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East Asian nations: challenges and opportunities for this decade East Asian nations: challenges and opportunities for this decade
by Joseph Gatt
2020-03-18 09:16:00
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Challenges and opportunities in the 2020s for China, Japan and Korea.

Challenges

The education system

The biggest challenge for China, Japan and Korea is going to be the education system. Two problems for the education system: the aging population and the individualist nature of the education system.

eas01_400First off, China, Japan and Korea's birthrate is dwindling. Which means that a lot of universities will have trouble finding students, and a lot of the country's professors and researchers are going to have trouble finding teaching jobs. So those countries will have to find alternative jobs for researchers and professors, as in journalism, research, conferences, corporate training and so on.

Second problem is the individualist nature of the education system. The East Asian education system does not focus on socializing or social events, nor does it encourage thinking in terms of society at large and the world at large. The education system confines students to memorizing abstract facts from books and getting the correct answer on answer sheets.

The education system discourages speculation, hypothesizing, testing and experimentation, and connecting two random events to see if there is a possible link. The education system also discourages reading between the lines, reading speech acts, debate and discussion, and plain discourages conversation, especially intellectual conversation.

So much for Confucius who in his Analects encouraged masters to discuss science and society with their students over copious amounts of liquor. That just doesn't exist in these “Confucian” (Sun Tzuist) nations. The education system breeds clueless warriors, not intellectuals.

Aging population

The aging population will have several bad consequences on China, Japan and Korea. First bad consequence is economic: older people tend to spend less money; younger people tend to spend more money, be it for fun, for living purposes, or for marriage and children purposes. So consumption rates are going to dwindle.

The effects or an aging population are already visible in China, Japan and Korea. Governments have urged their companies to rely on exports, because local consumption rates are catastrophic, be it in retail, real estate or services.

Second terrible consequences of an aging population: older people now have to work their entire lives and can not afford to retire. Retirement pensions usually rely on contributions from younger populations to feed older populations' retirement pensions. If younger people are not contributing to the pension schemes, either the government will have to extract the funds from elsewhere, or older people just won't get their retirement pensions, or will get something ridiculous like 300 dollars a month in retirement pensions.

Healthcare is another terrible consequence: young people are not contributing to the insurance schemes; older people rely on younger people contributing to insurance. Other dismal consequence: life insurance. Life insurance relies on younger people contributing and older people's family earning the life insurance. Not enough young people signing up for life insurance means life insurance companies go bust. 

Rank-based workplaces

Hierarchy and authoritarianism are not the problem here. The problem is workers tend to gain relevant experience somewhere, then the experience is no longer relevant to the current company, and they will need to use those skills and knowledge elsewhere.

Let me illustrate here. Let's imagine that I, my name is Lee, worked for SamsungHuaweiSony for 5 years as an assistant, then as a junior manager. I worked on construction projects in Israel, learned Hebrew, am familiar with the Israeli market, have a ton of Israeli contacts.

Now 5 years into my job, SamsungHuaweiSony decides that it wants to move out of Israel. Now HyundaiAlibabaMitsubishi has already penetrated the Israeli market and is looking for people like me who can help with the projects. I know the Israeli administration system, the Israeli laws, the Israeli mentality.

Yet, HyundaiAlibabaMitsubishi can not hire me, or if they do hire me, they can only “rank” me as an assistant, because junior managers are going to be jealous that I did not rise up the ranks of HyundaiAlibabaMitsubishi.

Now where the whole thing gets embarrassing is when Mr. Cohen and Mr. Levy, who lead HyundaiAlibabaMitsubishi's construction site, want to work with me because I speak Hebrew and am comfortable with the culture, when most of HyundaiAlibabaMitsubishi's staff can't speak English properly and don't understand Israeli culture. You get the idea.

Lack of realism in business

Chinese, Japanese and Korean businesses tend to be so drowned in their rituals and abstract structures that they tend to end up being disconnected from reality.

First problem with realism: human resources. There are so many tokens in China, Japan and Korea, and there's a huge mismatch between the tokens and actual skills. You get a high TOEFL score, yet can't write a report in English.

Second problem with realism: business deals and contracts. Business deals and contracts rely on so many rituals (going out for a drink, consulting with a shaman, reading facial features, examining a resume, gathering business intelligence) that they lose touch with the realities the business deal involves (sales, deadlines, day-to-day activities and so on).

