Instructors Manual - Section 1



 Global Logic



Section 1:

The Impact of Globalisation for Southeast Asian Business


Chapters 1 – 5

Introduction: Challenges to Conventional Wisdom



Chapter Summary


The SE Asian financial crisis of 1997-98 exposed just how dependent SE Asian economies were upon foreign finance and foreign business activity. SE Asian growth had come about through, not one, but two regimes of business dynamics: a model of business growth brought about through TNC activity, and a model of SE Asian business management interaction.


As SE Asia experienced the impact of changing market demands in the global economy, so all economies are now subject to global commercial forces. They are also subject to the emergence of the global information era which is affecting the very nature of business practice across the world.




While the financial crisis proved to be a disaster for many, it was symptom of the changes that are taking place in social, political and business spheres as a global era of interaction and dynamic thinking emerges.


Key Ideas


  • The financial crisis exposed just how dependent SE Asian economies had become upon foreign financial and consumer markets.

  • The financial crisis is to be understood as essential a crisis of globalisation.

  • Globalisation refers to the growing commercial and social interrelationships made possible by the accessing and sharing of information across the globe.

  • Globalisation is about the emergence of new business dynamics and social interaction on a global scale.

  • The growth of business development in SE Asia can be understood from the perspective of two models of business activity – a model of global business growth, and a model of SE Asian business management, or ‘way’ of doing business.

  • While the financial crisis brought hardship, it was not a ‘critical event’ powerful enough to change the region’s business systems. On the other hand, the perceived opportunities of global interaction, will indeed, effect the very nature of business practice, and reasoning, everywhere.

Word List


  • Globalisation

  • Financial Crisis

  • Transnational Companies

  • Guanxi

  • Collective Capitalism

Teaching Objectives 


  • To present the financial crisis of 1997-97 as symptomatic of the growth of the global economy.

  • To argue that the growth of the global economy is to be seen as part of the emerging global information era.

  • To argue that the very nature of business is changing as essential concepts such as competition, management, marketing and strategic planning will all be redefined.  

  • To introduce the concepts of:

-         The global economy

-         Globalisation

-         Business System

-         The ‘Asian’ model

-         Transnational Companies (TNCs)


Overview of the Chapter


It is not critical events that will prove to change Southeast Asia’s

business systems but ‘critical’ conversations.


A Crisis of Globalisation


The SE Asian financial crisis exposed just how dependent SE Asian had become upon global markets.


Globalisation Explained


Globalisation refers to the growing commercial and social interrelationships made possible by the accessing and sharing of information across the globe. The changes brought about in social, political and commercial spheres are so profound that it is legitimate to talk of a global paradigm shift. The emergence of a global consciousness of the value of information and knowledge has specific implications for business. 


The Context for Business Growth in SE Asia


To propose that SE Asia’s progress was brought about by export-led industrialisation may seem obvious today but as it was developing throughout the 1970s and 1980s, it was met with scepticism. Anglo-American conventional business wisdom questioned how an infant industry in a developing country could hope to compete with established

industries from more developed countries. 


A Conceptual Model of Global Business Growth in SE Asia

Features of the Model


A market driven chain of causation linking foreign markets and SE Asian industrialisation came to dominate SE Asian development. While acknowledging that companies do not all act in the same manner, and that different opportunities across the SE Asian economies have resulted in different levels of emphasis on industrialisation, general market production integration patterns can be observed. Accordingly, four features of a global business growth model are identified here –


Foreign Investment

TNC Industrialisation

Export Growth

Regional Integration  


The Impact of Global Business Growth for SE Asia


The availability of ‘easy’ money resulted in the growth of foreign debt. Debt that could not be ‘easily’ repaid when markets declined and foreign investors wanted their investments repaid.


A Model of SE Asian Business Management


While the ‘Asian’ model has frequently been depicted as a collective or collaborative form of capitalism, this description does not adequately reflect the culturally-laden business sytems of the region. Five distinct major business systems can be identified as operating across SE Asia: the Japanese corporations with their outsourcing industrial networks, the Singaporean joint government-private sector approach to investment and development, the Malaysian bumiputra companies, the Overseas Indian business networks and the Overseas Chinese guanxi business networks. Of these, clearly the Overseas Chinese guanxi business management system dominates domestic and regional commercial activity – excluding TNC operations.


The Challenges Ahead


The global interaction of business holds many opportunities for business. 


o       Global business competitive advantage will be found, not in its efficiencies, but in the creative value that emerges from its interactions as they provide a business with an intelligent and creative edge over others.


o       Marketing will move away from its focus on product promotion and become an exercise in creating those significant interactions that the customer is looking for.


o       The practice of management will become a process of managing significant interactions to bring about innovation and creative change.


o       Global-minded business strategies will be built on the appreciation of the action-response dynamic that occurs between a business and its communities – both its present and perceived future communities.  


Study Review Questions


1.      Why did TNCs interest in SE Asia shift from primary production to industrialisation?


2.      Why was SE Asian economic growth considered ‘miraculous’ by the World Bank in 1993?


3.      What is export-led industrialisation?


4.      What are the elements of the model of global business growth?


5.      Why is it difficult to identify one ‘Asian’ model of business management for SE Asia? 


Essay and Discussion Questions 


1.      Why is it that the Flying Geese Theory does not adequately describe SE Asia’s economic growth during the 1980s and 1990s?


2.      How is it that the global business activity creates regional integration?


3.      Why is that SE Asia’s financial crisis can be said to have been ‘self inflicted’? 


Key References for Further Study


Henderson, C. (1998). Asia Falling? Singapore: McGraw-Hill.


