Speech
at the launch of the Economic Analytical Unit report Changing
Corporate Asia: What Business Needs to Know
Sydney Renaissance Hotel, Sydney, 7 March 2002
Change in Corporate Asia: What it Means for Australia
Introduction
Thank you, John (John Hall, CEO, Australian Institute of Company
Directors). Your Excellency, Mr Sudjadnan Parnohadiningrat (Indonesian
Ambassador to Australia), distinguished guests, ladies and gentlemen.
It gives me great pleasure to welcome you here to launch the report
Changing Corporate Asia: What Business Needs to Know.
I congratulate Dr Frances Perkins and her team in the Economic Analytical
Unit of the Department of Foreign Affairs and Trade. I thank PricewaterhouseCoopers
and PricewaterhouseCoopers Legal for their valuable contribution to
this report. I also want to thank BHP Billiton for their ongoing
support of EAU research, and AusAID for their generous sponsorship
of this report.
Today’s launch gives me the opportunity to discuss the significant
changes underway in East Asia’s corporate sectors, and the impact
these may have on Australia’s interests with the region.
Importantly, the transition underway in many East Asian corporate
sectors - to a more rules based business model - promises renewed
and sustainable economic growth. Importantly, it also could offer
a business environment more open and familiar to Australian business.
The Importance of Asia
Over the past 30 years, East Asia’s rapid economic development dramatically
reduced poverty levels and provided the foundations for emerging democracies
in the region. Australia benefited, and continues to benefit, from
this dramatic transformation.
East Asia’s success also made a persuasive, and so far enduring,
case for the benefits of globalisation. It offered strong support
for an export-oriented, market-driven model of development. Without
exception, the successful economies in the region opened themselves
up to international markets, rejecting protectionism for trade liberalisation. They also opened up to foreign investment, allowing local people to
gain access to foreign savings, technology and links with the global
economy.
However, in much of East Asia, recent key events - including banking
crises in Japan, China and other regional economies during the Asian
financial crisis - are forcing governments and corporations to re-evaluate
whether past approaches to business will deliver new investments and
economic growth.
In 2000, foreign investment inflows to the key East Asian economies,
apart from China and Japan, declined by 17 per cent from levels before
the crisis. This suggests international investors have less confidence
in these economies, and in the ability of East Asian business models
to offer a good return on investments. In most economies, growth
has slowed to a fraction of that recorded before 1997.
Relationships versus Rules
Many factors contributed to poor economic outcomes in most East Asian
economies over the past five years. These include the slowdown in
world growth, particularly in the United States, and the collapse
in demand associated with the end of the IT boom.
Amongst these factors, the EAU report singles out the traditional
relationship-based model of doing business in East Asia as contributing
to economic difficulties. Relationships are key to doing business
in many East Asian economies. They show up as close, even formal,
associations between banks and firms, family corporate owners, board
members and management, and sometimes between governments and corporate
owners.
For many decades this model worked. Moreover, in many economies,
insufficient and ineffective commercial regulations and laws made
close relationships the best way to do business. However, in the
years leading up to the crisis, this approach led to many poor investment
decisions. Those decisions ultimately contributed to high levels
of non-performing loans, and widespread insolvency. And these in
turn continue to hamper recovery in many East Asian economies.
The report highlights efforts by governments and corporations in
the region to develop an alternative approach to doing business. One in which relationships are less important. And one in which business
opportunities are judged not by who is behind them, but by their commercial
quality. Under this approach, commercial rules and regulations are
enforced and market participants, including minority shareholders,
creditors and consumers, will be protected.
A rules-based business environment is essential for market economies
to develop and grow. Shareholders, creditors, investors, input suppliers
and consumers need to feel safe doing business with people they don’t
know. The markets they create will ensure savings go to the best
investments, maximising growth and living standards.
Why this Matters to Australia
There can be little doubt that East Asian success in reinventing
business models is vital to Australia’s interests. Our interests
in this area comprise several distinct parts.
