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Posted 1st March 2008

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Penangites are going for another roller coaster ride. Just brace for it guys. What a pity.
3/1/2008 1:10:04 PM | freak out

- AN ARTICLE FOR YOU, FROM ECONOMIST.COM -


THE TIGERS THAT LOST THEIR ROAR
Feb 28th 2008


Other emerging economies are producing world-class companies by the
dozen. Why aren't the countries of South-East Asia?

IT IS easy to forget, now that China and India are all the rage, that
until ten years ago South-East Asia was the world's fastest-developing
region, winning the sort of investor attention and breathless column
inches that the two new giants now enjoy. The region has, slowly,
recovered from the blight of 1997-98. It has recently had several years
of strong growth (see chart 1) and its governments' finances have been
greatly improved. Even so, after all this time the region's five main
economies--Indonesia, Malaysia, the Philippines, Singapore and
Thailand--are still notable for the near-absence of companies that
could truly be called world-class.

The region has 570m people and had a head start in economic development
over much of the rest of Asia. So why does it still have no global
consumer brands of the stature of South Korea's Samsung and LG? Where
are its rising technology leaders, like Taiwan's AU Optronics and
Taiwan Semiconductor? Where are its equivalents of India's
world-conquering Tata Steel, Ranbaxy and Wipro? Or China's
market-devouring Huawei and Lenovo? Ask an investor in London or New
York to name globally respected South-East Asian firms and the answer
is unlikely to consist of much more than Singapore Airlines.

In a recent book, "Asian Godfathers", Joe Studwell, a journalist,
examines this failure in stark terms. The region's business scene, he
says, remains dominated by old-fashioned, mediocre, sprawling
conglomerates, run at the whims of ageing patriarchal owners. These
firms' core competence, such as it is, is exploiting their cosy
connections with governing elites. Their profits come from
rent-seeking: being handed generous state contracts and concessions, or
using their sway with officialdom to keep potential competitors out. If
they need technology, they buy it from abroad. As a result, Mr Studwell
says, the region has "no indigenous, large-scale companies producing
world-class products and services."

Similar things were once said of much of the rest of Asia--and
sometimes still are. But somehow other countries' top businesses, even
in India, the home of the licence Raj, have escaped this mediocrity
trap. Whereas the export-led growth of South Korea and Taiwan comes
mainly from indigenous firms making globally competitive goods with
their own technology, much of South-East Asia's high-value exports are
made by foreign companies. Thailand has built a successful motor
industry by attracting multinationals. But it will constantly suffer
the risk that these will move to somewhere like China, with lower costs
and a bigger home market.

Look under the bonnet of what seems to be a well managed, local
industrial firm in South-East Asia, such as Astra, an Indonesian
carmaker, and you find that it is assembling Japanese cars under
licence and is controlled by a Hong Kong group. Not many have got far
beyond serving the home market. A recent study by the Boston Consulting
Group (BCG) of the 100 largest multinationals from emerging economies
(a category that excludes Singapore) contained only five from the whole
region. By contrast there were 13 just from Brazil, which has only a
third of South-East Asia's population and which until about a decade
ago had no genuinely global firms to speak of (see chart 2).

CLASS DISTINCTIONS
To be counted as world-class, a firm needs to be more than just well
run and large. It should have a globally valued brand, or its own
leading-edge technology, or a genuinely innovative and admired business
method. These are demanding standards: even some of those in BCG's top
100 are really just plain big. In South-East Asia few companies meet
them. Some come close, especially in Singapore, the region's most
advanced country. Singapore Airlines is the world's fourth-largest
international carrier and is perhaps the region's best-known brand
around the world. Keppel and SembCorp, the world's two largest makers
of offshore oil drilling-rigs, dominate their industry.

However, some of Singapore's tech stars are showing signs of fading,
worries Garry Evans, an equity strategist at HSBC. Chartered
Semiconductor and Creative, for example, are slipping behind rivals in
places like Taiwan, which now has "a critical mass in technology and a
very entrepreneurial culture," he says.

In banking, the region has some impressive contenders, like Singapore's
OCBC and Malaysia's Public Bank, which are expanding beyond their
borders. But now these must contend with China's huge and increasingly
muscle-flexing banks as well as Western ones with deep roots in the
region, such as HSBC and Standard Chartered. As in other types of
business, the region's local champions lack scale in a world where
critical mass seems to matter ever more.

