The New Asian Ascendancy and New Zealand

Tim BealSchool of Marketing and International Business

Environmental correctness

• The importance of recycling• Presentation to Asian Studies, University of Otago

18 May 2006

Outline

• Asia in global economy – the historical perspective

• Importance of Asia to NZ• China’s expansion into global markets• India joins China: The Indian Market• Research Project

– Opportunities for New Zealand Business in India

– Work in progress - some tentative conclusions

ASIA IN THE GLOBAL ECONOMY – THE

HISTORICAL PERSPECTIVE

The Old Order, or our perceptions of it

• Example of pre-modern China

• Self-sufficient, complacent, autarkic

• Eg Qianlong emperor to King George III in 1793, rebuffing attempts to open trade relations

The Celestial Court has pacified and possessed the territory within the four seas. Its sole aim is to do its utmost to achieve good government and to manage political affairs, attaching no value to strange jewels and precious objects. The various articles presented by you, O King, this time are accepted by my special order to the office in charge of such functions in consideration of the offerings having come from a long distance with sincere good wishes. As a matter of fact, the virtue and prestige of the Celestial Dynasty having spread far and wide, the kings of the myriad nations come by land and by sea with all sorts of precious things. Consequently there is nothing we lack, as your principal envoy and others have themselves observed. We have never set much store on strange or ingenious objects, nor do we need any more of your country’s manufactures

Mad?

• Whilst this condescension and incomprehension was to lead to disaster, the emperor had a point, as we shall see

• Look at graphs of GDP and trade– The dominance, decline and resurgence of China and

Asia

Rise, decline and resurgence of Asia

• Two sets of data• 1: Long term trends in the world economy

– Angus Maddison, OECD (2001, 2004)

• 2: Rise of Asia in world trade– World Trade Organisation

Wealth and population

• Maddison’s regions:– Asia – includes Middle East, not Central Asia

• Former USSR

– Western offshoots – US, Canada, Australia, NZ• Not Latin America

• Here regions conflated to allow focus on Asia• Maddison’s money: 1990 international $

– Comparability over space and time

Figs 1-5

• 1: Regional distribution of world GDP, 0-1998

• 2: China and West Europe: population 1 –2001

• 3: China and West Europe: GDP, 1-2001• 4: China and West Europe: pc GDP, 1-2001• 5: NZ in East Asian context – pc GDP,

2004

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Western Europe and offshoots

Asia

AfricaEastern Europe and former USSR

Latin America

Fig 1: Regional distribution of world GDP, 0-1998

China and West Europe

• Asia>>>China

• West Europe & Offshoots >>>West Europe

• China, West Europe in columns, Y-axis to left

• Relationship (China as % of WE) in line, Y-axis to right

• 100% line (above = China>WE)

China and West Europe; Population 1-2001

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Fig 2: China and West Europe: Population 1-2001

Fig 3: China and West Europe: GDP, 1-2001

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China as % of West Europe

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Fig 4: China and West Europe: pc GDP, 1-2001

pc GDP 2004

0 5 10 15 20 25 30 35

China

South Korea

New Zealand

Taiwan

Singapore

Japan

Hong Kong

US$'000 (PPP)

Fig 5: New Zealand in the East Asian context – pc GDP, 2004

Asia and Trade

• Asian resurgence not in isolation, but connected, primarily through trade

• Trade– Trade in Services

• Eg tourism, education..

– Merchandise trade – goods• Focus here

World Trade Organisation data

• Fig 6: Share of world imports, 1948-2003, Asia and NZ

• Fig 7: Share of world exports, 1948-2003, Asia and NZ

• Fig 8: China and NZ in world trade, 1948-2003

Share of world imports, 1948-2003: Asia and NZ

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Fig 6: Share of world imports, 1948-2003, Asia and NZ

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Fig 7: Share of world exports, 1948-2003, Asia and NZ

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1948 - China and NZ both have about 0.8% of world trade

2003 - China has 5.6%, 24 times that of NZ

2003 - NZ's share of world trade has fallen to 0.2%

Fig 8: China and NZ in world trade, 1948-2003

IMPORTANCE OF ASIA TO NZ ECONOMY

Interaction between NZ and Asia

• Decline and rise of Asia• Now economic interaction between NZ and

Asia• Asia important to NZ in early days of

European settlement– 1792 sealskins to China– ‘jumping off point for China trade’

