Dr. Balbir Bhasin Associate Professor of International Business John F. Welch College of Business

1. SACRED HEART UNIVERSITY & IFCC Dr. Balbir Bhasin Associate Professor of International Business John F. Welch College of Business Global Trends: Opportunities for Europe in Emerging Asia - Tuesday May 30th, 2006

4. Global Trends: Population Perspective – Top 15 Largest Populations: • China (1,300) • India (1,100) • USA (300) • Indonesia (245) • Brazil (188) • Bangladesh (147) • Pakistan (143) • Russia (143) • Nigeria (132) • Japan (127) • Mexico (107) • Philippines (89) • Vietnam (84) • Germany (82) • Egypt (79) Asian Populations: • China (1,300) • India (1,100) • Indonesia (245) • Bangladesh (147) • Pakistan (143) • Japan (127) • Philippines (89) • Vietnam (84) • Thailand (64) • South Korea (49) • Burma (47) • Afghanistan (31) • Nepal (28) • Malaysia (24) • Taiwan (23)

5. Global Trends: Asia’s Rise Asia’s rise is the fourth big transformation in relative economic power since the industrial revolution: • Early 19th century: rise of the UK • Late 19th and early 20th centuries: rise of US and Germany • Post-second world war: Japanese miracle • 1970 onwards: rise of the rest of Asia, including China and India

6. What Caused Asia’s Rise? • Asia’s success due to: Deregulation, Liberalization and Reform – same as US & Europe • South Korea and Taiwan • Hong Kong and Singapore • ASEAN 5 – Thailand, Malaysia, Indonesia, Philippines • China, India, Vietnam • Problems in Bangladesh, Pakistan, Nepal, Sri Lanka, Burma

7. 2004 2025 2050 Source: Business Week Special Issue, China/India 2005

8. Global Trends:A New World Economy • Based on the IMF’s World Economic Outlook database, The Economist concluded that “In 2005 the combined output of Emerging Economies rose above half of the global total” • In 2005, their combined GDP grew in current dollar terms by $1.6 trillion, more than the $1.4 trillion increase of developed economies • Their share of exports has jumped from 20% in 1970 to 42% last year; over the past five years, they have accounted for more than half of the growth in world exports • Emerging economies are now sitting on two-thirds of the world’s foreign exchange reserves • Developed economies’ trade with developing countries is going twice as fast as their trade with one another • The EU exports twice as much to the emerging markets as it does to America and Japan combined Source: Emerging Economies “Climbing Back” The Economist 19 January 2006.

11. Global Trends: Outlook for Major Economies Source: Asian Development Outlook 2006, Asian Development Bank, ISBN 971-561-603-8

12. Global Trends: Outlook for Asia Source: Asian Development Outlook 2006, Asian Development Bank, ISBN 971-561-603-8

13. Trends in Asia • China is poised to overtake the US as the major trading partner of Japan. China is now Japan’s largest source of imports • South Korea’s prime export market is China • China-India trade growing – “Hand Across the Himalayas” 10 years ago - $100 million 2002-2003 - $7.6 billion (up 3.6%) 2004 - $10 billion 2005 - $15 billion • ASEAN (500 million population) and China agreed to set up a Free Trade Area by 2010

14. Global Trends: Developments in Emerging Markets • Growth in current account surpluses • Rise in capital inflows • Substantial rise in international reserves • Improved domestic fundamentals and liquidity • Rising demand for energy, food, and raw materials by 2.5 billion Chinese and Indians is already having ripple effects worldwide • The US still consumes three times as much grain per person as China and five times as much as India • Will this lead not to a global resource squeeze? Source: World-watch Institute’s State of the World 2006 Report

15. Why Asia Holds a Special Interest • Asia market growth = emergence of world’s largest new middle class • Asia as a source of highly educated, skilled labor (at low cost up to now) • Result: Asia has special place in business globalization (supply chains) • Result: Asia is becoming a world incubator for new high-tech businesses

16. Changing Trends in Asia • Increasing Affluence – rising middle class, disposable income, consumption patterns, services, convenience, luxury items • Rising Educational Standards – leads to changes in demand for goods and services • Increasing Number of English speakers – better able to trade and participate in business activities • Improving Infrastructure – information through television, print media, internet, and travel • Increasing Availability – better distribution, packaging, advertising, standardization

17. Growth Industries in Asia • Legal, Banking and Finance • Consumer Goods • Infrastructure Development • Building and Construction Materials • Tourism and Hospitality • Communications • Health Care • Marketing and Management • Entertainment • Contract Manufacturing

18. Emerging Asian Countries with Potential • China and India – one third of the world’s population 2.5 billion! • Annual Growth Rates 8–10 % through 2010 • Asian Tigers: Taiwan, South Korea, Singapore, Hong Kong – newly affluent • Asian Non-Tigers: Indonesia, Malaysia, Thailand, Philippines, Vietnam – 400 million

19. Europe’s Advantages in Asia • Long history – established presence and trade • Better understand cultures and social structures – language, food, religion • Better at relationship building • Transfer of technology – high demand • Resources to compete with North America

20. Asia Europe Ties – Progress? Asia Europe Meeting (AEM) • Proposed by Singapore in 1994: means for breaking deadlock between ASEAN and Europe. Established in 1996 – EU and 13 countries. • ASEM: a means of promoting an imaginary of Europe in Asia to maintain economic presence • ASEM to be a project of ‘common grandeur’ • Vehicle for widening involvement and expanding cooperation in new areas • Lack of progress due to disagreements over human rights and neo-liberal globalization • Main components of ASEM process: political dialogue, security and the economy, education and culture

