On February 2-3, more than 1,000 students, academics, professionals, and entrepreneurs attended the 2001 Asia Business Conference at the Harvard Business School, organized by the students of the Harvard Business School and the Harvard Law School. This year's conference theme was aptly titled "Connecting Asia", and brought together over 70 of the leading experts in capital, technology, and trade to discuss the new world order of globalization and its impact on Asian business, government, and society. The tone of the events reflected both the optimism and uncertainty of the new age as speakers and audience alike grappled with the future of Asia in light of the increasingly interconnected world. After 2 days, 3 keynotes, and 3 plenaries, "Connecting Asia" demonstrated fully the challenges and opportunities facing Asia as it strives to relate both to itself and to the international community.

1. Globalization and the Impact on Asia
2. Restructuring Korea for Global Competition
3. Asia Leading the World in Wireless

1. The Role of International Organizations in Prescribing Asian Economic Growth
2. Opportunity and Challenges for the Next Generation of Asian Companies
3. The Nature of Entrepreneurship in Asia

1. The Future of B2B in Asia
2. Mission Impossible: Growing From Start-up to Market Dominator
3. The Future: What is the Next Big Thing?

1. China's Entry into the WTO and its Impact on Asia
2. Liberalization and the Problems of Socially Responsible Growth
3. The Rule of Law in Asia: A Measure of Political and Economic Change in the 21st Century

1. Private Equity and Sources of Funding in Asia
2. Venture Capital Investment in the New Information Age
3. Public Portfolio Investment

1. A Tale of Two Economies: Large Indian Companies in the New Economy
2. Drivers of Korean Economic Growth During the First Decade of the 21st Century
3. Project Finance in Asia
4. Corporate Debt Restructuring in Southeast Asia
5. China: Protecting the Knowledge-based Economy and Intellectual Property Rights
   

1. The Future of Wireless in China
2. Asia's Silicon Valleys

Globalization and the Impact on Asia

Speaker: H.E. Dr. Supachai Panitchpakdi

H.E. Dr. Supachai Panitchpakdi officially opened Harvard Asia Business Conference 2001 by presenting a qualified but hopeful view of the future of globalization in Asia. Recognizing growing opposition to the processes of globalization and perceptions of inequitable results that disfavor developing countries, Dr. Supachai cautioned against both demonization and exaltation of globalization as an international phenomenon. Rather, he underscored the need to avoid the development of hegemony through globalization and recognized the validity of some of the concerns surrounding the effects of globalization in developing countries.

Dr. Supachai delivers his keynote address

Dr. Supachai's assumption in 2002 of the position of Director-General of the World Trade Organization (WTO) was evident throughout his speech. He emphasized the historic importance of being the first person from a third world country to direct the WTO and vowed to dispel the image of the organization as a "rich man's club." By recognizing and verifying the previous status of the WTO as an elite association that "divided spoils amongst advanced countries," Dr. Supachai marked his impending directorship as the beginning of a more inclusive and representative WTO. He even predicted that membership will grow to 170 nations over the next few years.

Faced with increasing protests over globalization and the economic meltdown in Asia during the last few years, Dr. Supachai admitted that voices advocating de-globalization are becoming more strident. He cited his native Thailand, a country that had been growing at a rate of 8-10% on average per year in the late 1980s and early 1990s only to experience an 80% currency devaluation in the last three years, as an example. Dr. Supachai argued not for the reversal of the process of globalization, but for its improved management. By granting a stronger role to international organizations to control globalization and to link trade with development, and by emphasizing the role of global governance, the process of globalization may be better understood and its implications better addressed.

In addition, Dr. Supachai critiqued the current public relations of international organizations, including the IMF, World Bank, and the WTO. He noted that the IMF is often condemned as a reactionary force, the World Bank as a foe of the environment, and the WTO as a sinister "world economics organization." He called for these organizations to regroup and to emphasize what they do best in order to regain the respect of the international community.

An audience member presents a question to Dr. Supachai.

Dr. Supachai also pointed to the digital divide as a barrier between developed and developing countries, stating that the world today is divided "not into the haves and the have-nots, but into the connected and the disconnected." Assistance to bridge this divide must be forthcoming in order for countries to catch up in this digital age of information and technology.

Two areas in which Dr. Supachai called for increased attention are the roles of hedge funds and transnational companies as destabilizing forces in the global economy. He warned against anti-reformist nationalistic backlash within countries that must bear the brunt of the sale of ownership to foreign companies. He also addressed the role of hedge funds in the Asian financial crisis and the need to control their leverage power to avoid excessive destabilization.

Dr. Supachai had a specific observation concerning democratically elected governments and the problems they often encounter during down cycles and landings. He suggested that such governments must learn to reduce overheating during downturns and adopt austerity programs in order to avoid harsh economic results.

Dr. Supachai urged countries to continue to embrace liberalization in trade and stated his approval for regional trade agreements (RTAs) and free trade agreements (FTAs). There are currently more than 70 FTAs around the world, excluding an FTA between Japan and ASEAN that is currently being discussed. These FTAs can, in Dr. Supachai's view, serve as positive building blocks for multi-lateralism.

Dr. Supachai chose to end his speech on a literary and highly optimistic note, selecting a passage from a well-known Indian epic to encapsulate his remarks on globalization: "This is mine/ That is another's/ Such reckonings are for the noble-minded/...The whole world is one family."

Suzzanne Yao

Restructuring Korea for Global Competition

Speaker: Hogen Oh, former Executive Chairman, Restructuring Committee of Korea; former Chairman Daewoo Group's Restructuring Committee; Chairman, Lazard Asia

The financial crisis of 1997 and its devastating effects on Korea provided the immediate backdrop to Mr. Hogen Oh's speech. As the former Executive Chairman of the Restructuring Committee of Korea, Mr. Oh shared his insights into the massive restructuring efforts that took place in Korea under his guidance and suggested some lessons that Korea has since learned from the restructuring process.

Mr. Oh began by correcting a common misperception of the role of the Korean government in the post-IMF restructuring with which he has been so closely involved. He dispelled the myth that the Korean government led the restructuring efforts of his committee and emphasized the cooperative efforts of Korean financial institutions in reaching a restructuring accord. Far from being a state-dictated project, the agreement was a voluntary accord reached by 220 financial institutions to reform under the guidance of the Restructuring Committee. Indeed, Mr. Oh described himself as a "recruited civilian independent professional", or in more metaphorical terms, as the "largest volunteer fire company chief" in Korea.

The fire to be fought was, of course, the financial crisis that hit Korea in 1997. As Mr. Oh described, Korea was still a newly industrialized country and lacked a true market economy in the 1970s. Rather, it was an economy with a facade of capitalism, where private ownership coexisted with government planning. The business structure was embodied in major conglomerates or chaebols, which Mr. Oh characterized as feudal, patriarchal systems of corporate organization in which ownership of shares and assets were indistinguishable. Although for a time, there existed the illusion that the chaebols had been responsible for the economic developments of the past, Mr. Oh underscored the role of government market interventions in allowing the chaebols to thrive.

Upon the onslaught of the financial crisis in 1997, there was a misplaced confidence that the top conglomerates would emerge unscathed. However, when foreign debt doubled overnight, domestic interest rates skyrocketed, and companies previously considered invulnerable faced bankruptcy, financial institutions decided to work in conjunction with the Restructuring Committee to formulate restructuring plans for insolvent companies. By the end of 1998, 90 corporations representing $33 billion in liabilities had been evaluated by the committee. However, it was the case of the Daewoo Group, one of the major chaebols, that presented the ultimate challenge to the Committee. Carrying over $60 billion of debts, Daewoo was what Mr. Oh characterized as "the largest work-out case in the history of the human race." Indeed, Daewoo differed from the committee's other cases, for the 220 institutions that formed the general accord carried less than 30% of Daewoo's total liabilities. The rest were subsumed in the capital markets, resulting in a debt structure that originated largely outside of the 220 represented financial institutions. However, after government intervention, all Daewoo holders agreed to become general accord members, and the unsecured foreign loans received an average recovery of 38 cents to a dollar, all of which had been paid out by October 2000.

In sum, the Restructuring Committee rescued 102 corporations, including Daewoo. The management of more than half of those companies was replaced by bank ownership coupled with independent professional management, a change that Mr. Oh emphasized. Currently, about one-third of the companies have been normalized-a process Mr. Oh describes as "graduating from work-out"-and he estimated that 80% will "graduate" by the middle of this year. Reflecting upon his work, Mr. Oh acknowledged success in combating the crisis of massive defaults, but also emphasized the need to reform Koreans' concept of ownership and the role of the government in the economy. He discouraged quantitative control such as entrance/exit permits, price controls, and interest rate controls, but saw a role for the government in exerting qualitative control to ensure fair market competition. This, Mr. Oh recognized, is not only the challenge for Korea but also for the rest of Asia.

Mr. Oh pointed to three specific reforms that signal the government's effective qualitative control over the economy: first, the prohibition of all cross-guarantees within chaebol groups, second, the adoption of international accounting standards and transparency of accounting practices, and third, the transparency of corporate governance. He recognizes that these new measures, though often understated by analysts, have made a difference in injecting a new degree of fiscal responsibility into Korean corporations.