Reynolds, C. (2001). “A Conceptual Model of Global Business Growth in Southeast Asia”, Journal of Asia Pacific Economy, Vol. 6, No. 1,


Stubbs, R. (1998). “Asia-Pacific Regionalism Versus Globalism”, in Coleman, W. (ed.), Regionalism and Global Economic Integration, London: Routledge.


Toffler, A. and Toffler, H. (1995). Creating A New Civilization, Atlanta:

Turner Publishing.


Chapter 1: A Review of the Growth of Global Business  


Chapter Summary


This Chapter briefly explains the history behind the growth of economic and technological advance as experienced in the later part of the 20th Century. It discusses the emergence of international regulatory bodies, such as the IMF, and then turns to focus on the growth of TNCs.


But, as the world have moved into an era of rapid change – in social, political and commercial life- so change itself has become a factor in the management equation. Thus the paradigms of the Industrial Ear are shifting to reflect the realities of the Global Era. There is a shift from:


-         A poli-centric to an econ-centric paradigm

-         Nation-state to a market-driven growth

-         Domestic to global paradigms

-         A passive to a dynamic paradigm




The growth of the global economy, made possible by the inauguration of international agreements, the liberalisation of trade and finance regulations, and the expansion of TNC activity, has paved the way to a change in the fundamentals to social, political and economic interaction. 


Key Ideas


·        The history of the growth of international business can be told from the perspective of exploration, trade, and colonization. It can also be told from the perspective of technological improvement.


·        The 2 world wars of the 20th Century stimulated an advancement in technological capabilities and ushered in a period of American dominance of international trade.


·        The growth of FDI and FII in the 1980s and 1990s saw the growth of interdependence between the world’s stock markets, finance markets, as well as production-consumer markets.     


·        Intra-firm transactions have grown as a percentage of world trade and account for more than one third of all world trade.

·        The world has experienced a shift in paradigm from a poli-centric to an econ-centric world-view. The emphasis in international relations has shifted from a military and socio-political paradigm to an economic one.


·        The world has moved beyond the confinement of nation-state limitations and definitions to an understanding of national economic and political life being subject to international market forces. Under the market-driven paradigm, market forces now overshadow governments as they do large corporations.


·        The world has moved from a domestic focus on human and commercial interaction to a global focus. Nothing is ‘overseas’ anymore.


·        The world has had to abandon its dream of economic stability and predictability and realize that global economics and interaction exists in a state of change.  Models of linear causality don’t work. The global economy is dynamic.


·        Foreign markets now drive every country’s economic well-being.


Word List


·        International business


·        Great Depression


·        International Monetary Fund


·        General Agreement on Tariffs and Trade


·        World Trade Organisation


·        Multilateral Agreement on Investment


·        Intra-firm trade


·        Paradigm


Teaching Objectives 


·        To provide a background to the growth of the ‘world economy’ that has emerged at the latter end of the 20th Century.


·        To suggest that the history of the growth of world commerce can be told from several perspectives. Particularly, to introduce the idea that commercial capability, in parallel with political and social expansion, has been dependent upon technological progress.


·        To make the radical claim that world economic growth, in parallel to and as an extension of, technological advance, has come to overshadow nation-state industrial era thinking, and altered the very paradigms of political and economic interaction.


Overview of the Chapter


The world is becoming borderless not because governments allow it

but because governments can’t prevent it.


The Changing Profile of International Business


Trade and Technology


The story of international business growth can be told from several perspectives. While the development of trade usually focuses on a Western chronology of events, the development of international, or better designated as ‘global’ economic growth, is understood with an appreciation of the rapid development in technology.


A Shift in Economic Dominance


The profile of international business has changed as the volume of trade and international commerce has increased and spread across the world. In general, countries are now willing to accept world trade as a growth strategy and consider free trade agreements. At the same time, world investment has increased and become a dominant force in international business (see Figure 1.2). Rapid global development of

TNCs has drawn business from national to international market opportunities and thereby changed the profile of commerce across the world.  


Economic Reasoning


An often overlooked aspect of the development of commerce is the contribution that knowledge and intellectual reasoning have made to the expansion of international business; not just the acquisition and management of information but also the modeling of economic



International Agreements


International agreements made throughout the 20th Century set the basis for the rapid growth of international trade that followed, and the basis of the growth of global commerce that

is now taking place.  


The International Monetary Fund


The concept was to establish a permanent cooperative organisation, later named the International Monetary Fund, to supervise international monetary arrangements. The system encouraged the unrestricted conversion of one currency into another, establish a clear and unequivocal value for each currency and eliminate restrictions and practices that hindered trade. The IMF began operations in July 1946 with 39 members. As part of the Bretton Woods agreement, each member country was to supply capital to the IMF in its own currency based on a quota determined by the country’s monetary reserves.  


General Agreement on Tariffs and Trade


The General Agreement on Tariffs and Trade (GATT) began as a voluntary organisation in 1947 with 23 member countries. It has since grown to a consortium of more than 100 countries. The organisation has sought to develop a set of rules to conduct trade negotiations.  


The World Trade Organisation


The most significant achievement of the Uruguay Round of GATT in 1986 was the agreement to replace the GATT secretariat with the WTO. A fundamental problem with the GATT process had been the lack of momentum in overcoming protectionist policies and implementing trade liberalisation.  


Multilateral Agreement on Investment


The realisation that trade and investment have become mutually

dependent in the global economy has motivated the Organisation for

Economic Cooperation and Development (OECD) countries to begin

developing a multilateral agreement on investment (MAI).  