Admittedly, the region has some natural handicaps. The ten members of
the Association of South-East Asian Nations (ASEAN) have a huge variety
of languages, religions, political systems and histories. Even the most
populous member, Indonesia, with 230m people, is itself enormously
diverse, being made up of 17,000 islands and a rainbow assortment of
cultural and religious traditions. By comparison, Brazilians may dance
the FORRo in the north and the samba in the south, but theirs is a
pretty homogeneous and monolingual country of 190m, all on one land
mass.

That said, ASEAN's leaders could do much more to keep their lofty
promises of European-style economic integration, to give local
companies a sizeable home market from which to build world-beating
businesses. Their failure to construct a genuine single market is shown
up by the fact that ASEAN's members still do three times as much trade
with non-members as they do among themselves. Internal tariffs have
been cut, but as McKinsey, a management consultancy, noted in a report
in 2004, product standards and other non-tariff barriers often differ
among ASEAN countries, forcing manufacturers to make small production
runs for each country.

All this lowers the competitiveness of local firms, as well as
multinational companies operating in the region. Corruption is another
great burden on business. That is true elsewhere in Asia too, but
several South-East Asian countries--notably Indonesia--are afflicted by
corrupt and unreliable judicial systems, making it difficult to enforce
contracts.

DICING WITH RELEGATION
Although it is hard to generalise across Asia, another obstacle to
developing world-class businesses is that the five main South-East
Asian economies do worse than might be expected--that is, relative to
their national incomes--in promoting technology and higher education.
Tony Fernandes, the boss of AirAsia, a fast-expanding Malaysian airline
and a contender for the "world-class" label, laments how South Korea,
where the government has pumped money into research and training, has
left his country trailing in so many ways. "We used to beat them at
football--not now," he groans.

Malaysia has also spent heavily on universities and the promotion of
technology but its efforts have been stymied by the country's messy
racial politics (including preferential university places for the Malay
majority) and by the handing of state contracts and concessions to
undeserving government cronies. Both the lack of fair competition
between businesses and the failure to widen access to education may
have a common underlying cause: that South-East Asian countries remain
in the grip of narrow elites.

The problem betrays itself not just in the region's relative lack of
memorable business names but in its basic economic statistics--in
particular, labour productivity, the key to long-term growth.
Productivity in China and India is growing much faster than South-East
Asia's is. East Asia overtook the region in output per worker by 2000
and has continued to power ahead. Now South Asia is closing the gap
(see chart 3). Not even hosting the factories of so many sophisticated
multinationals seems to have made much difference to South-East Asia.
With all those Indian and Chinese pairs of hands joining the global
workforce, the region has no option but to seek to move beyond simply
offering low wage costs and produce better-educated workers and more
innovation.

It is not all the fault of governments. The region's unwieldy
conglomerates could do more to help themselves achieve global scale by
concentrating on fewer businesses. Some are doing so, but others still
seem unable to resist poking their fingers into another pie. The
food-and-drink arm of Charoen Pokphand, a Thai conglomerate, is in
BCG's top 100; but the group is an unspectacular contender in
industries from telecoms to convenience stores and is now moving into
carmaking. San Miguel of the Philippines, a big beer-to-food
conglomerate, recently talked of trying its hand at generating
electricity. Synergy Drive, the absurdly named merger of three
underperforming plantation firms controlled by the Malaysian
government, is taking a stake in the giant Bakun hydro-dam in Borneo.

This dilettantism was once summed up damningly by Michael Porter, of
Harvard Business School: "These companies don't have strategies, they
do deals." Gerry Ambrose in the Kuala Lumpur office of Aberdeen Asset
Management laments that it is indeed hard to find Malaysian companies
with "a business plan that will last ten years". Many firms have
improved their profitability since the 1997-98 crisis but that may not
guarantee their long-term survival. Because even the best-run firms
often have boards and shareholder lists dominated by the founding
family and their friends, it is hard to believe that their thinking
will change.

Of the "godfatherish" firms profiled in Mr Studwell's book, one that
analysts say is among the best performers is YTL, a Malaysian
conglomerate. Big in construction, the firm also owns a British water
firm, Wessex Water, operates hotels and upmarket shopping malls, runs a
high-speed rail link from central Kuala Lumpur to the city's airport
and owns a chain of power stations. Its founder, Yeoh Tiong Lay, built
a giant construction business with state contracts in the country's
early post-independence period. In the 1990s, when his friend Mahathir
Mohamad was prime minister, the firm got concessions to generate
electricity using subsidised gas from the state oil firm, which the
state electricity firm was obliged to buy.