• Importance declined, then revived

NZ’s trade with Asia

• Fig 9: Direction of NZ exports, 1859

• Fig 10: Direction of NZ exports, 1859-1997

• Fig 11: Direction of NZ imports, 1859-1997

• Fig 12: NZ’s top twenty export markets, 2004

• Fig 13: Top 25 source countries for NZ imports, 2004

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

United Kingdom

Australia

China

India

Peru

Whale fishery

Mauritius

Other

Guam

United States of America

Java

Share of NZ exports

Fig 9: Direction of NZ exports, 1859

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1868 1878 1888 1898 1908 1918 1928 1938 1948 1958 1968 1978 1988

June years

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Asia BritainEarly exports to China

Commercial treaty with Japan

Fig 10: Direction of NZ exports, 1859-1997

0%

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1859 1865 1871 1877 1883 1889 1895 1901 1907 1913 1919 1925 1931 1937 1943 1949 1955 1961 1967 1973 1979 1985 1991 1997

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Fig 11: Direction of NZ imports, 1859-1997

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Netherlands

Singapore

Thailand

France

Indonesia

Mexico

Italy

Canada

Philippines

Malaysia

Hong Kong (SAR)

Belgium

Taiwan

Germany

Korea, Republic

United Kingdom

China

Japan

USA

Australia

Share of total exports, fob

ASIAAsia as a whole accounted for some 33% of NZ exports in the year ending June 2004

Fig 12: NZ’s top twenty export markets, 2004

0 5 10 15 20 25

India

Saudi Arabia

Switzerland

Oman

Denmark

Netherlands

Brunei

Belgium

Sweden

Indonesia

UAE

Thailand

Canada

Taiwan

Malaysia

Italy

Singapore

Korea, Republic

United Kingdom

France

Germany

China

Japan

USA

Australia

% of total imports, cif

ASIAAsia as a whole provided some 36% of NZ's imports in year ending June 2004

Fig 13: Top 25 source countries for NZ imports, 2004

Trade in Services

• Tourism

• Educational services

Tourism

• Fig 14: Asian share of tourism to New Zealand, 1985-2004

• Fig 15: Provenance of tourists to NZ, 2004, by region

• Fig 16: Share and change in tourism from Asia, 2002-04

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Asian %

Fig 14: Asian share of tourism to New Zealand, 1985-2004

Oceania 40%

Asia 23%

Europe 21%

Americas 12%

Other 4%

Percentage from Asia stagnant for at least three years, and down from 36% in 1995

Fig 15: Provenance of tourists to NZ, 2004, by region

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India Indonesia Japan Korea,Republic

Malaysia Philippines Singapore Taiwan Thailand

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Increase in numbers

Decrease in numbers

Japan #1, but stagnant

China #3, and growing despite SARS

Fig 16: Share and change in tourism from Asia, 2002-04

Educational services

• Fig 17: Continental provenance of global international students, 2001/2

• Fig 18: Provenance of international students in New Zealand, 2004

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Asia accounts for 37.8% of all international students

Fig 17: Continental provenance of global international students, 2001/2

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Indonesia

Vietnam

Hong Kong

Taiwan

Malaysia

Thailand

India

Japan

South Korea

China

average visas, Mar 04- Jan 05, in 1000

China = 45.6%

Fig 18: Provenance of international students in New Zealand, 2004

CHINA’S EXPANSION INTO GLOBAL MARKETS

Contemporary geopolitical context

• Need to position it within the China-US confrontation– US fearful of rise of China

• Eg purchase of Unocol by CNOOC

• my China page has many articles

– US strengthening US-Japan, US-Taiwan alliances• Forcing China and Russia together

• South Korea >>China

• Papers in– November 2005: Asian Affairs– December 2005: NZ Journal of Asian Studies

Chinese manufacturing

• For some years China has been known as the ‘factory for the world’

