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Measuring
Up
By Michael Alan Hamlin
May 26, 2001
Not all the news is bad - tough economic times in Japan,
South Korea, and the US is forcing a shift in manufacturing to lower
cost centers like the Philippines and the country's IT workers are
in more demand than ever - analysts and observers generally agree
that the Philippines has a way to go before it rejoins the ranks
of investible nations. To understand where the Philippines is, and
where it needs to go, it's useful to examine the experience of other
countries during tough times.
CHINA. In a five-year span ? which encompassed the Asian financial
crisis ? Shanghai transformed its Pudong area from sleepy grassland
to an impressive, world-class financial and industrial center. Over
a 20-year period, Shenzhen ? which shares a border with Hong Kong
? saw its population transform from a few hundred thousand to around
five million, boasting China's highest density of Ph.D.s as well
as the highest average income in the country. Two years before 1997
handover of Hong Kong to the mainland government, Fortune magazine
forecast the death of Hong Kong, but that was not to be. Financial
secretary Antony Leung Kam-Chung noted dryly six years later that
the former colony remained Asia's No. 1 financial center.
China has consistently defied analysts' frequently
dire predictions of doom. At the onset of the financial crisis,
Pudong was seen as just one more symbol of Asian excess, and media
grew fond of reporting vacancy rates in its gleaming towers. As
the area prospered and the rates rose, the critics fell silent,
other than to note perhaps that Pudong is home to quite possibly
the most unsightly television broadcasting tower in the world. Shenzhen
absorbed its neighbor's manufacturers, fleeing high-cost Hong Kong's
exorbitant rents and high pay scales, becoming a magnet for ambitious
workers throughout China. Meanwhile, Hong Kong's challenge was to
remain more than just another Chinese city. One way was to make
it the only Chinese city that will ever have a Walt Disney theme
park ? along with its HK$148 billion in economic benefits and 36,000
jobs. Despite stiff competition from Singapore, it also remains
the most popular location for regional headquarters of multinational
firms.
MALAYSIA. Malaysia fixed its currency at 3.8 ringgit
to the dollar as Asia's financial crisis worsened, a move MIT economist
Paul Krugman not only applauded, but took credit for influencing
in a Fortune column that preceded the controversial move. Malaysia
was the only country to introduce capital controls ? including penalties
for "early" withdrawal of foreign invested funds ? during
the crisis. There's been a steep price to pay. According to one
recent report, Malaysia's stock market losses in the past 12 months
are equivalent to 44.1 percent of annual economic output. Worse,
foreign reserves are down sharply as portfolio investors stay away,
local exporters circumvent controls to keep proceeds in foreign
currencies, and foreign direct investors continue to frown at the
country's high cost of doing business ? the peg backfired when other
currencies bowed to market pressure ? compared to the region.
State bailouts of banks and big businesses allied to
top government officials has increased the financial burden on Malaysia,
as has increasing political tension in the aftermath of the arrest
and conviction of popular former deputy prime minister Anwar Ibrahim.
Sure, Malaysia managed to postpone the day of reckoning by instituting
capital controls. But insulating its inefficient private sector
from reform proved to be no guarantee that Malaysia would remain
the investor darling it was during Asia's miracle years.
THAILAND. It may not be fair, but in many minds Thailand
"owned" Asia's financial crisis. After all, it was the
baht that was the first domino to fall, pushing along most of the
rest of the region in the most gruesome financial panic the world
has never seen. With the financial ashes still smoldering in 1998
? and threatening to burst into another fireball ? most consultants
probably would have advised against running a tourism campaign under
the banner, "Amazing Thailand." But not Thailand.
Fortunately for the creator of the campaign, Bhanu
Inkawat, the "quirky" campaign "helped Thailand pull
in 8.65 million tourists in 1999 ? some 370,000 more than the target,"
according to a report in Aisaweek early this year. The Tourism Authority
of Thailand was so pleased that it extended the campaign, and even
expanded it to international broadcaster CNN. The result: another
record visitors the next year, a 10 percent increase to better than
nine million. In fact the campaign was good enough to be widely
emulated ? and awarded ? and not just in Asia. Have you heard the
tagline, "Amazing Finland?"
TAIWAN. Although Taiwan was left largely unscathed
by Asia's financial crisis, it had other problems to deal with.
The Hsinchu Science-Based Industrial Park illustrates just how difficult
dealing with the problems of success can be. The park is a textbook
example of how to build and develop an industrial cluster. Covering
580 hectares occupied by 272 tenants, the park has close ties to
two national universities and is situated near 12 research facilities
at the Industrial Technology Research Institute. It also provides
grants for innovative high-tech research and development projects.
The park "ecosystem" includes shops, sporting facilities,
a large apartment complex and efficient transportation links. But
it's also bursting at the seams and suffering regular brownouts.
The creaky infrastructure has gotten so bad that Taiwan
semiconductor maker Macronix International doesn't think it will
be able to expand. Intent on taking over government land adjacent
to the park, president Miin Wu laments, "Even if [the government]
gives you the land they may not allow you to build because they
have only so much power and water." His conclusion: "We
may have to look elsewhere," he recently told Newsweek. The
park's problems include lack of space for the expansion of existing
clients, profit-sapping power shortages, and even water shortages.
Meanwhile, there are plenty of other places to look in Asia, places
that may begin to look increasingly attractive to even existing
clients.
But ah, the problems of success. Wouldn't it be nice to have some?
(Mr. Hamlin is managing director of the consultancy
TeamAsia and the author of two books on Asian economies and managing
in Asia. His latest book is The New Asian Corporation: Managing
for the Future in Post-Crisis Asia. His e-mail address is mahamlin@teamasia.com.ph.)
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