Four key elements of the business environment in the Asia Pacific Region

The Asia Pacific region is a diverse and unique region. It is still in the process of economic development and market liberalisation. However, the different countries in the region are in different stages of their development. Following Japan’s lead, South Korea, Singapore and Taiwan have followed suite, becoming developed economically and adapting to the global business environment. However, as a whole host of their neighbours, Indonesia, Malaysia, Thailand, The Philippines, China, Vietnam and others now attempt to progress along the same path, they are encountering different challenges.

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The business environment is hence vastly different in these countries, and is reflective of there respective cultural, political, economical and societal characteristics. Yet the Asia-Pacific region as a whole can be looked at through a general characterisation of the business environment of the region. Asia is a place where business culture and the business environment are interlinked. They have long-standing ties to the ancient and established traditions of individual cultures of the region. The norms and values that we identify as culture are vastly different to those observed in western civilisation.

Nevertheless the culture plays a critical role in life, society and business in this rapidly developing and dynamic region. The role of culture in the Asia-Pacific region is arguably more prominent than in that of the western business environment. Western managers constantly find that they need to understand individual and organisational Asian behaviour before they can begin to operate and compete effectively in the region (Lasserre, ; Schutte 1999). To understand how to conduct business in the Asia-Pacific region it is important to categorise and understand the different aspects of the Asian-Pacific business environment.

A good way of doing so would be to apply Lasserre and Schutte’s (1999), four key elements of the Asian business environment, the role of governments, the central importance of relationships, the role of ethical and religious cultures, and their implications for competitive and business logic. This essay will discuss these four key elements of the Asian business environment and analyse the role they play in conducting business in the Asia Pacific region. Confucianism holds that harmony in human affairs is very important. Those in relationships are expected to work together for the greater good of the whole.

Rulers, leaders and dominant figures are responsible for the welfare of the people they rule. Collectivist philosophies, such as Confucianism, are based on nurturing, collaborative expectations between rulers and subjects. They are also the cultural key for most government-business relationships in East Asia. As the rest of the business world has observed these leader-people relationships, traditional cultural methods have been showcased during the last two decades of rapid economic results in many Asian countries. (YongGu, 1999a) Governments have generally been doing guidance economic development in Asian countries.

Asian governments’ involvement in economic development aims to generate public support and an environment conducive to economic growth. However, governments in Asia have been assisted by certain societal attitudes and values. These elements are a broad social consensus for growth, close business-government relationships, pro-business bureaucracies, and the pragmatism and flexibility of public authorities of controlling economic management. Both elites and the public believe that everyone benefits from economic growth, that it must be shared, though not in a strictly equal style.

Business and government cooperation is institutionalised in certain Asian countries, is informal in certain others and, in some cases, exists as a mixed of the two. (Lasserre, ; Schutte 1999) Through institutions and a heavily bureaucratic system, relationships between the government and business are not at the autonomous levels of the West. Through institutions, a separate body governs the relationship and the two sides don’t approach the relationship as completely separate parties, able to decide as they please and as they see fit to satisfy their individual interests.

However, a sweeping generalisation would be incorrect, as many Asian nations simply do not have the institutions that could handle such a complex and dynamic relationship. Hence some relationships in Asia are more formal than others and some are simply a combination of the two approaches. In 1991, Korean company Sung Joo International had to close down three of its largest boutiques due to a campaign against luxury foreign products. The Korean government encouraged mobs to protest in front of the stores to show its dissatisfaction at the company for selling $5,000 Italian handbags.

Forbes, June 3, 1996) In Korea, the government normally promotes the virtue of exports, but imports are perceived to be a threat. There was an instance in 1996 when O’Kim’s Pub, a popular expatriate pub, was denied supplies of Guinness Beer before St. Patrick’s Day because the”fiz” level did not meet Korean government standards. Another case involved a major department store that was under threat of a hostile takeover from a foreign entity. Local media put out patriotic calls and domestic capital was mobilised to support the share price of the retailer and prevented a hostile takeover.