Throughout the presentation, Mr. Oh emphasized the magnitude of the crisis and the need for reform, while leaving open the questions of whether any mistakes were made or whether alternatives might have been pursued. He analogized the situation to a medical emergency in which one's best efforts must be channeled rapidly to curb massive damage and destruction. With the Korean economy now enjoying a GDP growth of 10% (1999-2000) and possessing foreign reserves of $93 billion, it appears that Mr. Oh's efforts as the "largest fire company chief in Korea" have helped the country recover from the dark days of 1997.

Suzzanne Yao


Asia Leading the World in Wireless

Speaker: Keiichi Enoki, Managing Director, NTT DoCoMo; developer of iMode

Mr. Enoki heralded the second day of the conference with ringing optimism as he discussed NTT DoCoMo, the largest mobile telecommunications operator in Japan. Drawing upon his experience as the Managing Director of NTT DoCoMo, and employing props such as his own wireless handset, Mr. Enoki delivered an expert multimedia presentation on the past, present, and future of wireless in Asia.

Keyiichi Enoki reviews his notes before the presentation

In 1996, witnessing an astounding increase in the number of cellular phone users in Japan (today, 50% of the Japanese population owns cell phones), DoCoMo decided to spawn a new service and establish a non-voice communication market using the mobile handsets. Just over four years later, NTT DoCoMo is now the largest wireless internet service provider in the world, and the second-largest internet service provider with more than 16 million subscribers. At a growth rate of 40,000 subscribers a day, NTT is set to surpass AOL in the near future if it continues its pace. What is NTT DoCoMo's secret? A little creation called "iMode", launched by Enoki and his team of internet consultants in 1999, which was developed following a call by NTT's CEO to capitalize on the ubiquity of cell phone use in Japan.

The iMode service allows a wireless handset to access the internet utilizing the standard internet html protocol. Using a cost-effective PDC network in which users pay for each pocket of data rather than time spent online, iMode has proven that the "wireless internet is real." Over 700 companies currently offer 1400 portal sites through iMode, and 37,000 websites are directly accessible through the iMode handset. Companies like Yahoo! and Infoseek scramble to buy banner advertising to gain access to the 16 million subscribers, the majority of which are under 40 and hit an average of 10 pages a day on their mobile phones. Viewed in the aggregate, iMode generates 150 million page viewings a day.

What has made iMode so successful? Mr. Enoki asserts that it is iMode's recognition that content is essential to the internet user. Unlike other wireless internet providers, iMode is able to provide content along four dimensions: news, transaction services (including mobile banking and securities trading), database information (including directories and white pages), and entertainment (including cartoons and personalized games). The transactional content of iMode has proved a winner for DoCoMo. In fact, a leading securities firm in Japan now derives more than 30% of its transactions originated from iMode. But it was when discussing iMode's commercial and entertainment worth that Mr. Enoki best demonstrated his buoyant energy to a charmed and surprised audience. Speaking of the iMode handset as a canvas on which the Japanese can express their individual personalities by customizing screen displays and other features, Mr. Enoki unveiled his own personal handset, sharing with the early morning audience his own preference of catchy tunes that substitute for rings. Mr.Enoki apparently captivated the G8 summit leaders last year as well when they were presented with individual iMode handsets preprogrammed with their nation's flag as the screen display and their nation's anthem as the phone ring. Such anecdotes effectively demonstrated Mr. Enoki's infectious enthusiasm for his product, and were received favorably by the audience.

DoCoMo's iMode also serves an important B2C function and has become a key tool in selling products to consumers in Japan. Purchases are five times higher when mail is sent to the user, substantiating Mr. Enoki's claim that the internet browser-cell phone is the best access tool in today's consumer market.

So what is next? Mr. Enoki introduced a handful of features that are currently in development for the third-generation of wireless internet service, which could be unveiled as early as May. Such innovations focus heavily upon the addition of music and video so that users may watch streaming news on video, view film promotions, and even sing "walking karoake." NTT also plans strategic investments in other Asian, as well as American and European mobile companies. Indeed, rumors about an NTT DoCoMo investment in AT&T Wireless abound. When prompted to elaborate on the U.S. market, Mr. Enoki observed that since only 15% of its population currently owns cell phones, NTT would likely seek to focus on developing business and professional applications for mobile use, rather than on consumer-based applications so dominant in Japan.

For Mr. Enoki, the wireless internet signals the heralding of a new world. And for now, the discovery continues.

Suzzanne Yao

The Role of International Organizations in Prescribing Asian Economic Growth

Speakers: Myoung-Ho Shin, vice-president, Asia Development Bank (Region West); Masahiro Kawai, Chief Economist, World Bank's East Asia and Pacific Regional Office; Richard W. Fisher, Deputy United States Trade Representative.

Moderator: Professor Hal S. Scott, Director, International Financial Systems Program, Harvard Law School.

This plenary session opened with Myoung-Ho Shin, vice-president of the Asia Development Bank, discussing prospects for recovery in the wake of the Asian financial crisis. He touched upon some of the multilateral initiatives undertaken since the crisis which are strengthening financial cooperation among Asian nations. While he cautioned that an American economic slowdown could impede growth in Asia, he remains optimistic about prospects for strong economies and continued recovery in the region.

While Mr. Shin acknowledged that Asian currencies have been depreciating against the US dollar in the past year and that capital has been flowing out of the region, he was confident that these are not signs of a looming crisis. Mr. Shin noted that current capital outflows are smaller than they were during the crisis, and are largely related to scheduled debt repayment and capital investment, and therefore are much less disruptive. He also noted that the broader range of sectors involved in recovery and the development of intra-regional trade give the recovery a self-sustaining quality. Incomes in Korea and the Philippines are back at pre-crisis levels, and are rising steadily in Thailand and Indonesia.

Finally, Mr. Shin referred to some of the multilateral efforts underway to strengthen cooperation and crisis prevention. The Asian Development Bank pursues its goal of poverty reduction through an emphasis on social development and good governance, and has been involved in initiatives to strengthen financial cooperation in the region. Some initiatives include an agreement on terms of surveillance among the ASEAN nations, and cooperation on regional financing initiatives.

Masahiro Kawai of the World Bank spoke of the Bank's different roles, calling it "a money bank, a knowledge bank, a reconstruction bank, and a crisis bank." He focused on the role of the bank in times of crisis, and the importance of preventing the build-up of vulnerabilities, such as large external short-term debt, in crisis prevention. Like Mr. Shin, he stressed the importance of more vigilant surveillance and monitoring than has been the norm in past. In crisis times, the bank may provide fiscal support to budgets, and at times, counter-cyclical fiscal policies may be required. One of the biggest challenges in times of economic downturn, as highlighted by Mr. Kawai, is the issue of how to convince the private sector to keep capital in the country, and prevent the kind of panic-induced capital flight which can serve to exacerbate a crisis.

In non-crisis times, the World Bank's most important objective is poverty reduction, which is attained through sustained growth and institution building. While the World Bank can provide financing, injections of money alone are not enough to resolve deeper structural problems. Legal, judicial, and financial systems, all of which support a working market system, must be developed as part of a comprehensive market infrastructure. Mr. Kawai emphasized that this process of institution building takes time, and requires the support of a coalition of development partners, including other multilateral development banks, bilateral donors, and national governments themselves.

Finally, Richard Fisher, the U.S. Deputy Trade Representative, discussed the importance of trade as a contributing factor of U.S. economic growth, citing the fact that trade currently accounts for 27%, as opposed to 10% in the 1970s, of America's total GDP. Mr. Fisher pointed out that of all the post-WWII multilateral regimes, only GATT has been reincarnated into a new organization, the World Trade Organization (WTO). While Mr. Fisher feels that the WTO is "of limited utility," he acknowledged its importance in underscoring the idea that there is a fundamental rule of law at work in member countries. The job of the U.S., according to Mr. Fisher, is both in the consumption of goods-the U.S. buys 28.5% of China's exports to the rest of the world-and in pushing the envelope of trade liberalization. Low tariffs allow it to "suck in huge amounts of imports."

The biggest concerns facing the international trade regime are the impact a potential U.S. economic slowdown might have, and what Mr. Fisher calls the "paralysis of Japan adjusting to the information age." Japan must undergo structural adjustments, and take measures to end the remnants of crony capitalism that are still at work there. International organizations are limited in what they can accomplish. It is up to national governments to undertake internal reforms and structural adjustments in order to foster continuing growth. As Mr. Fisher points out, Thailand and Indonesia's membership in the WTO did not prevent the financial crisis from sweeping through those countries.

Lindsay Beck

Opportunity and Challenges for the Next Generation of Asian Companies

Speakers: Mark Daniell, Managing Director, Bain & Company S.E. Asia Inc.; Lalita Gupte, Joint Managing Director and Chief Operating Officer, ICICI; Daniel Mao, Chief Operating Officer, Sina.com; S. Ramadorai, Chief Executive Officer, Tata Consultancy Services.

Moderator: F. Warren McFarlan, Professor, Harvard Business School.

This plenary session considered the prospects for business in Asia in the wake of the Asian financial crisis. The speakers addressed internal and external factors that might promote or hinder growth, as well as questions of corporate strategy, focusing especially on the internet, software, and communications industries. Moderator Professor F. Warren McFarlan began the discussion by posing two broad questions. First, he asked whether the next Asian economic superpower will be China or India. Second, will the "new" commerce claim prominence in the near future, or will the "old" continue to dominate?