The Growth of Transnational Companies


A Period of Business Growth


The post-Second World War period, however, saw the beginning of a new phase of MNC (to be known later as TNC) activity as both the United States and Britain became increasingly active in overseas business; although much of the investment was in the area of oil exploration. From the 1960s, both Europe and Japan also began to make their international presence noticed as their MNC activity increased. This was to change the balance of international business as Japanese MNCs ventured to locate not only across E&SE Asia and Europe but also across the US.


Trade and Investment


The post-war period of TNC growth was characterised by the growth of FDI that accompanied the establishment of subsidiary businesses in overseas locations. The growth of TNCs across the world represents a change in the nature of international business. The accent moved from trading with foreign companies and supplying foreign markets to locating in foreign countries in order to either compete in those markets or take advantage of low-cost production to compete in other markets. Indeed, SE Asian economies remain heavily dependent upon TNC activity.  


A Change in Focus


Rather than fixed assets and markets in rigidly structured economies, global commerce is now far more market driven and customer-need responsive across the globe. Markets and business opportunities change quickly. Consequently, change is now to be considered a factor in the global business management equation.  


Changing Paradigms


The growth of international business has brought about not only an increase in trade and investment activity but also affected the decision-making processes and the paradigms of trade and politics that have dominated the world for more than a century.


From a Poli-centric to an Econ-centric Paradigm


Over the past 30 years, however, and particularly since the collapse of the Berlin Wall, the emphasis in international relations has been a move away from a military and socio-political paradigm towards an economic one.  


From Nation-state to Market-driven Growth


The ability of nation states to exercise their sovereign powers over economic forces has diminished. Government involvement in international business has changed as their protectionist policies and their endless tabulations and bureaucratic processes have become a hindrance rather than a help to business.  


From Domestic to Global Paradigms


Under a nation-state paradigm, governments operated to advance the

social, political and commercial well-being of their domestic economies.

Operating from a global paradigm, business is conducted in a borderless

and virtual world where market opportunities stimulate both creative

thinking and creative financing.  


From a Passive to Dynamic Paradigm


Demand, rather than supply, drives domestic and international economies in almost every area. In contrast to domestic economies, where monopolies, oligarchies and limited resources allow for supply-side theories to perpetuate, the global economy knows no such boundaries. It is dynamic as markets grow and fall in different sectors all at once. Accordingly, theories of product life cycle are to be overshadowed

by theories of a demand life cycle.  


The Effect upon SE Asia


SE Asia takes an unusual place in the shift of paradigms. The desire for foreign investment, accommodated by low taxation and few restrictions on foreign trade, has made the region an attractive location for TNCs. SE Asian economies developed as something of a laboratory for much of the change that was occurring across the world. For SE Asia, economic-political paradigm changes have induced a move from controlled economies, where governments guide economic activity, to free market economies, where governments either have a hands-off approach (Hong Kong) or a supportive approach to business growth (Singapore). Still, the crisis was a stark awakening for some government leaders to the fact that SE Asia is an integrated part of the global commercial environment with a global mode of operation.


Study Review Questions


1.      How has advancing technology contributed to the expansion of world business?


2.      How has a change in economic reasoning affected the growth of world business?


3.      How did the theories of John Maynard Keynes affect economics?


4.      Why was the IMF established?


5.      What is the purpose of the World Bank?


6.      Why was the World Trade Organisation instituted?


7.      How was the Japanese TNC approach to international business able to develop SE Asian economies?


8.      Why have the fundamental paradigms of international economics and politics changed in the past 40 years? 


Essay and Discussion Questions


1.      International agreements were seen to be the means to establish economic stability for the world during the Twentieth Century, but can they continue to be effective in the world of dynamic change? 


2.      Discuss the growth of intra-firm trade and its consequence for international economics. 


3.      Discuss how it is that liberal trade regulations can hold both advantages and disadvantages for national economies. 


Key References for Further Study


Ohmae, K. (1990). The Borderless World, New York: Harper Perennial.


Fatehi, K. (1996). International Management, New Jersey, US: Prentice


Chapter 2:  Globalisation Explained  


Chapter Summary


Globalisation is understood as more than an increase of technology and communication across the globe. It is a revolutionary change in the interaction and integration of people and business across the globe made possible by the creation of an information era. It is a change in political, social and commercial thinking. The emergence of a globalised world is described by way of the growth of global information infrastructure and the global information society. The Chapter discusses the history and development of the global-information era and the advent of the ‘liberalised’ global economy. It reviews the shift of power to business and the market, away from politics and national economies, and discusses consequences, such as the changing nature of work. 




The increased flow of goods and finance across the world made possible by liberalized government restrictions has been surpassed by the rapid increase in the flow and sharing of information. While globalisation may appear to be an increase in commercial activity, it is fundamentally something much more profound. Globalisation is a change in global consciousness toward an appreciation of knowledge and knowledge management.


Key Ideas


  • The world has moved from an agricultural era to an industrial era and now to an information era.

  • Information is replacing money as the fundamental value of wealth.

  • Globalisation is the emergence of a different way of reasoning.

  • Globalisation is supported by the growth of global information infrastructure.

  • Merchandise trade and commerce is today dominated by the commerce of information.

  • In the information era, service delivery will be seen as the next phase of global prosperity.

Word List  


  • Globalisation

  • Global information Infrastructure

  • Global information Society

  • Innovation

  • Technology

  • Liberalisation


  • Electronic commerce

Teaching Objectives


  • To explain that ‘globalisation’ depicts the emergence of a new ‘global’ era in world history.