• Now seeing corporations, and their brands, surging onto world stage

• EG Hai’er, Lenovo and Shanghai Automotive Industry Corporation

• Faster, and less expected, than Japan’s expansion in 60s and 70s

Entering world markets

• Two ways• Low-end producers of labour-intensive

products, eg textiles• Manufacturing components and products

fro foreign brands• Following Japan, S Korea• Will remain mainstay of exports for some

time

Something new

• Acquisitions

• Brand expansion

• Often connected

Acquisitions

• Lenovo buys IBM’s PC division– Formerly Legend

• Highly symbolic act – ‘end of an era’

Chinese brands

• Shanghai Automotive• Kelon – fridges• Galanze – microwaves• Guangdong Donlim – kettles• GD Midea – rice cookers• TCL – TVs and DVDs• Hisense – TVs• But the big one is….

No, Hai’er

• Qingdao – home of China’s first global brand, Tsingtao beer

• Also home of Hai’er

Hai’er stands out

• Incorporated 1984– Rapid growth

– Diversification across industries

– Aggressive global expansion• 78% annual sales growth; 86 categories of products, 13,000

specifications, 160 countries

• Entered US in deal with Wal-Mart and Target, but under own name

• Started production in the US

Japanese parallels

• Japanese moved production to US to circumvent protectionism

• True for Hai’er, but also desire to establish perception as ‘American company’

• US regions now vying for Chinese FDI as sought Japanese in past

Hai'er charisma

• Dynamic leader – Zhang Ruimin– Member of Central Committee of Chinese

Communist Party– (Hai’er part owned by Qingdao local

government)

• Spawned a film, a book, scholarly articles and Harvard case studies

Chinese expansion

• Rapid, taken most observers by surprise

• But in historical perspective not so surprising

• Asia was centre of world economy

• When regained independence, made transition to modernity then resurgence to be expected

Asian successions

• Japan

• 4 (Little) Dragons/Tigers

• ASEAN

• China

• …India

The Indian Market

• Like China, India has long been fertile breeding ground for myths– For centuries, even millennia, both countries

have been seen as large and rich• The Greeks>>>Marco Polo>>Christopher

Columbus

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China and India at zenith

China and India at nadir

The resurgence of C&I

The expansion of the West

Fig 1: Long-term changes in the share of global GDP: China and India, and the West

Source: Maddison 2001

Decline and resurgence

• Decline during rise of European expansion and imperialism

• mid-20th century both countries regained independence, and began economic resurgence

• Relatively slow growth, especially in India – ‘Hindu rate of growth’

Opening Up and Liberalisation

• Late 1970s China began ‘opening up’

• 1990s – liberalisation in India

• Great expansion of foreign trade and investment, general economic growth– Unasked questions - At what costs? To whose

benefit?

Indian economy

• One of world’s largest…and fastest growing

Fig 2: Comparative GDP, 2005

0 5 10 15 20 25

Brazil

Italy

France

United Kingdom

Germany

India

Japan

China

European Union

United States

Share of global GDP

GDP at Purchasing Power Parity

Source: CIA World Factbook, accessed 11 April 2006

Rank Country GDP - real growth rate(%) 10 China 9.326 India 7.6

100 World 4.4119 United States 3.5156 Brazil 2.4158 Japan 2.4176 European Union 1.7177 United Kingdom 1.7178 France 1.6197 Germany 0.9205 Italy 0.2

Table 1: Growth in GDP, 2004-5

Source: CIA World Factbook, updated 29 March 2006, accessed 11 April 2006

Fig 3: India's share of world imports, 1990-2004

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Note: in 1949 India had 2.9% of world imports. This fell to 1.6% for the 1950s, 1.4% in the 1960s and 0.6-0.7% in 70s, 80s, and 90s

Source: WTO trade database, accessed 22 December 2005

rank place $b %1 World 10,270 100.02 United States 1,727 16.83 European Union 1,402 13.74 Germany 801 7.85 China 632 6.26 United Kingdom 484 4.77 France 473 4.68 Japan 451 4.49 Italy 369 3.6