Nice work if you can get it. But the founder's son, Francis Yeoh, who
now runs the firm, insists that it has not just rested on its laurels.
It has delivered, he argues, "a 55% annual compound growth in profits"
since the mid-1980s and it now earns 70% of its revenues outside
Malaysia. On February 22nd it declared a profit for the six months to
December 31st of 688m ringgit ($202m), 24% more than a year before. The
firm does have a core competence, says Mr Yeoh, which is to build and
maintain infrastructure assets of first-world quality at third-world
prices. Even the group's hotels and shopping malls should be seen as
"unregulated infrastructure", he argues, stretching the point somewhat.

As Asia continues to grow vertiginously, it will need a lot more
infrastructure, regulated or not, and YTL, says Mr Yeoh, has shown it
can provide it. In particular, he foresees juicy contracts from
applying Wessex Water's skills at cleaning up rivers to the continent's
murky waterways. This indeed sounds like a promising growth business.
But there will be others--not least some sizeable Chinese
water-treatment firms--which will be after those same contracts. So far
Wessex Water is making decent profits in western England, but its
potential to become a global leader is untested.

Hitherto, Malaysian companies have had a remarkable record of picking
duds when they buy foreign firms. Laura Ashley, a fashion designer;
Costain, a builder; Lec, a fridgemaker; and Agusta, a motorbike-maker:
all were bought by Malaysian firms with less than glorious outcomes.
Even so, if they continue to improve, YTL and the region's other
conglomerates may yet break the mould. Other Asian world-beaters also
began as divisions of sprawling, family-run groups but eventually
escaped their orbit sufficiently to thrive. An executive at India's
globally expanding Tata Steel, for instance, says that Tata Sons, from
which it sprang, maintains its minority stake in the firm but these
days leaves it to be run by professional managers.

Another hopeful sign for South-East Asia's corporate future is that it
seems to be getting easier for those outside the closed circle of the
politically well-connected to set up new businesses and challenge the
incumbents. Mr Fernandes's AirAsia is the prime example. Started only
six years ago, the airline now criss-crosses the region with a huge
network of low-cost flights. Mr Fernandes, a former music-industry man,
is still frantically adding routes: he expects to be allowed to start
domestic flights in the Philippines and Vietnam soon. He has started a
separate, low-cost, long-haul airline, AirAsiaX, which is flying from
Kuala Lumpur to Gold Coast airport in Australia and Hangzhou near
Shanghai. Flights to Melbourne, Amritsar and eventually London are on
the way.

Though ASEAN has been slow to lower its barriers in some areas, in
aviation they are coming down. Singapore and Malaysian Airlines'
duopoly on the Kuala Lumpur-Singapore route has just been scrapped and,
says Mr Fernandes, incumbent firms across the region are finding that
their home governments are no longer protecting them. It could be said
that, by linking the region's cities with cheap and frequent flights,
Mr Fernandes has done more to turn South-East Asia into an integrated
economic block than any ASEAN ministerial summit. In other once-coddled
industries, too, governments are starting to dismantle monopolies.
YTL's Mr Yeoh says there will soon be "no hiding place" for firms
trying to live from old-fashioned rent-seeking.

The rise of China and India, with their huge home markets, may mean
that it is too late for South-East Asia to become big in manufacturing.
But it does still have the prospect of producing world-leading firms in
other areas where it has an edge. Tourism and hospitality are obvious
examples, especially as the region's neighbours become richer.
South-East Asia could become both "the Mediterranean and the Caribbean
of Asia", enthuses YTL's Mr Yeoh.

PLAYING TO YOUR STRENGTHS
Apart from YTL, well regarded companies that could use tourism growth
as a springboard to global greatness include hotel groups such as
Singapore's Banyan Tree, casino operators like Malaysia's Genting and
even hospital firms like Thailand's Bumrungrad, a growing competitor in
"medical tourism". However, as HSBC's Mr Evans points out, such firms
have yet to demonstrate that they can transfer their vaunted "service
mentality" to other parts of the world that do not have an abundance of
cheap labour.

