of Mr.\Go Kek Koon, expert from Singapore, on ISO'14001. For com-ments and suggestions, the workshop technical secretariat maybe reached through <apeciqas@dataserve.a im.edu.ph>.

the work of promoting the local residents'environmental awareness and efficientlyoffer information and support to 1oca1SMEs.

o Feedback to administrative measures.The Kanagawa prefectural government

introduced a new system which recog-nizes ISO 14001 certified corporations asa "business of due management with anenvironmental management system at orabove a certain level." Any corporationwith such recognition is entitled to followa simplified application procedure at thetime of remodeling its facilities.

The Joetsu municipal offlce, the firstlocal autonomous body having acquiredthe EMS certification, has committed tooffer better chances to businesses with thesame ISO 14001 status and discriminateagainst those without it.

o Residents'and Consumers' Power.Another prerequisite for corporate sur-

vival in the next century is the local resi-dents' environmentai awareness and theconsumers' bargaining power. At this timeof mounting environmental concerns, anycorporation must stand in fear of suchawareness and power.

In the absence of the relevant informa-tion, residents in the neighborhood nearpiants and businesses have had almost noway of knowing what chemicals were be-ing used by these businesses. However,legislation is being prepared to implementa system for Pollutant Release and Trans-fer Registration (PRTR) which requires aplant or business to determine and reporton chemicais released into the environ-ment.

The PRTR system is in force in theUnited States and various European coun-tries. In the United States, the "1aw guar-anteeing the people's right to know",which requires corporations to report onto the Environment Protection Agency(EPA) on 650 relevant chemical pollutantsreleased into the environemnt, was en-acted rirore than a year ago. Disclosure bysuch reports is made in terms of enterprisesand chemicals, contributing greatly to thereduct ion of emissions of chemicalpollutants.

The japan Federation of Economic Or-ganizations (Keidanren) disclosed in June1998 the results of a trial survey it con-ducted on 17 4 chemicals over 1,500 busi-nesses in the chemical and electr ic

November-December 1998 | The As[an Manaper l5

I

!

industries. According to the report, 106of all chemicals checked were released tothe environment. Toluene led the otherchemicals with 40,000 tons. Benzen, acarcinogen, was released into the environ-ment at 4,000 tons a year.

If a 1aw on PRTR is enacted. everv cor-poration is obliged to get hold of the emis-sion of each of the chemicals it handles.This requirement, however, overlaps withthe work of determining environmentalaspects and assessing their impacts on theenvironment, a procedure lncluded in therequirements for conformance to ISO14001. This means that for a companyconformingto the ISO environmental stan-dard it is quite easy to meet this PRTR re-or r i rpm pn f

Consumers' RightsAn example of a substance with an

impact large enough to change the mar-ket is vinyl chloride resin. Controversyover this chemical was kicked off by anenvironmental report of Greenpeace, aEuropean-based organization working forenvironmental protection. Greenpeacelabeled a vinyl chloride resin manufactureras "a plant for dioxin", a carcinogenicchemical. At present, the vinyl chlorideindustry is in a critical condition as its ex-istence is being endangered after indus-tries such as food packaging, electrlc wir-ing, stationery and blke manufacturing,and other industries have made a commit-

ment to replace the substance with alternatives.

Concerns about environmental estro-gens, a group of chemlcals suspected tomimic the reproduction system and causedeformities. are likelv to cause simiiarchanges on the market. The possibility ofreplacing polystyrene and polycarbonatebeing used for "cup noodle" containersand dishes respectivelywith other materi-als is now being studied because of suspi-cions of these being environmental estro-gens. When the inclusion of organlc tincompounds such as ffibufyl tin (TBT), suspected to be one of environmental estro-gens, was found recently in the processedcooking sheet, its manufacturer chose todiscontinue its sale.

As shown in these examples, environ-mental impacts of products have now be-come one of the maior factors that controithe market. When a problem of making aserious impact on the environment is un-covered, consumers may rise to thefu feetto drive the commodities concerned outof the market. Moreover, the "Green Pro-curement," a practice of using environ-mental criteria as the base for determin-ing consumers' selection of purchases islikely to gain momentum in the future asthe consumers' environmental awatenessis enhanced. One manufacturer has pre-sented "Green Purchase Regulations" tosome 5,000 businesses, defining six crite-ria for its Drocurement. The six are con-

:.: When a problem of

". impact on the", environment is',.:

llftcov€red, consumers

:r.. may rise to their feet to:,', drive the commoditiest::; ottt of the market

trol of chemicais, condition of mechanicalequipment, packaging materials, demon-stration of material quality (or labeling),environmental management assessment,and environmental auditing.

As suggested in this case, corporatemanagement is likely to face growingneeds to consider envitonmental impactsof purchases to minimize the load its ownbusiness activities have on the environ-ment.

As shown in recent situations explainedabove, corporate survival in the 21" cen-tury would not be achieved unless a cor-poration conforms to the global standardswhile renovating its own corporate con-stitution. Oniy by so doing could it rideout this difficult time of change by outdo-ing its competitors and achieving salesgrowth.

It is more effective to systematize thecorporate management itself so that theresulting system can cope with varioussituations appropriately than to cope withever changing environmentai issues oneby one without such system.

An environmental management system(EMS) conforming to ISO 14001 contrib-utes to reconsffucting the whole corpo-rate business performance from a view-point of achievlng efficient corporate man-agement. Substantial improvements in theentire corpotate management may be ef-fected by realizing the systematization ofenvironmental lmpact assessment, theframework of conforming to regulatorycontrol, external communications, and thelike in conformance with the ISO environ-ment standard. It ls needless to add thatsuch systemization entails no small im-Drovement in cotoorate environmentalOgawa (right) was Japan's expert to APEC IAAS, actively advocating greening the SMEs.

16 The Asian Manager I November-December 1998

management. I

MANAGING*UEN

eaK economy, weaK currency.This is a loaded statement ifmade in reference to Japan andthe yen. A powerhouse across

Asia, the world's second largest economy,Japan is not only the biggest lender butaiso the largest contributor to IMF-backedprograms in Asia. The yen has also beenseen as the de facto equivalent of the emu,probable precursor of an Asian Euro. Butquo vadis Japan's yen when the JapaneseGovernment conceded June this year thatit has sunk into recession. the worst in thepost-war era?

Overcast ForecastsEven if the yen has sprung from 150

yen to 1 10 yen to the US dollar by Octo-ber this year, the forecast for Japan's GDPis still gioomy. The Daiwa Institute of Re-search predicted a contraction of 1.8 per-cent by year-end March 1999. Likewise,Mitsubishi Research Institute - at 1.9percent. It will be an incredibly shrinkingyear, too, as the International MonetaryFund forecasted a contraction of 2.5 per-cent this year, with near zero growth onlyat 0.5 percent next year. The latest GlobalOverview by Salomon Smith Barney sayslapan's fundamentals continue to deterio-rate and has downgraded its estimates forits GDP this year and next to-2.4 percentand -0.4 percent. Bankuptcies have risen20 percent over last year. Sales are pre-dicted to continue siipping, in Japan andthroughout Asia, its largest market.

Developments in this debi l i tatedeconomy is crucial to Asian recovery fromthe currency turmoil - if only in the criti-cal short-term. It provides liquidity for mostof the region's economies, and its partnersin the other continents are buying Japa-nese products in exchange. For the past25 years, japan has been the engine forAsia's miracle. The 1985 Piaza Accordtriggered the steep appreciation of the yen,which in turn ied to massive shifts inJapanese manufacturing investment inAsian countries. But five years later, theproperty and portfolio bubbies began toburst: GNP began to move at snail's pace,rarely exceeding one percent. Falling de-mand, rising debt, excess capacity, drop-ping profits, reduced household savings.Even executives are pessimistic, theTankan reports, citing'a survey of 10,000Japanese businesses. Declining confidencein the Japanese economy contributed tothe US dollar rising more than 1 percentagainst the yen. The Group of Seven(G-7) has warned Japan that exporting isno escape hatch. Of what stuff, then, must"favorable developments" be made of?What strategic interventions can signifi-cantiy jumpstart Japan and its Asian neigh-bors?

Kdndo, Can Do" ln strategy," wri tes Japanese

swordsaint and strategist MiyamotoMusashi in the 16th century "it is impor-tant to see distant things as if they were

Jumpstart Japan, andthe rest of Asia hygrounding onfundamentals: "lt isdifficult to realize thetrue way just throughsword-fencing. Knowthe smallest thingsand the biggestthings, the shallowestthings and the deepestthings."-Miyamoto Musashi

close, and the close things as if they weredistanced." Go Rin No Sho, his Book ofFive Rings, captures his reflections onkendo, the way of the sword, in such away that beginners can learn the basics,while the masters can continue learningat the higher level. It has been used byJapanese businessmen. Kendo may yethelp in shaping Japan's "can do" sffategyin these times.

For the signs say the economic reces-sion can slide to depression, ifJapan doesnot demonstrate effective control of theeconomy. Inaclion due to inability of po-litical parties and politicians and bureau-crats with parochial interests to get theiract together on the nature and pace of re-forms multiplies fears from Japanesebusiness to the region's other economies.When Japan sneezes today, Asiasuffers from acute asthma, and Americaand the rest of the developed world mightas well catch nagging colds. Consider thateven when the Japanese Parliament in-jected $361 billion into its banking sector,Tokyo stocks still plummeted, Singapore,South Korea and Taiwan all slumped, andeven down under, Australia, saw stockslosing 0.52 percent of their value. Thewbeezing and the coughing derive fromJapan's economic size. This is morevisible now as emerging markets collapse,and America's def lat ion f l i r ts withrecession, and the introduction ofthe Euroin 1999 might cajole Europe to followin tow.

November'December 1998 | The Asian Manaser l7

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W|ND R|NG: Synchronizing withother Strategies. "lt is difficult toknow yourself if you do not knowothers. To all Ways, there aresidetracks. lf you are following thetrue Way and diverge a little, thisw i l l la te r become a la rgedivergence."

To cut through the debris of devastatedbusinesses and economies, let us juxtaposeMusashi's Way of the Sword in five ringswith five approaches to managing the yen.

The Ground Ring: Grounding onFundamentals. "lt is difficult to realizethe true way just through sword-fencing.Know the smailest things and the biggestthings, the shallowest things and the deep-est things."

It may be apparent that the rescue ofthe banking sector is a necessary interven-tion, but this is sword fencing. Considerthe fall of the Japanese stockmarket to13,597, the lowest in fwelve years, as asignal to the marketplace that the currentbanks rescue plan may collapse. Just lookat the failure of the bailout compromisebetween the two leading political partiesof Japan. Japan's lower house passed 1egislation allowing the government to spendup to 60 Uillion yen (US$510 B) to reviveits moribund banking system. The legisla-don, as of this writing, is certain to be ap-proved by the upper house and that willenable the government to impact publicmoney into banks with capitai adequacyratios of more than B percent.

It may be true that Japan's State Seffe-tary for Finance, Sadakazu Tanigaki toldthe Interim Committee, an advisory bodyto the IMF's Board of Governors that the

Japanese government will not tolerate "an

excessively undervalued yen". Other Japa-nese officials echoed this, specificaliy, theprolonged depreciationbeyond 140 to theUS dollar. They have also pledged not touse the yen to spur exports in a bid to liftthe country from the sludge of recession.

To that end, Japan has adopted a$122billion economic package to stimulate itseconomy through public works programsand permanent tax cuts of $45 billion andanother expenditure package of $70 billion, according to World Bank.

Grounding the management of the yenln economic fundamentals would be a stepin the right direction. In other words, Ja-pan is managing its recovery through res-cue in the banking sector in the contextof bank reform and the comblnation ofmonetary and flscal policies to revive do-mestic demand. Unlike traditional theorywhere exchange rate management ls donepurely through mbnetary policy interven-tions, in Japan we see a very active role ofthe State in managing the yen.

Wind Ring: Synchronizing withother Strategies. "lt is difficult to knowyourselfifyou do not know others. To allWays, there are sidetracks. If you are fol-lowing the true Way and diverge a 1itt1e,this will later become a large divergence."

In this deliberate, even painfully slowapproach, we see glimpses into managingwithin the global financlal market. EvenJapan cannot be complacent with the ap-preciation ofthe global economy. The eco-nomic intervention will have to be againstthe backdrop of other players with otheragendas. Specifically, ifthe US and Europeare to contribute anything to the process,all eyes must tum to the US Federal Reserve Board. What is their strategy in thissituation? What steps will the Fed take,and they in turn, to prolong and sustainthe momentum of economic expansion?How will the Fed adiust US interest ratesin the next few months?

Concern with the spreading recessionand slowing global growth will ptobablypush the Fed to cut its Fed Fund Rate from5.5 percent to 5 percent, inspite of theadverse effect on the US economy. Lowetinterest rates would, ceteris paribus,weaken the do11ar. But this will take thepressure off currencies that are linked toit. This will cut emerging nations' costson foreign debt, and enable them to ben-

efit from the boost in global liquidity. Thiswouid prevent a globa1 crunch. Coupledwith a decisive Japan to clean up its banking mess, Asia would rea1ly have no wayto go but up.

But will investors choose to invest inthe Deutsche Mark, and next year, in theEuro, rather than in the yen? Even if theyinvest in the yen, and the yen stabilizes,what will be their next steps?

Fire Ring: Tactics with Fund Man-agers, Investors and Consumers "What

is big is easy to perceive: what is small isdifficult to perceive. It is difficult for largenumbers of men to change position, sotheir movement can easily be predicted.An individual can easily change his mind,so his movements are difficult to predict."

Right noq virtually all foreign inves-tors have fled fiom Asia. Risk aversion ison the rise. The Institute of InternationalFinance has begun fingerpolntlng at it, asthe culprit for the continuing malaise inJapan and the rest of Asia. After all, thegpations of the yen against the doliar maynot be because of Japan's loud promises offixing its banking system and the simulta-neous perceived weakening of the USeconomy. It may be the mirroring of hedgefunds pressured to bring their books downto "reasonable" levels and close out. Mostof the yen gains - to 1 16.68 to the dollar

FIRE R|NG: Tactics with FundManagers , lnves tors andConsumers. "What is big is easyto perceive: what is small isdifficult to perceive. lt is diff icultfor large numbers of men tochange pos i t ion , so the i rmovement can eas i l y bepredicted. An individual caneasily change his mind, so hismovements a re d i f f i cu l t topredict."

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1 8 The Asian Manager I NovemberDecember 1998

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r,,,,, WATER RING: F/uid Learning.'-ri:i "The spirit of defeating a man is:';,..:.. the same for ten million men. The.t', strategist makes small things intof big things."

in the close of the second week of Octo-ber from 135.50 in the first week - maywell have been caused by hedge fundmanagers buying yen to repay loans. Inany case, not quite the wave of optimismthat Japan or the rest of Asia are poisedfor economic recovery. To effectively man-age the yen, Japan must be able to trackand act and decide swiftly and decisivelyin the fiont lines where the hedge fundersand the investots are.

Consider the moves of Japan's Minis-try of International Trade and Industry.Departing fiom a precedent, MITI becamea lender of late to Japanese expatriate com-panies. The rallying cry is recapitalizationof firms. Getting into the loan business isunique,'but they're apparently makingsure the companies don't leave the mar-ket. For this reform to succeed, consum-ers will just have to begin spending- andheav\ - again. Remember that Japanaccounts for fwo-thirds of Asia's economy.A radical rethinking of the Asian ethic tosave (rather than spend), will have to beinduced by restoring consumer confidenceto start spending again.

Water Ring: Fluid Learning. "The

spirit of defeating a man is the same forten million men. The strategist makessma11 things into big things."

While it is true that the history cultureand economic features ofJapan is atypicalof the rest of Asia (and individual Asiancountries have nuances of their own). theJapanese moves in the next few monthsto shake it out of the slump will be criti-cal, not only to jumpstart the rest of Asia,but for all other suffering economles. Al-

ready, Japan is showing that the crisis ofthis magnitude cannot be solved by econo-mists or the washington consensus alone;neither shall it be solved by traditionalthinking using the Keynesian or monetar-ist schools. The way to a soiution is nei-ther neat nor bite-sized, like sushi. Inno-vations in straightening out the economicfundamentals may be urgent now for thelonger haul, but mobiiizing political willat home, and competitive intelligence tosynchronize with the agenda of the otherstakeholders, are sine qua non to get theprocess moving. Even if "negotiated solu-tions" may have, at first blush, internal in-consistencies, timing is essential, alongwith a tolerance for risks that can resolvethese in day-to-day practice. If currencymarkets do not sleep, the political playerscannot afford to either. For practice willmean more and more, man-to-man guard-ing of stakeholders in and out ofJapan.