Furthermore, at the onset of the financial crises, public opinion makers made calls to reduce imports and foreign travel, with big success. (James 2000) Asian governments continue to play a direct developmental role in major economic initiatives, not just a regulatory or supervisory role as in many western countries. This means that Asian governments are actively involved in the economic planning and running of the economy, and do not take the ‘backseat’ position as in the West. Singapore, Korea and Japan have promoted a well-educated, well-remunerated professional bureaucracy.

However, this is not the same for other Asian countries where civil servants are either less business-oriented, as in the Philippines, or have a lower degree of professionalism, as in Thailand. (Lasserre, ; Schutte 1999) The rules of doing business in Korea have limit behaviour of commercial activity. Whereas the Western legal system is permissive unless prohibited; the legal system tends to be prohibitive unless permitted. In Korea when the legal system has changed for the better in the 1990’s, the government still appears to outsiders to preside for complicated regulations.

This is complicated by the nature of Korean law. While some laws are changeable by the National Assembly, both the Presidential decree and the Ministerial decree that are implementing the legislation can be changed at any time. Because of Korea’s fast growing economy, the law was so weak to allow a rapid adaptation to new circumstances. Government and quasi government organisations, industry associations, which administered many of the details in their own interest, administer these laws.

Foreign companies were often unable to join the Korean industry associations. Michell, I. , 1998) In addition to Korean governments role as policy makers the majority of Asian governments have intervened directly in the economy through the ownership and control of enterprises and through a targeted policy of public procurement. At one extreme are China and Vietnam who, because of their adoption of Marxism, have economies dominated by state-owned enterprises. However, government intervention in Asia, direct or indirect, has created a climate conducive to economic growth.

Pragmatic practice has allowed flexibility, even in the ideological sphere. (Lasserre, ; Schutte 1999) Chinese society has hierarchical Confucian relationships: father/children, husband/wife, elder/younger brothers and sisters. Trust and loyalty between family members is taken for granted and considered absolute: hence the tendency for most Chinese entrepreneurs to appoint family members to top management position. Appointments based on family ties, business undertakings and networks between family members are also prevalent in non-Chinese societies.

Lasserre, ; Schutte 1999) Beyond the extended family lies the domain of friends and connections that extend further the network of guanxi (relationships). Life long guanxi is cultivated through early, formative shared experiences. In Confucian societies, friendship can only happen between equals. ‘Consequently, relationships formed during early childhood or young adulthood is the only kind of human bond that escapes the hierarchies of the workplace, marriage and later life’ (Lasserre, ; Schutte 1999, P. 127).

Regardless of business experiences in ones home country, in China it is the right guanxi that makes all the difference in ensuring that business will be successful. By getting the right guanxi, the organisation minimises risks, frustrations, and disappointments when doing business in China. Frequently it is acquiring the right guanxi with the relevant authorities that will determine the competitive standing of an organisation in the long run in China. That is why the correct guanxi is so important to any successful business strategy in China.

But too often developing and nurturing the guanxi in China is takes a great deal of effort, time and resources. (Dagbladet, 1996) The Chinese prefer to deal with people they know and trust. On the surface, this does not seem to be much different from doing business in the western world. But in reality, the heavy reliance on relationships means that western companies have to make themselves known to the Chinese before any business can take place. Furthermore, this relationship is not simply between companies but also between individuals at a personal level.

The relationship is not just before sales take place but it is an ongoing process. The company has to maintain the relationship if it wants to do more business with Chinese companies. (Dagbladet, 1996) In China, relationships between companies do not have to be based on money; it starts with its built on the trustworthiness of the company. For example, if a company promised certain things and delivered as promised, the company shows trustworthiness and the Chinese would be more inclined to deal with them again.

Being dependable and reliable definitely strengthens the relationships. It is like being friends, and friends can count on each other in good and tough times. Also frequent contact between businesses fosters understanding and emotional bonds and the Chinese often feel obligated to do business with their friends first. As a result, western companies should work at developing strong relationships between themselves and their Chinese counterparts. These relationships should be used as the basis for developing guanxi, or influence, related to the process of doing business in China.

Some analysts have shown that culture affects business behaviour and performance and the Asia Pacific region is at the crossroads of some cultural and religious traditions, which are Confucianism, Taoism, Buddhism, Hinduism, Islam and Christianity. (Lasserre, ; Schutte 1999) Korea, the traditional Confucian social structure, though eroding, is still common. Relationships are very important and Koreans are very conscious of form, social class and family status.