  • To demonstrate that globalisation is more than an extension of the Industrial era but a new era founded on the value of information.

  • To discuss how trade and financial liberalisation have reduced the barriers to the flow of goods, finance and services, but that this is only a small part of the globalisation phenomenon.

Overview of the Chapter


“The biggest shift, bigger by far than the changes in politics,

government, or economics, is the shift to the knowledge society…”

Peter Drucker (1990:1)


A New Civilisation


Every nation is now caught up in the both the growth of global communication and the need to access and manage global information. People across the world now have access to more knowledge than ever before but the entire structure of how the world uses knowledge is changing. Indeed, the total reorganisation of the production and distribution of knowledge is affecting global as well as national economies. 

Global Information Infrastructures and the Global Information Society


The concept of Global Information Infrastructures (GII) and the Global Information

Society (GIS) “encompass the development and integration of high speed communication networks and a set of core services and applications in digital format into global integrated networks capable of seamless delivery” (Ypsilanti 1997:7). The result is a virtual and real change in global commerce.   


The History of Globalisation

Invention, Innovation and Imagination


The advances of the industrial era, despite people’s short-sightedness, are now to be understood as part of a more extensive history moving towards the current era of globalisation.  

Technology as a Measure of Progress


The recognition that technological advancement is the real cause of economic growth allows for a history of technological development to be compiled to demonstrate the continuum of historical technological progress.


The Emerging Global Economy


In the global economy, measuring national growth or economic activity becomes benign. Franchising, licensing and investments on a global scale, make the designation of corporate income and production as national phenomenon somewhat meaningless.  


International Integration of Markets


The flow of money across the globe between individuals and business in the process of global commerce is now mostly uncontrollable by government or banking systems.  


The Liberalisation Agenda


Integration into the world economy and the multilateral trading system arises, firstly, from the realisation of the power and size of global commerce and, secondly, from the belief that outward-orientated growth strategies bring market efficiencies for both domestic and international business.  


Trade Liberalisation in SE Asia


The liberalisation of trade and commerce encompasses more than the lowering of tariff restrictions. It affects finance, maritime transport, aviation, telecommunications, tourism, immigration, government documentation and processing, public service and even construction. Indeed, liberalisation will affect regional politics and social integration as well as the character of regional commerce.  


Capital Market Liberalisation in SE Asia


The essential problem is that domestic deregulation is seen to make economies vulnerable to global financial forces and leads to the boom and- bust cycles as witnessed in SE Asia. The move towards fully liberalised markets brings fear that economies will give up their monetary independence.  

Growth of Service Trade


As the information era becomes more predominant in its role as a new global paradigm, then information service development will be seen as the next phase of global prosperity and development. 


The Future: Electronic Commerce


As the information era becomes more predominant in its role as a new global paradigm, then information service development will be seen as the next phase of global prosperity and development. 


The Changing Nature of the Global Society


A Shift in Power


The ability to make and carry out decisions in the Global Information Society is shifting from institutions and organizations to individual workers and consumers. The power shift refers not only to the transfer of power but the transformation in the nature of power – ‘power’ itself is different. 


A Change in the Nature of Work


The development of the GIS will bring about an increase in communication and information management and cause a shift in dominance of manual work and white-collar office work to knowledge work.


People, Power and the Media


Image building, issue management and communications strategic management are elements of the new language of the communications service industry. The management of strategic communications has become increasingly important because information control, image development and the use of persuasion have become vital to business and political success 


SE Asia – Becoming Part of the Global Process


The pervasiveness of the GIS and its effects upon commerce, finance and communication mean that it is not a question of whether a country will choose to globalise, but only a matter of how it proceeds.  


Study Review Questions


1.      How is it that globalisation can be described as more than expansionism?


2.      What is global information infrastructure?


3.      What is the global information society?


4.      Why is it that the flow of information across the world is more valuable than the flow of trade?


5.      Why are some economies cautious to liberalise their trade and financial regulations?


6.      In what ways is the world experiencing a power shift in the global era? 


Essay and Discussion Questions


1.      Technological development has brought about the agricultural era and then the industrial era, but how is the growth of information and communication technology causing a change in thinking and interrelationship in this present time? 


2.      Discuss how it is that domestic economies have become interdependent with other economies and at the same time dependent upon the global economy.


3.      Explain how a power shift to the global-consumer will affect the nature and practice of business? 


Key References for Study



Drucker, P. (1995). Managing in a Time of Great Change, Oxford:


Toffler, A. (1983). The Third Wave, New York: Bantam Books.


Toffler, A. (1990). Power Shift, New York: Bantam Books.


Ypsilanti, D. (1997). “Global Information Infrastructure–Global Information Society Policy Requirements”, Committee for Information, Computers and Communications Policy, OECD, Paris.


Chapter 3:  The Southeast Asian Economic Miracle and International Trade Theory  



Chapter Summary


This chapter explains how the SE Asian economic ‘miracle’ had mostly come about through the export-led industrialisation carried out by Japanese TNCs. The chapter then demonstrates how SE Asian economies became interdependent with the Japanese economy and, at the same time, dependent upon consumer demand in Western markets. To understand the economic growth patterns of SE Asia, economic trade theory is examined with the conclusion that Western models do little to explain the unique economic behaviour arising from the SE Asian business systems.