The other players in other economiesmay as well learn from Japan's fluid expe-rience. Should the region rise up againfiom the impending Japanese jumpstart,then, a thousand other tremors from theeconomic earthquake in Asia will be nocause for fear. "The principle ofstrategylshaving one thing, lo know ten thousandthings."

Sf Donald Tsang, Hong Kong's FinanceSecretary told CNN, "The whole Asianregion, f rom Japan r ight down toSingapore, has been devastated one wayor another so we just cannot go furtherdown- the only way to go is up...Japanis the key issue." He had just attended theannual meeting of the IMF and WorldBank with central bankers and top econo-mists from theworld. "We hope there is aresolution of the banking crisis there. Itwill then unlock the situation, then liquid-ity will retuln to the region."

It is the fluidity of the Asian situationthat is probabiy its greatest strength: man-aging the yen has a lot of room to maneu-ver, especially if the other economies be-gin learning now, and get back to theireconomic programs and bank reforms aswe11.

Void Ring: Rhythms of Response,Recovery and Reform. "Know therhvthm of anv situation."

More than a year into the crisis, with il'..:'lits tremors rocking even the Russian :.ll.rubble, the rhythms are becoming clear. ...i.l1Japan may have earlier asked for a G-7 ::l:l.

meeting, but the G-7 is now already alsoconcerned that the weakyen wili putpres-sute on the Chinese Yuan and other Asiancurrencies. Weak yen makes Japanese ex-ports cheaper, giving them a competitiveedge against products fiom Asian neigh-bors. There is the temptation for the otherAsian currencies to devalue as wel1. Yuandevaluation would dent worldwide con-sumer demand since it would reduce thepurchasing power of the world's mostpopulous country. And what about theEuro, as it facilitates and simplifies tradewith Europe?

Moody's has already put China andHong Kong on the watch, leading to specu-lations that China may be forced to leaveexchange controls and clam up. AlreadyMalaysia is swinging to a different type ofeconomy with its capital contols, tryingnot to rely who11y on market forces. Glo-bal markets may yet be in for a counter-Ieaction, and go backwards. Instead ofmore openness to globai capital flows, thevolatility may be paralyzing, and cause agiobal shutdown.

Which way will the fends go? Manag-ers of the yen - and those stakeholdersin a position to influence them - haveno choice but to be acuteiy sensitive tothese emerging pattems. And turn thecacophony of voices in the market into arhythm of response, recovery reform andeventually economic renewal for theregion. t

V O I D F I N G : R h v t h m s o fResponse, Recovery and Reform."Know the rhy thm o f anysituation."

November-December 1998 | The Asian Manaper I 9

Some men see things as they are andsay, "Why?" I dream things that neverwere and say "Why not?"

-George Bernard Shaw

ome years ago an insurance com-pany in the East Coast of UnitedSta tes spent $30,000 pe lemployee for hiring and training for

3,000 employees. They had an elabo-rate process of testing and interviewsand later on training them to be sales-men. At the end of the vear they hadmore than a third of the employeeshired left them and by the end of threeyears half was gone because of non-performance or they did not fit. Thus $9Miliion budget was not achieving thetarget. They approached a Professor ofPsychoiogy, Mart in Sel igman, andasked fo r he ip . He to ld them theyshould hire 100 peopie by his method

and see how it works. The results were90 percent retention. Then he'tested thecandidates reiected by the insurancecompany test ing system and hiredanother 100. The results wer? equallygood. When asked what he is testingfor, Sel igman said he is test ing forthe degree of opt imism. He was sosuccessful , he wrote a book cal ledLearned Optimism.

There are two ways to look at thingsin life. Optimism and Pessimism. Whensomeone compl iments you on yoursuccess, an optimist says "Thank you,"and describes how good it feels to be suc-cessfui. A pessimist wouid say "l amlucky." When things go wrong and thebusiness is in difficulties, an optimist says,I tried hard and things went out of con-trol. I'will try to salvage the situation. Apessimist will say, I cannot do anythingright. I am cursed to fail. It is the regularviewpoint whether the glass is halfempty or half fu1l.

Eearning

OPTIMISMThe optimrbf ,b a lot better golf companion, to say nothing

of his or her blood pressure

Optimism is a way to look atthings. It provides such positive forcesin you to try the impossible and aboveall is the seat of your self-motivation.We are always at the crossroads manytimes to make a prediction when wedon't have information. In the busi-ness world, in the name of conser-vat ism we try to be pessimist ic orelse you would be looked upon as adreamer. I start all my project ideas withthe concept that they are going tomater ial ize and iook at what arethe potent ial possibi l l t ies and getvery exci ted at the pros pect of i t .This makes me try harder and maybe indirectly I inoease the chancesof i ts success. I have to agree Ihave high fatalitles in these venturesbecoming realities. Everyone that doesnot happen gives me a great lesson on howto do the next project better.

I am always amazed at how I am able

The Asian Manager I November-December 1998

to pull rabbits out of my hat when Iam faced with impossible situations.I never understood the source of suchwisdom. I think i t is my degree ofoptimism and my belief there is a solutionout there and I iust have to find it.My past success is a great 1evel ofconf idence bui lder in this process.I now know, I cannot stand pessimists.By imagining the impossible peril areyou any more prepaled? I have seenAmerican lawyers take a simple con-ilact and convert them to 30 to 40 pagesof document to iist what you can do ifany of the perils happen to you. Whenyou are in trouble and ask them if Iam covered, they will tell you thatissue was not covered in the contract. Iam convinced that it is impossible tocover ail contingencies and thus youmight as well go about thinking thereis no safety net and be careful generally.

I think in the world there is more than60 per cent as pessimists, and another 20percent what I call as neutral and only 20per cent as optimists. If you are one, cher-ish the good fortune and let anyone talkyou out of your optimisilc disposition.

In the middle of Asian crisis, wheneveryone is iosing their head andbla ming it on you, you can ask yourselfone question: Wili a country go bank-rupt? Things are not as bad as theyfeel, life goes on. Everyone aroundyou including the Politicians fAlas forthe first time in their life!) thev are

doing thetu best. I find it difflcult to flndthe reasons I read in the press for the AsianCrisis. It looks too simplistic to a complexproblem of confidence.

The Crisis in PerspectiveConfidence is the feeling of optimism.

It looks one fine day in the middle of1996, the sun came up and the smartbusinessmen of the tiger economies for-got how to run the basic businesses.From that day onwards they cannotdo anything right. There is some thingmissing inthepuzzle.

Is there a way to build optimism?Seligman thinks so. On every day basis,whether you are playrng Golf or you arein your office, practice the concept ofoptimism. On the golf course when youhit the ball into the woods, you arefaced with the choice of covering theembarrassment with self-deprivationor as an optifnist, you stop to analyzewhy you sent the ball there. As an opti-mist, you are a lot better companion toplay golf with and above all your bloodpressure is lot more normal. As I practicethis every day I am able to see virtues inthe errors of others and I end the day withlot of energy instead of tired outlook.

You tend to live longer as you live withless stress and you wi l l enjoy thebeauties of this earth and life aroundyou. I would love to hear your views

Amaze yourself

with how your'e

able to pull rabbitsout of your hatwhen faced withtruly impossiblesituations

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on this subject.

"The optimist sees the donut the pessimist sees tlre hole"-Anonymous

"An optimist is a man who gets heed by a lion but enjoys the scenery'

uAn optimist is a fellowwho believes wtat's going to happen will bepostponed' -Kin Hubbard

"It's not the points, it's the poise"-Sportsweu designer

"I'm not late, everyone is iust in a hunyi-Marilyn Monroe

"In any grven party someone will look worse than youn-Muphy's Second Law

"When you've hit rock-hottom, the only way to go is up"-Traditional

"Que sera, sera"-Song

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November-December 1998 | The Asian Manaper 2l

THE

Asian flArracleREVISITED

Asia is many fertile places to many enterprising Europeansbut what the scenic maps did not show is that Asia could also he an

economic blackhole where investments disappear from view

I

l- uropeans, who have had a long

l- experience of social capitalism or

I liberal socialism, can empathizeL with the so-called Asian miracle as

having been achieved through complicitybetween government and business. Thiscomplicity.had also been pointed out asone of the reasons for the Asian economiccrisis, and that such a link between gov-ernment and business needs to be broken.But Europeans do not generally share thatview since the European tradition de-mands things of the state, and expects thestate to play a strong role in terms of so-cial protection and in coordinating theeconomy.

Also, the European experience colorsperceptions of the Asian economic miraclethrough the emphasis Europeans place onthe cultural factors of the miracle. Euro-peans, par t l y because o f the longOrientalist tradition about Asia, put moreemphasis on cultural factors-hard work,discipline, loyalty, acceptance of hierarchy,education and the state's role in assurlnga basic level of education-as important tothe Asian economic miracle. On the otherhand. most explanalions of the Asian eco-

nomic miracle had leaned more towardeconomic rather than cultural terms.

There has aiso been this misguided ten-dency to see Asia as a homogenous bloc.It is quite irrational to lump all the Asiancountries, especialiy if one looked at eco-nomic practice, where situations vary fiomcountry to country. The specific aspectsof the Malaysian crisis, for example, differfrom those of Thailand. The problem inMalaysia is not overseas debt but domes-tic debt, which comes to,something like140 percent of Gross Domestic Product(GDP), which makes it an essential inter-nal problem rather than one related to theoutside world. Thailand, on the otherhand, suffered from indebtedness ln dol-lars as related to internal practice. Ofcoulse, all of those differences are some-how being glossed over by the boys work-ing in the hedge farms who see Asia ashomogenous.

The expression "Asia" itself is an inven-tion." 'Asians exist as Asians because theyare perceived by outsiders as such. Onesaw that in Europe during the Asia-EuropeMeeting (ASEM). Which Asia are we infact talking about? There have been moves

to expand ASEM membership. At themoment, it is ASEAN plus China, Japan,and Korea. But even ifyou talk to the per-son in the street in Britain and ask "Where

is Asia?" You'd be told Asia begins some-where at the Khyber Pass. Their view ofAsia is essentially South Asia.

Where is Asia?If one talks of Asia in Great Britain, one

is primarily talking about Indians and Pa-kistanis, and only afterward about Chineseand Japanese or other Asians. If one swimsover the channel, and comes to France,their view of Asia is one colored by a colo-nial experience, and so the center ofAsiafor people in France is a part of the worldthat no longer exists-lndochina, that is,Cambodia, Laos and Vietnam. And onlythen China and Japan. When one goes toGermany and talks about Asia, we are talk-ing essentially of China and Japan. Thatcolonial experience is not all that far be-hind us, and it has colored the perceptionof the Asian economic crisis.

In sum, the European perception of theeconomic miracle is colored by the colo-nial experience, and the European experi-

22 The Asian Manager I NovemberDecember 1998

t

ence ltse1f of capitalism and the strong roleof the state. The recent political develop-ments in Europe, with the election of so-cial democrats in Germany, show thatEuropeans basically like to be governedperhaps to the center-1eft and still like thestate to play a strong roie. And so, thereal debate that is going to begin once theEuropean currency comes into play is:Which kind of capitalism is most appro-priate and most acceptable in the Euro-pean context? I think it is one which isnot of the American laissez-faire model,but one of social capitalism at which themarket is at the service of a social goodand not the market as an end in itself. Thispartly explains the European sensitivity tothe need for more social safety nets.

European ExposureEuropean banks began investing ln Asia

later than the American banks, but theystarted to invest with massive amounts ofmoney. The figures on outstanding claimsof banks as of Decembet 31 , 1997 , as pub-lished by Ihe Asian Wall Street Journal,show that in Indonesia we have the Japanese exposed at $22 billion but with Ger-many immediately following at $6.2 bil-lion and France at $4.8 billion. In SouthKorea, Japan is again number one with$20.3 billion butwith France close bywith$1 1 billion and Germany with $9 billionand the US trailing closely behind them.In Malaysia and Thailand. the order is once

again Japan, Germany, and France. Inshort, European banks' indebtedness isgreater than that of]apanese and US bankscombined. Although to some extent, Brit-ish banks are far less indebted than thoseof France and Germany.

The Europeans have actually beenheavily exposed. Within the crisis, therewere many complaints that the Europe-ans were absent, that there was an absenceof a European voice. But if you actuallylook at the figures, the role of Europeansin packages for Korea, Thailand, and In-donesia was greater than that of the UnitedStates. So, we have a paradox of Europe-ans putting money into the packages buttheir political voice being unheard in thecontext of the economic crisis.

Mthin the crisis, the contagion effecthas a sense of absurdity. Why was thePhilippines affected when the problemsidentified in Thailand, for example, werenot one of the characteristics of the Phil-ippine economy? The factors that mayhave functioned in the other economies-speculation, a banking system that did notlook at who it was lending money to-didnot apply to the Philippines, which, afterall, had lust undergone 30 years of IMFtutorship. Yet, the Philippine peso fal1s tothe same extent as the Thai baht. Thereis something irrational about the way thecontagion effects go. Consider the problems in Korea, which are essentially be-cause of this nepotistic system of trader

',.t EuroPe was busy

,,' getting its act,11:] together to form a,.',,. common currencY

,l when Asia decided

:i,' to have a crisis. That.1r:,' wasn't very nice.

groups lending to each other, resulting inabsurd levels of indebtedness.

In Europe, we talk about an equity indebtedness ratio of 70 percent at most, butmore appropriately 30 percent. In someKorean cases, we'le talking about 400 per-cent indebtedness ratio. So we get levelsof indebtedness based on the fictionalvalue of the companies' assets relatedpartly to real estate prices and to intan-gibles like goodwill. But the Korean crisisis different fiom the Thai. the Indonesian.and the Malaysian crisis, and yet the con-tagion has obviously spread.

Containing ContagionThose nuances were not necessarily

appreciated in the European context. TheEuropeans, to some extent, were takenaback even more than the investors fromthe United States. As mentioned earlier,investments from Europe came later inlarge amounts in the 'B0s and onward and,with the benefit of hindsight, one can ar-gue that there was an unreasonable ex-plosion in credit given to Asian couniliesin relation to the real economy.

Europe has been there before. Therewas a crisis in France somelime in 19BBwhen the linkages between the financialsector and the needs of the real economywere somehow broken. One of the thingsthat had to be done in the European con-text was to somehow bring this back to-gether-so that the financial sector be fullyrelated to the leal economy.

Bu! the situation in Asia today is notlust because of the hedged fund and notsimply because of the disparity betweenlevels of indebtedness and the enormouscapital flows. When one looks at the for-eign currency exchange, we're taikingabout $1.3 trillion a day. We're talkingabout figures that have multiplied by 50over the last 20 years; it is estimated thatonly about 3 percent of those capital flowsor foreign currency exchange is actually

Pros and cons: Despite internal disagrrements and the Asian crisis, Europe edgescloser to a monetary union

November-December 1998 | The Astan Manaper 23

necessary for the trade in goods and ser-vices. I do sympathize with Dr. Mahathir.He does have a point about the absurdityof these levels of foreign currency flowsthat were for the most part unrelated tosome extent to the needs of the realeconomy.

The crisis also takes Europe aback morethan the United States partly because ofthe lack of information about Asia in Eu-rope. This is particularly true in my coun-try, France. There is four times more re-porting about Asia in the Btitish OualityPress than in France. We now have a situ-ation where we've gone from black towhite; where the Asia of the tigers, theAsia of the boom, has gone to the extremeand where Asia optimists have becomeAsia pessimists. And those absurd changesof opinion are an indication of inadequacyof information. If we [Europeans]had beeninformed, we wouid have been less eu-phoric about Asia and would be less pessimistic today. But the Asia boom becomessort of a self-generating prophecy thatpushes even further and further heavy in-vestments and. with it. indebtedness ofEuropean banks in Asia. And of course,today, when one talks to bankers and ask"What happened?", they'Il say "Well, Iknew there were absurd levels of invest-ments in reai estate in Thailand and Ma-laysia, but what can I do? I have warnedthem but they will not listen to me. " Now

everybody has the benefit of 20-20 visionin hindsight.

