Prospects for Recovery March 1999

The APMF surveys readers of the Asia Pacific Management Forum on their views on a critical topical question. Results are analyzed and validated by Orient Pacific Century Strategy, Marketing and Research. Each quarter, a draw from all valid responses is held for a free gift. This quarter it was a personally signed copy of "Corporate Charisma" (1998) by APMF board member Dr Paul Temporal and Dr Harry Adler. Back to current surveys and research reports & research methodology from other past surveys.

Summary: A survey conducted among visitors to the Asia Pacific Management Forum in February to March 1999 showed that out of the nine countries worse affected by the Asian crisis, Singapore would make the best recovery by the end of 1999, and Indonesia the worst. The factors seen as key to a good recovery were Political Stability, ability to respond fast to the crisis, and the Financial system. Introduction: Perceptions of the recovery prospects for nations are generally seen as a valuable indicator of future recovery. Economics is an inexact science, and investment decisions for future returns are often based on the subjective confidence of business people and serious observers of business. If business and consumer confidence is high, investment often follows, even if this confidence is based on subjective perceptions. In some cases, confidence can be a better indicator of recovery than formal economic indicators. It is the reason why politicians talk up the health of their economy, and why recovery is so often based on positive psychological perceptions as much as political and economic re-engineering. When the perceptions are based on the opinions of those who are knowledgeable about their subject basing their opinions on actually working in or with the economies themselves or researchers who are engaged in research, the confidence rating has more credibility. The Asia Pacific Management Forum, as the first professional Asian business site on the Internet, offers business news, research articles, country capsules, business travel advice and business columnists. It attracts a targeted group of senior managers working in the region itself, both local and expatriate, business people living outside the region, who nevertheless have major business interests in the region, as well as professional market researchers and business analysts. In addition it attracts academics specialising in Asian management and business. The summary of the sample provides details of the background of the respondents to this survey. Visitors to the Asia Pacific Management Forum in February to March 1999 were invited to complete a questionnaire eliciting their opinion on the Asian economy most likely to improve by the end of 1999, and also the economy least likely to improve. A forced-choice response set was used as this was seen as most appropriate for the on-line nature of the survey and the nature of personal perceptions on economies. Decision theory tells us that faced with a complex rating task, respondents provide more valid responses by first nominating the elements at either end of a list. Only economies that had been worst affected by the "Asian crisis" were provided as alternatives, these being Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand. 132 usable responses were received, representing a wide variety of nationalities, residence, industries, age groups, educational levels and occupations. The figure below summarises the results. The value for each country represents the percentage of respondents who nominated that country with the best and worst recovery prospects. Singapore (36%), Korea (24%) and Taiwan (20%) were the most popular nominations for those countries with the best prospects for recovery. Indonesia was perceived as having by far the least favourable prospects for recovery. Thailand was the only one of the surveyed countries not to be nominated in either category. The reasons for nominating a country as the one with best or worst prospects are summarised below. Please also refer to our cautions in interpreting this data. More details on the sample and methodology are available on request. What are the fundamentals for recovery? So what were the fundamental reasons that our sample used in deciding the countries with best and worst recovery prospects? Some underlying themes ran through the reasons given, especially political stability (or lack of it). The role of government was stressed continually, particularly from Asian nationals or Western expatriates, reflecting a perception of the central role of national governments in reversing the crisis. However speed in responding to environmental forces was also stressed by many. A textual content analysis of the over 250 reasons and factors submitted by the respondents resulted in several categories presented in the table below. 90% of the reasons could be classified as one of 5 factors: Financial System factor (eg. good banking sector, strong finance sector) Human Resources (eg. well trained workforce, capable business leaders) Reaction Speed (eg. government/business responds quickly to changes and opportunities) Political stability (eg. well-entrenched government, political upheaval, social unrest) Inward/Outward (an interesting factor that emerged due to the number of comments on whether economies were engaging globally through such avenues as liberalisation of trade and working with others, or becoming more insular) When a factor was cited as a reason for nominating a country as the "most likely to recover" it was designated as a "facilitating factor". When a factor was cited as a reason for nominating a country as the least likely to recover it was designated as an "inhibiting factor". The red bars represent debilitating factors and the green bars facilitating factors. The graph can be interpreted thus. In the bar labeled "political stability" for example, we can see that 48% of our sample mentioned this factor when giving their reasons for choosing a country with the worst prospects for recovery. On the other hand, around 35% mentioned it as a factor in choosing the country most likely to recover. Our respondents seem to be telling us that political stability is the most important factor in recovery. All the factors presented here could be said to be important, as 10% of the reasons were