10 Netherlands 327 3.211 Canada 318 3.112 Hong Kong 292 2.824 India 113 1.1

Table 2: World imports, 2005

Source: CIA World Factbook updated 29 March 2006

The India market

• All this makes India an attractive market

Winners and losers

• Although imports are growing, performance is uneven

rank (04-05) Provenance 2001-02 2002-03 2003-04 2004-051 China 4.0 4.5 5.2 6.32 United States of America 6.1 7.2 6.4 5.93 Switzerland 5.6 3.8 4.2 5.44 United Arab Emirates 1.8 1.6 2.6 4.35 Belgium 5.4 6.0 5.1 4.36 Germany 3.9 3.9 3.7 3.67 Australia 2.5 2.2 3.4 3.38 United Kingdom 5.0 4.5 4.1 3.29 South Korea 2.2 2.5 3.6 3.0

10 Japan 4.2 3.0 3.4 2.853 New Zealand 0.2 0.1 0.1 0.154 Pakistan 0.1 0.1 0.1 0.1

Table 3: Changes in share of imports into India, 2001-2005

Source: Reserve Bank of India trade database, accessed 23 December 2005

New Zealand asks why

• Asia: NZ Foundation commissions research into ‘Opportunities in India for NZ business’

• Awarded to School of Marketing and International Business, Victoria University of Wellington

• Interviews in NZ, and India– Video interviews, still being processed

NZ case companies

• Interviewed by Val Lindsay and Fergus McLean– Glidepath– Manukau Institute of

Technology– Gallagher Group– Hayes International – Beca International– Robinson Seismic– Fisher and Paykel

Healthcare

– Vista Entertainment

– Beca Carter Hollings and Ferner

– Cadmus Payment Solutions

– Solid Energy

– Tait Electronics

– (Tim Fowler, formerly VUW Vic Int in Australia)

Interviews in India

• Tim Beal and Michel Rod– Saw it as part of ‘Doing Business in India’

Project• Interviews in South Korea, North Korea, Japan,

Malaysia, and Hong Kong

• India – February 2006– 25 interviews – Delhi, Mumbai, Bangalore,

Chennai

Interviewees - NZ

• NZ officials– High Commissioner, Trade Commissioner

(NZers)– Senior Trade Development Manager (Indian)– Honorary Consuls in Mumbai (also tourism),

Chennai (Indian)– Honorary Adviser to Asia:NZ Foundation

(Indian)

Interviewees - Indians in NZ companies

• All of Indian ethnicity

• 3 NZ companies– Air New Zealand (Mumbai)– Tourism New Zealand (Mumbai)– Fisher & Paykel Healthcare (Bangalore)

• 1 Joint Venture – Britannia NZ Foods Pty Ltd (dairy products)

Interviewees – Indian businesspeople

• Forestry/Wood • Education• Fruit• IT

– 1 Software for multiplex cinemas– 2 Building security hardware and software

• Coal• Wool• Wine

Two perspectives

• NZers – focus on Indian problems– Bureaucracy, trade barriers, infrastructure,

corruption

• Indians – poor marketing by NZ companies

Poor marketing - Education

• Australia main competitor– NZ less active– NZ slower turnround time for applications– NZ immigration requires police clearance– Other issues – work opportunities, immigration

possibilities, length of courses– ‘Quality of education’ not a major

consideration

Underlying issue

• Sustainable comparative and competitive advantage– Mutual benefit for India, NZ– (What benefit for ordinary Indians?)

• Especially evident in IT sector

• Wine as example

Wine - now

• Growing market for wine in India• High tariffs on imports• Increasing domestic production• Like NZ, initially poor quality

– Grown in wrong places, lack of viticulture skills, undiscerning customers

– If NZ can develop world class wine industry, why not India?

Wine – future

• Quality of Indian wines will improve– Develop an export market– (watch out for competition from China)

• As (if?) barriers drop growing niche market for NZ wines– Some NZ wines will have sustainable

advantage based on land and climate

What do we make of India?

• Indian market is growing fast, but opportunities are tempered by challenges– Challenges

• Complexities of market,

• Foreign competition (education- Aus; apples – China)

• Domestic competition (wine)

New Asian Ascendancy and NZ

• Vital, importance growing, but unevenly– Need to analyse, understand, and prioritise– Large but complex and difficult markets– Need understanding and skills

• hence Asian Studies

• Finally, a commercial