SE Asian economic development resulted from an export growth strategy, but it was a foreign strategy carried out predominantly by Japanese TNCs. The growth of the SE Asian economies is a unique story and a break with conventional models of economic and international business growth. In place of a competition based capitalist model, it is proposed that an interaction based model better explains SE Asian growth. 


Key Ideas


  • SE Asian economic growth was a consequence of TNC business development.

  • SE Asian governments became active participants in a TNC growth strategy of targeting Western markets with low-cost manufactured goods.

  • The Flying Geese theory of sequential development does not explain SE Asian economic growth. One government, or economy, did not copy the success of another. Rather, business growth came about as Japanese firms looked for ever cheaper places to produced goods for overseas markets.

  • Japan had become the single most important investor in SE Asia in the 1990s.

  • SE Asian development was driven by foreign investment and the development of productive capabilities. 

  • Western economic growth theories developed in the industrial era are inadequate to explain either global commerce or SE Asia’s economic development.

Word List  


  • TNCs

  • Competitive advantage

  • Comparative advantage

  • Currency peg

  • Devalued

  • Input-driven capital growth

  • Total factor productivity

  • Epistemology

Teaching Objectives  


  • To explain that SE Asia’s growth strategy was, infact, a foreign business growth strategy.

  • To explain how SE Asian economic growth was dependent upon foreign finance and know-how but also foreign market demand.

  • To discuss the inadequacies of Western economic theory to explain the dynamics of SE Asia’s economic growth.

  • To suggest that the dynamics of SE Asian business is better explained by way of an interaction paradigm of cooperation than it is by way of a mechanistic paradigm of capitalist conflict.

Overview of the Chapter


“Asian growth has so far been mainly a matter of perspiration rather

than inspiration – of working harder, not smarter.”

Paul Krugman (1998:1)  


The Economic Miracle 


Getting the Basics Right


SE Asia was able to reach a level of development that had taken Europe and America more than 200 years to achieve. This growth , the World Bank suggested was brought about by ‘getting the basics right’.  Yet, ‘getting the basics right’ does not adequately explain SE Asia’s economic growth as an expression of foreign business activity.  


Export Expansion


SE Asian governments became active participants in a TNC growth strategy of targeting Western markets with low-cost manufactured goods. SE Asia’s growth is best explained as business-led growth patterns brought about by multinational businesses’ continual search for lower production cost opportunities.  


Japan’s Role in SE Asia’s Growth


As Japanese finance moved across SE Asia so did its technology for industrialisation and its knowledge of and access to export markets. Naturally, domestic economies developed, but in the shadow of foreign business development for foreign markets. While there may well have been an export-growth strategy, it was a foreign strategy. The other important factor in understanding the role that Japan has played in SE Asian development arises from an appreciation of Japan’s own international trade and finance relationships, particularly with the US.  


Why the Miracle Fizzled

Paper Tigers


In retrospect, it appears that several things happened at once to cause a change in the economic prosperity of SE Asia. First, the strengthening of European and US markets lured foreign investors towards more profitable opportunities in their home countries. Second, with the strengthening of both these regions, the EC and NAFTA, export

opportunities for SE Asia diminished. Third, business operations in other Asian countries, notably India, China and Indochina, entered the Western markets with more competitively priced products. And fourth, with the Japanese economy struggling for some time in recession, Japanese investments were extracted from across SE Asia.

Japan’s Decline


The story of SE Asia’s growth is very much a story of Japan’s business growth strategy but at the same time, it is a story that reflects the plots and developments in Japan’s own economic history. While SE Asian exports had gained in competitiveness against exports from Japan, increasing indebtedness and a rise of SE Asian currency values against a depreciating yen in the context of Japan’s own fiscal and monetary problems, created an environment for the SE Asian financial crash.  


Market Driven Growth


The low-cost strategy of the TNCs had a foreseeable life cycle which made production in SE Asian economies extremely vulnerable to both the volatility of foreign market demand trends, as well as to the inevitable decline of market share. Indeed, once the financial crash brought an end to the pegged currency regimes across SE Asia, cost-to-customer prices fell, consumer demand increased and so did SE Asian exports.


A Case of Low Productivity


While growth has been fantastic for SE Asia for many years, the growth does not reflect real productivity and technological/knowledge advancement. SE Asian economies were vulnerable to global commercial dynamics not only because they were heavily dependent upon foreign capital, but also because they had insufficient indigenous productive capability.  


Trade Theory Analysis


The SE Asian Economic Discrepancy


The fundamental issue here is the general inadequacy of Western economic growth theories developed in the industrial era to explain either global commerce or SE Asia’s economic development.  


A Question of Epistemology


In order to appreciate the Asian point of view, it is necessary to recognise its

distinction from the Anglo-American approach to economics.  




Gradualism advances the idea of a cooperative approach and seeks to acknowledge the role of government intervention in the growth equation of SE Asia. The gradualism model is far from perfect, but the idea of state-led development introduces an important factor in understanding the dynamics of Asian business growth.  


The Flying Geese Approach


Essentially the theory is built on the notion of product life cycles and suggests that the life cycle of a particular industry can be followed by the trends in the value, or volume, of imports, production and exports. When applied to international trade, the model depicts a shift of economic growth from more advanced to less advanced economies as industries develop. However, it is suggested here that the idea of sequential development as expressed in the flying geese theory ignores the impetus

of the TNCs in initiating the industrial development as market opportunities arose.


An Interaction-process Paradigm


In contrast to a mechanistic-conflict equilibrium paradigm, Asia’s growth is better served by consideration of an interaction-process paradigm. Here, the emphasis is on the development of relationships and on change as a quality of interaction. While Western business is, without a doubt, mechanistic in its approach to commerce, the growth of business across SE Asia appears to have occurred not through conflict and conquest, but through cooperation, interrelations and even integration.


