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BSP 2005

BSP 2005. Asia Pacific Business and Society. Good Friday, April 6. No class No make-up unless requested (to email me in that case) 30 th March: First round of presentations 13 th April: Second round of presentations & Project write-up (last class). News….

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BSP 2005

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  1. BSP 2005 Asia Pacific Business and Society

  2. Good Friday, April 6 • No class • No make-up unless requested (to email me in that case) • 30th March: First round of presentations • 13th April: Second round of presentations & Project write-up (last class)

  3. News… • Biggest private equity buyout of TXU • $45 billion USD • By KKR (Kohlberg Kravis Roberts)

  4. Japan’s phenomenal growth • Nominal GDP in 1965: $91 bn USD 1980: $1065 bn USD • ‘Economic miracle’ began in 1950 • By mid-1960s, Japan’s GDP was third largest after US and Soviet Union. • Japanese steel, ships and electronics were world leaders

  5. Reasons behind Japan’s phenomenal growthDiscuss.

  6. America’s aid & influence • Believed that economic development will prevent militarism and communism • US security framework in Asia Pacific • Japan closest to Soviet Union, North Korea, Communist China, Taiwan • Vietnam War • Supplied military technology to Japan • In return for political and industrial support • With U.S. aid, no need for Japan to spend on military

  7. Government policies • Ministry of International Trade and Industry • Untied technology imports from goods & services • Low cost of technology with focused channeling led to increases in productivity

  8. Businesses • Keiretsu • System of ownership and restricted trading of shares • Tolerated lower profits in short run • Less concerned about paying out stock dividends • Concentrate on long-term growth • Policy of lifelong employment

  9. Japan’s Recession. What led to it?

  10. Banks • Financial market liberalizations in 1980s • Corporate vs. Equity financing • Freed Japanese companies and allowed them to borrow from global money markets • Huge influx of funds • Stimulated the property and stock markets • Non-performing loans (by 1990) • Domestic banks had to compete to loan to smaller companies

  11. Government • Tried to cool off markets • Bank of Japan increased discount rate • By 1991, discount rate = 6%, market interest rate = 2.5% • Mexican currency crisis • Lost confidence in the US dollar • Yen appreciated • Japanese manufacturers hit • Government spending • Built highways, benefited only certain well-connected construction companies • Added public debt

  12. Spread to rest of Asia • Banks needed profitable loans to cover bad debts • Early 1990s, rest of Asia was booming • Loaned to Thailand, S. Korea, Indonesia • Kept lowering interest rates, attracting less profitable investments • Japan’s hint of an interest rate increase • Investment banks sold all asian currencies • Fluctuations in exchange rates • Speculation by US hedge funds on Thai baht further destabilized the region

  13. Factors unique to Japan • Government policy • Unwritten guarantee to never let banks go out of business • Business regulations • Bank reserve capital ratios • Allowed to include stock holdings • Benefited them even more during boom years, allowed bigger loans

  14. Japanese Culture • Banks’ fear of losing face • Refusal to accept public funds by government to write off bad debts • Thrift culture of Japanese • Paradox of savings • Led to prolonged recession • Firm’s commitment to lifelong employment • Protect dignity and morale of employees by guaranteeing lifetime employment • Believe that productivity is strongly correlated to job security

  15. Japanese Culture (cont’d) • Firm’s commitment to lifelong employment • Attempt to retain workforce during downturn • By obtaining more bank loans • Prolonged recession, led to even greater operating losses • Banks • Abandoning longstanding relationships with firms viewed as dishonorable • More than willing to continue financing debt of companies to maintain employment • Different from US firms/banks

  16. Japan today • Main challenge is exactly the success of the industrial infrastructure that led to the miracle • Keiretsu • Result of government policies of controlled competition • Loss in flexibility of business infrastructure • Culture • Labor shortages back then led to lifetime employment • Labor immobility • Structure was adapted to high production, high quality, catch up economic growth model

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