By Lenora Chu
“New economy.” The buzzword used by journalists, economists and Internet gurus alike to encapsulate today’s unusual economy symbolizes the radical change in the way we think, invest our money and do business.
And overseas? It turns out that in Asia, the business sector has shown an unprecedented shift toward conducting a more “western” style of business. A profound article in the Economist, entitled “The End of Tycoons” got me thinking about how the hot-wired global network is making it easier for corporations to implement time-tested examples from other countries of what works and what doesn’t, a la carte-style.
Indeed, after conducting centuries of business transactions on the merit of trust and a handshake, Asian business leaders are slowly transforming corporate cultures and methodologies.
Why? The reason for this transition is complex. First, the generation of Chinese businessmen that built vast empires from scratch—perhaps a decade or two older than America’s baby boomers—are now getting ready to pass the reins to the younger generation. And many of these sons, not to mention a few daughters, were educated in American universities like Harvard and Stanford, and are well versed in western ways of business administration.
The Asian financial crisis of the late 1990s has also done its part to spur the change. Where Asian businessmen traditionally relied on “bamboo networks”—strong channels of family, friends and trusted banks—they now must look overseas for equity capital. And with this reliance comes familiarity with the western notions of shareholder value and stock options for compensation.
The crisis has also forced Asian governments to tighten their financial and regulatory rule. Insider and contract laws have become tighter and policies on competition more rigorous, essentially eroding the efficacy of the bamboo networks of family and trust.
And most importantly, the prominence of the Internet on the international scene has more befuddled than enlightened old-school Asian businessmen suddenly unsure of their corporate footing. Where the moguls of old grew their businesses by expanding into new industry sectors, the new heavyweights must find more innovative ways to remain competitive in today’s global marketplace. And many, if not most ventures that have found viability in the new Internet economy are American companies listed on NASDAQ.
Indeed, the Internet is the most influential force changing the Asian business landscape today. The Internet threatens the old business model, which relies on privileged information and Asian networks around the world. Its low barrier to entry also allows the rapid rise of new competitors. And Internet-related companies rely much more than old-economy businesses on concepts like shareholder value, venture funding and stock option compensation.
An old Chinese saying warns that in a family business, the first generation makes the money, the second spends it, and the third loses it. Unfortunately, this proverb has proven true in more than a few instances. For one, Aw Boon Haw’s empire—responsible for the popular Tiger Balm ointment—suffered an embarrassing power struggle amongst its heirs after the patriarch’s death in 1954. Today, the conglomerate is struggling to stay alive.
South Korea’s car manufacturer Hyundai seeks to disprove the proverb, illustrating the new way of westernized thinking. After founder Chung Ju Yung’s two sons fought viciously for the right of succession, Yung took the untraditional step of appointing the younger brother to the throne. He then took the measure of staffing Hyundai’s board with western-educated directors outside of the family, and ensured that this board, rather than the company’s top executives would have final say on management decisions.
Western business methods will almost certainly continue to rise in influence in Asia’s corporate ranks. The methods that have made businesses more efficient in the U.S.—such as shareholder access to management, regular company audits and merit-based outside hiring—will surely do the same for Asian companies. Here comes Asia!