Study Review Questions


1.      How did SE Asian governments get ‘the basics right’ and help economic development?


2.      How did Japanese businesses develop international trade out of SE Asian economies?


3.      Why did SE Asian economies become dependent upon foreign market demand?


4.      Why do fluctuations in the Japanese economy affect SE Asia?


5.      Why was it disadvantageous to peg SE Asian currencies to the US dollar?


6.      If SE Asian economic growth was not built on indigenous productivity capabilities, what was the stimulus for growth?


7.      Explain the theory of Gradualism.


8.      Explain the Flying Geese theory.


9.      What is the Interaction-process Paradigm?


Essay and Discussion Questions


1.      Discuss the growth of SE Asian economic as a consequence of Japanese TNC activity and explain why it is that SE Asia will only experience economic recovery in the shadow of Japanese economic recovery.


2.      It has often been suggested that SE Asian development took place is a sequential order with one economy duplicating the success of another, but this proposal presumes that governments were in control of their national development and at the same time fails to account for foreign business initiatives. Explain SE Asian economic development as a consequence of foreign business dynamics.


3.     It has been suggested that SE Asia has its own form of capitalism and its dynamics are not easily explained with Western economic growth theory. Explain.


Key References for Study  


Chow, P. and Kellman, M.H. (1993). Trade: The Engine of Growth in East Asia, New York: Oxford University Press.


Dobson, W. and Chia, S.Y. (1997). Multinational and East Asian Integration, Singapore: Institute of Southeast Asian Studies.


Dunning, J. (1995). Foreign Direct Investment and Government, London: Routledge.


Encarnation, D. (1994). The Regional Evolution of Japanese Multinationals in East Asia: A Comparative Study, Massachusetts: Massachusetts Institute of Technology.


Fields, G. (1993). “Changing Labour Market Conditions and Economic Development in Hong Kong, Korea, Singapore and Taiwan”, The East Asian Miracle: Economic Growth and Public Policy, Oxford: Oxford University Press.


Hatch, W. and Yamamura, K. (1996). Asia in Japan’s Embrace: Building a Regional Product Alliance, Cambridge: Cambridge University Press.


Chapter 4:  The Growth of Regionalism


Chapter Summary


As an economic paradigm has come to overshadow a political paradigm, so national economies have come to be dominated by global commercial activity. Regionalism, as an expression of cooperation between national economies, is part of the global process of reducing trade and finance regulations and comes in response to growing global business activity. While there is some debate over the benefits of regional alliances, they help nation-state economies foster administrative and financial management processes in a context of the emergence of other regional alliances.




In an era of global commerce, national governments are responding by promoting trade and commerce through a process of deregulation and capacity building in an effort to develop regional alliances.


Key Ideas


  • Regionalism is the process of economic and political cooperation between economies.

  • It is the growth of global business that has brought about the desire for regional alliances.

  • Forming regional trade blocs is an enigma in the era of global commerce.

  • SE Asian economies are more dependent upon the trade and business relations they have with Western and Japanese markets than they do within the region of ASEAN.

  • APEC and ASEAN, as associations of national economies, enable governments to broaden and strengthen their capabilities but are spectators to the dynamic world of  global commerce.

Word List


  • Regionalism

  • Liberalisation


  • APEC

  • Capacity building

  • General System pf Preferences

Teaching Objectives


  • To explain the development of regionalism as a process of nation-state liberalisation; of how an economic agenda has come to dominate a political one between nations.

  • To introduce and discuss the issues of trade and finance liberalisation.

  • To discuss the particular concerns of SE Asian governments have with open regionalism and liberalisation.

  • To introduce and discuss the history and issues of interest to ASEAN.

  • To introduce and discuss the history and issues of concern to APEC.

Overview of the Chapter


Business and governments are under pressure to heed the call for

better business practice and open regionalism.  


The Attraction of Regionalism


National governments have not been passive in the emergence of the global economy and the creation of a new world order. While certainly under pressure from powerful business interests who stood to gain from open market liberalisation, nation states have played a role in making regionalism and globalism possible.  


The Trend Toward Regional Trade Agreements


Regionalism can be defined as the process of economic and political cooperation between economies as expressed in their mutual agreements of association and union. With the waning of communism and the growth of the global economy, the wave of regional agreements in the 1990s expresses the world’s desire to increase international and intra-regional trade. 


Open Regionalism


Open regionalism across SE Asia is associated with the primary trend towards trade liberalisation. ASEAN members are primarily concerned with the trade liberalisation for the region and, accordingly, are developing their agenda towards that goal. There are, however, some concern about the impact of open boarders upon national economies.


The SE Asian Context


While there is general agreement that financial management infrastructure needs to be improved across the region, there is a fear that further capital market liberalisation will only make the region more vulnerable to boom-and-bust investment cycles. Although SE Asia is an integral part of the emerging global economy, as a region, it has its own business and political character that will continue to distinguish it from either the EU




The Development of ASEAN


With economic growth in the 1980s, ASEAN economies became more outward-looking making some reforms in deregulation, trade financing and foreign investment. With increases in foreign trade, ASEAN economies became more financially and commercially, integrated. At the same time, with the strengthening of the European and American economic regions, there was pressure on ASEAN to strengthen its regional economic alliance. 