The effects of the Asian economic crisis in Europe vary enotmously from sec-tor to sector. There are sectors that areheavily hit-the luxury sector, for example.fuound 50 percent of the sales of goods ofcompanies like Louis Vuitton have beenhit especially since 50 percent of their rev-enues are derived from Asia or Asians.

The effects on the other sectors are dif-ferent. Those in the building industry, forexample, have a sense of flexibility. Theyhave shifted from building office buildingsin Bangkok to more activity in public in-frastructure work. Which makes themperhaps less exposed than one expects.

It is eslimated that the effects of thecrisis was about 0.5 percent of EuropeanGDP gtowth. Only about 4 percent ofEuropean GDP is actually related to ex-ports to Asia. The context that is most ex-posed is Australia: .around 16 percent ofAustralian GDP is directly related to ex-ports to Asia, including exports of educa-tional services. Therefore, the effect on theAusffalian economy is significantly greater.But of course those general figures tendto focus on particular sectors that are par-ticularly hit.

Basically, the Europeans, up until a fewmonths ago, have been rather too com-placent and tended to minimize the effectsof the oisis on their own economy. in a

rather selflsh way. In the last couple ofmonths when it became clear that the crisis was not going away and was insteadcompounded by a series of political crises,a realization that Europe will have to be-come more proactive in trying to conffib-ute solutions within Asia.

Also, there seems to have been a de-gee of revenge especially about some ofthe Asian values, rhetoric that came fromsemidemocatic countries like Singaporeand Malaysia. I recall a conference withASEAN representatives in Paris in whichthere was a Thai academic who was run-ning a bank who talked about what hedescribed Europe as the "Newly Declin-i n n f n r r n t n r "r r rS uvur ru I .

Mthin the crisis, too, the Europeanswere also more sensitive than the UnitedStates to the way in which the politicalcrisis was compounded by the economiccrisis and that part of its resoiution waspolitical. The election of an oppositionpresident for Korea with the benefit ofhindsight, is a necessary condition for Ko-rea to get back on its feet. Simiiarly, onehas to admire the way the Thais tookrather courageous decisions-change ofgovernment, change of constitution, clos-ing 53 financial institutions, really bitingthe bullet so to speak-to deal with its owncrisis. But again there was a greater sensitivily in Europe to this political revolutionas being part of this prerequisite for eco-nomic recovery.

But minds are still more concentratedon China and Japan. The big question nowis: "Wi1i China devalue?" A lot of articlesare being written on speculations onwhether or not China will devalue ratherthan on a feeling of how the rest can besomehow contained. This is indicative ofthat misguided view of the Asian reality.However, the Indonesian situation did con-centrate some minds and spurred the re-alization that President Suharto ueated asystem that functioned extremely weil for30 years, a system that led to the reduc-tion of povqrty by 20 percent. One of thetragedies is that Suharto will not be re-membered for that but will be remem-bered as the despot who tried to hang onto power and was responsible for one ofthe major injustices of history. Stili, Suhartocreated a situation which was either himor anarchy and one can see that in thepresent context of a weakened President

[Habibe] in Indonesia functioning under

,d '

!tl'1iir

E 0 d6

Hindsight: too much credit was given to Asian countries in relation to the real economy

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24 The Asian Manager I t998

A common currencysignals the end ofnationalism in Europeand the beginning of asuper nationalism, onewhich the entire worldneeds to look into forlong-term effects

the same regime but without at all thesame tools of control that Suharto had andthe depth of civil society similar to thatpresent in the Philippines. My optimismabout Malaysia and Thailand is goundedin this depth of civil society. What we havein Indonesia, on the other hand, is a move-ment of coalescensce against Suharto butnot coalescing for something, which isworrisome. One cannot see a politicalparty emerging and the othel structuresreplacing the regime in Indonesia. Thishas caused Indonesia to concentrate someEuropean minds but again the concentra-tion had still been more on Japan andChina and that China so far has been hold-ing steady.

Now, indicative of that are the differ-ences between the two Asia-Europe Meet-ings (ASEM). The first meeting in Bangkokin 1996 was based on the perception that

} .,.tord*,

Europe was missing out in the boomingregion of the world, and that the weak-ness of the European presence in Asianeeded to be compensated for by a morepolitical type of dialogue. So, if you like,in Bangkok, Asia was Juliet and Europewas Romeo, and we had Europeans talklng about the need for a third leg to bal-ance the Europe-American relations andthe Asian-American relations with a Eu-rope-Asia access.

The London summit two years later wasa totally different bal1game. It was far moremurky. The British Press only had eyes onChina while ai1 the rest of the Asian lead-ers were bit players in this London ASEMMeeting, which served as an opportunityto turn the page on Tiannanmen and al-low China to emerge as a more respect-able player. And besides creating some sen-timents of solidarify with Asians in theireconomic difficulty, very little emerged ofsubstance from the London Summit.There was a $50 million fund set up un-der the British initiative to offer Asiancountries expertise in accountancy to iookat their books, so to speak, but there arenow very setious questions being raisedin the next summit in Seoul and its use-fulness. And I think Asians have the rightto be disappointed with European behav-ior in that summil

This Asian crisis came at a very bad timefor the Europeans. The Europeans were

,"$3.Sli$im

busy doing other things and the Asiansdecided at this point to have a oisis. Nowthat was not very nice because the Euro-peans were getting their act together for acommon currency, which was not an easytask because it meant a harmonizing ofbudgetary and fiscal policy in all of Euro-pean countries. So the Europeans werepreoccupled with their own internai affairswhen the crisis hit them.

If a European currency had existed atthe time of the Asian crisis, the situationmight have been somewhat different. Ifthere was more than one reserue currencyin the world, then the crisis may haveplayed up quite differently. If the crisiswere notin dollars butin euro, then maybethings may have gone differently.

Where do we go from here?Prior to the crisis in a very unnoticed

initiative, the European finance ministerwas sending envoys to Asia to try and getAsian countries to use the euro as a cut-rency. In Asia now, Europe is starting toexist because of the euro currency. Andthe symbol of a common currency is a sym-bol of an end of nationalism and a begin-ning of a super nationaiism, and one ofwhich we have not looked into the iong-term effects.

And where to fiom here? Europe is nowtaking the Asian economic crisis more se-riously than a year ago. The concernsabout japan and the Japanese inabilify todeal with their $600 billion crisis is caus-ing some discomfort in European flnancialcenters; and all of these happening at thesame lime as the American leadership ap-pears to be weakened. But what is wor-rying for Europeans is that what theLewinsky affair means is the incredible parochialism of the American political scenewhere the attention to a $obal crisis is notgiven importance. Given this context, onecan see in recent months, tentative by Eu-ropeans to suggest a need to iook again atthe machinery that was set up at BretonWoods and perhaps some degree of sym-pathy of conuols. But there is a concernin Europe about a return to protectionism.Even if 70 percent of European trade isbetween European countries, there is anincreasing awareness that there is a needfor something to be done, the question isnobody has decided quite yet what exactiyhas to be done.

;1]],t:!

IOne solution: get Asian countries to use the Euro as currency

November-December 1998 | The Asian Manager 25

he global village is upon us. Nailonsare so tightly interlinked and soclosely interdependent that eventsin faraway places unleash near-telm

effects elsewhere. Yet, isolation threatenssurvlval. And autarky is a closed option.Today, no one country can for long sur-vive, much less prosper, without weavinga web of effective relationships and em-bracing the opportunities and overcomingthe challenges of the g1oba1 marketplace.

ASEAN 2O2OThe past three decades ofASEAN part-

nership saw unprecedented economicgowth, expanded memberships, regionalstability, and the beginnings of a commonregional identity. ASEAN continues to bethe fourth largest trading entity in theworld, achieving this feat by prevailingover ideological and power conflicts.

ASEAN Vtsion2020, our road map tothe future, captures eloquently the com-mon aspirations of our nations for a unitedand outward-looking Southeast Asia. Onethat lives in peace, stabiiity and prosper-ity, bonded together in partnership, in dy-namic development and in a communityof caring societies. But there are immedi-ate concerns.

a true

ASEANQommunitA

The crisis cannot but move Asia towardgreater integration.

ASEAN's resilience has been put undersevere strain by the flnancial crisis sweep-ing across Asia. Mothballed assembly linesand padlocked factory doors tell of realsuffering afflicting our peoples. Millionshave already lost their jobs and so manymore are going hungry. The perniciouseffects of the crisis do not stop at the eco-nomic.

Restoring Economic StabilityThe role the Bretton Woods institutions

play is very crucial in containing the crisisand restoring the economic health of thecountries most severeiy affected. But it isnow clear that the resources of these in-stitutions, particularly the InternationalMonetary Fund (lMF), are frighteningiyinsufficient. It is our hope that countrieswhich are in a position to do so, especiallythe United States, will soon make avail-able their share in the recapitalization ofthe IMI and lend support for increasingthe funds of the World Bank and the AsianDevelopment Bank.

The recovery of the Northeast Asianeconomies, particularly Japan, South Ko-rea and Hong Kong, is crucial to ASEAN'sown economic recovery. These more ad-vanced economies have become maior

markets for our products and importantsoplces ofinvestment capital for our youngindustrial sectors. The sooner growth re-sumes in these economies, the sooner theycan return to their important role as loco-motives of our region's growth.

Restoring Financial StabilityContinued understanding and support

fiom the United States, China, and Europeare likewlse vital to our efforts. China'ssteadfast commitment not to devalue itscurrency is a $eat help. The United Statesand Europe, being principal outlets forASEAN exports, can spur our recovery byproviding $eater access to their markets,trade financing and other means.

ASEAN countries themselves have beencollaborating on initiatives addressing boththe root causes and effects of the crisis. Inparticular,'we have been working withpartners in both the Asia-Pacific EconomicCooperation (APEC) and the Asia-EuropeMeeting (ASEM), and theyhave expressedtheir support for the Manila Frameworkfor Enhanced Regional Cooperation toPromote Financial Stability. We have lobbied with G-7 countries for credit supportand greater market access for ASEANgoods. We bind ourselves more tightly

26 The Asian Manaser I November-December 1998

with our common resolve to keep our tar-get dates for the completion of the ASEANFree Trade Agreement (AFTA). We accel-erate the implementation of the ASEANIndustrial Cooperation Scheme and theestablishment of the ASEAN InvestmentArea, To help us cushion the impact of thecrisis on our most vulnerable sectors, wehave been seeking to reverse the declin-ing trends of official development assis-tance (ODA) of major donor countries tothe ASEAN region.

Learning Our LessonsBecause of the crisis, ASEAN will surely

move towatd greater integtation. The les-sons we are learning from thls commonexperience are clear enough.

o Back to basics. We need to streng-then the backbone of each of our econo-mies. For the Philippines, this means revi-talizing our agricultural sector, energizingrural productivity, channeling resources toirrigation systems, farm-to-market roads,post-harvest facilities and rural credit.This means intensifying the protectionand preservation of our environment toensure sustainabi l i ty and balance inour development efforts. This meansfocusing on human resources deve-lopment to prepare our people for

knowledge based industries of the future.o Growth with equity. High GNP

gowth is brlttle and fleeting. The poorestof our masses will always be restive, andrightly so, if the fruits of development gomostly to the already well off.

o Regional solidarity. We must buildour collective strength. The world treatsus as one; rewards and penalizes us as one.We need to push AFTA and align our in-vestment rules. Fragmented national mar-kets are no longer competitive. An inte-grated market is more efficient, and moreattractive to g1obal investors. Bilateralagreements to use local currencies in trad-ing among ourselves are steps in the tightdirection.

o Business-Government Relations.Does government have any business run-ning buslness? Issues on the quality ofnational govemance, corruption and cronycapitalism are now high in national de-bates. The ensuing convergence of ideasand resolve toward greater tlansparencyand a more level playing field can onlyaugur well for our peoples and nations.

o International Financial Architec-ture. ASEAN as an association has to par-ticipate more actively in the shaping of anew archltecture of the international fi-nancial system. The crisis unfurls the stark

It is time for

Japan, China and

Korea to talk

and put the past

behind them

truth that the world is dealing wlth a newphenomenon: massive amounts of capitalflowing across national boundaries at lightning speed, bioating economies into fiag-ile bubbles as they rush in, shaking econo-mies to their foundations as they are with-drawn. This aspect of globalization carryrisk and peri1. It requires profound exami-nation and most delicate handling. An in-ternational conference on $obalization isin order, and ASEAN must take the intel-lectual leadership in it. Otherwise, otherswill once again shape our destiny for us.

o Political stability. The crisis makesplain that political stability ls essential toour countlies' economic success and to re-gional security. The consolidation of allSoutheast Asia within ASEAN. contributesto this.

ASEAN and EuropeASEAN integation will redound to the

mutual benefit of all: total convergence inour economic life and beyond. It is hap-pening in Europe; it can happen in our partof the wor1d. By reposing our trust in theinstitutions we buiid in ASEAN, we makepermanent the ties that bind us. The European Union - arguably, the world'smost successful union of erstwhile bitterenemies - did so and triumphed. We toocan succeed.

ASEAN lives in a neighborhood of giants where the ghosts of historic confllctslurk and the debris of great wars foughtlitter the gound. Peace in East Asia con-tributes to peace in ASEAN. Stability inEast Asia helps stability in ASEAN. Pros-perity in East Asia spurs prosperity inASEAN. True and lasting peace is possibleonly if lingering animosities are put to rest,as they were in Europe. It is time for Japan, China and Korea to talk and put thepast behind them.

Then maybe, b igger d reamsbeckon. One market. One currency.true ASEAN community.

November-December 1998 | The Asian Manaper

canOne

I

27

Erap reads TAM: Patt Lontoc, TAM editor in chief, shares the moment

€ook YuropePOLICY

Strategic Option for Asia in the 21st Century

,dL

Asia continues the search for a zone'of stable currency and

self -sustai n ab I e eco n o mi c g rowth

have become freely tradable commoditiesspurred by the successive negotiations bythe governments under the General Agree-ment on Tariffs and TradeAVorld TradeOrganization (GATT/VVTO). Asian econo-mies particularly benefited fiom the tradeexpansion of goods with the industrializedcountries'as the latter's policy of ffade lib-eralization opened up the export marketsfor labor-intensive goods fromAsian econo-mies. Export-led growth models and out-ward{ooking economic policies adoptedby the Asian Newly Industrialized Econo-mies or NIEs (Republic of Korea, TaipeiChina, Hong Kong and Singapore) wereexulted by the World Bank as the end re-sult of market fiiendly policies adopted by

Wt.,,.-"'

any countries in Asia plungedinto an economic crisis with varying degees of severity and mag-nitude in the iatter half of the

'90s. .lt was almost as if the Thai currencycrisis in July 1997 were the flu virus,which spread rapidly throughout Asia,leading to a severe financial crisis.

It will be recalled that economies inAsia, as well as those of most parts of theworld, became increasin$y interdepen-dent early in the '80s. As a result, theASEAN economic crisis inevitably hadnegative effects on the Japanese economy.Similarly, when Japan failed to solve itsown internal economic problems, the restof Asia was affected.

The world has been integrated into aglobal economy not only by a fiee-tradesystem of goods and service$ but more se-riously by the fiee flow of capital. The sizeof g1obal economy's teal sector is estimatedto be around $30 tri1lion, whereas the sizeof the financial sector is estimated at about$70 trillion and has increasin$y becomeliquid and mobile; capital started to movefiom one country to another across theborders looking for highet returns. Thischain of events could not but cleate someforms of instability.

Economists considered 1and, labor andcapital as primary inputs for the produc-tive activities of the real sectors of acountry's economy. Products and services

28 The Asian Manager I November-December 1998

these governments. The Asian miraclesbecame a reality in the NIEs. The greatsuccess of the Korean economy has beenrepeatedly cited as a model by the WotldBank's structural adjustrnent lending policyfor developing countries. Milton Friedmanoften referred to the economy of HongKong as a neoclassical economic theoryturned into a reality. Per capita GNP ofSingapore in 1996 surpassed those ofGer-many, the United States, France, Swedenand Britain. Ironically, one now wonderswhether a new term may have to becoined to classiff some of industdally ad-vanced countries as FACs (formerly advanced countries).

The ASEAN economies of Malaysia,Thailand, Indonesia and the.Phillppineswere considered as little tigers quicklycatching up with NIEs. Another group ofAsian economies led byJapan looked like"flyrng wild geese" rapidly migrating intoindustrially advanced countries of theWest. Everything appeared to go verywellin Asia until Juiy 7997,when political lnstability rocked Asian countries.