Mark Daniell began on a cautionary note, warning that "the turbulence is not over." He stressed that despite the recent improvements in regional economies, Asia's recent economic difficulties cannot be ignored when considering the future. Building on this, he made several observations concerning the challenges facing Asian companies. First, the current unprecedented scale of commerce brings with it new and greater risks. To address this, corporate strategy, particularly in the area of risk-analysis, needs to become more sophisticated. Second, he noted that in the wake of the financial crisis, there has been a trend among investors to favor the "newer, sexier" economies of information technology and venture capital over larger and more traditional sectors. The euphoria over the new economy must be tempered by fundamental cautions. Third, companies need to adapt to an environment of increasing market differentiation. Strategy needs to be better focused and the urge to "be all things to all people in all countries" should be avoided. Turning to the question of culture, Mr. Daniell cautioned that "cultures are old," and that transnational capital flow cannot be counted on to overcome ethnic, national, and linguistic differences. Finally, he called attention to Asia's worsening environmental conditions and its growing contribution to global air pollution.

Lalita Gupte took up the question of the old and new economies, emphasizing that the two must be seen as complementary. Knowledge capital and market information are crucial to both, and the old economy needs to acquire the skill sets of the new in order to remain competitive. Ms. Gupte predicted a convergence of the old and new economies, driven by their need for access to the same markets.

Daniel Mao began his comments with a play on acronyms. In the 1980s, he said, I.C. meant "integrated circuit". In the 1990s, it became "information and communications." In the years ahead, it will stand for "India and China." Mr. Mao sees a dynamic Asian high-tech business environment in the coming years, predicting that "Silicon Valley's success will be repeated in Asia." He attributed Sina's success to cooperation with the old economy, and said that "convergence" and "cooperation" will be buzzwords for the future.

Observing that the task for companies in Asia and elsewhere is increasingly "to create value and disseminate it in the shortest possible time", Ramadorai focused on the spread of internet technology in China and India. China holds an advantage in the prevalence of the internet. Currently there are 22.5 million internet users in China, compared with only 8 million in India. China's higher literacy rate also promises to allow for faster growth. In addition, the Chinese government is moving ahead faster on internet issues by taking steps to develop internet infrastructure alongside attempts to control its content. Mr. Ramadorai noted that the Indian government, for its part, has undertaken a plan to boost information technology in rural areas and in schools. While India lags behind China with regards to internet connectivity, its Bangalore-based software industry holds an edge both in size and sophistication over its counterpart in China.

Corruption and bureaucracy persist as challenges to Asian business. Ms. Gupte, while noting that corruption in public industries has decreased in recent years due to competition, acknowledged that the logistics of doing business in India continue to require patience and perseverance. The information technology industry itself, however, is free of corruption because it is relatively new and intensely competitive. Besides external obstacles such as corruption and bureaucracy, challenges can arise from the companies' own expectations. Mr. Mao stressed the importance of management know-how and marketing capability, cautioning against the temptation to see China as a billion potential customers. China is a highly fragmented market with poor infrastructure, in which successful marketing requires local connections and specialized expertise. Mr. Daniell added that companies should not assume that technology will drive strategy, and warned of pulling resources away from core strategic areas such as branch reduction and restructuring.

Some of the advice handed out was more light-hearted. Playing on one audience member's self-described "crazy" question concerning the possibility of a pan-Asian culture, Ms. Gupte stressed that in the rapidly changing Asian marketplace, "madness" may well be a prerequisite for success.

Ilya Garger


The Nature of Entrepreneurship in Asia

Speakers: Robert Kenny, Co-Founder and vice-president of Finance and Strategy, IncubASIA; Tao Feng, Managing Partner, NewMargin Venture Capital and Chairman, ChinaeLab; Victor Wang, President, GWCom, Inc.; James Root, President, NetCel360 Limited; Yong Ying-I, Chief Executive Officer, Infocomm Development Authority of Singapore.

Moderator: Paul W. Marshall, Professor, Harvard Business School.

Audience members listen as panelists discuss the nature of entrepreneurship in Asia.

Entrepreneurs are influencing Asian economies like never before. In light of this fact, this plenary session considered the particular qualities and challenges that characterize entrepreneurship in Asia today. The discussion started with the speakers being asked to define "entrepreneurship". Some mentioned qualities such as ambition, competitiveness, resilience, idealism, and optimism. Robert Kenny, the most romantic of the speakers, spoke of "starting a new entity and wrenching it into reality." James Root, the most cynical, wondered if there was a more debased word in the English language.

Mr. Kenny pointed out that entrepreneurship is not responsible for most of Asia's current large companies, which tend to be spin-offs from other powerful companies or projects by previously successful businesspeople. This is in part due to a lack of funding, as venture capital has only recently become available for early-stage projects. Another barrier is the continuing importance of connections, which tends to favor established interests. Governments also create opportunities and barriers for entrepreneurship. Victor Wang described venture capitalism as the antithesis of the statism that characterizes many Asian economies, and Mr. Root quipped that "cartels are difficult to entrepreneur against", referring to the officially nurtured dominance of Korean chaebols, Japanese keiretsu, and "whatever you call it in Hong Kong." Ms. Yong, representing the government position, spoke of the pain of "slaughtering sacred cows" through deregulation.

One point of debate concerned the existence of a particular Asian style of entrepreneurship. While there was little disagreement with Mr. Feng's assertion that entrepreneurship runs in Chinese blood, there were variations of opinion on the nature of this entrepreneurship. Mr. Wang argued that while the American entrepreneur is idealistic and iconoclastic, the Asian entrepreneur is more practical and financially motivated. Citing his own experience, he explained that to businesspeople raised in Asia, western industry leaders seem beyond criticism or challenge (though he was quick to say that he changed his mind upon coming to America and meeting these leaders). Mr. Root invoked Confucian values in order to explain why Asian businesspeople might be less willing to risk failure and engage in maverick behavior. Not only do the familial responsibilities associated with Confucianism inhibit risk-taking, but the respect for authority and hierarchy discourage challenging or bypassing the establishment. Mr. Wang even cited the traditionally low social status of Chinese merchants as further complicating the entrepreneur's task. "Venture capitalism," Mr. Wang declared, "doesn't go well with Confucianism." Ms. Yong, in contrast, dismissed the notion of a distinctively Asian entrepreneurial style. Instead, she emphasized the universality of entrepreneurship, business, economics, and talent. The most dynamic economies, according to Ms. Yong, will be those with the strongest educational systems. Similarly, an understanding of the market and a sound business plan are more important than any cultural factors.

The give and take over differences and similarities reached a synthesis of sorts in the discussion of Asian and western business habits. While Confucian culture is famously concerned with "saving face", Mr. Wang pointed out that American businesspeople are equally preoccupied with "covering their ass." So the requirements for the successful trans-Pacific entrepreneur include, in addition to a sound business plan, the cross-cultural wherewithal to simultaneously look out for a range of body parts.

Ilya Garger

The Future of B2B in Asia

Panelists: Terry Chen, President and Founder, Timogen Systems; Bill De Kruif, Vice-President, U.S. Operations, NetCel360; John Paul Ho, Managing Partner, Crimson Ventures; Mark Paist, Of Counsel, Morrison and Foerster LLP; Dr. Bo Yang, Chief Technology Officer, Egistics; Michael Zhang, Co-Founder and Partner, InfoPower Ltd..

Moderator: Paul Marshall, Professor, Harvard Business School

Terry Chen shares his views on B2B in Asia with audience members and fellow panelists.

The difficulty of doing business in Asia emerged as the main theme of this panel. Mark Paist, of the law firm Morrison and Foerster, warned against assuming an existing Asian B2B infrastructure, or even one that could be quickly developed. He cautioned entrepreneurs to be realistic about what they can and cannot do in Asia. Dr. Bo Yang of Egistics affirmed Mr. Paist's statements based on his experience in China. He noted that there is a lack of logistical planning and knowledge in China, coupled with a very basic or non-existent information technology infrastructure. Michael Zhang, whose company builds infrastructure for e-businesses, added that most Chinese factories do not even have a computer, and much energy is devoted to introducing new concepts, such as the supply chain, to his clients and their employees.

Bill De Kruif of NetCel360 observed that Asia is probably the hardest and most complex place to do business, and listed three imperatives for companies operating in the region. First, one must have structural advantages in order to conduct business on a pan-Asian scale. Second, it is necessary to become a member of the community, by learning to do business the way one's clients do business. Third, Mr. De Kruif emphasized the need for a good business plan and the fortitude to execute it.

John Paul Ho of Crimson Ventures saw two world analogues for the B2B e-hub: the commodity market and the trading company. He claimed that new technology such as the internet is creating a tipping point by lowering coordination costs. However, he did not think that the internet is sufficient to change long-existing inefficiencies in Asia. Changes in government regulation need to take place. Mr. Ho also mentioned the need for a better link between Asia's supplier base and its consumer base in North America.