The Issues for ASEAN


As a political and economic regional organisation, is concerned with the issues of economic and technical cooperation or ecotech or capacity building, as it seeks to develop public service and financial infrastructure to meet global commercial demands. It is hoped that CEPT and AFTA will not only prepare ASEAN for open regionalism but create a larger ASEAN market and stimulate intra-ASEAN trade


ASEAN and the EU


While there is a history of European involvement in SE Asia, the EU remains ASEAN’s third largest trading partner and second largest destination for ASEAN goods. From the EU perspective, however, ASEAN-EU trade accounts for only 5% of the EU’s trade.




APEC’s Origins and Purpose


APEC was formed in 1989 as an Australian initiative. The concept of an Asia-Pacific forum evolved out of Australia’s and New Zealand’s desire to develop closer links with Asia. The original concept of Australia and New Zealand forming closer links with Asia had gotten lost with the US, Canada, Mexico and Chile all wanting to join the forum. The consequential diversity of business cultures, political agendas and trade relations, has made consensus and implementation of resolutions difficult.  


APEC’s Progress


APEC’s progress on trade and investment liberalisation has made it more than a discussion forum, however, as it has become a mechanism for enhancing and accelerating liberalisation.  


Regionalism and SE Asia’s Future


As finance, management skill and export market knowledge have all drifted into less developed economies as businesses sought new expansion and cost-cutting opportunities. The result has been a continuum of growth and development across E&SE Asia and, accordingly, the breaking of the cycle of poverty for these developing

countries and increasing domestic spending power which in turn has created new market opportunities within Asia itself.  


Sub-regional Arrangements


For 2,000 years, trade flowed across the Asian region until the boundaries of colonialism and then the Cold War caused disruption. But the old Silk Road, linking China and Burma to India and Europe is alive again. Similarly, the Mekong River, running through China’s Yunnan area down to Myanmar, Laos, Thailand and Cambodia, forms a natural corridor of over 500 kilometres. Where mules and wagons once traveled these routes, Japanese-made trucks and cars now link a potential market

along China’s southwest frontier of some 300 million people. The emergence of

natural commercial areas is an important aspect of ASEAN’s future.  


Finding a Regional Identity


With the admission of Myanmar, Laos and Cambodia, ASEAN is more diverse than ever before with a range of political systems, economic development levels and international interests. Such diversity is in itself not a negative thing as it provides a greater option of trading partners for both international as well as intra-ASEAN business.  


The Role of ASEAN and APEC


Where ASEAN has been flexible and undemanding, APEC brings a different challenge to Asia. Its agenda for liberalised trade and investment and open regionalism clearly affront bureaucratic inertia. APEC, in the first instance, brings pressure for ASEAN to accelerate its trade liberalisation programmes. Second, APEC brings pressure for SE Asia to seek deeper economic integration  


Study Review Questions


1.      What is the attraction of regionalism?


2.      What is Open Regionalism?


3.      Why are some SE Asian governments concerned about liberalisation?


4.      What are the advantages for member economies in belonging to ASEAN? 


5.      Why was APEC formed?


6.      How can APEC help SE Asian Economies?  


Essay and Discussion Questions


1.      Given the influence of the Japanese economy, could ASEAN ever become a viable economic bloc?


2.      Do you think that Open Regionalism will ever become an economic philosophy for SE Asia? Please explain.


3.      Discuss the significance of the growth of business alliances across the SE Asian region. 


Key References for Study  




Higgott, R. (1998). “The International Political Economy of Regionalism”, in Coleman, K. and Underhill, R.D. (eds), Regionalism and Global Economic Integration, London: Routledge.


Lasserre, P. and Schutte, H. (1995). Strategies for the Asia Pacific, London: MacMillan Press.


Ohmae, K. (1990). The Borderless World, New York: Harper Perennial.

Chapter 5:  Global Finance and Southeast Asia  


Chapter Summary


With the emergence of a global monetary system the Brentton Woods era of financial control and regulation has given way to an era of post-modern money and post-modern banking. Today, the market never sleeps as stock trading and financial transfers go on unfettered and largely unnoticed. For SE Asia, foreign investment in the forms of FDI and FII have provided for industrialisation and export growth but also, in an environment of inadequate government regulation, led to staggering foreign debt. Debt, that would cripple the SE Asian economies in 1997.




Globalisation has propelled the world into an era of post-modern money and banking – a virtual world of computer transfers and volatile currency and stock values. Global financing and investment transfer is now beyond the control of national governments. Instead of trying to control the economic weather, governments better serve their countries by creating the right economic climate for investment and growth.  


Key Ideas


  • The world is experiencing the growth of a global monetary system.  

  • In the global economy, money is a virtual reality – a computer recorded account transaction.  

  • The growth of SE asian economies was a consequence of financial deregulation and a growth in global foreign investment. 

  • Risk in the finance industry is unpredictability multiplied byspeculation.

  • Business across SE Asia has been closely associated with banking and government.

  • Overseas Chinese business networks and conglomerates have dominated SE Asian domestic market development.

  • FDI has been fundamental to the industrialisation of SE Asia.

  • FII has provided the fluid funding for investment and private business loans that led to high inflation and to high debt.

  • The SE Asian financial crisis exposed something of the lack of government regulation and financial management, but it also exposed something of the dynamic of the regions business systems.

Word List  


  • Bretton Woods

  • Flexible exchange rate 

  • Euroloans 

  • London Interlink Offer Rate

  • Overseas Chinese

  • Conglomerate

  • Migration capital

  • FDI

  • FII

  • Moral Hazard

Teaching Objectives  


  • To explain the emergence of the global financial system.

  • To reveal something of the changing nature of money and banking in the global era.