Tequila Crisis, Asian FluThe problems began wlth the

Mexican peso crisis, which erupted like avolcano in December 1994. Mexico wasrecovering in the early'90s from its exter-

nal debt crisis of the '80s. Mexico loinedOECD and signed NAFTAwith the UnitedStates and Canada. As a result, the Mexican capital market became very attractivefor institutionalinvestors in the developedcountries, who commanded more than$ 10 trillion in liquid financial assets. Fundmanagers of pension and mutual fundsstarted to diversiff their portfolio into the"emerging markets" of the middle-incomedeveloping countries of Mexico, Brazil,Thailand, Indonesia, Malaysia and others.According to IFC, these emerging capitalmarkets in the developing countries rap-idly gew in the latter half of 'B0s in a sizeof capitalization amounting to $2 trillion,about 10 percent of the total capital mar-ket in the world.

IMF estimated that total net privatecapital flows into emelging markets hastapidly expanded from $45.7 billion in1990 to $235.2 bill ion in 1996, a quin-tuple gowth wjthin six years. Cumula-tive net private capital inflows into theemergrng markets amounted to $ I .055billion in 1990-96. A majority of thesewere portfolio investments and short-termcapital flows into the middle-income de-veloping countries in Asia and the Western hemisphere. Inflows and outflows ofsuch liquid capital made it difficult for thegovernments to manage their macro-

The enemies of"open society"may reside withinthe societyitself

economies. In particular, they made theexchange rate regimes of these countriesquite unstable and acted as the destabiliz-ing forces for these macroeconomies.

Mexico's peso crisis spilled over to therest of the Western hemisphere as thoughunder the influence of Mexican tequila.Likewise, the currency crisis that startedin Thailand in july 1997 had rippling elfects to the rest of Asia, engulfing theeconomies of Korea, Malaysia and, moreseriously. Indonesia.

Curing the FluThe IMF and the World Bank promptly

acted upon thls crisis, now fu11-b1own, tocontain its effects. Economic policy mea-sures prescribed by the Bretton Woods'institutions of IMF/World Bank werebased on neoclassical economic theorywhich assumes that if prices were set rightin these economies, market mechanismswill cure ailing Asian economies.

However, many policy makers andeconomists in Asia did not fully agree withthe prescriptions of IMF/World Bank. Forexample, Malaysian Prime MinisterMohamad Mahathir argued that the eco-nomic crisis in Asia had been caused byspeculative attacks made upon the curren-cies of Asian economies, and that GeorgeSoros was an archenemy of Asian econo-mies. Others argued that Asian countrieshad, since the '80s, faithfully enforced aseries of economic policy measures to lib-eralize foreign investments, ffade, finan-cial sectors and capitai accounts followingWB and IMF prescriptions. Some bellevedthat thef economic distress was primarilycaused by the fact that the policy measuresfor economic liberalization had been car-ried out within too short a dme. As a re-sult, the time and efforts allowed for insti-tutional changes and the development ofhuman resources was lnsufficient. It tooka much longer time for industrially ad-

,.,,rirtiat:,3tii1t:i1 :_a :{

Europe to Asia: History is a developmental path of challenges and responses

November-December 1998 ) The Asian Manaser 29

vanced countries to liberalize their econo-mies. It was only in the 1980s that theyliberalized their capital accounts.

IMF economistsare maooeconomiststrained and educated by economists atHarvard and MIT in the United States.World Bank's top management weremainly drawn fiom investment banks onWa1l Street. One can say that the BrettonWoods institutions are the cultural prod-ucts of the political economy complex ofCambridge, Wall Street and Washington,DC. This culture, now being formed intoa belief system ca11ed "Washington Con-sensus," believes that if the Asian coun-tdes followed the policy prescriptlons ofIMF,/Wor1d Bank accordingly, they aresure to recover fiom the current economicdlstresses.

Prime Minister Mahathir's "Look East"policy may have iost its credibility simplybecause the Asian miracle melted downin face of the economic problems that en-gulfed Japan and the test of flying geese ofNIEs and ASEAN countries. Japanese in-tellectuals, politicians, bureaucrats andbusinessmen all seem to be convinced thatthe Asian way of managing economies andcorporatlons may have to be changed toenhance their governance, transparencyand accountability. The Japanese bureau-cracy has to be streamlined, corporationsrestructured and the financial sectorstrengthened; lifetime emplol'rnent systemmodified; the Keiretsu system reassembledand the Japanese educational system re-formed. '

Look EuropeThe combined size of the Asian econo-

mies ofJapan, the NIES, ASEAN and Chinaamounted to $7 ,347 billion in 1996, moreor less the size of the US economy whoseGNP was at $7,433 bill ion in 1996. Acombined total size of 15 countries con-stitutlng the European Union as a wholeamounts to $8,613 bill ion. In terms ofpopulation, the Asian economies are thelargest with 7 ,7 44 mll]'ion followed by theEuropean Union with 373 mi1lion, andthe United States with 265 million. Nodoubt that Asia, the European Union andthe United States will continue to playmajor roles as the three growth poles ofthe world economy in the 21st century.Asian economies will continue to be adynamic center of the world economy, a1-though their growth rates may decelerate

from the past growth rates of 7-8 percentper annum to 4-5 percent per annum.

However, so long as the Asian econo-mies remain as do11ar economies of theBretton Woods system, they will be des-tined to subject themselves to the risks ofextreme volatility of their currencies andinstability of their economic performance.They may have to continuously fo11ow the"conditionalities" of the IMF policy prescriptions, though their economies may be-come worse if they consulted with IMF.Asian economies may have to look forsome other options to enable them to at-tain a zone of stable currency and self sus-tainable economic gowth.

Learning TimeThe Asians have very little knowledge

of how European nations have decided toform a European Union in November1993 by agreeing to the provisions madein Maastricht Treaty. The Asians also havelitt1e information as to how the EuropeanEconomic Community (EEC), formed in1959, decided to form a European Mon-etary System in 1979 and why they decided to sign a Single European Act in1986. Asians usually have some difficultyunderstanding why the European nationshave decided to abandon their own cur-

rencies and adopt the euro as their com-mon currency. It would also be difficultfor Asians to comprehend why the European Union wishes to expand its scopeby inviting East European countries andRussia as the new members.

The Asians should learn from Britishhlstorian Arnold Toynbee that history is adevelopmental path of "challenges andresponses." We should also learn fiom Joseph A. Schumpeter, an Austrian econo-mist, that a society must exercise policymeasures of "creative destruction" in or-der to be innovaflve. We may have to iearnfiom Hungarian economist Karl Polanythat a society must transform itself in or-der to remain competltive. Or from KarlPopper, an Austrlan professor of socialphilosophy whose students include GeorgeSoros, that the enemies of "open society"may reside wlthin the open society itself.We may have to learn the lessons thatsocialism, a method of social engineeringfor human dignity, born in Europe andChina, proved to be the "gteat failute"after incurr ing the enormous humansacrifice and social costs. One wonderswhether Western cap i ta l i sm wi l lsurvive in the 21st century and howAsian economies can retain their sourcesof dynamism.

Twenty-first century challenge: Can Asian economies retain their sources of dynamism?

I

30 The Asian Manaper I NovembenDecember 1998

\

he International Labor Organization(lLO) has predicted that the econo-mically active population of the developing world is projected to

inctease,by 73 million people between1q90 2010. This 20-year inuease exceedsthe total cutrent economically active populatlon of all industrialized countries takentogether where an inmease of only 50million is projected for the same 20-yearperiod. This irreversible demographicbackdrop will be a big source of complexdilemmas to face public management ofJ h o ) l s r e o n l t t n r

. Decisions will not be easy for labor-shorteconomies to ailow a control-fiee laboremigration as they suffer fiom skills andbrain drain. The migrants' heightenedexposure to social conflicts or employmentdisputes as a natural consequence oflabor market internationalizatlon willslmilarly invite greater public pressureon governments to moderate labor flows.lob-rich economies will continue to thinktwice over the long run to adopt a wide

door policy to foreign labor as the threatof job displacements among less qualifiednationals, environmental stresses and ex-ternal influences rocking hardllne culturaltraditlons become rea1.

But while these disruptions are inevi-table, it is important to rea\ize in the longn r n t h A t r h p v : r e l i k a l v i n h p m n r a

crea t ive than des t ruc t ive . Any over -reaction to these constructive threats willbe self-defeating in this era of a democra-t iz ing social economy. The market 'simpersonal behavior remains the key chal-lenge. Any measure that tends to grosslydisrespect the objective effects of therelationship of demand and supply willonly give rise to the black market ofmigration to facilitate what bureaumaciesmake difficult to achieve.

Unlike commodities, human resourceshave the inherent faculty to define theirhierarchy of needs and formulate theirindependent decisions to satisfy them.Thus labor seeks out opportunities forremunerative emplovment wherever it is

II

available. immigration restrictions cannotbe effectively enforced if the desiredopportunities cannot be availed of in thehome economy.

Neither social ist nor authori tar lanideologies had succeeded in suppressinglabor's natural drive to move freely.During the Cold War, most defections tothe West, while founded on human rightsand political values, were economicailymotivated. When communism fe11in the'90s, outmigration fiom the Eastern blocwas clear ly induced by the desire toaddress poverty, find livelihood andempioyment. Thus, while 1egal fallaciesserve the purpose of responding tosociopoiitical pressures, the economicforces ul t imately bear down on themarket and its players.

"The demand of labor is there," saidUniversity of Adelaide professor GrameHugo. The system is in place to supplylabor. It is unfortunate that the system[widely resorted to] is il1ega1. No amounto f c rackdown on the i r regu la r

Labor seeks out opportunities for remunerative employment wherever itbavailable. Controls must thus respect the market's i'mpersonal behavior

The author appreciates discussions with Ricardo Casco that enriched ideas and insights in this paper.

November-December 1998 ) The Asian Manaser 31

migrant worker can succeed if the market'simpersonal character is not acknowledged.

The globalization of labor is inevitable.The economic benefits from applyinghuman resources most product ivelyare too great to be resisted. Mote likely,many countries will be drawn to make im-migration easier, and more workers willmove aooss the barriers. It is projectedthat, by the beginning of the next centurydeveloping countries that have educatedthefu young and adopted market-orientedpolicies will have advanced faster thanthose that have not. Developed countriesthat have accepted or sought foreignworkers will be stronger for having doneso. As the benefits become more obvi-ous, the movement of workers will be-come freer.

As a result, labor becomes graduallyinternational. National differences willfade. Needs and concerns will becomeuniversal, and work rules and personnelpollcies and practices willstandardize. Asdeveloping countries absorb mote womeninto the workforce, for example, they arelikely to share the industriaiized world'sconcern about child care and demand forconveniences.

Global ForcesTWo forces will drive the "standardiza-

tion" of the workplace: the companiesresponding to the global labor markets; andthe governments negotiating trade and,/or labor agreements. For the globa1 corporation, the idea of a single set of workrules, a si4g1e work ethic, will be as irre-sistible as a single language of doing busi-NESS.

Government efforts to harmonize work-

place standards will accelerate these mar-ket-based responses. Already, EC coun-tries have drafted a single set of rules togovern the workplaces of Europe, cover-ing such areas as wage and hour standards,employment rights, and worker safety.

In June 1998 the member Govern-ments as will as the employer and Workermembers of the International Labor Orga-nization adopted a declaration reaffirmingtheir support for the implementation of the"core" labor standards relating to prohibitlon of forced labor, right to collectivebargaining, fieedom of association, andminimum age (Convention Nos. 29,87,9B, 100, 105, 111 and t3B) .

Discussions among the member econo-mies of the Asia Pacific Economic Coop-eration (APEC) as we11as the growth poly-gon of the Brunei-lndonesia-Malaysia-Phi1ippines-East Asian Growth fuea (BIMP-EAGA) have included possible agreementson the fieer flow of nationals as well asequivalency in the assessment 0f trainingand education.

In the coming decades, the world'sworkforce will increasingly become moremobile, and employers will increasin$yreach acoss borders to find the skills theyneed. These movements of workers willbe propelled by the widening gap betweenthe world's supplies of labor and the de-mands for it. While much of the world's Mutual Appreciationnew jobs are being generated by the cities For countries seeking to maximize eco-of the indusftialized world, much of the nomic growth, strategies that develop andskilled and unskilled human tesources are attract human caoital can become power-being prod uced by the developing world 's

ful tools in operating in the global market.educational and training institutions. Willingness to compete for human re-

The growth of the worKorce will be sources on a worldwide basis can be auneven. From 1 985 to 2000, the source of competitive advantage.workforce is expected to grow by some Government dilemmas should thus be

, While the social,:::,,': disruptions caused',,:,..,

bf migrant workerstn lob-rrcn economresare inevitable, they arein the long run likely

' to be more creative"''' than destructive

cational systems that produce competentworkers faster than their economies canabsorb them (Philippines, fugentina, Po-land). However, like the process ofglobalization of product and capital, theglobalization of labor wili be uneven anduncertain. Governments, motivated byfactors other than economic gain, will playa greater role in world labor markets thanin other markets.

The magnitudes of migrationwillbe theresult of the effects of globalization andregionalization on the less advancedeconomies and the flow of both productand capital. Globalization, it would seem,marginalizes the less developed economiesfrom the mainstream of benef i ts.Regionalization, however, has been shownto counteract thef being crowded out oftrade in goods, capital, and technology.

600 mi11ion, or 27 percent, versus mutually appreciated. Both host and36 percent between 1975 and source economies will have to help one1985. The vast majority will come another to be effective. There is also a needfiom the developing world. Paki for greater vigilance on how much regUla-stan and Mexico, for example, will tion must be given to private placementgow annually at about 3 percent. systems responsibie for job and skilisFor the United States, Canada and matching. Excessive regulalion and laxitySpain, the growth rates are closet tend to breed paper compliance transac-to one pel cent. Germany's tions in the documentation of labor flowsworkforce will eventually decllne. and accounting for responsibility. A sys-Despite public policies that seek to tem of rewards and incentives must ac-"plotect" their nationals, the cit- company every book of rules.ies of the developed world {the Oneof thepressingconcernsamongallincrease of the service lobs, rather) advanced industrialized economies is thewill become magnets for migration broader crisis of government legitimacy.of persons from work forces of Unwanted immigration contributes to the

deflne their orazn hierarchy of needs develoPlng economies with edu- difficulty of government to understand and

The author appreciates discussions with Ricardo Casco that enriched ideas and insights in this paper.

32 The Asian Manaper I November-December 1998

Fact: Unlike commodities. human resources

respond more effectively to the objectiveforces of global economic restructuring.

While the antimigration feeling hasbecome a key issue in elections andpublic debates in many OECD as well asin newly industrialized countries, a paral-lel behavior among sending economies canbe noted. It is thus of extreme importancethat national governments strike a balancein managing migration from both its eco-nomic and political perspective.

It is equally important to note thatmigration problems have become threatsto both national and regional security. Jobdisplacements, cul tural distort ions,peace and order problems and environ-mental pressures induced by migrationare among the greatest concerns of hosteconomies. Racism, discrimination andincidences of crime have often become dip-lomatic irritants. The effects of labor mi-glat ion should be an essent ial re-ference to strengthening regional co-operation.

More Joint ProgramsSince the migration system covers

movements across international bound-aries that are systematic, organized andlegal, no state-directed pol icy thatmere ly se ts numer ica l , p rocedura l ,and qualitative terms for a foreigner's stayin the country can effectively manageall its elements. Actions within are shapedby domest ic pol i t ical considerat ionsunique to each country (Papademetrionand Hamilton, 1995).

As nat ionai boundaries are fastdisappearing toward the globai village,systems of checks and balances need notbe compromised. Instead, more joint

Fact: Migrant labor serves both source and hosteconomies

programs in this aspect will have to beworked ou t to hand le migra t ion 'scomplex dynamics.

Because migrant labor serves themutual economic and foreign pol icyinterests of both the source and hosteconomies, the responsibilities towardmigrant labor should be equitably shared.Employers are increasingly expected to de-velop an "investment paradigm" in thetreatment of foreign workers.

Host economies not only impose entrycriteria for migrant labor, a number ofthem have asserted their policy domainon their employers desiring to employforeigners. For a decade now, Saudi Arabia,Bahrain and the United Arab Emirateshave engaged in bi laterai arrange-ments with the Philippines stating thatauthentication of employer documentsh p h a n d l p d h r r t h p i r r p q n a . -| ! r P ! !

t ive Inter ior and Foreign Ministersand Chambers of Commerce and Indus-try instead of. the Philippine Embassiesin these posts. Malaysia recently raisedthe levy imposed on i ts nat ionalsemploying household service providersfrom the Philippines.