not able to be classified into any sensible factor given their wide range and diversity. The differences between the length of bars are significant too. Our sample seem to be saying that good human resources are a main factor in facilitating recovery but not as important in inhibiting recovery. The same could be said for inward or outward policies and culture. Singapore best poised for recovery: Reasons given for confidence in Singapore's recovery prospects ranged from strong government to the ability to make decisions fast and the strength of their financial systems, the major bugbear of the Asian crisis. The "work ethos" was cited several times, and stability was a recurring theme. Some typical or particularly thought provoking contributions are presented below. Singapore always has a good management structure in government and its infrastructure. The workforce are educated to a level which are able to recover within a shorter frame of time. Strong reserves, efficient government, main problem was high costs structure (partially addressed through cost cuts), diversified trading partners. Basically hit by contagion from neighbours - as they stabilise, Singapore will recover. Singapore has infrastructure and ethos as well as established reputation. Like a high beta stock, it moves fast in a moving market, given its huge exposure and dependence to the region. Singapore will profit directly from the bad situation in HK; if they can keep the interest rates and inflation stable incl. money supply Singapore will be in the position to help neighbouring countries out of the crisis. Prudent Governance, sound fundamentals, united citizens, financial resiliance, rational and measured response to crisis, timely restructuring on the economy to met the challenges and sincere desire to help its neighbours. Singapore (has) stronger control over their economy. Sound leadership of the country and relatively better managed financial sector. It has political stability and well developed financial market. Singapore has acted on major reform in finance, labor costs, asset over capacity and education. Specifically it has accelerated the opening of its financial markets by merging weaker banks with stronger ones, creating financial products on SIMEX to compete with Hong Kong; intensely promoted E commerce for local and regional business reduced manpower costs by lowering pension fund requirements of employers, loosened entry rules for foreign skilled workers in targeted industries reduced the supply of government land for development revised the educational system to emphasize problem solving skills, western testing standards and asian language ability. It has moved quicker than other countries to deal with its internal problems. Korea reforms and recovers: Korea came in second to Singapore as the country with the best recovery prospects, but the reasons here stressed more the willingness of the Korean government to reform. The responsibility for recovery was still with the government but in this case in a desire to reform than pre-existing strong and stable government. Market data is becoming more publicly available, thus allowing more informed decisions Clear and cogent response to difficulties; increasing democratisation accompanies internationalisation of the economy - although I am ambivalent about this." With good foreign investments flowing into Korea and foreigners buying up fire-sale assets in the reforms.v Korea seems serious about reforming the Chaebols, and crucially is doing best among Asian exporters. It is through success in exporting, and the resultant in-flow of foreign capital responding to evidence of that success, that Korea will be first to recover. because the S.Korean govt. was able to understand the need to restructure corporate debt quickly and so involved itself in the process. liberalisation of the economy, inflows of foreign investment Taiwan looking good: Less affected than all the countries surveyed, Taiwan lost less and has less to make up. Most comments stressed many of those mentioned for Singapore. Strong Fundamentals, and diversification of the economy. least damaged by the Asian Catastrophe. Although Taiwan is showing some troubles (falling real estate prices, falling stock market, rising bankruptcies..etc; see Feb 15,1999 Fortune), as the Far East Asian economies recover, it will spring back faster and better than other economies. Western interest in Taiwan's economic well-being because of it's location and it's political view compared to mainland China, and because of it's strong manufacturing economy. Because they have done the best job of diversifying their investments, mainly out of necessity (because they are not recognized politically by most nations). maintain the stable currency, strong foreign reserve,distinction of the market Economic fundamentals are strong, like a good mix of primary, secondary and tertiary industries, highly educated and skilled workforce, high national savings, Confucian diligence and resilience. Problems ahead for Indonesia: Worse affected by the crisis, Indonesia stood out as the country less likely to recover in 1999. Most cited reasons were ethnic and social unrest, related to political stability. Indonesia has tried to reform but is held back by deep rooted popular suspicion that all change is driven by favouritism, existing power cabals and a corrupt police force. Ethnic and class problems existing for generations have never been satisfactorily aired. Indonesia will be the slowest to change as it has neither the homogeneity nor the popular will to drive to consensus. Insufficient acknowledgment of problems and increasing dangers of ethnic and religious conflict. With political and social unstability, Indonesia cannot do much to reform and recover. Uncertainty caused by the social and political troubles in the country. It will take many years before the country will make any progress. Political instability and the economy still based on primary commodities. The price of petroleum has been low. they have poor industrial infra. Moreover,social and political unstability is very severe now. First of all, they have scared off their most experienced businessmen, the Chinese. Secondly, their society and politics are instable and volatile. Lastly, poverty or making basic ends meet has become a higher priority than rebuilding a