21. Concerns for Asia • Need to check Inflation - due to rising prices, especially energy, transportation, labor • Need to check Debt – while at the same time improving public service and infrastructure • Need to boost consumer buying power – education, healthcare and pensions needed improvements so that people could reduce their saving • Bird flu could represent the biggest risk to the region, depending on how well the region is prepared - something which has not yet been tested • Need to discuss how to stop currency turmoil and strengthen their financial systems Source: IMF – May 2, 2006 (BBC Report)

22. Asian Development Bank • Established in 1966 – aim to help build Asia • Owned by 66 member countries = 45 from within the region and 19 from outside • Japan and USA hold 12.9% of voting power each • 17 European countries hold 17.6% cumulative voting power • European member countries recently contributed 32.5% of replenishment to Asian Development Fund • At the European Banking Congress in Frankfurt, ADB VP described relationship as “European Bull meets Asian Tiger” • Need to cooperate!

23. Asian Development Bank:Unique Opportunity for Europe • 18 January 2006 : Speech by Phillipe Benedic, Resident Director General, European Representative Office, Asian Development Bank at the Colloquium Humanum, Bonn, Germany: Title: “Asia – The New Economic Competitor of Europe, Risks and Opportunities” Message: “Asia’s economic strength is also a great opportunity for Europe.” • 17 February 2006: Speech by Haruhiko Kuroda, President, Asian Development Bank in Washington D.C. to the Council on Foreign Relations. Meeting was chaired by Gerald Seib, Washington Bureau Chief, Wall Street Journal Message: “Asia’s growth over the past half-century has been dramatic.” This provides challenges and opportunities. Asia is full of money, but Asian countries need support – various know-how and technologies.”

24. Asian Development Bank: Opportunities for Europe • Asia offers huge unsaturated export markets with over 4 billion consumers and growing income • Cheap labor calls for sourcing for sourcing from and investing in the region • Manufacturing (in China) and Services (in India) – now represent over 50% GDP • The demand for technology and know-how from Europe is tremendous. • The competitiveness of European companies includes among others cutting edge in science and technology, infrastructure, energy, water, transport, environment, and financial services Source: ADB, European Representative Office, 18 Jan 2006

25. Asian Development Bank:Loss of Jobs or Benefits to Europe? • European companies investing in Asia improve their global competitiveness = save European jobs • Low costs = lower prices = control inflation and keep interest rates moderate, boost demand in Europe • Asian countries sell and also buy goods and services in Europe • Many Asian companies owned in whole or in part by European companies. Earnings are repatriated and invested in Europe = supports economic growth. • Productivity gains = new jobs with higher value added. Taking advantage of their comparative strengths • Through Joint Ventures, European and Asian companies can step up exports to “third” countries in the region • Rise in standards of living in Asia will result in rise in cost of labor and reduce the gap compared with European labor cost Source: ADB, European Representative Office, 18 Jan 2006

26. European Bull and the Asian Tiger:What Must Europe and Asia Do? • Europe must help develop Asia. • Long industrial tradition and efficient system for keeping a free market economy • Europe has a strong banking sector, a strong corporate governance system, legal stability and a welfare system allowing the population to benefit from economic success • Asia can and wants to learn from Europe. • Learn to combine rapid economic growth with environmental protection, energy efficiency, balanced urban growth and sustainable rural development • Learn to strengthen resilience from external shocks and build regional economic programs • Learn to better use its huge foreign exchange reserves and regional savings for creating global balances Source: ADB, European Representative Office, 18 Jan 2006

27. Asia-Invest II 2003-2007 EU-Asia business co-operation

28. What isAsia-Invest II? Opportunities for EU-Asia business co-operation: • Primary initiative to support business co-operation between the EU and Asia • Strengthen the EU’s political and economic presence across Asia • Raise awareness of Europe in Asia and vice versa • Strengthen mutual trade and investment flows • Reinforce Asian private sector and new business development opportunities • Support new business partnerships • Enhance export capabilities and foreign direct investment prospects of the less prosperous countries in Asia • Promote the integration of Asia into the Information Society

29. Asia-Invest II • Asia-Invest I : 1997, Commission contribution of €32m • Asia-Invest II: 2003 to 2007, Commission contribution of €35m • More than 260 projects supported to date across a range of sectors, involving hundreds of organizations

30. EU and Asia: Eligible countries EU: Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovakia Slovenia Spain Sweden United Kingdom • Organizations from Brunei, Hong Kong, Macao and Singapore can fully participate in projects as associates, provided they do not receive Commission financing ASIA: Afghanistan Bangladesh Bhutan Cambodia China East Timor India Indonesia Lao PDR Malaysia Maldives Mongolia Nepal North Korea Pakistan Philippines Sri Lanka Thailand Vietnam

31. Global Trends: A New World with Asian Characteristics? • Westernization, particularly Americanization, was a distinct feature of the 20th Century • Western domination prevalent in music, clothing, entertainment, fast-food, language • The 21st Century Global Village will have Western and Asian characteristics • 30 million non-Chinese are learning Mandarin. Chinese is already the second language on the Internet – 100 million Chinese netizens • In vogue now: Asian food, fashion, music, martial arts, yoga, movies, religion Adapted from: David Gosset, Asia Times Online, 7 April 2006

32. SACRED HEART UNIVERSITY & IFCC Dr. Balbir Bhasin Associate Professor of International Business John F. Welch College of Business Global Trends:Opportunities for Europe in Emerging Asia - Tuesday May 30th, 2006