Third problem with realism: unnecessary authorizations from the hierarchy and bureaucratic hassles. Let's put things this way. If you're a Chinese, Japanese and Korean CEO and that you are 150% sure that you can sign every single authorization in due time and in timely fashion, OK, you can put in all the bureaucracy you want. But if you're the CEO and are going to be playing golf all day and partying with escorts all night, I suggest you delegate some of the bureaucracy to people who will actually be in the office to sign the paperwork.

Government-led business policy

It's never a good idea when the government tells private businesses what they should be doing. Maybe I'm Samsung and I do need to export, like the government says. But maybe I'm Sony and I actually need to work on the local market. If the government is going to force me to work on exports, or force me to apply for projects, or force me to take projects against my will, I can't do an excellent job at those.

Government-led business policy leads to not only tensions between business and government, it also leads to tensions between China, Korea and Japan and the rest of the world, as a lot of projects go unfinished, and the government has too tight a grip on business, including Americans doing business in Japan, China, Korea, which makes President Trump angry.

The rise of organized crime

Now here a job advertisement in China, Japan, Korea, for a low-level position. Hiring. University degree MANDATORY. 5 years experience and tax contributions MANDATORY. GPA must be over 4.0/4.3 or higher. There should be no grade below B+ on the college transcript. TOEIC score must exceed 950. MUST be taller than 177 centimeters. MUST have no cavities in teeth. MUST provide a health check, and have 0 pathologies. IF YOU DON'T FIT THE DESCRIPTION, DON'T BOTHER APPLYING.

Even the army is not that strict. So when people don't fit that description, and they desperately need money to pay for rent and for their parents' healthcare, or to cover their brother's debt, what do they do? They work for the mafia!

So if the mafia plays too big a role in the economy, you basically become a third world country. That is a country where nothing works according to plans and order, and where you have to improvise your ways through everything. A country where no one reads the press because the press is not providing a realistic state of affairs. A country where you're too scared to venture out, and where you don't let your kids go out because they could end up in the mafia's hands. Not a glorious picture.

A weak agriculture

Other problem: China, Japan and Korea don't have strong agricultures. Yet people are ingesting higher and higher quantities of food. And China, Japan and Korea are the world leaders in wasting food.

So that creates a cycle of importing agricultural products, battling with local farmers who don't want agricultural product imports because they want to sell their produce at way higher rates, and a culture of dependency on agriculture where the government has to push for exports to earn hard cash to buy agricultural and raw material products.

If the agriculture is weak, the government has no other choice but to dictate economic policy, because if they don't, people will starve.

Soviet Union-style collapse?

The Soviet Union collapsed because “business” leaders got a little bit too comfortable with their lifestyle and didn't worry too much about the performance of their companies.

So if East Asian companies have leaders who are a little too comfortable with their luxury lifestyle and don't care about sales and signing authorizations, you could well get a Soviet-Union style economic collapse.

In the Soviet Union, not only were leaders a bit too comfortable, but the press was also ignoring the warning signs that leaders were a bit too comfortable and were not worried about sales, performance, forming new alliances, and signing authorizations. So most people ignored the warning signs. Be careful.


Opportunities

The Korean soccer team vs. the Korean women's handball team model

The Korean national soccer team has access to a lot of funds. But in Korean style, everything is carefully structured, players are recruited according to strict selection criteria (officially to prevent nepotism) and no part of the game is left unimprovised. Problem is, when the opposing team plays an unconventional game, such as playing at a slow pace, or playing long balls, or playing air balls, the Korean team can no longer improvise, as most coaches tend to strictly confine the team to playing a fast-paced, ground-ball game.

Now on the other hand you have Korea's women's handball team. Until around 2010 or so, Korea's women's handball team ranked in the top 5 teams in the world along with Denmark, Norway, France, Hungary, Russia, Ukraine and a few other teams.

Korea's women's handball team lacks funds, and the players play to win, hoping winning will grant them access to more funds (it never did, and that's why the team collapsed). The team would play every second of the 60-minute match, never “resting” or “slowing the pace” down for a second. The team would focus on fitness and endurance, and on deceptive but legal schemes to confuse the opposing team. And that's how the Korean team was always in the top 4 at the Olympics and world cups.

Now here are the lessons from all this: allow room for improvisation, use a variety of tactics in your business and political games, never grant too many funds to a team, but increase the team's funds with rewards, reward your team when they win, focus on endurance, and use surprise tactics when needed. These are all qualities that East Asians have that don't really exist in other countries, where people prefer a slow pace where they like to relax, and want funds and rewards despite providing no efforts or results.