- First, fast growing neighbours provide new and growing opportunities
for our exporters and investors. Last year, East Asia accounted
for 54 per cent of our total exports, equal to 9 per cent of our
national income.
- Second, history teaches that balanced and sustainable economic
growth provides the long-term foundations for reducing poverty. This in turn supports political stability and increases regional
security.
- Third, if key East Asian economies continue to falter, support
for pressing ahead with opening markets to trade and investment
may erode. That would be an extremely worrying development for
an open economy like Australia.
Fundamentally, if a rules based business model continues to develop
in East Asia, it will be particularly effective in promoting prosperity
and stability in the region.
Transparent and fair rules for doing business promote increased community
participation in economic activity, improve income distribution and
help develop more stable and participatory democracies.
Rules-based business increases scope for regional integration, as
companies will be more confident when doing business with foreigners. This should expand the shared commercial interests of East Asian economies
and Australia, reducing the risk of internal regional friction and
increasing regional prosperity.
And better rules governing East Asian corporate sectors should encourage
international capital to return to crisis affected East Asia economies,
helping them resume earlier growth rates. This is especially important
given the emergence of China as an attractive foreign investment destination.
One statistic makes the urgency of reform in South East Asia very
clear: in 1990 China accounted for less than 20% of total foreign
investment in developing Asia, and South-East Asia attracted 60%. Today the numbers are reversed.
From an Australian perspective, a rules based business environment
is more accommodating to outsiders, especially foreigners, than one
based on longstanding relationships. Such an environment would help
level the playing field for Australian business in many economies
where barriers persist.
History Repeating
It should be said that all economies, including our own, have undergone
a transition from relationship-based business to a more open and rules-based
approach. Many of the large diverse family owned conglomerates that
made up the United States’ corporate sector a hundred years ago, for
example, are today widely held by shareholders and are managed by
professionals in the interests of all shareholders.
And corporate governance remains a dynamic process in developed economies,
including Australia. Recent failures of some well-known Australian
and US corporations mean regulations and enforcement are likely to
be refined. Our experience in creating, enforcing and upgrading the
rules for doing business, and for creating the market conditions that
support their enforcement, means we are well placed to assist developing
economies in the region.
Australia’s Aid Program
Australia’s interest is to maximise growth and stability in the region. Nothing has illustrated our commitment to stability in East Asia than
our response to the East Asian financial crisis, and the emphasis
on governance and economic management in our development assistance
program.
Australia was one of only two countries (Japan was the other) that
committed funds to all three regional IMF second-tier support arrangements
in the crisis. Our total commitment amounted to A$3 billion.
Australia has provided substantial bilateral aid targeted specifically
at better governance and economic management in the region. In 2001-02,
$295 million is being dedicated to improving governance in emerging
East Asian economies. This includes helping to improve the rules
governments set for business, and the capacity to enforce them in
the courts and bureaucracy.
In Indonesia, for example, AusAID provides A$75 million to support
economic governance capacity building. In the Philippines, the Governance
Facility Program provides A$25 million for corporate and public governance
initiatives. In China, the Governance Facility Program provides A$20
million to assist China’s transition to a market based economy.
Involving Business
The EAU report identifies many ways in which Australia’s business
community can contribute to - and benefit from - the transformation
underway across East Asia.
Australian business has years of experience in operating in a rules-based
business environment. It is well placed to succeed as more rules-based
models develop in East Asia. Australian banks and institutional investors,
in particular, look set to contribute to the financing revolution
underway in the region. And Australian legal, accounting and other
business service consultants already are assisting regional firms
comply with new standards: demand for these services should expand.
Finally, as markets open to support a more rules based system, Australia’s
exporters can take advantage of ongoing market trade and investment
liberalisation.
Today’s EAU report is an important contribution to Australia’s agenda,
and provides a valuable resource for business and government alike.
I reiterate my congratulations to the authors and sponsors. And
I commend the report to you
This page last modified:
Friday, 19-Jul-2002 15:57:43 EST
Local Date:
Saturday, 04-Jul-2009 18:20:15 EST