States and governments cannot be un-concerned about the needs of theircitizens for protection against fiaud inIecruitrnent, abusive conditions of employ-ment abroad, and violations of their basichuman rights. Recruitment fraud hasnot only been detrimental to workersbut has also caused business disturbancesamong employers who are rheted admin-istrative penalties ftom their authorities forsuch infraction as visa wastage.

Abusive employment conditions andhuman rights violations are in themselves

economically disastrous to mi-grant workprs who spendinvestible sums in their deploy-ment. Authorities should con-tinue to strategize to contain theescalation of placement costs thatmake migant employment a verycostly gamble.

In 1996 the Philippine Depart-ment of Labor and Employmentintroduced the "full disclosurepolicy," a dimension in migrationmanagement tha t seeks toachieve market transparency,obliging the different market players to partake of the responsibil-ity in leveling the playrng field and

Despite improvementsin labor market andtrade informationsystems, many hostcountries remainhighly averse tobilateral agreementsfor fear of beingdragged into acollective pressureover sovereignlabor issues

communicating real costs and benefits forlabor migration. The policy entails a pro-gram of empowerment through informa-tion and public education and the creationof an environment of honesty and nego-tiation befween and among employers, re-cruiters and workers as a way to attackmigration problems at its roots.

Toward Global StandardsShould globalization then be left to

its own devices? The 1997 annual Inter-national Labor Conference in Genevaapt ly adopted th is cha l lenge on i t sagenda. Globalization does not necessar-i1y achieve homogeneity of govern-ment policy response, despite the callfor lesser government intervent ionin globalization. Nation-states continue toassert their respective sovereignfy whilereal iz ing that the rules of the gamehave tremendously transformed intoa "stakeholders persuasion system"in which market players have to ex-p lo re mutua l s takes and work ou tpartnerships.

The vision of a stable postglobalizationsociety, the Global Village 2050, willonly be realized when nations can adhereto some standards, a shared languageof principles, laws and modes of transac-tions. This will not, however, eradicatesociocultural and pol i t ical diversi t ies;instead, it will harmonize these diversitiesand bridge residual gaps to form newcreat ive synergies that wi l l rule the$obaleconomy.

Toward this state, a ladderlike approachfor the effect ive development andeventual adoption of global standardsmay be an elementary requirement.

The author appreciates discussions with Ricardo Casco that enriched ideas and insights in this paper.

November-December 1998 | The Asian Manaper 33

I: i

Following are some important steps:o Improving Labor Market and

Trade Information System. Everythingstarts with information. No one can ac-curately define his or her stake in labormigation without fair and adequate ac-cess to information. Access to informa-tion w111 assure an improved sharing of re-gional perspectives.

In this Internet generation, the needfor central databases on iob and invest-ment opportunities becomes more achiev-able. This requires global access andwillingness of highly computer-literatesocieties to help modernize the informa-t ion sys tem o f less equ ipped ones .Websites are now cluster ing usefulinformation, from where patterns of mar-ket behavior can be observed.

A parallel undertaking is fast progress-ing in APEC. APEC's Labor Market Information [LMI) system needs to hastenits data-set bui ldup by conclusivelyaddressing the issue of data compa-rability. This should challenge nationalsystems to work double-time on theirshare.

Labor market trends and behavior willhave to be observed from the buildupof cenffal databases at a subregionalor regionai leve1. This will be concretelyuseful in the development of standards,as well as a "language" of job and busi-ness terms of its own, in many aspects ofmigration management as a whole.

o Bilateral Agreements. TWo-coun-try a$eements serve the advantage ofbridging p€rsistent conflict of laws and 1a-bor market practices, without necessarilysurrendering one's policy domain whenthe same pulpose cannot be achievedmore efficiently on a multilateral setting.Despite this, many host economies formigrant labor remain highly averse to bi-lateral agreements for fear of being draggedinto a collective pressure over sovereignlabor issues. Where it works, bilateral 1a-bor a[reements (BLAs) take the form of ageneral commitment to universal laborprinciples and protective clauses.

Governments often prefer less formalbilateral agreements focused on specificitems or operations. A mutually agreedemployment contract for householdhelpers was, for instance, the subject of abilateral arrangement between the Philippines and Saudi fuabia in 1988. Privatepiacement and recruitment firms have also

attempted to forgesome alliances towarddiscussing commonproblems and the ethi-cal conduct of theirpractice.

While a small stepin the ladder, theseforms of bi lateralagreements have con-tributed considerablebenefits in making thelabor market more ef-ficient while allowingmutual state control oftha c \ /c tom

a Integfating Experiments in form: Regional planning will always be inHRD Framework the global context

and Regional Planning. APEC, ASEAN Global Governanceand BIMP EAGA have displayed zealous The main goal of any market player inefforts toward defining and fine-tuning re- the globalized economy is to participategional HRD Framework. The Asian crlsis in fair competition. Proponents of laborpoints out that growth and development standards argue that minimum guidellnesin the region have outpaced the accom- should at least be set and adhered to.plishments in HRD seriously enough to Those who disagee argue that standardsmaintain a sharp contrast among Asian are counterproductive interventions rep-nations into labor-deficit or labor-surplus resenting disguised protectlonism or mis-economies. APEC has flghtfully raised placed compassion.the concern at the highest 1evel, through Global standards, in their essence,its HRD Ministerial Meetings. The host are the embodiment of a commitmentof undertakings in the APEC HRD Work- lo level the playing field in the universaling Group also reveals a wide range of desire to maintain harmonious interna-approaches and contagious enthusiasm tional relations. They are tools to redis-to palnt a clear picture of the region's tribute excesses actoss the regionalHRD vision. APEC can be uedlted for economy as one nation defines its com-the birth of regional learning'centers or parative strengths and weaknesses.centers of excellence meaningful in the Today, standard setting wili have todevelopment of global standards of be engaged in at different muitilaterallearning and competency. venues and in different forms. Sub-

Mutual recognition of skill qualifi regional and regional works to definecations now becomes a must as Asia has visionary ftamework, modes of coopera-accepted its diverslties in its over- tion in labor market operations, equiva-al l educat ional, t raining and cert i f i - lency systems and bi lateral , sub-cat ion systems. Establ ishing equiva- regional or regional arrangementslency systems in practically all types would suffice to moderate the tideand levels of technical work and profes- of $obaiization to levels that can allowsional practice is acceptable in prin adjustments of unprepared economies.ciple, but the tedious process cannot It is important to guard against standardsproceed at higher gear because of set forth,at restrictive levels since theyprotectionist motives from antilabor are eventually bound to be violated.mobiliry forces. G1oba1 governance will phase in as

Natiohs will increasin$y find the need governments become ready to acceptto undertake forms of regional HRD plan- the fact that any global economic settingning. National plans wili not only have to plays upon impersonal market forcescontain a global view but should also pro- in a society of men who will never bepose joint action programs on a reglonal independent from the rule of ordercontext. and social justice. I

The author appreciates

34 The Asian Manager

discussions with Ricardo Casco that enriched ideas and insights in this paper.

I November-December 1998

November 1998

t A 4t \ r .

Inc. Vol . V l l l No.4

Nmni Associations

LIof Management AluA Publication of the Federation of Asian Institute

l*

AIM Club of Thailand Gears Up for 1998-1999

'l'he AIM Clr-rb of Thailancl (ACT). Standing,fi<xn left to right: Irrancis B. Puno, MUM'91,Prakarn I)herpratuangkul, MBM'91. Chevr'Carnon Mak (husband of P<trntip), S0'ictraiTr,ur-rtaweetikul, MBM'it1,.fess Rallesteros,MtlM'77, Stn:rcle1 [3c>r,c>nasan'ak<xrl, Ml]M' ql,

ancl Vito<>n Puripunl,avanicl i . MBM'91.Seatecl. fiom left to right: Mrs. Lizzie AnnPtrmr. Mr-.;..[ulie I )her:rpr:rtuangkul, SorntlxrngSrisudhivong, I{l )M'90. Porntip Iyimaprrn,MI]A'l'92, Kuk-Kanang Kijsr,nvan. UMP'94.Nc>t shon'n in phot<> is Augie I 'al isoc.X,IIIM'UO, the nen est menrl'rr cf the club rl'4t<rrecentll' nxnecl to Thailancl tc> join Bcrli.|trcker.

Not even the harcl irnpacl of the Asian economic crisiscan stop theAIM Club ofThailzurcl (ACI) thargortogetherto chart ils yearlong actir,'ities. Frfteen (15) alr-rmni anencledthe meeting on Au14.rst 19 at the Imperial Queens ParkHotel lecl byACT Presiclent P()mtip lyimapr-rn (MBM'92).Alter reviewing their past achicvernents, the Clnlrenthusiastically plannecl seveial alurnni activities for theconring months, with the end objectives of building astronger AIM family in Thailand, maximizing ACT'snetwork for the benefit of its members, sharing lifb andlusiness experienc'es amcrngAlM friends and heighteningmembers' involvement. Among these activitres are:

C.omparry Visit and Family Field Trip to Rayong(October 3G31 as of press tirne). The ovemight trip willallow alumni and their farnilies to visit Banpu's electricalpower plant at Rayong. Winchai Tumtaweetikr-rl(MBM'81) frorn Banpu leads this project. l

ACT Farnily New Year's Party (November 28).Schecluled earlier to acconmrxlate membersr vacationplans in Decembeq the partywill lr held on a leisureboat which will cntise the Chao Phruya River KhunNong is assigned as project leadcr for this acrtiviry.

ACT Golf Tournament (J'an. 12, 1999). All alurnnigolfers (especially those who have not showed upf<rr so long) arc encouraged to participate in thiscvent which will also serve as a firncl-r;rising activityfor the ch-rb. ACT's tireless golf'er, -Jess S. Ballesteros(MIIM'77), is the tournamentrs project leader.

Ieatning Enrichment in ACT Bimonthly Meetings.Recently added to the agend:r ofACT's reg.rlarbimcnthlyclinner meetings is a sprcial discnssion on ceftain topics.An allrmnun,/alurma is clesignatecl a preassigned topicand is expected to leacl the di.scussion by sharing hisAerbnsiness knowledge and experience. Members areencrruraged to exchange insiglrrs with felkrw alumni,

fust like the many case discussions zrt AIM during theirsntdent chys.

What's Inside...

30th Anniversary Fund AIM CEO Clulr\7SPF Symposium CTRP BriefingA[unni in Government Alumni PrivilegesParty for Streetchildren Alumni Profile

CampusNews

30thAnnivetsary Fund C,ampaign

AIM has recently launched its 30th Anniversary SocialInvestor Campaign, afive-year project of the ScientificResearch Foundation (SRF) that intends to support AIM'slong-term objective of enhancing management educationin the region.

Since then, generous benefactom have conveyed supportto the Institute in its commitment towards "making adifference in sustaining the growth of Asian societies bydeveloping professional, entrepreneurial, and sociallyresponsible leaders andmanagers." As of press time,fourteen companies, alumni, and two esteemed individtralshave generously donated to the capital campaignfortheAIM Center for Continuing Executive Education(ACCEED) Conference Center.

AIM Co-ChairJose L. Cuisia,Jr. attesls to the generosityof the Institr-rte's scrial investors in spite of the hard times.He said: "In these times of turmoil, when the criteria foraction can be ea.silyreducedto a choice betweenfearandgreed, it is inspiring that you have created a third choice,awise choice - the choice to give generously." Thus,their gifu (bear) even more special meaning because itsignals to all the world that in times of crisis, there is stillroom for hope."

Associations, companies and individuals that recentlydonated to ACCEED were Klub AIM Malaysia,International Container Terminal Services, Inc. (ICTSI),Merrill Lynch & Co. Foundation, Astra Pharmaceuticals(Phils.), Inc., Bechtel Foundation, H&Q Asia PacificLimited, Solidbank and Scotiabank, Eli Lilly andCompany, Edison Mission Energy, Avon Cosmetics, Inc.,Compaq-Digital Equipment Filipinas, Inc., PhilippineComputer Associates Intemational, IBM Philippines, Inc.,Globe Telecom, Leverage Systems Technologies, Inc.,Wilfred Uytengsu, Sr., and AIM Founding ChairmanWashington SyCip.

Two Research Chairs, the Fidel V. Ramos Research Chairin Poliry Studies and the Petron Corporation ResearchChair in Petroleum Industry, have also been establishedas part of the campaign. Improvements in the Institute'sfacilities were made possible through the generouscontributions of Mr. SyCip and Yupangco MusicCorporation, Equitlble Cardnetwork Inc.'s donation of

personal computers to the Student Study Center, andGlobe Telecom's donation of a new PABX system.

Reuters Limited generously sponsored a scholarshipprogram to the Master in Business Management program.

Should you wish to support the Institute through yourparticipation in the 30th Anniversary Social InvestorCampaign, please contact AIM-SRF at telefax number632)817 2852.

International Container Terminal Services Inc. (ICTSI) SigningCeremony. Left to right, ICTSI SVP for Finance Roberto B. Jayme,ICTSI Chairman Enrique K. Razon, Jr., AIM President Felipe B.Alfonso and AIM-SRF Executive Director Marvee Celi. MBM'95.

Uy'tengsu donates to Executive IT Development Center From leftto ripfit: Alaska Milk Corp. Vilfred Steven Ultengsu,Jr., Ala-ska MilkCorp. Chairman and CEO Vilfred Uyengsu, Sr., AIM CoChairman

Jose L. Cuisia,Jr and AIM President Felipe B. Alfonso.

Washington Sycip Policy Forum Symposium on ttre Asian Crisis

Sympc.rsium panelisls and a packed audience. Left photo shows (left to riglrt) Mr. Aurelio R. Montinola III, Dr. Cielito F. Habito, Mr. VinayK. Bhargava and Proi Chito Salazar, Executive Director of Washington SyCip Policy Fomm.

The Washington SyCip Policy Forum conducted asymposium on "The Asian Crisis: The Continuing Saga"on August 1.2atthe AIM campus. The forum invitedthree renowned speakem who sharedtheirexprtise andanalysis on the topic. Mr. Vinay K. Bhargava, CountryDirector of the World Bank, talked about the regionalimpact of the crisis, its causes, projection and possible

scenarios. Dr. Cielito F. Habito, former Secretary-General of the Philippine National EconomicDevelopment Authority, discussed the Philippinescenario. Mr. Aurelio R. Montinola III. President oftsPl Family Bank reacted to the presentations of theother speakers and shared some insights from thebanking sector.

Knowledge Workets inthe Firm

Knowledge workers are central to good informationsystem (IS) planning within an orgarizatton as a meansof establishing an elaborate communication infrastructurelinking all stakeholders across the value chain. Armedwith the information technology tools (IT) needed tobecome more prcxfurctive, employees orworkers can createor take advantage of growing opportunities in theglobalized economy. But the changing businessenvironment poses a set of ranagement i.ssues involvingIS/IT in firrns. Prof. Peter Fernandez elaborated theseIS/IT manasement challenges in his talk on "The

Changing Role of IT in Organizations" before membersof the Executive Club Inc. lastJune:

- How can we improve the business pKrcessesin today's competitive wodd- How can we benefit from technical trends andirrnovations?- How can we achieve maximum benefit frominformation?- How can we extend our human skills andmotivate ourpreople?- How can we recognize and rbspond tocommunication system-related risks?- What are the best business processes forbuilding and maintaining our systems?

BanglaclestrHong KongIndiaIndcnesiaKoreaNepalMalaysia

PakisumI'�hilippinesI'�hilippinesSingagreTaiwanThailandU.S,A,

AIMLinkConimurricationsBoard

MilonB. Paui MM'fl8Lucius Lai King Pui MBM'80

JuzarKhorakiwala MBM'75lconardTanubrata MBM'77Chul-Jin Lee MM-76BimalChapagain MDM'96Tan Sri Dato'irTalha MBM'76Haji Mohd. HashimM, Farooq Raia BMP'78

Jose Maria Femandez MBM'73Dulce P. Casaclang MBM'73Gan Cheong Eng MBM'82Christopher L.F Lin BMP'77I,orntip Iyimapun MBM'92

RobertV. Chandran MBM'74

EditoridBoard

Editor-in-ChiefManaging Eclitor .................... Ofel Odilac.rBisnarFeatures Editor............... Dandy ClaudioAsscriate Editor .......................... Michelle UwanagCopy Editor.... Rose Castrolayout Eclitor Amei FerrerContributorc:... ...... Mark Bagatsing,

Yvette Bautista, Mitch Cabebe, Sahlee Cariio,Lourdes Co,'W'eng Cornodaz and Alexandra

Eva.