When asked by moderator Professor Paul Marshall about what entrepreneurs can do to change business in Asia, Mr. Zhang pointed to the need for better management skills and education. Mr. Paist agreed that there is a need to employ local people in management positions, but it is difficult to bring them in and out of certain countries, such as China, for training. Mr. De Kruif added that Asian companies are not as willing to pay for third party services such as consulting. He emphasized that U.S. companies need to leave people in place to eliminate the high turnover problems as employees return to the U.S. after a typical three-year stint in Asia. Finally, he brought attention to the need to train foreign businesspeople in the local language, and applauded the extension of American business schools into Asia.

Addressing the question of how to sell sophisticated ideas to less sophisticated clients, Mr. Yang cited patience as a great virtue. Clients often realize the need to transform themselves, and are therefore eager to learn. Mr. Ho called businesses a losing game if you need to rely on guanxi, and cautioned against competing in protected industries. He advised entrepreneurs to choose their battles carefully and to put themselves in areas of change.

Alice Yu


Mission Impossible: Growing From Start-up to Market Dominator

Panelists: Vasant Chatikavanij, Chief Executive Officer, PointAsia.com; Henry Ellenbogen, HelloAsia.com; Cecilio Kwok Pedro, President and Founder, Lamoiyan Corporation; James Root, President, NetCel360 Ltd.

Moderator: Peter Coughlan, Assistant Professor, Harvard Business School

Panelists share a light-hearted moment during "Mission Impossible".

Professor Peter Coughlan opened this panel with some important questions: Once a start-up becomes a successful small player in a market, how does it grow into something bigger? In an existing market with established competitors, how does a start-up build up its market share against these competitors? On the other hand, if there is no established market, how should a start-up shape the new industry?

James Root of NetCel360 began by relating the growth of his company, which grew from zero to 250 employees in ten months. NetCel360 is a leading provider of services, infrastructure, and expertise to enable companies to develop their e-business strategies in Asia. Mr. Root attributed his company's rapid growth to the increasing number of internet users in Asia and the need for infrastructure in the region. Henry Ellenbogen of HelloAsia.com said that his company's mission is to provide outsource e-marketing services. Now employing 130 people, HelloAsia.com is Asia's leading info-structure provider that supplies core marketing, communication, and wireless solutions to corporate enterprises.

Vasant Chatikavanij started PointAsia.com in 1994 at 20% of the market share in Thailand's internet market. PointAsia.com is now one of the biggest internet service providers in Thailand. He pointed out that when he began, access to internet information was hampered by the difficulty in navigating through the internet. His strategy was to focus on a particular market segment, catering to the needs of corporations and devoting his energy to customer service. Mr. Chatikavanij credited PointAsia.com's success to customer loyalty and name recognition that resulted from his business strategy. Rather than looking to expand PointAsia.com beyond Thailand, Mr. Chatikavanij plans to concentrate on the home market.

Despite his modest claim that his business is low-tech, Cecilio Kwok Pedro of Lamoiyan Corp., the maker of Hapee toothpaste, shared his insights into how to wrest market share away from industry giants. He began as a manufacturer of aluminum toothpaste tubes for multi-national corporations such as Procter & Gamble, Colgate, and Unilever. After these companies decided to switch to plastic tubing, Mr. Pedro decided to keep his machinery in use by forging into the Philippines toothpaste market on his own. When he entered the market in 1988, the big toothpaste makers controlled 99% of the market. Today, that figure has dropped down to 65%. The first step of Mr. Pedro's strategy was to target the multi-nationals' achilles' heel: price. While Mr. Pedro knew that he could not compete in areas such as promotion and distribution, his decision to cut price by 50% won an immediate response from consumers. However, when Colgate followed suit with a 20% price cut, Mr. Pedro turned to market diversification. Among other things, he developed multi-flavored toothpaste for children. It took Colgate three years to respond, but by that time, Lamoiyan had already captured the new market. In addition, Mr. Pedro targeted specialized markets, such as toothpaste for gum disease, which larger companies did not find profitable.

During the question and answer period, Mr. Root and Mr. Ellenbogen addressed the costs of becoming an entrepreneur. Mr. Root noted that a certain personality thrives on the entrepreneur's "hair on fire" environment. He reminded the audience that nine out of ten entrepreneurs will fail, and that not only are hard work and timing important, passion for one's work is also essential.

Alice Yu


The Future: What is the Next Big Thing?

Panelists: Peter Chu, Managing Director and CIO, AsiaTech Internet Group; Robert Kenny, Co-Founder and Vice President of Finance & Strategy, IncubASIA; Hurst Lin, U.S. General Manager and Vice President of Business Development, SINA.com; Jack W. Lin, Chief Investment Officer, Senior Vice President-Strategy, Chinadotcom Corporation.

Moderator: Michael Garstka, Vice President, Bain & Company.

The final panel in the Entrepreneurship Stream brought together prominent entrepreneurs and venture capitalists to discuss upcoming business opportunities in Asia. Moderator Michael Garstka noted that the number of funds focused on Asia has grown by 20 to 30 percent over the past three years and start-ups with ties to Asia, whether Asia-focused U.S. companies or Silicon Valley exports, are coming to maturity. Panelists began by fleshing out the picture of where deals have been coming from and suggesting what changes we might see in the near future. When Peter Chu started investing, opportunities were few. Substantial changes have since transformed the venture capital environment. Corporate managers and governments are more conscious of the utility of venture capital, new exchanges provide opportunities for exit in Singapore, Hong Kong, and Taiwan, and management team sophistication has increased significantly. Robert Kenny pointed to major changes in markets themselves that have reduced previous barriers to venture capital. For example, improved legislation and a growing base of western-trained personnel in India, macroeconomic changes in the P.R.C., and the end of lifetime employment in Japan and Korea have all brought positive changes in the Asian venture capital environment. Hurst Lin was optimistic about the huge potential of internet-based ventures given the nearly three-fold growth in internet users in the P.R.C. since 1999. He also echoed panelists throughout the Conference who stressed a renewed focus on returning value to shareholders through solid business management, rather than reliance on stock market surges.

While much of the value created in the U.S. has been in core areas like fiber optics, in Asia, as in Europe, it has been in business-to-business (B2B) operations. Mr. Chu and Mr. Hurst Lin agreed that this pattern will change, as successful companies are increasingly consumer-oriented. They predicted that small- and medium-sized manufacturing supply chain automation will continue to develop, and that growth will occur as infrastructure buildup through research and development improves and companies begin to package products for global adaptation. Mr. Kenny and Mr. Jack Lin noted that while the capital is there, lack of talent continues to hold Asia back. In some markets such as Hong Kong, the development of core technology is hampered by the lack of a critical mass of technology experts such as that which catalyzed growth in Silicon Valley and Taiwan. Still, panelists predicted that wireless technology will be a primary area of growth.

Beyond wireless, panelists highlighted a number of industries where future opportunities could emerge. Mr. Chu suggested "something uniquely Asian," like paper, pulp, and textiles, while Mr. Kenny claimed that Asian B2B, particularly between Hong Kong and China, presents strong opportunities. While all agreed that localization is key, panelists also cautioned that foreign models are generally not transferable to the Asian context, particularly in the media sector.

The panel concluded with a discussion of prospects in the P.R.C. and across Asia, with wireless winning the vote of most panel members as the industry to watch. As far as opportunities in China are concerned, Mr. Jack Lin drew on the experience of China.com as an indication of China's long-term potential. Mr. Hurst Lin agreed that China's talent pool was a critical asset, but Mr. Kenny advised caution in China, which is "full of the wreckage of venture capital and private equity investments." Despite these drawbacks, Mr. Chu, Mr. Hurst Lin and Mr. Jack Lin named the P.R.C. as the most promising market in the next three years, with wireless, internet, information technology, and networking as the up-and-coming sectors. Taiwan and Hong Kong got strong votes from Peter Chu and Robert Kenny respectively. While no consensus emerged on the "next big thing", the entrepreneurs on this panel placed wireless and China at the top of the list.

Virginia Harper-Ho

China's Entry into the WTO and its Impact on Asia

Panelists: Lucille Barale, partner, Freshfields Bruckhaus Deringer; Ann Chen, vice-president, Bain & Company, Hong Kong/Beijing; Paul Magnusson, Washington correspondent, Businessweek ; Dr. Sura Sanittanont, Advisor Minister of Commerce to Thailand and the Chief Executive, Sterling Equity Co. Ltd.

Moderator: Yasheng Huang, Associate Professor, Harvard Business School.

Ann Chen, Sura Sanittanont, and Lucille Barale discuss China's entry into the WTO.

Optimism

Speaking from the perspective of foreign businesspeople in Hong Kong and China, Ms. Barale observes great enthusiasm on the one hand and difficult reality on the other in China's entry into the World Trade Organization (WTO). The enthusiasm stems from the fact that China's membership in the WTO is a landmark in its open-door policy since reforms began in the early 1980s. The membership signifies that China's reform policy has survived the Deng era and is ever expanding. China is voluntarily taking up many commitments in the WTO. In an unprecedented move, China is opening its internal policies to external scrutiny, such as annual reviews of progress. It also agreed to grant full trading rights, eliminate quotas, and be bound by WTO dispute resolution processes and sanctions, making China very attractive for foreign businesses.

