ChazenTHE BEST OF Global Insights ASIA 01 BREAKOUT NATIONS TO WATCH Four Asian countries are set to take off. 08 INDIA HAS A NEW GOVERNMENT. NOW WHAT? Social programs got India only so far. Now it’s time to spur growth. 09 HOW GE DOES BUSINESS IN CHINA CEO Mark Hutchinson opens up about the promise and peril. THE BEST OF Chazen Global LETTER FROM THE DIRECTOR There’s so much one could say Insights about Asia, in all its depth and variety. Looking back at the stories published in Chazen Global Insights, the e- newsletter Breakout Nations Spotlight on Asia’s big four of the Chazen Institute of to Watch 01 emerging markets International Business, it was hard to select which of our articles best represent Surprising statistics and informed this diverse, chaotic region. Asia Insights So we let you, our readers, choose. 02 analysis with a practical bent What you see in this issue are the most popular stories on Asia over the past 18 months. Four often-overlooked Looking at the ones that made the cut, I’m struck Beyond the Usual Suspects: countries that are expected by the multiplicity of ways business leaders Where Asia Is Growing to grow more than 5 percent are approaching opportunities there. Mark 04 annually in the short term Hutchinson, for example, speaks from the vantage point of success—he’s president and CEO of GE China—and offers advice for protecting intellec- tual property, a prime concern for anyone entering the market. Meanwhile, policy makers, such as Shusong Ba, who leads the Finance Institute at the Development Research Center of the State Council of China, sound a cautionary note about what this influx of new commerce means to China’s labor force. And Columbia Business School’s resident Nobel laureate, Joseph E. Stiglitz, wonders whether China can get its state/market balance right. But there’s plenty of upside, too. Investors looking for deals may want to look beyond the Seoul usual suspects. How about Philippines or Sri Lanka? Ruchir Sharma builds a compelling case for why these unsung nations are worthy of Getting China’s State- Has China gone too far in its investment attention. Read more on the next page. Market Balance Right 0 reliance on the marketplace? We hope you’ll consider the Chazen Institute of International Business your gateway to the Tough questions remain on how to support China’s burgeoning people and ideas that transform the global Financing China’s Cities 07 population while improving its marketplace. We sponsor a robust schedule of insufficient infrastructure. speakers and panels, support major research, and play a vital role in the global education agenda at India Has a Social programs got India Columbia Business School. To stay up to date on New Government. only so far. Now it’s time all we do, drop us a line at [email protected] Now What? 08 to spur growth. and ask to be added to our mailing list. Best regards, How to Fix China’s SOEs need a stronger market dose, says a State-Owned Firms 10 food company CEO. Wei Jiang Lessons from an The head of India’s fastest growing hotel chain shares insights for retiring rich. Director, Chazen Institute of International Accidental Entrepreneur 11 Business and Arthur F. Burns Professor They’re not what you think. of Free and Competitive Enterprise, Columbia Business School How GE Does A CEO’s frank view of protecting Business in China 12 intellectual capital RUCHIR SHARMA is head of ECONOMIC EXPECTATIONS emerging markets and global macro at Morgan Stanley Investment Management. BREAKOUT NATIONS TO WATCH Some countries When most of us think and English-speaking. Its average annual per-person of “breakout nations,” GDP income of $2,500 leaves room for growth. are poised to grow the BRIC juggernauts faster than market come to mind. But SOUTH KOREA Ruchir Sharma, head Sharma calls South Korea the gold medalist of emerging expectations. of emerging markets markets thanks to its “rare ability to stay at the cutting Four of the top 10 for Morgan Stanley edge of fast-changing industries” such as robotics, Investment, offers a aerospace, and biotech. Unlike Taiwan, the country has are in Asia. more nuanced view spawned genuinely global brands. As for political risk, in his book, “Breakout Sharma wrote that South Korean leaders have assumed Nations: In Pursuit of the Next Economic Miracles” the North is doomed to failure. The government has kept (2012, W.W. Norton). “The biggest mistake markets debt down to just 34 percent of GDP as part of its prepa- make is extrapolation. We assume a trend will continue ration to “absorb the high cost of rebuilding the North.” ad infinitum,” he says. Although he doesn’t predict any superpowered SRI LANKA economy will rival the BRICs in the next three to five Even during its disastrous civil