A panoramic view of the geo-economic trends and challenges within and across the leading Asia-Pacific economies will include a survey of some of the commanding heights of the Japanese economy, Association of Southeast Asian Nations (ASEAN) economic prospects, as well as the impact of the current oil prices upon importing Asia-Pacific economies.
The Japanese economy is having its best run in a decade and is showing its fastest growth rate in 10 years. Employment in Japan is up, and the consumers have money to help fuel Japanese economic growth. These positive economic trends are showing results; however, the Japanese currency is strong and could have an adverse impact on the recent growth rate in Japanese exports.
The British Prime Minister, Theresa May, has just completed a visit to Japan to enhance and support the future growth of trade and economic and investment links between the United Kingdom and Japan. The prime minister is trying to convince the Japanese corporate community that England is open for business regardless of the vote in favor of the British exit from the European Union. A hard British exit could negatively cloud future relations between Japan and the United Kingdom. The Japanese could reduce their investments and expenditures for future investments, and the trade relationship could also be impacted.
The United Kingdom is an attractive destination for Japanese investment. More than 1,000 Japanese firms have invested in the United Kingdom, and the Japanese investment community could begin to look for other investment locations within the European Union, particularly, Germany, and especially in the banking sector. Traditionally, the United Kingdom has been viewed by the Japanese corporate community as a favored location. However, the uncertainty and lack of clarity about the position of the United Kingdom within Europe is likely to cloud future relations. The United Kingdom, long an established hub for Japanese business, could become less significant for corporate Japan as an investment destination. Although the United Kingdom has, traditionally, been the place to be for Japanese investment in a number of sectors, particularly the auto industry, it is likely to be reduced with a negative impact on the U.K. economy.
Among Asian economies, Japan is the largest investor in the United Kingdom, with an investment estimated at $90 billion and generating 150,000 jobs. Although the jump start of the Japanese economy and the stimulus economic policies of the last decade are showing some promise in terms of economic growth, the entrenched Japanese industrial mind-set and landscape could still impact future business trends and growth prospects. Overnight change is not likely to bring about quick corporate and employment preferences and practices. Japanese managers prefer to work for established firms, and there is a lack of an entrepreneurial culture that favors risk and enterprise. Another corporate trend that must be changed if Japan is to continue its economic growth is the incorporation, recruitment, and nurturing of a female-supportive corporate culture. Less than 10% of Japanese executives and corporate leaders are female.
Another trend, which is budding yet weak, is the presence of start-ups and mind-sets that favor risk. When compared to the United States, start-ups and the adoption of innovations are weak. The agricultural sector is yet to show acceptance of new, innovative methods that are common in the United States. The median age of Japanese farmers is higher than that of U.S. farmers, and while young Japanese farmers are showing receptivity to innovation and new technologies, older Japanese farmers are yet to accept innovative farming techniques.
Other Asian economies are also exhibiting growth prospects. The ASEAN economies are showing increasing consumer spending similar to the Japanese market. Thus, the process for Gross Domestic Product (GDP) growth and investments in the ASEAN economies coupled with increased domestic consumption speaks well for the prospects for economic growth across the region in the 10 ASEAN countries. In a study by the 2018 Edition of The ASEAN Business Outlook Survey, U.S. corporate executives with significant trade and investment presence in the ASEAN economies believe that the prospect for growth and profits is likely to increase for this year and the coming year, as well as, throughout the next decade. Trade and investment opportunities within the ASEAN economies are likely to increase, particularly in such countries as Vietnam and Indonesia. The local economy within these countries is likely to see expanding opportunities for domestic consumption, as well as increasing export platforms from the region and across the Pacific to the United States and the global marketplace. This will enhance employment opportunities within and across Asia-Pacific economies. Regional supply chains and production platforms are likely to grow in such an environment, increasing the opportunities for trade and investment linkages.
The geopolitical challenges within Asia and, particularly as they relate to the belligerence of North Korea and its threat to its neighbors, are likely to be on the horizon and could increase the potential for political conflicts with North Korea as well as China. Resolving the geopolitical conflicts would be in the best interest of all the ASEAN economies as well as the other Asia-Pacific countries, including the United States. Collateral to the economic and geopolitical challenges facing Asia-Pacific economies are commodity prices, particularly oil.
The decline in oil prices generates economic benefits and challenges for the Asia-Pacific economies. The United States, followed by China, Japan, and India are significant net oil importers. Out of 94.5 billion barrels of global oil daily consumption, the United States’ imports are in the range of 9 million barrels per day (MBD). China is the second largest importer, and Japan and India also have significant oil imports. Currently, oil prices stand at an average of $50/barrel. Three years ago, oil prices were as high as $147/barrel. Any decline in oil prices will be beneficial to the economic growth and prospects for the aforementioned Asia-Pacific economies. Any 10% change in oil prices is likely to generate an equivalent 0.2% in change in the GDP growth of these countries. This is likely to shift the benefits from oil producers to oil consumers and leave more money in the pockets of the global oil consumers.
Moreover, this is likely to result in a wealth transfer from the oil-producing regions of the world, particularly the Middle East and North Africa to the Asia-Pacific economies. This transfer has been estimated to generate $1 trillion in benefits to these countries. Every one dollar drop in the oil price saves China about $1.5 billion annually. This could lower the import bill for the Chinese economy. Another collateral benefit could accrue to China, whereby cheaper oil could allow for phasing out dirty fuel such as diesel.
The results of oil prices for the United States are likely to generate mixed results. The United States is the largest oil consumer and usually ranks among the largest oil producers, except for Saudi Arabia. Cheaper oil could add 0.1% to the GDP growth of the United States if interest rates stay low; however, this could be upset by a stronger dollar impacting U.S. exports. The reduction of oil prices is likely to impact all U.S. shale oil producers; however, the opposite benefits would be that lower oil prices would allow the United States’ consumers to keep more of our money at home and not send it to the foreign oil producers.
As we come to the end of an academic term and a calendar year, we may reflect on these many trends and ponder their effects on our current and future scholarship. The Journal of Asia-Pacific Business has three curiously distinct articles to offer in this the final issue of Volume 18. The first, “A Fuzzy Set Analysis of Foreign-Owned Subsidiary Performance: Insights from East Asia,” is by Sven Dahms of I-Shou University, Tawian. Professor Dahms probes foreign-owned subsidiaries to show the influence of several variables on organizational achievement.
The second article is by Hiroshi Ono of Hitotsubashi University, Japan. “Globalization and Greater Flexibility in the Japanese Labor Market: Exploring the Macro-micro Link” is an examination of the effects of globalization on the Japanese labor market, with a view toward the long-term consequences for Japanese human resources providers.
Our final article is the collaborative effort of Vijay Sethi of Nanyang Technological University, Singapore and our colleagues at the Raj Soin College of Business at Wright State University, Ohio, USA: Vikram Sethi, Anand Jeyaraj, Kevin Duffy, and Berkwood Farmer. “Education Dashboards for Enhanced Learning: A Singapore Experience” details the development of a new, cost-effective, web-based business school learning tool and examines the potential for its further development and dissemination.
As always, we express our deepest gratitude to the many readers, scholars, and reviewers of the Journal of Asia-Pacific Business, and we wish you a very productive and profitable new year!