Despite the immense potential, it remains very difficult to do business in China. There is a growing attitude within the Chinese bureaucracy that the market share of Chinese enterprises ought be protected in order to give them more time to prepare for competition. The WTO agreement will be implemented by registration. During the registration and implementation processes, the bureaucracy may take a very legalistic approach, creating new and different obstacles to foreign investors along the way. This will make doing business in China harder and more frustrating than some investors may expect.

The industries most affected by China's entry into the WTO will be telecommunications and financial services. Historically, these industries have been very weak in China and required heavy subsidization by the government, and hence should stand to benefit greatly from foreign investment. In other sectors such as consumer products, Ms. Chen points out that there are already many billion-dollar Chinese companies capable of competing with foreign businesses. In these affected industries, deregulation might actually benefit incumbents, although their market share will change significantly initially. She observed that "There will be both winners and losers among both incumbents and foreign entrants," and believes that opportunities abound for both incumbents and foreign businesses entering China.

Impact on Southeast Asia

There is a wide range of opinions on how much impact China's entry into the WTO will have on Southeast Asia. On the one hand, Ms. Chen believes that there will be only negligible regional effect because industries such as telecommunication and financial services are domestically focused and little affect Chinese exports. On the other hand, Paul Magnusson believes that China's entry will bring great challenges to Southeast Asia and may even cause another round of currency devaluation.

On this Dr. Sura Sanittanont disagrees. He believes that the region has already adjusted to the financial crisis; any new crisis, if any, will be of a different kind. Nevertheless, Dr. Sura sees a major challenge for Southeast Asia resulting from China's entry. The low labor costs in China could pose a serious threat to the economy of many countries, including India. Moreover, China's entry will not benefit Southeast Asian countries in terms of investment in China because "China is a market for big businesses."

Yet Dr. Sura believes that there is still room for optimism for the Southeast Asian countries. If these countries are able to adjust and restructure efficiently, they could improve their competitiveness for foreign investment.

Pessimism

Mr Magnusson predicts that China's entry into the WTO will have a huge impact within China, an impact "so large that it might be difficult for China, the U.S., and Southeast Asia to swallow." A change of such magnitude would require a great deal of political stability within China itself and in U.S.-China relations.

Tensions between China and the U.S. may destabilize U.S.-China relations as China eases into the WTO. The new Bush administration may become more critical of China as President Bush is generally perceived to be more sympathetic to Taiwan than his predecessor. A Republican-controlled Congress is likely to be much more hostile to China on issues of human rights and religious freedom, and more pressure will be put on Washington to enhance the security of Taiwan. Moreover, China has yet to be persuaded that Bush's national missile defense system is not aimed at China, but at other rouge nations.

On trade and economic issues, the slowdown of the U.S. economy could force Washington to reduce the U.S.-China trade deficit. China would likely insist on protecting its exports and employment, but such insistence will face tougher challenges after its entry into the WTO. There will be increasing pressure on Washington to monitor Beijing's compliance with the WTO agreement. Compliance investigation or disputes at the WTO tribunal will have unfavorable effects on U.S.-China relations.

Political instability may well result from China's entry into the WTO. First, China will have to give up its subsidies on agriculture, which will have a huge impact on the 900 million people of its population engaged in agriculture. Opening up state-owned enterprises to foreign competition will have a significant impact on another 100 million people employed by these enterprises. Massive unemployment may ensue, giving rise to political instability, and perhaps, upheaval. The challenge would be for China to maintain its stability, but Mr. Magnusson is not optimistic because no Communist country has yet adapted to a capitalist economic system successfully.

China's Economic Policies

Professor Yasheng Huang paints a picture of China that is vastly different from the usual protectionist image. According to him, there are many contradictions in China's economic policy. First, although foreign companies might have been treated less favorably than state-owned-businesses, domestic private firms were in fact treated much worse than foreign companies. For example, in 1998, the Chinese Constitution recognized the sanctity of property rights of foreign firms operating in China, but the same did not come for domestic private firms until as late as 1999. He points out that China is already a very open economy even before joining the WTO. For example, China's foreign trade-to-GDP ratio, used to measure openness of economy, is an unusually high 40%. In the 1990s, FDI was around 17-18% of China's total investment, compared to 6% for the US. Therefore, FDI was already relatively higher and more important to China than to the US even before China's entry into the WTO. This is despite China's 40% savings rate, second only to Singapore.

Internally, domestic trade within China is much lower than its foreign trade, which starkly contrasts with countries like Canada, whose volume of internal trade is 8 to 10 times higher than its trade with the US, Canada's largest trading partner. While foreign trade and investment have increased dramatically during the past 20 years, trade among the Chinese provinces has actually been declining, despite the heavy investment of Chinese government in infrastructure. "Perhaps Chinese people prefer to do business with foreigners than with themselves," he speculated.

As such, Professor Huang argues that the priority of the Chinese government in the next round of reform should be on internal development, especially privatization and improvement of internal trade and economic structures. He thinks that China has offered too many concessions, such as on agricultural subsidies, and set up excessively high standards, many of which are even higher than those for most existing WTO member. This puts the Chinese government in a vulnerable political position.

Kok-On Chen


Liberalization and the Problems of Socially Responsible Growth

Panelists: Michael Posner, Executive Director, The Lawyers Committee for Human Rights; Mark A. Groombridge, Research Fellow, Center for Trade Policy Studies, CATO Institute; Dara O'Rourke, Assistant Professor, Department of Urban Studies and Planning, Massachusetts Institute of Technology; Dwight Perkins, Professor, Department of Economics, Harvard University.

Moderator: Peter Rosenblum, Associate Director, Human Rights Program, Harvard Law School.

Peter Rosenblum, Michael Posner, Mark Groombridge, Dara O'Rourke,
and Dwight Perkins address issues of socially responsible growth.

This panel was notable for its diverse opinions on the need for global regulations and monitoring to prevent what moderator Professor Peter Rosenblum called the "alarming" degrading conditions of work and the revival of "19 th century-style exploitation" in the manufacturing sector in Asia.

Michael Posner began the discussion by laying out the direction of the debate with regard to multi-national corporations, not only in their own factories, but also in those of their suppliers and contractors. While there are universal standards of labor in a formal sense, implementing those standards in practice, particularly the freedom of association, is a challenge. Actions of local governments have been disappointing and local laws are weak. Multilateral organizations have limited influence. The World Trade Organization (WTO) is unlikely to implement a social charter, as some have called for, and the International Labor Organization is paralyzed by its own structure of governments, unions and companies. Ultimately, the responsibility must lie with the manufacturers themselves. Because of increasing consumer attention, information available on the internet, and powerful media exposes, there is now greater incentive for companies to enforce labor codes.

Mark Groombridge was skeptical about government policies aimed at improving work standards because, in his view, governments are influenced by interest-group politics. He observed that countries with open market policies enjoy better standards of living. However, some government policies could be effective as well. For instance, he argues that the exporting pro-free market policies of the United States will have a positive impact on labor standards in Asia. Moreover, as Asian economies develop, a growing indigenous middle class will push for improvements in human rights. Dr. Groombridge sees China's developing a tax regime as a case in point-taxpayers will begin to articulate their demands to the government.

Insisting that the WTO should maintain an exclusive focus on trade issues, Dr. Groombridge asserts that implementing a social charter would bring inherently political questions into the organization. In fact, he thinks it hypocritical to apply political pressure on countries through trade policies; isolating countries such as Burma and Iraq has not had any positive effect on human rights or labor standards in those countries.

Professor Dara O'Rourke focused on the role of multi-national corporations in mitigating the adverse effects of globalization. In contrast to Dr. Groombridge, Professor O'Rourke contends that free market does not adequately enforce labor rights. Despite consumers' increasingly willingness to punish firms for irresponsible business practices, multi-national corporations have managed to circumvent labor regulations by moving to countries with more favorable regulatory environment. This puts countries in competition with each other, and a 'race to the bottom' ensues. Professor O'Rourke outlined the dangers of a similar downward spiral in environmental standards.

Corporate attempts to maintain reasonable labor conditions range from codes of conduct to certification systems, such as the Fair Labor Association and the Workers' Rights Consortium. Public disclosure is becoming the norm as a result of mounting popular pressure. In the face of intense media scrutiny and the ready access of information on the internet, firms sensitive to consumer pressure are themselves supporting transparency and accountability.

Professor Dwight Perkins addressed the inherent difficulty of enforcing corporate labor codes. He cited the example of Nike factories in Vietnam, claiming that it would have been devastating for the country if Nike had been forced to withdraw due to popular pressure from customers in the West. In fact, the Nike factories are among the cleanest in the country and their wages are higher than that in the average Vietnamese factory. Similarly, it would have been unfortunate if popular pressure had succeeded in keeping China out of the WTO, since membership will help promote development, and economic development will in turn create a middle class ready to stand up for its rights against government abuses. Professor Perkins concluded by highlighting a fact that the diverse opinions of the panelists make clear-it is extremely difficult to get the facts straight when it comes to understanding the nature of labor conditions overseas from the vantage point of North America, and consequently difficult to enact effective outside sanctions.

Lindsay Beck


The Rule of Law in Asia: A Measure of Political and Economic Change in the 21st Century

Panelists: Jerome A. Cohen, partner, Paul, Weiss, Rifkind, Wharton & Garrison; Lawrence Liu, partner, Lee & Li; Barry Metzger, partner, Coudert Brothers.