Working on reliability

For a very long time, East Asian nations were very reliable in their projects. They often beat deadlines, provided impeccable results, and high quality, clean, perfect products.

But then East Asians started focusing on money without focusing on the results and quality of the products. Leaders started being more concerned about status and luxury than about delivering projects.

Here's an example of this. In 2005, I went out with a Korean professor to a pub. The Korean professor smoked cheap cigarettes, had a cheap lighter, was dressed rather modestly, and was modest in demeanor. The encounter was cordial, I learned a lot of things, he learned a lot of things.

In 2014 I met another professor for a drink in Korea. He smoked expensive cigarettes, had an expensive Zippo lighter, was dressed impeccably, scolded me for smoking cheap cigarettes and carrying around a cheap lighter, and told me off for wearing shorts and a t-shirt. The professor was patronizing, acted like he knew everything about everything, and lectured me about how “Koreans see everything” and how I should “dress and act more properly if I ever want to become a professor.”

This is anecdotal evidence of the paradigm shift in East Asia. In 2005 it was modesty and simple life; in 2020 it's more about being impressive. East Asians probably need to go back to modesty and simple life and simple projects and simple economic growth goals.

Huge dollar cash reserves

Now East Asia's advantage is they have huge dollar cash reserves that they can put to good use. Right now those cash reserved are being used as a diplomatic leverage and as a means to influence their foreign policy.

But those huge dollar cash reserves do give them hope and allow them flexibility as to what they can do with them. They allow them freedom in planning for the future, and to relax about the future. But those cash reserves need to increase (right now they are stagnating) and with the current trends, East Asian nations might soon be forced to use those cash reserves when they wanted to keep them saved up for a rainy day. In sum, East Asians are not too worried about recessions because they have cash reserves as a shield, but that rainy day could be nearing.

The era of East Asian diplomacy

East Asia used to stay out of diplomacy and focus almost exclusively on business and economic diplomacy. But now that they are economic powerhouses, they need to focus on the security and well-being of their business agents.

So for the last 4-5 years we have seen the Chinese, Japanese and Koreans become very active diplomats. Now that they are active members of the diplomatic community, they can have significantly more decision-making power in global affairs. It's always an advantage, be it in security and business, when your diplomats are in those diplomatic meetings and are actively defending your rights.

A strong grip on the tech sector and entertainment sector

Now one area East Asians can be proud of is the mastery of technology and entertainment, two big cash cows in the 2020s.

The only disadvantage is that East Asian nations use slightly (sometimes grossly) different tech norms than the Western world. So East Asians are going to have to adjust their norms to meet the Western and global market, and that means tech firm employees are going to have to communicate rather than compete to come out with products that match foreign tech norms.

The entertainment business is a huge cash cow in the 2020s, and the advantage East Asians have is they tend to have flexible entertainment business models, when Western entertainment models tend to have rigidities when it comes to payment and royalties. There are many, many fans of East Asian entertainment, and the East Asian entertainment can only grow, if quality entertainment is provided. That is the entertainment industry is one where millions of dollars can be made for a good movie or album, and millions of dollars can be lost for a bad movie or album. So invest wisely, and focus on quality. 

Opportunities to invest in the retail sector

East Asians have invested in the retail sector, but so far there have been mixed results. The retail sector around the world is saturated, but if East Asians offer a creative and alternative model for retail, and start by investing small before they gradually expand, they could make retail another cash cow.

Problem with the East Asian retail model is they force retailers to buy products that don't sell very well. So if East Asians sit down and chat with retailers, and pay attention to their concerns, they can be successful.

A strong industrial base

Like the Korean women's handball team, the industrial sector in East Asia is one that works every minute and every second of the 12 hour shift.

The problem right now is that the industrial worker wages have gone up significantly, meaning that industry is shifting to Thailand, Cambodia and Vietnam where wages tend to be lower and land prices tend to be lower.

But, industry is never just about producing cheap and selling dear. Sometimes, you can produce expensive industrial products locally (not just in the luxury market) that sell very well overseas.

Strong industrial skills and attention to detail

Finally, of course, East Asians are the world champions of attention to detail when it comes to industrial products. So even when producing locally, they can brag about all the details they put into their products and how they have products that near perfection. They should use that to their advantage.


     
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