It is based around the five important relationships (o-run) of Confucianism governing an individual’s relationship with the king (loyalty), parents (filial piety), elders (Respect), spouse (division of responsibility) and friends (trust)’. (AMCHAM, 1998, p. 44). Korea’s Confucian culture places emphasis on human relationships rather than monetary relationships. Largely due to a history of conquest by foreign powers, nationalism is also a major component of Korean culture.

This has major implications for the foreign business manager who must be acutely aware of local sentiment when conducting business activities. Nationalism periodically raises its head in relation to foreign economic encroachment. Local newspapers routinely warn the citizens about “excessive” consumption of foreign products. (Chin,1995) There is an interesting dichotomy in terms of leadership in Asian cultures. Because of the importance on status, the leadership system tends to be more authoritarian, even in the face of consultative decision-making.

The higher the manager the more status, the more respect he commands, and to disagree would be disloyal. Leaders are expected to lead, and employees are uncomfortable with being delegated even discretionary decision making. Chinese management systems in particular tend to maintain the authoritative position, and keeps tight control of information. Subordinates are dependent upon owners for information, and there is a large “power distance,” maintained between the managers and the subordinates. Owners and upper management make major decisions, and there is limited delegation of power.

Westerners usually complain about the unfairness of Asian competition, the price bargaining behaviours of Asian customers for high-tech products, and the copycat behaviour of their Asian competitors. ‘In most Asian countries local businesses are given preferential treatment, particularly when it comes to bidding for government contracts, this is viewed as an acceptable form of government intervention and economic nationalism’. (Lasserre, & Schutte 1999, P. 134) Companies must learn how to deal with new competitors in a competitive environment where the rules of the game are different.

Competitors in any country live within a rigid set of rules, which seem difficult to outsiders. This can be seen in some Asian countries for example, Staying outside the rules invites an appeal by locals to the Korean government, which as broad range of administrative tools at its disposal not easily opens to legal challenge. Western companies come to Korea and find themselves up against local companies which are differently organised, view the market, and believe in market share rather than profit as an indicator of success.

Far from being content with being confined to Korea or to any particular core area of products, Koreans have global ambitions and will do whatever it takes to realise them. ‘ (Chin, M. 1995) Decision-making typically takes much longer than in Western cultures. There are some differences each of the five steps of decision-making: problem recognition, information search, developing alternatives, choosing an alternative and implementing. As problem recognition, Asian managers are culturally ‘problem, or situation accepters’, who tend to accept fate as a significant variable in managing.

Westerners will use their senses to gather information and facts about a situation and use more deductive reasoning. Also Westerners tend to be more future oriented and will generate “new” alternatives. As Asians have a long history, they are more “past oriented” and often search for a historical precedent. Furthermore, Western cultures, will ask for a vote, often, before choosing an alternative, as a surface way of gaining consensus, and to get everyone pointed in the same direction. Asians will intuitively refrain from voting, because this will not show respect to the individuals who are against the majority decision.

They will prefer to deliberate until consensus is achieved. The final result is than the decision takes longer to achieve, but will be much more stable. In western systems, because the consensus was not truly achieved, the time saved in decision-making is often followed by significant delays due to implementation problems. (Barry, ; Evens, 1995) The role of government’s differences between countries, different ethical and religious beliefs and cross-cultural communications are always a difficult matter.

It is hard, and almost impossible to avoid at least some misunderstanding when communicating across cultures. Therefore, the goal is to limit these misunderstandings as much as possible. This becomes even more important when you take into consideration the consequences misunderstandings may lead to. Apart from cultural issues other differences must also be taken into account. As mentioned above government policy and intervention may not be as one may expect. A foreign firm must do its homework on all fronts.

Starting with an open mind on culture, and being prepared for their predetermined ideas and expectations to be challenged, a firm should understand that everything is also rapidly changing and evolving in Asia. Yet there are general rules that a foreign firm should follow in Asia. Finally, when Westerners do business in Asia, they take into account Confucianism’s characteristics. If they establish good relationships with government entities and the local business partners thus, they will welcome everyone who wants to do business in Asia.