Moderator: Philip Wellons, Deputy Director, Program on International Financial Systems, Harvard Law School.

History

The panel agreed that the major deficiency in Asia is the problem of legal enforcement. The panelists sketched a picture of the changing legal landscape relevant to doing business in Asia for the past decades. In the first 30 years of the People's Republic of China, the only major business contact of the Communist government with the outside world was trade. According to Jerome Cohen, because only import and export of goods were involved, this trade did not require any sort of relevant legal system. However, when Deng Xiaopeng decided to attract foreign investment, a more developed legal system was needed. This resulted in a "great leap forward" in legal reforms, during which a great number of business legal norms were created in a very short period of time.

Problem with Legal Enforcement

Since then, many foreign investors have contracted to invest and do business with China. This trend intensified during the 1990s; but soon, foreign investors face the problem of legal enforcement. According to Mr. Cohen, the courts in China have often failed to enforce even their own judgments. Problems such as local protectionism, "social networking" (guanxi), party control, as well as corruption, are the major impediments to effective legal enforcement. He argues that the rule of law is a fundamental condition to any successful economic reform: "No matter how hard Premier Zhu Rongji works to reform China's economy, he should not overlook the importance of reforming the judiciary."

Mr. Liu agrees that legal enforcement is a major deficiency in Asia. In fact, there are good laws on the book, but no effective enforcement. He sees globalization and China's entry into the WTO as an ideal framework for legal reform in China. Laws relating to economics are crucial to economic growth. In particular, property law protecting minority shareholders' interests, the laws of competition and market openness are all crucial for competing with other countries for foreign investment.

In Taiwan, most senior politicians are lawyers, including the president himself and a few top cabinet ministers. This presents a deepening platform for legal reform. Mr. Liu thinks that the in the end, the solution still lies with the public sector. The government should be willing to make difficult decisions and should resolve to combat problems such as institutionalized corruption by public officials. Mr. Liu also reminded the audience that lawyers themselves are important agents of change. They should rely on legality, rather than "guanxi", when structuring business arrangements.

Signs of Change

Professor Wellons raised the question that if economic reform is the driving force for legal change, is democracy still relevant for improving the rule of law? Mr. Liu cited an example from Taiwan, where the Supreme Court has been more willing to review the constitutionality of the government's actions. In January this year, the Court held in Interpretation 520, that the government's decision to suspend the previous government's nuclear plant project without first consulting the Legislature was unconstitutional. Mr. Liu points out that in the post-World War II period, many East Asian leaders have been exercising authoritarian powers, while delivering economic prosperity to remedy the lack of political legitimacy. However, he argues that as a result of mounting popular expectations, the former palliative of economic prosperity no longer suffices. The governments need to deliver real democracy.

In Korea, Mr. Metzger identified a few signs of change. During the Asian financial crisis in 1997, the Korean government identified many problems in corporate governance, such as autocratic management by strong directors, weak governance by the board of directors, and lack of transparency in the decision making process. Significant reforms have been put in place in the past 3 years to address these problems, including express duties of directors, the requirement of having outside directors on the board, increased level of disclosure, control of related-parties transactions, and most important, giving minority shareholders a more effective right to bring derivative suits to protect their rights.

Even though in practice, the standard is still lower than that stipulated in law and the western standard of corporate governance, Mr. Metzger recognizes that the legal environment in Korea is changing. There have been successful challenges from shareholders, including those from civil society and foreign investment funds. One example is the initiatives led by Hasung Jung, a Korean Business School professor, which have resulted in numerous successful court challenges. The relation between financial institutions and corporations has also become transparent, notably in the case of Hyundai, whose chairman resigned under the pressure from its bank. Across the strait in Japan, the Sogo group was forced into bankruptcy under similar circumstances.

Mr. Cohen agreed with Mr. Metzger that the legal environment is changing in Asia, but as with any other macro change, this change "xu yau yi ge guo cheng" (requires a process). However, it does seem that economic development is still the major driving force behind, and perhaps the limitation on, the improvement in the rule of law.

Kok-On Chen

Private Equity and Sources of Funding in Asia

Panelists: Arnold L. Chavkin, Executive Partner, J.P. Morgan Partners; Merrick R. Kleeman, Senior Managing Director, Starwood Capital Group; David T.S. Lai, President, Region Asia, UBS Capital Asia Pacific (S) Ltd.; Yong Lee, partner, Cleary, Gottlieb, Steen & Hamilton; Daniel R. Mintz, Co-Founder and Managing Director, Olympus Capital Holdings Asia.

Moderator: Robert Kennedy, Associate Professor, Harvard Business School

This panel explored the role of private equity in Asia and how that role has changed over the past several years. Professor Kennedy, the panel moderator, opened discussion by asking panelists to comment on the key differences between private equity in Asia and in the United States. On the negative side, panelists acknowledged the inadequate legal infrastructure, limited transparency, contract enforcement difficulties, and the additional investment in time and effort needed to carry out due diligence effectively. However, they agreed that market imperfections and less sophisticated pricing structures can create investment opportunities that are difficult to find in the more mature western markets. Arnold Chavkin stressed the importance of finding Asian management teams with a track record in the local area, while Yong Lee emphasized the need for local legal counsel to navigate various regulatory barriers, such as restrictions on foreign ownership, various approval requirements, and foreign exchange limitations. Yong Lee also noted the relatively greater role of the government in Asian transactions both behind the scenes in the approval process and as the primary regulator.

Professor Kennedy then turned the focus to the impact of the Asian financial crisis on private equity opportunities. Merrick Kleeman responded that price drops and bargain deals, particularly in Korea and Thailand, that would have been otherwise impossible is evidence of the impact of the Asia crisis on private equity investment. In fact, as Daniel Mintz noted, the crisis had a transformational impact on the role of private equity in Asia, as the "psychological shock" sparked a new openness to private equity and management from abroad where demand had been limited before. Moreover, according to David Lai, investor exit strategies prior to the crisis were linked to stock market valuations, whereas after the crisis, they are focusing on the real fundamentals of the company. The fallout of the crisis proved that relying on "connections" is no substitute for hard work and savvy deal structuring.

Finally, panelists were asked to name their picks for the best and worst countries and industries for private equity investment in Asia in the coming years. Mr. Kleeman named Japan as a potential winner, as the largest economy in Asia with a ten-year history of no growth that may be ripe for a turnaround. High market inefficiencies also mean opportunities for great deals, although investors have to be selective. As far as sectoral opportunities, he noted residential real estate market in Thailand and opportunities for wholesale retail arbitrage in Korea. Mr. Mintz agreed that Japan presents unique opportunities for private equity deals and named Taiwan as an "OK pick for venture capital," with the P.R.C. at the bottom of his list and highlighted financial services, particularly consumer financial services, given Asian consumer's reliability as good credit risks. Mr. Chavkin put India's technology sector as his top pick and advised staying away from Southeast Asia, namely Thailand, the Philippines, and Malaysia. He recommended investment in any globally competitive company, because these companies are attractive to multi-national enterprises looking for Asian partners, making investor exit easier. Mr. Lai concluded the panel discussion by nominating Korea and Hong Kong as his top picks, and agreed that the past focus on export-oriented industries has shifted towards consumer-oriented business, though he would avoid real estate markets which require niche expertise, specialization, and the ability to negotiate additional regulatory obstacles. While great deals are tough to find, the panelists agreed that management and leveraging resources through local partners and willingness to put in the extra effort can together lead to solid opportunities for private equity in Asia.

Virginia Harper-Ho


Venture Capital Investment in the New Information Age

Panelists: K.O. Chia, vice-president and partner, Walden International; John Paul Ho, Managing Partner, Crimson Ventures; Peter Chu, Head of U.S. Ventures and CIO of AsiaTech Internet Group; Tao Feng, Managing Partner, NewMargin Venture Capital (Shanghai, China) and chairman, ChinaeLab.

Moderator: Felda Hardymon, Professor, Harvard Business School

Professor Hardymon drew members of this panel, all active in various technology investments, into a multi-faceted debate on the opportunities and challenges of venture capital and private equity investment in Asia. Discussion opened with the question of how the dominance of large institutional investors, namely government actors, key industry players, and established families, affects the competitiveness of venture capital in Asia. Peter Chu responded that while these actors present obstacles, they can also create structures and a neutral forum if they are brought in as limited partners in the same venture. K.O. Chia agreed that creating a "balance of power" within the fund by linking actors with ties to different countries and key institutions is a valuable way to capitalize on strong local investors. In fact, John Paul Ho noted that these local actors are usually not active within the fund and lack the knowledge base to compete with western venture capital, but their name recognition can add credibility to the fund, facilitating marketing to western investors. Tao Feng weighed in on the PRC environment and gave an unequivocal "No" when asked if it is possible to operate in the PRC without government contacts. The PRC government provides 20% of the capital for Tao's own funds, and he views the official connections the funding brings as a valuable asset.

When asked to highlight differences between the U.S. and Asian markets, Peter Chu noted that the Asian environment is simply a tougher one than the U.S. market, requiring "three times the work to move companies forward," given the lack of infrastructure and regulatory barriers. John Paul Ho pointed to Taiwan as an exception, since Taiwan has benefited from a strong engineering base, a skilled workforce, and an entrepreneurial culture, all in the context of adequate government regulation, characteristics that are missing in other Asian markets.