AlumniNews

MBM'73 Fetes Newty-AppointedClassmates in Crovernrnerrt

A testimonial dinner was hosted by members of MBM'73to honor their classmates who were either promoted ornewly-appointed in government. They likewise gaverecognition to the accomplishments of another cla-ssnutewho has rendered service to the govemment and is nowgoingbackto the private sector.

Jesli'Jing" Lapus is the newly elected congressman ofthe 3rd district of Tarlac. After his outstandingperformance as Iand Bank President,Jing is taking upanother challenging job-that of a legislator. It must beremembered ttntJing was at various times also Presidentand CEO of a paint company, Managing Director andCOO of Triumph Intemational Phils., Vice-President andChief Finance Officer of Ramcar, Inc. Group ofCompanies, Undersecretary of the Department ofAgrananReform and Consultant, Sycip, Gorres Velayo& Company. Itis amazing howJing has shifted fromone field to another and excelled in all of them.

Gen. Angelo "Angie" Reyes was recently promoted tothree star general. When asked to deliver a short talk, hereminisced about how his training atAIM helped him inhis job to reach his present position.

Nelly Favis-Villafuerte-the lady lawyer of the class hasjust asspmed the position of Undersecretary forTrade

Group, Department of Trade & Industry. Nelly, aconsistent valedictorian since her elementary days was atopnotcher in the 1959 bar exalrls. She is a tirelqss workerand prolific writer. She writes regular columns in dailynewspapers and until recently was the editor ofPANORAMA magazine. She is a much sought afterlecturer on exports, entrepreneurship and livelihoocl. Forsometime she was a professor of Intemational MarketingManagement atAIM, Ateneo and De Ia Salle. She alsoserved as Chairman of the Marketing Departrnent of DeIa Salle Graduate School of Business. In addition to herbusiness concerns, Nelly is also very much involved invarious socio-civic activities zuch as the Prison FellowshipIntemational (Phils.) Inc. , NGOs helping children anddisaster victims during calamities, etc.

Ramon "Mon" Abad is the newly appointed Chairmanof the Development Bank of the Philippines (DBP). Hewas President and Director of the Philippine National

Construction Corporation for 6years. At one time he

was also President of Air Philippines, the third biggestdomestic airline in the country. Mon also devoted timeto teaching from7974 to 1980 in some of the leadinguniversities and colleges in Metro ManiIa. Of course,Mon is well remembered at AIM for having served asDirector of Marketing, Alumni and Placement of theInstitute from 1981 to 7987. He is also much in demandas speaker and erncee. His wit and sense of humor, neverfail to entertain and liven anygathering.

Dioscoro "Coroy" Pacis was given an imprompturecognition when the class found out he was newlyappointed Special Assistant to the Mayor of Parafraque.Since a good number of the class were residents ofParafraque, he assumed instant popularity among thegroup. He described the unique position that he has tothe amusement of his classmates. Coroy is a licensedChemical Engineer from De La Salle University andworked for Chowking Food Corporation as ChiefCustomer Service Officer and was later promoted toCorporate Relations Marager. He was aLso Food DivisionManager at SM Intemation l. He devotes much of histime to socio-civic activities particularly with the Rotary

andJaycees.

Philip "Popoy'' EllaJuico, who has rrved the govemment

in various positions since his graduation from AIM, is

the outgoing chairman of the Philippine SportsCommission. His involvement in govefflment servicestarted immediately after graduafingfrom AIM when he

served as consultant to the Depafiment of Agricultureand Nanrral Resources. Since then, Popoywas engagedin rural development and agri-business consulting. He

was the youngest Secretary of Agrarian Reform, aposition he attained after serving at various times as

assistant Minister of the Ministry of Agriculn:re and Food,Undersecretary for planning and foreign-assisted proiects

of the Department of Environment and NaturalResources. For having devoted much of his time to

serving the government and country, his MBM'73classmates gave him due recognition.

Prof. Quintin 'Q.T." Tan was on hand to celebrate the

success of his studens. He taught the class ProductionManagement. He was roundly applauded for his"timeless" :r::r;ge and they were one in saying "he looks

exactly the same" after 25 years.

This significant eventto celebrate the success of I\/BM'73class members was hosted by Bobby Garcia, Ely Barretto,

[ ,

Chris Goangco and Boy Diego at the Metro Pacific roomof theAIM-ACCEED Building. The class takes pride inhaving donated to the naming grants of several roorns atthe ACCEED Building andAIM.

Newly elected Congressman of the 3rd District of TarlacRepresentative Jesli A. I^apus, one of the honorees of the MBM'7 3class gives a short speech acknowledging the compliments of hisclmsmates.

AAAIM Holds Partvfor Sfteetchildrcn

In honor of the late AIM no.rrraing Father, f r. JamesDonelan, SJ., AAAIM organizedap rty on May 27 forthe streetchildren of the Laura Vicuia Foundation, Fr.Jim's favorite charitable organizationof which he wasone of the directors. AIM alumni and the companiesthey represented donated cash, food, entertainment,school supplies, etc. Some alumni have even committedto help the streetchildren on a continuous basisthroughout the year. The childrenrs response to the on-thq-spot drawing contest's theme "My Heart's'Wish'r,conducted by Petron Foundation, was very touching andheartwarming. PeffonFoundation ChairmanMonicoJacob, himself graced the occasion and ensured theproject's success.

Willy Parayno, formerAAAIM Chairman, delivers an inspirationaltalk to the streetchildren during the party held in their honor at theAIM Sunken garden. He encouraged them to study hard and dotheir best in order to be successful.

Realtors' Night and Marry MoreIn spite of theirhectic schedule, members of the CEOsClub found time to attend the ',Realtors Night,' held onMarch 18 at the AIM-ACCEED Building. Mr. SidConsunji, President and CEO of DMCI Holdings andformer Prof. Prim de Guzman, presently a realestatebroker, kept the participants abreast with the latestdevelopments in the real estate industry. It proved to bean interesting topic that engaged the participants in alively discussion with each one imparting their own viewsandexperiences.

In this regmd, the club will continue organizing informalgatherings among its member:s to provide them a breather,so to speak, taking them away from the tension of theiroffices even jr-stfor an evening. Suggestiors will be akenfrom the same group regarding the topic that is of interestto them and resource person to be invited.

CEO Club President Edmundo Casarleda (l4BM'7) andExecutive Director Alexandra Eva have been meetingwith the AIM Alumni Association Board members andthe other alumni clubs of AIM. These monthly meetingsare gearedtowards the goal of uniting all these groups,repoting their own activities and vowing to give a helpinghand in every endgavor undertaken by each of them. Forinstance, each and everyone of these clubs will have ahand in this October's Oathtaking of AAAIM Board ofDirectorrs celebration. Also on October, the AIMInformation Technology Group will introduce AIMOnline services to the different alumni through theiralumni clubs. The participants will then see theadvantages thatAIM Online can give to the alumni andtheir respective companies. The CEOs Club have I'kewisehave worked to lend ahandto the AIM InformationTechnology Group on this occasion.

To those who might not yet know, the club Secretariat isnow housed, together with the AIM Alumni AssociationOffice, atAIM-ACCEED with telephone number 751-7153. The Club welcomes alumni who are now presentlythe CEO of their company ro join. It provides an infomalforumforthe members to be reunitedwith otheralumniin activities of common interest to them.

For more updates on clmpus news, browse throughthefollowing:

AIM Homepage bttp//uutw,abnedu"pltE-mail alamni@ aim edu"p lt

Alumni Profile:Christopher Lin Jih-Fung, BMP|77

Vice-Chairman. Federation of AIM Alumni

Associations Inc. (FAIM

Chairman, Taiwan Alumni Chapter

Cuiosiry about the Philippines

caused his visit to an unc/e and

cousin in the coantry in | 977,

thel ear C histE her I)n J ih-F ung

was accepted at AIM. "I felt

(that) AIM and its facul4t were

worth.l of m1 respert and deuotion

to learn and interacl witb," sals

the FAIM aice chairman and

Taiwan alanni chapter head.

His Basic Management Program

(BMP) stadies haae, in Chis'

own words, "serued as the kry fto the) door of knoiledge of unknited

cpociA @bout) dffirent counties and indu$ies in (the Asian)

region." He ispruently tbe Pruident of Enlighnn Commanication.

While spending the first ten years of my career climbing

the corporate ladder, I obtained a master's degree in

accountancy from Taiwan National Cheng Chi Unir.'ersity

and taught accounting on part-time basis. I started as a

cost accountant and rose the ranks until I became senior

vice ptesident of a chemical manufacturer, now a listed

company in Taiwan. That was fuom 1974 to 1983.

Then I took a year and a half leave for the United States,

where,I got my CPA license and studied fot an MBA.

My study experience coupled with the knowledge I

acquired there about capital markets benefited me as a

young advisor of Taiwan's Securities and Exchange

Commission. I made suggestions to the government

about strengtherung the Taiwanese capital market system

in the atea of operational practices. Later I traveled to

Japan, the Philippines and South I{orea to gather facts

for a report to the Minister of Finance. During the

prbcess, Mr. Washington SvCip and the SGV Group

helped tremendously.

Then entrepreneurship beckoned. To me, this concept

describes a process of rising, falling and coming back.

Eady success in my career and accessibility to contacts

in government opened up more opporrurunes than I ever

dreamed of. I founded Excalibur (in partnership with

PA, the biggest European consulting company) which

had GM, Philips, Flonda, Dupont, Taiwan Power, DHL

and Tuntex among its clients. Moreover, I co-published

the Chinese edition of Forbu Magaqine, which won the

first national outstanding award for business magazines

in 1,991,. We at Forbes also hosted many imPortant

seminars, including one with Premier Hau Pei-Tsun for

200 business leaders. I also ran four other successful

magazines (Exce //en ce Magaqine, Aao anting fu searcb Moilh !,Golf Drgest Ctrtnese edition and Finanrial Consaltant Montbfr)

and a securities company to meet the increasing demand

of investors. After winning the Triple A (AIM Alumni

Achievement Award) in L992,I was honored and gratefirl

since AIM treats its members as a fantlly of equals and is

responsive to modern society and community needs.

But no matter how good things can go for you, there is

always a pitfall or tr^p for your weak points.

Unfortunately and inevitabl,v, in 1995, I had to swallow

the bitter consequences of overexpansion, ovet-leverage,

overconfidence and over-trust. These cost me more than

I could afford. Hence, I learned to face the downfall of

a oflce powerful mechanism I built day and night with

my colleagrres from 1983. I was forced to learn how to

deal with new difficulties, face new challenges and cope

with the siruation of transferring the operations to others.

In other words, I had to put aside my achievements of

the past thirteen yeats and start all over again. During

these times, I truly rcahzed that family support is vital.

My wife Vickie's support made it much easier for me to

overcome the difficulues.

Three years has passed since then. I now have a new

consulting company dealing in "virtual patterns" of

businesi practices for various proiects, including land

development, crisis management, emotional managemeng

E-Commerce, TV programming, and venture capital. I

am now in the process of integrating the resources to

launch a new business media that will have regional

coverage of the post-Asian financial crisis situation and

heip businessmen move their enterprises into the 21st

Passion fot cateer development is

one thing. But the zncf- for socielcontribution is at least es imPortantSince 19S2, I have denoted myself

to different social responsibilities,

even during the period of

difficulties: I nelver gan€ up anyoPPortunity to servie.

Why have, all of a sudden, values ofAsians been set back so much, arrdthe worth of the AsiaR businesscommunity been appeafing to bevulnetable? Finding the solution isthe task of our generation.

century. I am also helping the business communitythrough virtual networking in areas like smart cards,security printing, biotech products, creative landdevelopment, financial packages, training and mediamanagement.

In the coming digtal age - to borrow the tide of AndrewGrove's book - only the paranoid survive. However, mylimited knowledge tells me that innovative ideas can alsosave your career and make you an optimal winner.

Entrepreneurship needs passion, professionalism andpractice. Passion for career development is one thing.But the zeal fot social contribution is at least as important.Since 1982, I have devoted myself to different socialresponsibilities, even during the period of difficulties. Inever gave up any opportunity to serve. Currendy I amhonorable chairman of the E-Commerce Association andthe Chung Hsing University Accountancy department,advisor of K.T. Li Scientific Development Foundation,secretary general of the Supporting Committee of ArtAppreciation Llb:z:y, and director of the ChineseMaqagement Association, Financial Executive Institute,China Productivity Center, and the AIM ScientificResearch Foundation.

Sometimes when I look back, I feel that time flies sofast. In this fast-changingwodd, Asian managers shouldequip themselves with more information and betterconcepts about the new economy. Nflhy have, aJl. of asudden, values of Asians been set back so much, and theworth of the Asian business community been appearingto be vulnerable? Finding the solution is tlle task of ourgeneration. AIM faculty and alumni should face thechallenge of showing the wodd that their wisdom andcourage can help Asians overcome their weaknesses andutilize the capabilities God gives them to build a betterwodd each day. I still believe that the coming centurywill be a time for ordinary peoplb to performextraordinary work. AIM is a wonderful traininggtound for Asian managefs that can make adifference.

Alumnus Assumes Directorship forAIM India Rep Office

Vivek Jaiswal, MBM'92, has taken over the post ofDirector for the AIM Rep Office in India effective onMay 7. Vivek has planned out programs and activitiesaimed to boost AIM that will also benefit the AlumniAssociation in India. His operations plan is focused onthree broad aspects: a\ilareness and publicity for AIMand its alumni in India, revenue-generating, and co-organization of alumni-telated activities in India. Toincrease public awareness of AIM in India, Vivek willeither hire a public relations company or cultivate goodrelationships with media people. Stories of successfirlAIM alumni will be featured in media to boost their imageand careerfbusinesses. Contacts with companies forpossible placement will be established starting withcompanies of alumni. Vivek will support the initiativeof the AIM Alumni Association of India to drum upscholarship funds. A conference in India will be plannedfor next year.

Briefing on'the Comprehensive TaxReform Program

The tax filing rush did not deter alumni from attendingthe "Comprehensive Tax Reform Program" briefing onApril 4 at the ACCEED Conference Center. Co-orgarized by AIM Alumni Relations, Public Affairs andthe Scientific Research Foundation in cooperation withthe Rotary Club of Makati-Dasmarifras, the discussion ispart of a series of continuing education activities forhlumni.

Former Bureau of Internal Revenue CommissionerJoseU. Ong presented the salient and significant features andamendments of Republic Act 8424, the third and lastcomponent of the CTRP covering individual andcorporate taxation and tax administration that took effecton January 1 this year, with the end goal of improvingtax revenue collection for the Philippine government. Thefull passage of the CTRP into law was that onlyrequirement for the Philippines to exit from InternationalMonetary Fund (IMF) supervision. Atty. Tirso Tejada,director of Tax Counseling, Inc. joined Atty. Ong inanswering questions from the floor, while Prof. MarteDizon served as moderator.

Do you know your alumni privileges?

Your presentation of the alumni pov/er card entitles You

to the following privileges:

1. Access to AIM's Library Facilities.

2. Access to AIM's IT Facilities. Free use of computer

facilities at the Computer Room for resume writing and

AIM course requirements. A mrnimal fee will be charged

for other purposes, including surfing the internet.

3. Discount on AIM Conference Center in Baguio

City. 50n/o - 60%o discount for alumni are valid during

low periods (when occupancy is below 50%). The

discount is not transferrable therefore alumni must

accompany family members.

4. Discount on ACCEED (AIM Center for

Continuing Executive Education) Conference

Center, Makati City (within AIM Campus).- Executive Rooms 55o/o off published rates- Function Rooms 25oh off published rates

(For # 3 & 4, contact ACCEED at tel. no. 750-1010 loc.

2036 and 2007.)

5. Placement Services. Alumni interested in iobpiacement may submit his/her resume for inclusion in

the current talent bank. On the other hand, alumni

looking for prospective employees may avail of the various

Placement C)ffice's job recruitment services.

6. The Asian Manager. The official publ,ication of the

institute. Free 1 vear subscription for Executive Education

graduates and 5 years subscription for degree program

graduares.