Natural resources are another promising source of future world-beaters.
Following Brazil and, closer to home, Australia, South-East Asia is
beginning to build global businesses by making the most of what nature
has provided. Palm oil, of which most of the world's supply comes from
Malaysia and Indonesia, is one example. Some plantation firms are
simply hitching a ride on the boom in prices but IOI, a Malaysian
plantation owner, is about 50% more efficient in terms of yield per
hectare than its local rivals. If the government could push Synergy
Drive, its new behemoth, to the same level of productivity, it would
boost the economy.

The region already dominates some types of agricultural produce:
Thailand and Vietnam are the world's two largest rice exporters, for
example. Since the region has so much coastline and so many rivers,
there is much scope for expanding fish-farming and seafood production.
Thai Union, a giant tuna-packer, is already in BCG's top 100. Vietnam,
the region's rising star, has several big seafood firms which, if they
can resist the regionwide scourge of diversification, may one day reach
similar heights. But to make the most of its fertile land and waters,
the region needs more sophisticated food-processing industries and
stronger brands, instead of exporting bulk commodities.

The reasons why South-East Asia has been slower than other regions to
produce world-class businesses are complex and open to debate. But they
do seem to be linked to the perseverance of narrow elites and to the
countries' sluggishness in overcoming old rivalries and building an
integrated regional market. As a handful of promising companies are
showing, not all is lost. Even in today's fierce jungle, South-East
Asia can still breed tigers.
3/4/2008 12:23:54 PM | Callum

Hooray..Hooray....Hooray...!!!

It's really out of our surprise, the opposition has won a clean swipe of 5 states in the recent election. This is the historical achievement since independent. The result reflected the rakyat of Malaysia is sending a very clear mandate to the government, we are asking for a change !!!

Needless to say, it is not just the chinese wants to have a change, many indians and Malays are asking for a change too.

In retrospect of year 2004 election, Pak Lah set his propaganda : Clean (no corruption), fair, openess government and safe country. The citizen has been given him the utmost support for a change, nevertheless, none of his will has comes true !! The corruption has happened worst than before, the suppression of Hindraf, and bunch of social problems such as car robbing, women live is at stake etc. One more, the racism is getting very tense and Pak Lah failed to control over it !

Strictly speaking, in the recent election, without the malays and indians voters supporting the opposition, we will not see such a landslide victory by the opposition parties.

Now, Lim Guan Ying will be the next CM of Penang state. We shall give him the full support to lead and develop Penang to be the next "Economy Tiger" in Malaysia !

Lim must play a meritocracy policy, irregardless of race, religion and ethnic in leading the Penang state.
The priority for Lim is, be able to woes the increase in FDI in Penang state, able to control the crime rate to lowest possible and with lowest unemployment, then Penang will be the showcase in the next election,the rakyat will have more confident on the opposition to lead the country. If this happen, we will see more hopes for the future of this country, Malaysia will be marching towards the truly democratic country.

Let us look aside, we are seeing countries like US, UK, Japan was once ruled by opposition, so does our belove Malaysia !

Last but not least, but due respect to Anwar, Lim Guan Ying, Lim Kit Siang, Karpal, Aziz aligns .....!

Let's hope for the best in the next years !

KL...Callum

3/10/2008 3:36:22 AM | Callum

Well Callum, i guess your ticket back from China is not in vain :) Well done to all the fellow Malaysians, you can prove to the world that, people power is what matters, not some arrogant and corrupt leaders. We are no longer living in the 60s or 80s era where we can be cheated anymore in the mainstream media.

Today we have internets, youtube and well...luk4all.com (thank you) for all people to read an alternative news/info. The time has really dawn and the current government days in office are numbered.

Thank you Ahmad, Ah Kau and Ramasamy... as we have been very long segregated in the last 50 years, time for us to work and build this country together. For those cronies and corrupts... well, they will only have another few years to enjoy. We will not see them in government office in the 2nd term.

Anwar, Raja Petra, Kit Siang (and others) you guys deserved the credit, for putting all races and vote as one Malaysians... and for that 1 day we trullly feel as "one", and my guts feeling is telling me, that feeling is going to last.

Thank you Malaysians for putting 8th March 2008 into the history book (think my son will read this in his secondary school :))
3/10/2008 3:44:41 AM | brethern

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