Reflections on the Value of an ‘Asian’ Model

by:
Dr Christopher Reynolds


The Asian financial crisis of 1997-98 raised serious questions about the continued value and strength of an

‘Asian’ model of business management. In hindsight a number of fundamental administrative and financial

problems with the Asian ‘way’ of doing business were identified. Primarily, the review of the financial crisis

focused on the problems of an ‘Asian’ economic development model or state-led development model, and

questioned the sustainability of the model as an alternative to Western liberalisation.

While not denying the role of governments in creating the environment for the crisis, it was essentially a crisis

for business and banking as these sectors suffered in the context of global market demands. Certainly, the

Asian model has effected economic growth and even government policies and regulation, but it has always

essentially been a business management model. Accordingly, the financial crisis can be understood as a ‘crisis

of globalisation’ for Asian business as global market forces and financial liberalisation cause a set back for

business growth.


Given the impact of globalisation and global financial liberalisation on Asia, the debate over the value of the

Asian model has relevance to the discussion of business management models in Europe. Indeed, the Asian

financial crisis demonstrates that the emergence of global commerce has rendered all economies – and their

models – now equally vulnerable to financial bubbles, inflation and down turns.

Still, as the current discussion over European and Anglo-Saxon models has suggested, the culture of a nation

or ethnic group plays an important role in determining the nature, application and sustainability of models. This

is certainly the case for Asia as business practice and culture are intertwined.


To talk of an ‘Asian’ model, however, is made difficult by the fact that Asia comprises so many different

economies and styles of business practice. The idea of an ‘Asian’ model, or ‘way’ of doing business has been

championed by both Lee Kwan Yew of Singapore and Marhathir of Malaysia who have talked of ‘Asian

values’ to denote a way of conducting business that contrasts with Western business management styles. Yet,

even in South East Asia (SE Asia), there is much diversity. Malaysia, Brunei and Indonesia as Muslim

countries have no historical connection to Chinese culture, or Confucianism. And the Philippines, with its

strong Western influence and predominantly Catholic religious culture is obviously different from the Buddhist

communities of Thailand. What these economies share is their common experience of outstanding economic

growth over some twenty years and the common experience of a financial crisis.


In consideration, then, of an Asian business model in particularly SE Asia, the Overseas Chinese communities

and their family business networks provide the dominant form of business system throughout the region. While

the Japanese have played a leading role in creating SE Asia’s industrial structure, and the Malaysian,

Singaporean and even India business networks have all been relatively successful, the dominance of the

Overseas Chinese across the entire region is undeniable. Overseas Chinese, that is, Chinese living outside of

China, comprise more than 60 million people with assets of more than $2tril. They are the driving force

throughout SE Asia controlling, for example, up to two thirds of the region’s retail trade with less than ten per

cent of the population.

In Indonesia, Overseas Chinese comprise only 4% of the population but control more than 70% of the private,

non-land capital. In Thailand the population, although hard to estimate because of the decades of assimilation

and intermarriage, is thought to be about 10%, or about 6 million people but control almost 100% of the

corporate sector. In the Philippines, the Overseas Chinese population is about 1.5 million, or about 2% of the

total population but control between 50% and 60% of share capital by market capitalisation. Accordingly,

discussion of an ‘Asian’ model in SE Asia is primarily a reference to the Overseas Chinese business system.

On emigrating mostly from Southern China, these Nanyang hua-qiao, or ‘southern sojourners’, have been

successful in business throughout the SE Asian region through the development of social and business

networks. Central to Overseas Chinese social and commercial life, is the concept, or even social philosophy,

of guanxi (or kuan-chie) - the network or ‘connectedness’ of the relationships within the Chinese community.

The Chinese way of life endeavours to enhance the family unit by building bonds of trust and interrelationship

beyond the nuclear unit to relatives and friends. Networks develop by way of a web of mutually-binding

obligations and dependencies. Guanxi involves the building of relationships and relationship networks

(guanxiwang) to broker influence and preferential pricing. Guanxi, then, is expressed in the form of doing

favours, providing opportunities, and giving discounts to those with whom relationships are strong. Loyalty to

the family – which can extend to people who are not biologically related – is counter-balanced by distrust of

strangers.

The advantage of the Overseas Chinese business network model is found firstly in the support system that is

created within the community of businesses. But second, the interdependence and interrelationship of business

creates business efficiencies through preferential treatment, price discounting and credit extension. The loyalty

of buyer and seller along with low margin sales strategies create high turnover and high profits.

To the Overseas Chinese business, building relationships is the primary objective of business. If the

development of a relationship is successful then transactions will follow. In contrast, Westerners build

transactions and, if they are successful, a relationship will follow. Guanxi has become so fundamental to

business management and marketing that a new term has been derived, guanxihu, to describe ‘specially

connected firms’. Indeed, it is this ‘inter-connectedness’, or ‘interaction’ model of Chinese business that

creates its unique business character – and the essence of the ‘Asian’ model. Scholars such as George

Herbert Mead and Herbert Blumer of the Chicago School of Sociology, along side of Georg Simmel and Max

Weber of Germany, contributed to the development of interaction theory in the West. But an appreciation of

the Chinese business model as an interaction model explains the dynamics networking and flexible business

practice which arise from the centrality of relationship building. Whether it is an Overseas Chinese family-

centred conglomerate spanning Singapore, Malaysia and Hong Kong, or a small retail business in Brunei, the

model of business management by networking and relationship building is the same. Guanxi, and business by

interaction, is an expression of Overseas Chinese culture.

While the strength of the Overseas Chinese business system, or model, is its ability to create strong and lasting

networks, this strength has also been seen as its weakness. The lack of formal contracts, good-friend

networks and the avoidance of prudential regulation, all contributed to the financial crisis. Changes, certainly in

government regulation and financial management are already underway. However, the financial crisis has had

little impact upon the guanxi business model. Because guanxi is an expression of Chinese culture, the financial

crisis, as a ‘critical event’, had a minimal effect upon the vast number of small and medium sized Overseas

Chinese businesses that participate in business network systems.

The main problem with the Overseas Chinese family-centred approach to business is that it limits the scope of

networks beyond the Chinese culture. If the Overseas Chinese can learn to extend their network building

model to incorporate other non-Chinese businesses, their experience in network business growth would make

them quite a competitive force in the global marketplace. Business management by long-term objectives, close

business networks and an appreciation that business and not government is the prime economic growth factor,

are ingredients for success. In considering business expansion regimes in other parts of the world, perhaps

there is something to be learned from the ‘Asian’ model.


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