7. AIMLink. The official newsletter of the Federation

of Asian Institute of Management Alumni Associations

Inc. f-A.II$. Free subscription to all alumni.

8. Class Directory. Free alumni class directory. 50o/o

discount on current maii ing l ist for direct mail ing

campaigrr for commercial purposes.

9. Continuing Education. Special discount (and

sometimes ftee) on certain AIM sponsored conferences.

10. AIM-Visa-Card. (Philippine based alumni only)

Membership and annual fees are waived for the first year.

All applications are subiect to the approval of Equitable

Card Network Inc. Contact AIM-SRF at tel. no. 892-

4011, local 275.

11. Mini-Class Reunions. AIM Alumni Relations Office

hosts cocktails for iubilarian classes (5, 10, 15, etc. years

anniversary celebration).

12. AIM Faculty Books. 5-10% discount.

13. Discounts on Some Establishments. The list of

establishments depend on each country. Should you want

to extend speciai discounts/privileges of your respective

establishments to your fellow alumni, please contact your

local chapter representative.

Alumni TriviaAIM Distinction Graduates

By Mark BapatsinR, MBM'96

First Distinction GraduatesConrado L. Cuesta MBM70 Philippines

Jesus B. Galang MBM70 Philippines

Alan V. Jazmines MBM70 Philippines,Alex Lim Kim Ian MM75 Malaysiax

Celeste V. Mendoza MDM90 Philippines**MM and MDM programs started in 1974 and 1989 respective\,.

First Distinction Graduates from other CountriesRamesh Gelli MBM72 India

James Paul Neelankavil MBM72 India

Liaw Ah Boo MBM'72 Malaysia

Ahmad Saeed Siddiqui MBM72 Pakistan

Charles Chun Ho

Knut A. Benckendorff

William Bradberry

Lin Ying Hang

Ian David Williarns

Tran Quang Hung

High Distinction Graduates

Eduardo A. Morato '

Benjamin Palma-Gil

Yeo Ah Kiang

Johnson L. Sia

Carlos M. Borromeo

MBM72 Philippines

MBM76 Philippines

MBM'81 Singapore

MBM92 Philippines

MBM94 Philippines

Distinction Graduates with a D+ grade

for their MRR

None

Distinction Graduates with a D grade

for their MRR

David Ding Wew Miu MBM78 SingaPore

Mario I. Alba MBM78 PhilipPines

Herminio B. Coloma, Jr. l@M78 Philippines

Danila Regina I. Fojas MBM78 Philippines

Edmund A. Go MBM78 Philippines

Jesus R. Montemayor MBM78 Philippines

Myra B. Chan MBM79 PhiliPPines

Leow Kee Peng MBM80 PhiliPPines

Raymundo L. Roberto MBM82 Philippines

Ramon G. Opulencia MBM83 Philippines

Austin Francis Gomes MBM84 Philippines

* Pass or Fail grading systemwas implemented.from 1973 to 1975.

MBM74MM76l.i4}dJ{{'77

MBM'8I

MDM96MM97

Taiwan

SingaporeUSA

Hong Kong

New Zealand

Vietnam

Trsian tour'f'�heEURO

With the monetary union, Europe will become not onty the world's biggest economybut also the worldb biggest tourist destination

n January 1, 1999, the single cur-rency in the European Union, orin eleven EU member countrieswill be introduced in what could

verywell be the most ambitious monetaryreform of the modern age. Although ac-tual Euro notes and coins will onlv be in-troduced in three to four y.urr, ,h. punticipating EU countrles namely, Austria,Belgium, Finland, France, Germany, Ire-land, Italy, Luxembourg, the Netherlands,Portugal and Spain can already start utiIizing the single currency in Januarythrough the noncash payment instru-ments. But what is the purpose of theEuropean Monetary Union? Is it necessaryfor the EU?

Proponents of the euro would arguethat monetary union is necessary to endbarriers to intra-European Union trade andthus compiete the Sln$e European Mar-ket. It is envisioned to make Europe morecompetitive in the world. But will theEMU benef i t the economies of theEurozone, in fact, will it improve businessconditions within the EU?

Introducing the euro will not be an easytask. It is more than just the physical con-version of I 1 national currencies to a sinsle

working cuffency. The monetary unionentails replacing banking systems in Eu-rope and widely known in the world. Itwould include changing business practicesacross the region and soapping some al-ready very stable national curfencies, someof which are widely accepted in interna-tional transactions such as the deutschmark. The launching of the euro has alsobeen associated with so many controver-sial issues such as the loss of the state sov-ereignty over its monetary policles to aninstitution that has never been tested inthe past or ls doomed to fail. Euro sup-portels, on the other hand, believe thatthe monetary union will create a singlecurrency strong enough to compete withthe US dollm and the Japanese yen. More-over, some international economist be-lieve that EMU could bring the curtaindown on the dollar as the world's dominant ciirrency. But how far can the eurogo and what sort of impact will it have onthe European economies?

Because the EMU is a very broad sub-iect affecting not only European economiesbut European businesses and the Europeanway of life, the single currency will im-pact on euro business particularly on the

tourism sector: its advantages, its prospectsand challenges for the industry as well asits Asian counterparts. There are also gen-eral impiications of the EMU on Europeaneconomies, second by examining the advantages and disadvantages of the Euro onthe European tourism industry;and finallyby comparing the European tourismindustry's situation to its Asian counter-parts.

Implication on TourismFirst of all, to determine the effects of

the euro on European businesses, particu-larly the toufism industry it is necessaryand helptul to look into the general impli-cations of the EMU on European econo-mies.

The European Union represents theworld's largest market, even larger thanthat of the United States, with more than370 million potential consumers. The Eu-ropean Union has a combined GDP ofUS$8.5 trillion while the Eurozone ac-count for 19.4 percent of the world total.The EU as a whole also has the largestshare of international trade in which twothirds of the economic activity occurwithin the Union or are intra-EuloDean.

November-December 1998 | The As[an Manaper 43

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f;$1

Euro supporters saythe common currencywill spur regionwidegrowth throughcurrency transaotionsavings. Skeptics saythe euro will result inloss of flexibility andcontrol over national

fiscal policies

How will the EMU impact on the Eu-ropean economies? Proponents of theEMU believe that the introduction of thesingle currency will greatly benefit EUeconomies by increasing Europe's competi-tiveness vis-a-vis the United States, Japanand the Asian economic. The Union is alsoexpected to foster economic growth in theeconomies and in the region as a wholethrough the benefits it will gain from theincrease in available resources that will bemade available to them as a result of thesavings that will be incurred from the minimization of transaction costs across theEurozone. Such savings will allow econo-mies to use available resources for moreproductive uses or inveslments such as in-frastructures, which will in turn directlybenefit toulism.

Aithough it is true that many believethat the EMU will bring large efficiencygains and various advantages to the EU,Euro skeptics believe that EMU will bringboth short-term and long-term risks. Ac-cording to skeptics, the greatest short-termrisks under the EMU would be the lack offlexibility or lack of control of nationalgovernments in their fiscal policies underthe system due to the uniform monetarypolicy that will be imposed by the Euro-pean Central Bank. This condition willmake it difficult for the Eurozone coun-tries to react to economic shock that couldthen lead to extreme economic, ever po-litical, tensions during times of crisis.-Onthe other hand, a long-term risk forseenunder EMU by euro skeptics is the uncer-tainty of the EMU's future as a whole.

Will the euro be successful and will itlast? There is no doubt that the EMU be-ing totally new and untested under the Eu-ropean conditions is a very ambitious en-

deavor Although many compare the EMUto the United States' euly monetary union,many argue that, unlike the United States,there is the lack of the element of politicalunion in the case of Europe. As such, suc-cess cannot really be guaranteed.

Tourism Industry in EurozoneThe European tourism industry is one

sector in which the "switch" to a singiecurrency by many countries of the Euro-pean Union is expected to have a positiveimpact, at least according to FrancescoFrangialli, Secretary General of the WorldTourism Organization. Franguialli said theEuro actually lepresents a plus for Euro-pean tourism, but really a revolution. Upto this date, no extensive study has beenmade about the impact of the Euro on theEuropean Tourism industry. In-fact theonly European-wide inquiry made on thissubtect matter was a conference organizedby the World Touiism Organization in Mayin Greece. The conference tackled the ef-fect of the euro on European tourism. Thereport on this conference will be availableby mid-August.

Fresh data on the Eurozone from theWorld Tourism Organization reveal thatthe Eurozone represents the most attrac-tive destination in the world. In 1996,forexample, the tourism receipts from theEurozone amounted to a staggering US$72billion, or 72 percent of the world totai ascompared to that of the United States,which had tourism receipts of US$64 bifiion, or only 16 percent of the world to-tal. In the same year, tourist arrival inEurozone counttieswas 84 million, whichwas 14 percent of the world total as com-pared to that of the United States whichwas 46 million, or only 7.7 percent of theworld total. Other tourism activities suchas outbound txips from the Eurozone coun-tries was 72 mllhon, while it was only 66million for the United States.

The big question at this point is howmuch will the euro impact on this trend?European tourism seems to be doing verywell so why risk the status quo? Will theintroduction of the euro enhance or cur-tail the present condition of the industry?How should the industry react to the out-come of the EMU?

Anticipated ImpactsSince studies and inquiries on the sub-

ject matter are eilher very minimal or are

still being planned or are cunently in pro-cess, we can only make limited conclu-sions based on the opinions of experts inthe industry on the possible consequencesof the euro in the tourism industry:

The Convenience of a Single Cunrency. Many tour operators believe thatthe convenience of traveling within theEurozone (which will be brought aboutby the infioduction of a sin$e currency)will encourage the influx of tourists notonlywithin the region's countries but tour-ists from ail over the world as wel1. Theincrease in the mobility of the Europeancitizens within the EU plus the expectedinflux of tourists from outside the Euro-pean continent stand to benefit the indus-try by the expected increase in the totalvolume of incomingvisitors to more placeswithin lhe Eurozone. This would meanmore busiriess for tour operators, airlines,car rentals, hotels and other related tour-ism businesses. There is however one sec-tor in the industrywhich is bound to loosefrom the elimination of foreigr currencies.Moneychangers especially small ones aswell as large foreign exchange businesseswiii lose their businesses to the euro. Andbecause foreign exchange has atransnational dimension, the removal offorelgn exchange within the Eurozone willnot only affect moneychangers based inthe Eurozone, but also foreigr exchangebusinesses outside the Eurozone that havelarge transactions with countries in theEurozone or are linked to and,/or depen-dent on the Eurozone market. (This couldmean foreigrr exchange and remittancebusinesses within the Eurozone or evenfrom other parts of the world will be directly affected by the EMU.)

One very good example is the UnitedKingdom's Thomas Cook, which cunentlyholds 20 percent of the British travel for-eign exchange market and acknowledgesthat the EMU will have a significant im-pact on its business. UK is the largest package holiday market in all of Europe and itis bound io lose a large portion of its busi-ness in foreign exchange alone. With theadvent of the euro, it will also have to dealwith costs of adjusting to the new business systems and practices, such aschanges in computer system or pricing tobe able to compete. Small foreign ex-change businesses in the Eurozone coun-tries are also bound to lose more, espe-cially if their businesses are concentrated

44 The Asian Manaper I NovembenDecember 1998

0n Iorelgn excnange.Greater Competition. The creation

of greater compelition brought about bythe euro has a positive and negative side.First, the increase in competition expectedfiom the influx of more vlsitors can leadto a decline in prices in holiday productsand services. In this scenario, the touristgains from cheaper goods and services. Onthe other hand, the industry loses becausealthough businesses would gain ln volume,they would only be able to accommodateso much demand unless they expand theirbusinesses, which would be too costly forsmall tourism businesses like small-scaleor family-owned travel agencies, tour op-erators, hotels, lnns. Expansion is riskybe-cause the tourism industry, as we a1l know,is seasonal. So the only option for the in-dustry is to take advantage of volume dur-ing peak season but with low prices, inwhich case the industry can iose. The mainreason given for this is that the tour op-erators and related businesses would beunable to compete with very low pricesbecause of the already existing low profitmargins in the industry. In this way, thetourism industry will lose out on custom-ers due to greater competition in prices.

The Elimination of Exchange RateRisks. The advantage of the eliminationof exchange rate risks can be seen in dallytransactions of tour operators. For ex-ample, wlthout exchange rate risks, tour-ism-related businesses like, say, travelagents and tour operators, would have thesecurity of determining and using a singleconversion rate across the Eurozone lnquoting prices of travel products and ser-vices. It will also allow them to close trans-actions ahead of time without the risk ofprice changes due to fluctuating curren-cies. The fact is that large amounts ofmoney are at risk every time that conver-sion fiom one currency to another has tobe made. Sudden changes ln exchangerates may either give instant profit or makeinstant iosses for businesses which requireconverting currencies. The institution ofthe euro will remove this risk in the in-dustry.)

Price Transparency. With the EMUin place and the existence of only one pricereference for consumers, people will bebetter able to compare prices and makemore informed choices. Although this canbe seen only as a benefit for the consum-ers, buslnesses will gain from this factor,too, especially if the business entails put-

ting together tourist packages where thetour operator /travel agent scan for lowerpriced products and services to include inthe tour packages they sell. Of course,the ultimate effect of price transparency isinoease in competition and lowering ofprices across the Eurozone.

Changes in the Conduct of Busi-ness. The whole system and conduct ofbusiness is expected to have major changeswith the removal of 1 1 different curren-cies and the inffoduction of a sin$e one.The forseen advantage of the euro in thedaily conduct of business will be evidentin the minimization of bank transactionscompanies will have to make. This wouldmean lowering of transaction cost andgreater savings for companies in this as-pect. Moreover, a consolidation of bank-ing relationships will enable companies toplace funds more efficiently on a Europe-wide basis so as to secure the best returns.

As mentioned above, the disadvantagewill be the loss of one business (foreignexchange) which in the iong-term maylead to lay offs or even closure.

The Changeover Procedure. An in-teresting item with the Euro is the road tothe single currency. Preparations for the

, EMU have involved a complex procedurefor countries and is also expected to in-volve substantial changes in accountancyand financial and computer systems for thetourism industry. With the euro, tourismbusinesses would have adapt to new air-fare, tariff, taxes rates and computationand computer resewation systems. For ex-ample, the airline,/reservation system usedin Europe is the AMADEUS. Major adjust-ments might have to be made in this sys-tem to adapt to the euro. Travel agentshave to be retained to learn new computersystems and this could be costly for theindustry especially for smail tour opera-tors and travel agencies.

For the tourism industry changeovercost is estimated to be between 1.8 percent and 3 percent of a company's turn-over. This represents a significant cost forthe low-margin industry, which makesgross proftt margins of 10 percent in a goodyear. Similarly, the World Tourism Organization reports that transition costs willbe of great significance for small- and me-dium businesses because of their fre-quently minimal margins. The small andmedium-slzed hotel and tourism busi-Eurotourism ponders changeover costs: 1.8 per cent to 3 per cent of company turnover

November-Eecember l99E I The Asian Manaper 45

Savings from loweroverseas transactionsand remittance costswill motivate Asiantour operators topromote and sellEurope asa destination

nesses-average margins, which are be-tween 0.5 and 1 percent for small travelagencies and 0.9 percent for hotels, mustbe taken into account. This will makethem temporarily cancel benefits resultingfrom the euro's introduction.

The low gross profit margin of the in-dustry is a main reason why some tour-ism experts believe that EMU will notlower package holiday prices despitegreater competition.

Expanded Market. Tour operators,travel agents, hotel chains, car rentals,and other tourism-reiated businesses aregeneraily expected to benefit from abroader market. But not all euro counffieswill benefit fiom the euro. Although itmay be true that the Euro 11 countriestogether will constitute the number of onedestination in the world because of whatit can offer as a single entity, individualcountries within the Eurozone mightactually lose in the set-up. This may beexplained by the fact that some Eurocountries that previously had weakcurrencies may find themselves at a pricedisadvantage compared to non-Eurozone countries such as Turkey orGreece. Internally, because the Eurocountries belong to a sin$e cunency zone,they"will be able to compete by pricewithin the zone. Thus theyhave no choicebut to restrate$ze by heightening theirquality, by improving their standards,and by innovating on their productsto combat the intense internalcompetition.