  • To suggest that the methods of control and regulation suited for the Industrial era are inadequate tools for economic growth in the global era.

  • To discuss the impact of global finance on the SE Asian economies, and particularly its impact of capital investment on the SE Asian business and banking systems.

  • To demonstrate the power of foreign capital investment to destabilize an economy and the need for radically altered thinking in the areas of financial and economic stimulation.

Overview of the Chapter


Money breeds money as a pear tree breeds pears.

Karl Marx (1963:37)


Money Matters

The Post-Bretton Woods Era


The emergence of a global monetary system has come about through accelerated financial activity brought on by a liberalisation of financial regulation in a post-Bretton Woods era. 


The Market Never Sleeps 


Of the some $1.5 trillion of currency trading across the world each day, some $650 billion is traded through London, the world’s largest foreign exchange centre. Despite the shifts in the balance of power and commerce throughout the last century, London has maintained its dominance as the world’s largest centre for international banking. International markets are now integrated and business responds to movements in the

markets all around the world.  


Money as Credit


In the global market, money is a virtual reality as it electronically and symbolically transfers from one party to another as a double entry accounting exercise in the form of foreign exchange, by way of, equities, investments, loans and the sale of bonds. Global finance is now a world of margins made possible through the instantaneity of global communication.


Asian Money 

SE Asia’s Financial Development


In effect, there were seemingly two Asias: one was the Asia of global markets and global finance, and the other was the Asia of domestic economic and commercial growth. The two Asias met at the point of the financial system.

Banking and Business 


Most SE Asian companies are owned by families and are part of family conglomerates. Almost every Chinese conglomerate in Indonesia, as in other parts of

SE Asia, has a banking unit. Indeed, a bank or some other financial institution is an integral part of conglomerate business. 


Overseas Chinese Migration and Money


Before the financial crisis, Overseas Chinese investments, principally from Hong Kong, Taiwan and Singapore, equalled or exceeded the investments of the

Japanese into SE Asia. In this way, the Overseas Chinese have created business networks of supply and demand as well as financial integration.  


Asian Banking: Savings and Investment


The World Bank reports that as a general rule, savings and investment are closely related across the Asian region with only a marginal difference amounting to (foreign) capital outflows. One of the main reasons for this is government control of capital outflows. As savings are guided by government policy and the consequential social circumstances, so too, investment is guided by the governments.  


Foreign Capital 


Foreign Direct Investment


The general increase in worldwide FDI and Asian FDI is representative of the increase in activity of TNCs and international production, but specifically for SE Asia, FDI and TNC production were historically important for the ‘miraculous’ growth.  


Foreign Indirect Investment 


In 1980, portfolio investment for Emerging Market Economies was zero. By 1996, private capital flows into Emerging Market Economies amounted to $327.7 billion or 98.5% of all external financing with portfolio investments reaching nearly $36 billion along with external bank borrowings of $200 billion. That is, FDI comprised only

28.5% of all private flows, while private borrowings and portfolios comprised the other 71.5%. For the Asian-5 economies, FDI comprised only 4.5% of private capital flows while borrowings and portfolios comprised the other 95.5%.


Crisis Management and the Need for Reform  


The Growth of Indebtedness in SE Asia


The large amount of capital flowing into the Asian region in the early 1990s meant that funds were available in the domestic market at relatively low interest rates. But the limited ability of Asian economies to absorb such funds in industry and export

trade, coupled with weak and inefficient banking systems, meant that investment moved to real estate and other non-productive enterprises. As foreign investments and loans increased so SE Asian economies’ foreign debt grew to uncontrollable levels.  


Financial Crisis or Management Crisis?


The financial crisis exposed a number of commercial problems across SE Asia that needed to be addressed in an effort to strengthen financial and corporate capacities. Indeed, the financial crisis can be understood as fundamentally arising from poor

management of both domestic and global commercial processes.


Study Review Questions


1.      What characterised the Bretton Woods era?


2.      What has caused the emergence of a global monetary system?


3.      What is post-modern money?


4.      What has characterised banking and business in SE Asia? 


5.      Why have the Overseas Chinese businesses been able to spread across SE Asia?


6.      What role have governments played in banking and business across SE Asia? 


7.      What is FDI and how is it mainly used?


8.      What is FII and how is it mainly used?


9.      How is it that the financial crisis can be said to have been a crisis of management?


Essay and Discussion Questions


1.      Governments in SE Asia have played a significant role in the directing banking and economic development for many decades, but by 1997 their administration and involvement in the banking sector became a moral hazard. Please explain.


2.      The flow of capital across the world has always been important to the development of industry and commerce, but the nature of money and the investment has changed to where money itself is now a product to be bought and sold. Discuss.


3.      The global financial system of virtual money and post-modern banking makes the Overseas Chinese method of cash transaction and network financing obsolete. How will the SE Asian business systems be affected by global commerce?


Key References for Study  


Department of Foreign Affairs and Trade (1995). Overseas Chinese Business Networks in Asia, Canberra: Australian Commonwealth Government.


Drucker, P. (1995). Managing in a Time of Great Change, Oxford: Butterworth- Heinemann.


Dunning, J. (1993). The Globalisation of Business, London: Routledge.


Dunning, J. (1995). Foreign Direct Investment and Government, London: Routledge.


Henderson, C. (1998). Asia Falling? Singapore: McGraw-Hill.


Higgott, R. (1998). “The Asian Economic Crisis: A Study in the Politics of Resentment”, New Political Economy, Vol. 3, No. 3.








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