weakened economy. Massive social inequalities and divisions cannot be resolved until political change occurs, which does not seem likely. Economic recovery can only occur in a reasonably stable polity Things are too politically unstable; no true recovery until government revises it's policies with regard to environmental & human rights abuses...unless (the) IMF interferes again. Large population stricken with political, social and economic problems of titanic proportions; leadership in transition, serious poverty and social injustice and polarization; and massive hemorrhage in investors' confidence. Political instability and lack of leadership Political instability has not allowed fundamental economic problems to be addressed. Weak institutional structure does not allow bottom-up recovery. Nothing will happen til after elections. Political uncertainties making consumers, businesses unwilling to make major purchases The jury is still out on Japan, Hong Kong, Malaysia, Philippines and Thailand: There were mixed feelings about Japan, some respondents feeling that there had been great success in reforms, while others felt that the practice had not met expectations of the theory! Several mentioned that Japan had such a deeply entrenched culture of "non-disclosure", corruption and cronyism, that any advance would be a help, though the task was mammoth. Malaysia, who has gone their own independent way in fighting their crisis, received all of their support from Malaysians living in the country. A representative comment was "..We don't have to pay back the IMF!.." Unlike other countries, Malaysia was the only country where nationals only ranked the country as most likely to recover. It suggests a good deal of confidence of Malaysian's in their own economy, though of course based on a very small sample. Hong Kong's future according to most who nominated it as the most likely AND those who nominated it least likely to recover depended on China. Another reason for nominating it as the country with the best prospects was the professionalism of the policy makers and "savvy" of the business. Sample: The sample consisted of visitors to the Asia Pacific Management Forum in 6 weeks during February and March 1999 who responded to an invitation to participate in this on-line survey. The sample represented a good cross section of the user profile of the Asia Pacific Management Forum. In terms of nationality and residence most respondents were from North America (30% and 26% respectively), but US respondents did not in anyway monopolise the sample as sometimes happens in on-line surveys. Nationals of Asian countries made up 40% of all respondents and 45% of the sample were resident in Asia. Surprisingly, there were no respondents from Japan.     Nationality (%) Residence (%) US 22 19 Singapore 12 17 Australia 9 12 Malaysia 10 8 Canada 8 7 United Kingdom 6 8 Thailand 5 7 Taiwan 4 1 Philippines 3 1 New Zealand 4 3 Korea 5 3 Holland 3 0 China 0 3 Hong Kong 0 6   Other nationalities and residences represented but with 3 or less respondents were Sri Lanka, Belgium, Vietnam, South Africa, Sweden, Germany, France and Switzerland. A significant proportion of respondents were expatriates (62%), defined here as respondents residing in a country different from their nationality. Of these, half were Asian expatriates working in the West or other Asian countries and half were Western expatriates working in Asia. Females were poorly represented, making up only 19% of the sample. It was a very mature sample in terms of age, with 15% in the age group 20 to 30, ages 31 to 40 (20%), ages 41 to 50 (28%) 50 to 60 (32%), and Over 60 (5%). It was also a highly educated group in the sense of formal educational qualifications with 20% holding a doctorate degree, 24% a Masters degree, and 39% a degree or diploma. Sixteen percent of the sample were earning over $60,000 US per year, $40 to 60,000 US (38%), and $20 to 40,000 (31%). Forty percent were occupying management positions, Professional/Trade and Technical positions (33%), Administrative positions (3%), 14% were undergoing full time education, 8% were retired, and 2% unemployed. In terms of functional areas, most were involved in Strategic or general management (36%), followed by Finance and Accounting (21%), Marketing/Advertising/PR (12%), Human Resources/Training (9%), Production (7%), and Sales (3%). A wide range of industry sectors were represented, the main ones being Education (21%), and Management or Business Consulting (17%) and Banking and Finance (12%). These were followed, in order, by Manufacturing, Food and Beverage, Government/Public Sector, Information Technology, Transport/Shipping and Travel/Tourism/Hospitality (all from 5 to 10%). Other industry sectors represented were Agriculture/Fishing and Forestry, Trading/Retail, and Health. Further details of the sample are provided in tabular form elsewhere. Methodology: Caution should be exercised in interpreting the results due to the on-line nature of the survey, meaning all respondents had access to the Internet and used it for business or educational purposes. The sample base of course, is also very small. The question was forced-choice, which had the advantages described in the introduction above, but also has some well-known problems. Given the nature of the survey, however it was felt by the researchers that this approach suited the purposes of the research best. Conclusions: If our respondents are proven correct, Singapore will have made a major recovery by the end of the year, and Indonesia will have made the least. However, Respondents were not asked whether economies would actually go backwards, so it may well be that Indonesia does start to recover, though not as well as other countries in the survey. Opinion on the recovery prospects of other countries was divided, but confidence seemed positive rather than negative overall. Thailand and was not mentioned by respondents in either category. The Philippines attracted a few who nominated it as the least likely to recover, but none who saw it as the most likely to recover. The role of the government was seen as crucial to recovery, followed by the financial system, human resources, and an "outward looking" posture. We will revisit the results at the end of the year, and see how close we were!

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