war, Sri Lanka managed years, Sharma does identify four Asian countries, that an average annual growth pace of nearly 5 percent. As will 1) grow faster than market expectations, and 2) beat it rebuilds over the next decade and creates a new trade their peer groups, the two conditions that he says create regime with neighboring countries, Sri Lanka could a breakout nation. (Other breakout nations include achieve 7–8 percent annual growth. – Sharon Kahn emerging markets of The Czech Republic, Nigeria, Poland, and Turkey. Among developed countries, he ASIA’S BIG FOUR BREAKOUTS names Germany and the United States.) Per Capita GDP (in thousands of USD) INDONESIA 2.5 3.5 Noting that Indonesia was the Asian country hardest THE PHILIPPINES INDONESIA hit by the crisis of 1997–1998, Sharma says it had regained its mojo by 2011, calling it “by far the best-run large commodity economy.” The world’s fourth-most 3.0 23.5 populous nation has a large enough domestic market to SRI LANKA SOUTH KOREA generate demand and less of a post-crisis debt problem than any other big emerging market. THE PHILIPPINES President Benigno “Noynoy” Aquino III was originally THE TAKEAWAYS dismissed as the unimpressive son of a legendary father who was assassinated by Marco supporters and 1 Within a huge pool of 2 For rapid growth, it is much a mother who was once president. But he is delegating competitors, only a few nations easier to be poor. To grow power and passing reforms. This island nation has the beat the game by growing 10 percent from an average faster than rivals in their own annual personal income of world’s fifth-largest share of natural resources. Half the income class. $1,000, a nation needs to earn population is under 21, and Filipinos are well educated an extra $100 per person. ASIA 01 TRENDS Asia Insights TWO TOOLS FOR SPOTTING A BREAKOUT NATION Ruchir Sharma, author of The Four Seasons Index $1,000 “Breakout Nations: In Pursuit The average cost of a night’s stay at a $800 of the Next Economic Miracles” luxury hotel acts a proxy for gauging (see story on page 1), has some competitiveness. As a whole, Asia $600 was “strikingly reasonable,” writes offbeat ways to predict which $400 Rates (USD) Rates emerging market will succeed. Sharma, especially compared with some com modity capitals.* $200 * Rates are based on hotel websites as of July 2014. If the city has no Four $0 Seasons, the author used a comparable hotel. Source: Breakout Nations Dubai London Moscow Mumbai Jakarta New York BangkokShanghai Mexico City Buenos Aires Johannesburg The Billionaires’ Index Total Net Worth of Country’s Billionaires (as % of GDP) Emerging countries that share their wealth rather than consolidate it among a Russia 29.2 Philippines 6.0 small number of billionaires are more apt Malaysia 20.1 Indonesia 4.6 to develop a middle class. And ideally the India 17.2 Korea 4.0 wealthy class “should emerge predomi- % nately from productive economic sectors, Taiwan 14.6 China 4.0 40 not cozy relationships with politicians,” Brazil 6.5 writes Sharma. Asian emerging markets Four out of 10 respondents from generally fare well on this scale. Source: Breakout Nations; IMF World Economic Outlook, April 2011 China and India named corruption as a top barrier to their country’s economic growth. WHO’S CONFIDENT NOW? 06% Last fall, the Chazen Institute polled 549 Columbia Business School alumni and additional China respondents expect their business professionals on “Prospects & Challenges 3.9 country to grow this year at a for Major Economies 2014.” Respondents from 6 percent annual GDP rate. However, emerging markets of Brazil, China, and India On a scale of 1–6, China tied with their estimate is well below the IMF’s as well as seven developed markets were asked to Germany as the country most 8.2 percent forecast. Respondents respond to issues surrounding their government confident in its own government. from India were also unenthusiastic and their nation’s growth. Some findings: The United States came in at 2.7, just in their 4.5 percent forecast, above France (2.6) and India (2.4), compared with the IMF look forward the lowest scoring national group. of 6.2 percent. 02 ASIA gsb.columbia.edu/chazen TWO REASONS WHY CHINA WILL CONTINUE TO GROW THE SEX RATIO MOTIVATOR THE LATECOMER ADVANTAGE For most nations, including the United States and Emerging economies can achieve innovation and industrial Germany, the natural ratio of young men to young upgrades by imitatating and importing existing technol- women is one to one. In a few countries—China, ogies. In contrast, developed countries, which lead the Singapore, Vietnam, India, Korea, and Switzerland—the frontiers of technology, must invest in costly and risky R&D young-men-to-young-women ratio is above one.