Professor Hardymon next posed the question of whether the PRC might be the next great market. Panelists were uniformly cautious. Mr. Chia and Mr. Ho reiterated that successful venture capital requires first and foremost, clear exit strategies, which are only now developing in Asia, as well as sophisticated professional service providers and a functioning regulatory regime. Mr. Chu noted that the problem with the PRC illustrates the conundrum of venture capital in Asia-that investors have had to choose between small economies that are ready for investment, like Taiwan and Singapore, and huge economies like India, the PRC and Japan, which are not. He predicted that it could take at least five years for these countries to develop what led to Taiwan's growth-technical expertise, a well-trained labor pool, and regulatory reforms. In the meantime, Mr. Chia recommended leveraging on Asian advantages, such as expertise in the software industry, and focusing on global players through strategic alliances and partnerships where exits are on the NASDAQ, not in Asia.

Panelists' predictions for the top regions and sectors for venture capital in Asia in the next eighteen months were varied. Mr. Chu picked Korea as a mid-sized market with the needed infrastructure in place, and software and wireless technologies, particularly in Taiwan, as the top sectors to watch. Mr. Chia's strategy focused on pan-Asian projects rather than particular regions and on sectors such as telecom, software and bioscience. Mr. Ho and Mr. Feng named fiber optics as a top sector, in part because the industry has lots of room to improve on manufacturing processing and production. Overall, the panel expressed confidence in new venture capital opportunities in Asia, as regulatory and infrastructural developments bring countries with some of the larger markets closer to the level of Taiwan and Korea.

Virginia Harper-Ho


Public Portfolio Investment

Panelists: Debra Chaplin, executive vice-president and Senior EAFE Portfolio Manager, Schroders; Carmel Peters, senior vice-president and senior portfolio manager, Global Core Equity Group, Putnam Investments; Jeff Everett ; Pratima Abichandani.

Moderator: Mihir Desai, Assistant Professor, Harvard Business School

This panel concluded that the long-term outlook for investment in Asia is promising while the short-term prospects are more negative. Each panelist provided a brief presentation of their forecast for short-term business prospects in Asia, listing factors that they believe should be considered.

Carmel Peters indicated that investment in Asia will continue to be characterized by quick changes. Peters believes that the largest number of promising investment opportunities will be in technology, despite the disastrous performance of investments in this sector in this past year caused by unjustified investment exuberance. Nonetheless, Peters cited positive factors for the short-term in Asian investment, including falling global interest rates and growing global liquidity. Peters also noted three continuing negative factors, including the general downturn in technological investment, weak banking systems in Japan, Korea and Taiwan, and the current slowdown of Asian economies.

Pratima Abichandani cited several positive factors for short-term investment, including deregulation, a renewed emphasis on real competitive strengths for individual companies, and the rise of the internet and technology. Abichandani especially emphasized a shifting emphasis on intellectual capital in investment decisions. Abichandani believes that many of the present difficulties in Asia are caused by ineffective business management.

Debra Chaplin argued that it is dangerous to view the Asian financial crisis as a watershed event because there is a general tendency for investors to overreact. She believes that the crisis is the result of too much capital chasing too few investment opportunities. She questioned the notion that the new economy is tremendously different from the old economy and argued that investors should remain guided by the traditional principle of choosing investment opportunities based on valuation of future cash flows. She concluded by citing several weaknesses in Asia, including the high impact that the yen has on Asia, and recommends caution in short-term investment.

Jeff Everett discussed three key strategies for investing in Asia. First, one should consider the timing of the investment. Second, one should try to invest in industries that are being overlooked by the majority of investors. Third, one should invest in companies that have strong management because he believes that the most important factor contributing to success is management.

Mike Arbogast

A Tale of Two Economies: Large Indian Companies in the New Economy

Panelists: Gita Piramal, business historian and author; Lalita D. Gupte, Joint Managing Director and Chief Operating Officer, ICICI; Rakinder Grover, General Partner, Walden International.

Moderator: Nitin Nohria, Professor, Harvard Business School.

Gita Pramal delivers a presentation on important political events
in India and their relevance to the Indian economy.

Three experts on India's economy, Gita Piramal, a business historian and author, Lalita D. Gupte, Joint Managing Director and Chief Operating Officer of ICICI, and Rakinder Grover, general partner of Walden International, met in this panel to discuss the state of companies in the new Indian economy. Moderated by Professor Nitin Nohria of Harvard Business School, the panel offered insightful analysis from a variety of perspectives, and the underlying tone of the session was one of cautious optimism for the future.

Gita Piramal, a best-selling business writer, commenced the session with an historical overview of what she considered to be the ten most important political events in India over the past 25 years, using each event as a signpost to discuss the development of the Indian economy. Starting with Indira Gandhi's declaration of a state of emergency in 1975, she argued that the government initially was hostile to business and sought to straightjacket it under the rubric of "big is bad." By the time India hosted the 9 th Asian Games in 1982, however, such hostility had shifted towards cooperation, largely because the centralized power of the Gandhi administration was being displaced by regional sources of political power that depended more on the support of business. While the growing cooperation allowed India to begin integrating into the global economy, it has been marked by cases of corruption, social unrest, and environmental disaster. Concluding her list of signposts with the Pokhran nuclear tests in 1998, Piramal seems optimistic about the future. She envisages India's emerging nuclear capability mirroring its economic potential, where the growth of international investment and the democratization of capital could help India emerge as an internationally competitive economy.

Building on such optimism, Lalita D. Gupte began her presentation by commenting that India's recent history has given it a resiliency that other developing countries may lack, and which will serve India well as it becomes more involved in the networked global economy. From her experience with ICICI, a leading provider of financial services in India, Gupte outlined the changing environment and emerging players in the new Indian economy. Established companies are learning to compete with start-ups both in old industries and in new, especially technology-based, sectors. This competition, combined with such forces as globalization, has created a need for continuous evolution in management strategy. Whereas the old Indian economy was ruled by large monopolistic companies, the new terrain is a more dynamic one, in which Indian companies are realizing the importance of efficiency and collaboration. With this emphasis on efficiency and focus on global competitiveness, Gupte argued that Indian companies should be able to compete well in the global networked economy.

Providing a venture capitalist's perspective on recent developments in the Indian economy, Rakinder Grover sees future growth predicated on the development of Indian information technology companies capable of competing on a global level. In the past four or five years, government regulations have relaxed and foreign venture capital has become more abundant, making it easier to establish local start-ups. Following the new mantra "listen overseas and implement domestically", such start-ups are using management strategies from abroad while building on a new local financial infrastructure to become "globally-tuned companies." A new model is emerging in which technology companies headed by managers with international experience, often Indian technologists who have worked abroad, are using domestic investments to address international markets. While the initial exuberance of the start-up craze in India has abated somewhat, Grover believes that as long as these new companies focus on quality, learn to thrive in foreign cultures, and follow international standards, the future of the Indian information technology sector will be bright.

Despite the optimism of the three speakers, some concerns arose from the audience during the question and answer period. Assuming the Indian technology sector establishes itself on an international level, there is concern regarding the effect of the education gap on the Indian economy as a whole. Will a few highly educated technologists prosper, with the vast majority enjoying little benefit? The panelists acknowledged that India will face many challenges in its economic development and that the benefits of the new Indian economy may not immediately be felt by all. However, both the government and the business sector understand the need to support education for India to succeed in the new economy and hopefully will cooperate to provide such support.

Owen Lewis

Drivers of Korean Economic Growth During the First Decade of the 21st Century

Panelists: Ji Hoon Hong, partner, Shearman & Sterling; Kesig Lee, Chief Executive Officer, eSamsung USA; Bertrand Pointeau, vice-president, Bain & Company (Seoul).

Moderator: Tarun Khanna, Professor, Harvard Business School.

Panel II (from left): Ji Hoon Hong, Kesig Lee, and Betrand Pointeau

This panel focused on lessons learned from the 1997 financial crisis in Korea, and the economic challenges and opportunities presented by the current Korean political and corporate infrastructure.

Ji Hoon Hong, a partner from the law firm Shearman & Sterling, focused on causes of the 1997 financial crisis and changes in Korea's legal and regulatory framework designed to prevent a repeat of the crisis. During the crisis, 6 of the country's 30 largest chaebols (conglomerates) went bankrupt, leading to a skyrocketing number of non-performing assets. The crisis exposed several problems in the structure of the chaebols. Among these were astronomic debt-to-equity ratios, which were often as high as 500 percent. Extensive cross-guarantees of loans among conglomerates made it difficult for lenders to track the ultimate destination of their investments. In addition to the unsound fiscal situation, the chaebols lacked transparent corporate governance. The CEOs of chaebols dictated their investment strategy regardless of the economic soundness of their decisions. To illustrate this problem Hong cited the example of Samsung, which at the whim of its CEO, poured capital into the expansion of its automotive business at a time when the industry was plagued with overcapacity.