Growth. The low level of interest ratesexpected as a result of the monetaryunion will increase investments in theEurozone. This will, in turn, generatetourism infrastructure and improve theinternational competitivity and thus

underpin economic growth.Tourism Labor Market. The trans-

fer to the ECB of nalional controi overmonetary policy will have significant im-plications on the wages policies of the Eurocountries. For example, some economicshocks such as oil price increase may nolonger be absorbed by a shift in exchangerate of a country and may thus lead tounemployment. This will raise manyproblems in the tourism industry in whichservices are personalized and quantita-tively of low productivity.Impact on Asian Counterparts

Because the tourism industry is an in-ternationalized sector, the euro will decid-edly have an impact on Asian tourism. TheEMU/Euro wiil definitely encourage Asiantour operators and travel agencies to mar-ket European tour packages. First, iikeEuro business establishments, Asian tour-ism will have the convenience of pricecomputation, ffansaclions, packaging andmarketing European tourism products andservices. Simiiarly, the increase in profitthey will earn from lower overseas trans-aclion or remittance cost will motivatethem to promote and sell Europe as a des-tination. On the other side, more andmore Asians would be able to afford Eu-rope as a hoiiday destination should greatercompetition cause the prices of Europeangoods and services to deciine.

Like their European counterparts, how-ever, the Asian operators (linked to Europe)should expect losses in foreign exchangeand remittance businesses. They shouldalso expect losses in the costs they haveto shoulder to adapt to the euro systemespecially if Europe makes major changesin their reservation systems, fare compu-tation rates and daily transaction set-ups.Should this happen, companies wi l lshoulder costs sending personnel to train-ing in the new system occasioned bythe euro.

The implications of the monetary unionon European economies suggest that al-though there is a certain degee of loss ofsovereigntywhere the rate of employmentmight be at risk. Some positive effects suchas region-wide growth and stability are ex-pected with the successful implementationof the monetary union.

At present, the European tourism in-dustry is a big and highly successtul sec-tor. It plays a significant role in the econo-mies of a large number of European coun-

tries, France for example. No doubt theEMU will affect this sector in one way orthe other. Positive and negative effects ofthe euro are expected to impact on theindustry in both the shortterm and thelongterm.

The biggest advantage that the EMUwill bring to the industry is the crealion ofa single currency tourism area in a scaleso giganlic that an estimated 40 percentof cross-frontier or international tourismis expected. This wili reinforce Europe asthe tourist destination in the world, thistime on an ever grander scale. Generally,an expanded market means greater com-petition, and greater compeiltion meanslower prices not oniy for European but fornon-Europeans as well. For the suppliersand service providers, geater competitionmeans not only lowering their prices butmost especially raising their product ex-cellence and giving quality service to cii-ents. In the long run this will heightenthe tourism industry's overall standards.Winners, Losers

As in any other gamble, there are go-ing to be winners and there are going tobe losers in the industry. That is to say,some players will lose in their business;qome will lose in the shortterm throughthe process of adjustment, and some willlose their entire business. This all dependson the scale and nature of the tourismbusiness one owns or runs.

Asian business counterparts are ex-pected to share that expedence, especiallyif their businesses rely heavily on Euro-pean tourism products and services. Theywill have to adiust to the European sys-tem if they want to keep this portion oftheir business intact. Certainly there willbb costs for the Asian tour operators andtravel agencies directly involved with Eu-rope, but this is not expected to be asheavy as those of their Europeancounterparts.

The euro currency will not be an easytask for European economies, much lessto indusuies. Euro seems promising, butin reality many adjustments and compro-mises have'to be made by Euro countries,by the economies, by the governments,by the industrles, by the businesses, by theEuropean Union and, most especially, bythe Europeans to ensure that it will suc-ceed. Whether the euro advantages willoutweigh its disadvantages remains to be

I

46 The Asian Manager I NovernberDecember 1998

seen.

WHEN

FOR

B U S I N E S SGIGOALAMPAY

ne office in the Philippine Senate iscurrent ly at war with Japan'sMinisuy of Trade and Industry(MITI). Caughtin the crossflre are 12

corporations operating in three countries, andthey should all be so lucky. In the wonder-ful worid of the Internet, 14 teams composedof government and corporate executives fromthe United States, Japan and the Philippines,including teams from the Master in Devel-opment Management Program of the AsianInslitute of Management (AIM), Federationof AIM Alumni Associations, Itochu's Ma-chinery Division, a group of consultants spe-cializing in Enterprise Resource Planning(ERP), and the Executive Education Program of petitors in the game," he says. "We are leuning a great dealUniversity of California at Los Angeles (UCLA)'s School of Man- about some critical aspects of govemance and business, includingagement, are competing in a high-tech education program that fiscal, monetary, industrial, and even environmental policy. Bypromises hands-on management ftainingfor the participants, and enhancing 0ur under-priceless bragging rights to the eventual winners. standing of business, these lessons should serve us well

Themanagementprogram,lntemationalBusinessSimulations in our work at the Senate. I only hope we can learn fast(lB SIM), combines the latest computer technology with the enough to acquit ourselves, and our country well in thislatest business concepts, and takes advantage of the Internet friendlywar."to allow'teams from around the world to collaborate and com- Hostilities began on October 15, 1998, and will end on No-pete with one another for an eight-week period. Around an ad- vember 23, 1998. Fortunately, lasting peace is unlikely. IB SIMvanced computer simulation of a multinational economy, IB SIM sources revealed that another "war" will breakoutinJanuary 1999.allows participating teams of five to eight executives to create Besides Itochu, other participating corporations include Sanand implement an array of management strategies at the helm of Diego Gas and Electronic Co., and AT&T. IB SIM has been usedgovernments and multinational corporalions. The simulation can 6y UCLAs Anderson Graduate School of Management, theaccommodate up to 12 corporate teams and two government Harvard Business School, the Harvard Kennedy Schoolteams during each run. In this "learning by doing" environment of Government, and the University of California's Graduatethere are few limitations on the activities of participating teams, School of International Relations and Pacific Studies. It hasanditistheinteractionamongparticipantsthatultimatelydrives also been seiected for use by the USAID, which introduced itthe direction of the simulation. in Peru this fall.

Kazuhito Endo, general manager of the human resources For more information, visit its web site <www.ibsim.com> ordevelopment and marketing division of Itochu Academy, says contact the following: United States: International Business Simu-that "case studies are a great way to learn about business lations, 14850 Fisher Cove, Del Mar, CA 92014. E-mailmanagement, but they require many hours in the classroom. IB <info@ibsim.com> Japan: Elizabeth Shoemaker, Techretary Co.SIM, on the other hand, offers flexible, hands-on training in Ltd. Kotobuki Bldg.8/F 1-3-5 KandaJinbocho, Chiyoda-ku, To-areas such as finance, technology, asset management, manufac- kyo, 101-0051,Japan, Tel813-3296-1750, Fax 813-3296-1755turing, inventorymanagement, and economic forecasting, and it E-mail <techretary@butaman.ne.jp> Philippines: GigoAlampay,allowsJapaneseparticipantstotesttheirskillsagainstteamsfrom 5/F Dominion Bldg,833 Arnaiz Ave., Makati City,the United States and other countries." Also, since corporate de- Metro Manila. Tel (632) 892-0301. Fax (632.;r BIB-2220.cisions are sent to the International Rrrsiness Simrrlations host F-mail <grgo@mnl.seqrrel.net- ITo better appreciate emerging Asia-Pacific management through info tech, this section was sponsored by /nternafionalBffi.;l;"X;;ftfiB

I The Asian Manaper 47

computer through the Internet and puticipants receive information by downloadingreports and journals from the IB SIM website <www.ibsim.com>, participation inthe simulation also provides managers theopportunity to use information technology.

For the people of the office of Philip-pine Senator Juan M. Flavier, IB SIMrepresents a unique opportunity. Atfy.Rudy Ouimbo, the Senator's chief of staff,admits to some nervousness. "We arevery excited with this chance to in-teract not only with corporate executives,but more so to compete with and learnfrom the people atMITI who are our com-

By Horacio Bonomeo Jr.

ehristWf.llM

I started thinking what Christmas

I would be like withoutJim. Jim is the

I late Fr.lames Donelan, SJ. who passedI away in April, after battling the rav-

ages of Parkinson's Disease for many years.He was our fiiend, our colleague, but morethan that, he was our priest. And as ourpriest, he always gave Christmas, for usCatholics, a truly special meaning.

Unlike shopping malls and radio sta-tions, Jim began the Advent season noearlier than the Chutch-prescribed fourthSunday before Christmas. He wouid writehis sister in New York and ask about thepeople he should temember with Christ-mas gifts and gteetings. He would instructLarry Lontoc to take out the decorations,clean them and transform the chapel with

them. In earlier years he had relied on GonPerez to do this. Untll Cron died. It wasDecember 1989, and the wake was inJim's chapel. The evening of the day Jimburied Gon, rebel soldiers hostile to Pres.Cory Aquino's government launched acoup d'etat. For some unexplained reason,the loyalist troops who occupied the AIMcampus used the chapel as their headquar-ters. That was a sad Advent season forJim.And the year after when he, out of habit,tried to call Gon to ask about the Christ-mas decorations.

Jim would always have a beautifulwreath ready for the Advent ceremony,and his homilies would begin taking onChristmas themes, to remind us all [whomay have been distracted bY our own

preparation for the holidays, the trip toHong Kong, the guest list for Christmasdinner, what to get the wife) of the truemeaning of Christmas.

Jesuits write good homilies, but Jim'sloyal parishioners thought none was hisequal. At least one of his Jesuit friends hastold me that for their own homilies theyhave bonowed themes, if not whole pas-sages, fiom Jim's. Sometimes they didn'thave the time to produce an original work,often they simply found Jim's wdting soprofound and powerful they didn't thinkthey could do better. For Christmas Mass,

Jim would always produce a masterpiece.It probably would be fair to say that

many people who heard Sunday Mass atAIM went there instead of their parish

48 The Asian Manager I November-December 1998

churches because of Jim's homilies. Christ-mas Mass, especially when it was heldoutdoors in AIM's "sunken garden", wasan SRO (standing-room-only) affair. SoJimalways worked extra hard on homilies forChristmas day.

I tried to tell him once, jokingly ofcourse, that the real reason people flockedto his Christmas Mass was because he gavegenerai absolution. He didn't believe me.I also pointed out one time that he hadforgotten to give the absolution after ask-ing everyone to recite the act of contri-tion. He didn't believe that one either.Years later, it occurred to me that mentalIapse may have been an early sign of theaffliction that would test his courage, andforge his faith, over the few remainingyears of his life.

A Life for OthersFor us in the AIM faculty, the Christ-

mas season meant, among other things,our annual conference, for which weall drove up to Baguio during the Christ-mas break. In the dewy, pine-scented earlymornings, Jim, an Oxford don, formerPresident of Ateneo University, a founderof AIM, a professor of ethics, and business communication, our chaplain, wouldsay Mass for us. I often thought that thechill mountain air was a more fitting am-bience for his Advent homilies than theair-conditioned AIM chapel. The'91 earth-quake forced us to seek other venues forour annual confetence. Soon, Jim's wors-ening illfless would make it increasinglydifficuit for him to ffavel and be with us.But this didn't stop him from his Christ-mas preparations. While we would be outof town for our conference, and he inMakati, Jim would spend those daysmaking sure Christmas would be a happyoccasion for others. He always managedto find a more-than-adequate choir to singfor the midnight Mass, sometimes scho-lastics from the Loyola House of Studies,sometimes first year students of AIM. Hewould write Christmas cards and redistrib-ute the many gifts he got from his richfiiends to his not-so-rich friends. (l willalways treasure the last Christmas card hesent me. He could barely scrawl the wordsFather l im Sl.) And he would craft(he never merely drafted), his Christmashomily.

Perhaps the most important activity forJim on christmas was preparing the dls-

tribution of cash for the waiters, janitors,and security guards of AIM, and goods andgifts for the streetchildren that he hadadopted as his final apostolate. As Christ-mas approached, we knew we would geta little note from Jim reminding us toremember those who had served andwaited on us, and those less fortunate inlife. Jim carefully divided the money hecollected from us among all the waitersand janitors and security guards.

It is ironic that he with the disease thatattacked the memory ce11s always lemem-bered those whom others easily forgot.For Jim this meant those who served

others, whom others took for grantedthroughout the year. Little wonder thatthe waiters and janitors and securityguards would always remember him.And who can ever forget the gratefulsmiles on those many nameiess faces ofstreetchildren long abandoned by theirparents and those who should have lovedand cared for them?

Perhaps this is how we, who will missJim this Christmas, can keep his memoryalive and unfading. Not by regetting themany things he will never do for us again,but by gladly doing for others what healways did, and not just on Christmas. I

We who will miss Jim this Christmascan keep his memory alivenot by regretting thehe will

but hy

never

others

November-December 1998 | The Asian Manaser 49

THEASTAI\IIVTONGERGIFTS FOR THE WORKAHOLIC

Elmer S. Soriano, M.D., MDM'97

Workaholism is fast fading. Smartworking is ln. If you don't have time for family and friends, you're mismanagingyour office and your life. Dare to glare at the last of 'em workaholics at the workplace with these gifts

For the heavy-smoking CEO and his disciples:

Juicy Options. A quartet of poisons plays on the body of the ciga-rette-smoker: nicotine, carcinogens, carbon monoxide and acetalde-hyde. They may profess that they don't want to die in perfect health solung cancer is okay. But they may have to live with pernicious anemiaand blindness. To neutralize toxic effects, vitamins 81, B12 and Cmust come to the rescue. This means at least 100 grams of acerolacherry juice daily, which yields some 3390 mg of Mtamin C. Then thereare the runners-up: camu pulp, calamansi iuice, unsweetened orangeand pineapple juice, black currants and guavas. A Christmas juice bas-ket is a good starter - and lighter on the wallet. If you want them topig-out, try pig's liver and pig's kidney which both have very high B12.Or if you want to g0 the way of B 1 , how about dried brewer's yeast?

For the balding CEO and his followers:

Oysters. What a fitting way to integrate AIM's Peatl Year for yourChristmas treat for those plagued with alopecia or baldness and loss ofhair. While the whole gamut of vitamins and minerals from A to Z is inorder, you can focus on suggesting supplementary doses of zinc. Medi-cal studies have shown that an additional 15 mg of zinc may help re-store hair growth (although not instantaneously). Oysters - even just

100 g. - afready ytelds 70 mg.!

For the Young and the Restless:

The Moon goddess Selene. The ambitious, aggressive, argu-mentative, competitive, impatient and restless yuppy tends to be True-A managers - the coronary prone. They may already have hyperten-sion, high-blood pressure, angina, even premature arthritis and hair' nailand skln problems. Selenium, named after the moon goddess Selene,may be helpful, found in organ meats, muscle meats and fish and shell-fish. If refined and processed foods are served to them meeting aftermeeting, chances are they have selenium deficiency, so suggest a "vis-

ceral" savoir faire.

r , i : , : ia .

For the Burn-Out:

Burn Offl Where there is hardly room or protocol in the workplacethat tolerates physical response to emotionally-charged situations, therethe burn out syndrome stalks executives. The body has a quick responsesystem akin to saber-toothed tigers ready to pounce an attack in the faceof danger. Two hormones - epinephrine Iadrenaline) and noreoinephrine(noradrenaline) - shoot through the sympathetic nervous system instressful situations, speeding up the heart rate, inoeasing blood flow tothe muscles and away from the skin, lungs work faster to ensure circu-lation of oxygen, and the reserves of sugars are released to the bloodstream to provide the muscles with the fuel for physical combat or es-cape. The distressed executive can't resolve arguments through flst-flghts,or leave the car in the middle of the traffic jam and iog to work, orthrow folders and files around gumbling. Thus, the unused fuel sup-plies stay in the body's circulation system way after the stressful situa-tion is over. A miserable cycle begins: the executive becomes increas'ingly overweight and weighed down by the world: burn-out sets in.What to give him for Christmas? A gift card with an expiration date t0baliroom dancing and assurance that you'll take care 0f the dance in-structor's honorarium, or a membership card to a golf club that is begin-ner-friendly, or, if you have a shoestring budget, a map for a walkingtour of the malls in the financial district. Anything to give the burn-outreason to burn off excess fats immediately: try a sackcloth made to looklike a punching bag, organize a Christmas sportsfest, and get him on thecheering squad, or make sure the elevator is not working so he'Il haveto c1lmb the stairs.

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' i . ' " ' l l i1r...,,.1:ri

50 The Asian Manaper I November-December 1998

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