After the collapse of the chaebols, the inadequacies of the legal and regulatory framework became apparent. New regulations were instituted to foster more transparent corporate governance. Financial reporting requirements and shareholder protections were mandated. The debt-to-equity ratios of the five largest chaebols were reduced, although this was done by increasing equity capital rather than by reducing actual debt. The amount of total debt remained alarmingly high for many chaebols. However, Hong argued that on a fundamental level, the Korean government has not yet learned the lessons of how to create a free market system, as evidenced by the extent to which the government is still trying to instruct the chaebols on what businesses to focus on. The government needs to create a regime in which business decisions are made based on strategy and balance sheets rather than the whims of CEOs or political pressures. Unfortunately, Hong believes the government lacks the moral authority necessary to institute such a regime.

Bertrand Pointeau, a vice-president at the consulting firm Bain & Company, focused on Korea's human capital as the key to future economic growth. Korea's population is one of the youngest among the fifteen largest economies in the world, in addition to being one of the most educated, both male and female. This is particularly noteworthy given that Korea's education system has only matured in the past 20 years. Korea's labor force is also one of the hardest working in the world (as measured by average hours worked per year per employee), and Korea is well connected to the global networks of oversea Koreans. However, Korea's labor productivity rate is among the lowest of the 15 leading industrial powers, and its economy is disproportionately oriented toward manufacturing rather than services, compared to the other 15 leading industrialized countries. Moreover, Korea's highly educated female workforce is significantly underutilized.

In order for Korea to utilize its human capital fully, Korea must meet several challenges. In Pointeau's view, Korea's rigid tenure system of employment based almost entirely on seniority needs to be replaced by one based on meritocracy. Pointeau points to the high level of entrepreneurialism exhibited in, and the great success of, the Korean internet industry as an illustration of the benefits of a more meritocratic employment system. The corporate sector as a whole must allow for greater flexibility in the reallocation of human capital in accordance with changing trends. This is particularly important as Korea continues to open its economy to competition from foreign companies, and as it transitions to a more service-oriented economy in response to the demands of Korean consumers. He notes that Koreans have already demonstrated their adaptability through their ability and willingness to learn and use new technologies. For example, internet banking usage has been increasing at 34 percent a month in 2000, a rate far faster than in other developed countries.

In brief remarks, Kesig Lee, the chief executive officer of eSamsung, struck a positive note by pointing to the success of the Korean industries in recovering from the 1997 crisis. He observed many Korean companies are now outperforming their Japanese counterparts as measured by their return on investment and other indicators.

Khanna, the moderator, left the panel with a series of open questions to think about. Are chaebols the real cause of the root of the 1997 crisis, or is a deeper structural problem at work? Can we expect meaningful reforms in the financial markets if the labor market does not change as well? Is Korea's current structure a liability or an asset? Khanna noted that there are countries whose economies are dominated by chaebol-type institutions but yet function quite effectively.

Pointeau concluded the discussion by noting that traditional Korean companies are becoming increasingly dominated by foreign capital. As a result, management structures are changing radically. Pointeau cited Pizza Hut Korea as a great success story of foreign management know-how combined with Korean human capital. Foreign training of Korean management teams have turned Pizza Hut Korea into what is widely considered the best managed Pizza Hut affiliate in the world. Now, Pizza Hut affiliates from around the world come to Korea to learn the secrets of Pizza Hut Korea's success.

Mario Moore

Project Finance in Asia

Panelists: William D. Gathmann, executive vice-president, Enron India; Martin Klepper, partner, Skadden, Arps, Slate, Meagher & Flom; Jamieson Logie, partner, Sullivan & Cromwell; Gerald West, Director of Evaluations, Multilateral Investment Guarantee Agency.

Moderator: Benjamin Esty, Associate Professor, Harvard Business School.

Law partner Martin Klepper reflects on the Skadden experience in Asia.

William Gathmann, who has spent 10 years with Enron working on projects in India, opened with a developer's perspective on project finance in Asia. During his ten years in India, Gathmann witnessed a huge boom in project finance beginning in 1990 that lasted until the Asian financial crisis of 1997 and 1998. The crisis resulted in many banks, including most major Japanese banks, completely pulling out of the project finance market. In 1999 and 2000, lenders cautiously re-entered the market, having learned many lessons from the crisis. Emerging markets in Asia now attract much less attention from project finance lenders, who are increasingly focused on infrastructural projects in the United States and Europe. Whereas in the early 1990s, investor enthusiasm for project finance extended throughout Asia, the current project finance market is concentrated in the Philippines, Thailand, and Singapore, with only a few small projects going forward in India, Bangladesh, and China, and no development occurring in Indonesia and Pakistan.

During the financial crisis, project finance lenders encountered several structural problems. Currency mismatch caused the devaluation of cash flows used by borrowers for debt repayment. Tariff structures that were designed to protect against devaluation were ineffective in cases of extreme devaluation in, for example, Pakistan and Indonesia. Jamieson Logie, a partner at the law firm of Sullivan & Cromwell, noted that pre-1997 deals placed too much emphasis on the strength of the contracts between the parties and too little on the basic risks resulting from fluctuations in supply and demand.

Martin Klepper, a partner at the law firm of Skadden, Arps, Slate, Meagher & Flom, noted that lenders now realize the importance of sound economics over the strength of contracts in the success of a deal. Gathmann added that lenders are now taking a more conservative approach to economic deal-making. A successful project requires a large debt service ratio and an ability of the deal to hold up in the face of an extreme currency devaluation, like the one that hit Indonesia in the 1997 crisis. Banks avoid large underwriting positions and instead seek to share the lending risks by doing "club deals." The syndication market is much weaker than before the crisis. In this environment, Klepper expects few project finance deals to go forward due to the lack of creditworthiness of power purchasers. Because project finance deals are usually not amenable to renegotiations, lack of revision opportunities makes initial deals all the less likely.

Striking a more positive note, Logie asserts that deals are being pursued with a changed set of strategies. Projects are increasingly reliant on local sources of financing, reducing the risk of currency devaluation. To illustrate the advantage of this strategy, Logie points to projects in Malaysia and Thailand that survived the Asian crisis because of their local financing or mixtures of local and international financing. He also believes that natural resource sector projects (e.g. oil, mining, and gas facilities) are more easily financed than power projects because the former generates hard currency cash flows, rather than potentially unstable local currency-based cash flows produced by the latter. Furthermore, the various risks involved in these projects are more effectively isolated.

A common theme highlighted by the panelists was the tendency of pre-1997 deal makers to underestimate the gravity of political risks. In the end, political upheaval proved to be stronger than the strongest of contracts. Logie noted that after a change of government in Pakistan, the new government put all contracts agreed to by the previous regime under intense scrutiny. Klepper cited the massive Dahbol power project in the Indian state of Maharastha as an instance of continuous political conflict between local and national governments, and of the interplay of international politics having played havoc with the financing and construction of the project. Two project lenders, the Overseas Private Investment Corporation and the United States Export-Import Bank, were barred from further involvement in the project by the U.S. government after India began nuclear weapons tests. Additionally, the project was troubled by nationalist-inspired criticism of the prices that utilities were required to pay for the power from the facility. At one point in 1995, the government suspended all construction on the project.

These examples offered Gerald West an opportunity to emphasize the importance of political risk insurance organizations such as Multilateral Investment Guarantee Agency, where he is the Director of Evaluations. West asserted that project finance deal makers make the mistake of assuming that a low probability of political risk means that political upheaval will never happen. As a result, political risks are thrust upon the party least able to bear it. To West, the value of political risk insurance is that it can deter loss in the first place and as a result can lower the cost of raising capital. West noted that the industry has ample capacity, and can easily put together $1 billion in coverage for any particular project. West offered a constructive solution to one of the numerous problems that lawyers, financiers, and companies face when seeking to engage in the process of project finance in Asia.

Mario Moore


Corporate Debt Restructuring in Southeast Asia

Panelists: Keith Clark, Chairman, Clifford Chance Rogers & Wells; Michael Collins, Jr ., Managing Director, Chase Manhattan Asia Limited; Stuart Gilson, Professor, Harvard Business School; William Mako, Senior Private Sector Development Specialist, World Bank; Kittiratt Na-Ranong, Founder and Chairman, Cathay Asset Management Company Limited, and Chief Investment Officer, Univentures Public Company Limited.

Moderator: Elizabeth Warren, Professor, Harvard Law School.

Mr. Kittiratt laid out the context for corporate debt restructuring in Asia by giving a brief account of the magnitude of the destruction resulting from the Asian financial crisis. He emphasized out that not all countries were affected equally by the crisis. Myanmar, Laos and Vietnam were relatively closed economies in 1997, and the economies of Singapore and Brunei survived relatively intact. The most affected countries were Indonesia, Thailand, Malaysia and Philippines.

With regards to Thailand, Mr. Kittiratt pointed out that the Thai currency (Baht) lost more than 80% of its value at the outset of the crisis. 45% of the total lending in the economy became non-performing loans, which amounted to around US$ 65 billion. All sectors of the economy were affected.

Panel members stressed the importance of existing laws in the success of corporate debt restructuring in Southeast Asia, because corporate reorganization is working under the shadow of bankruptcy law.

Mr. Mako distinguished the situations in different countries. Some countries, such as South Korea and Malaysia, suffered less damage than others, such as Indonesia and Thailand. There were also differences in the speed of recovery. Most of the panelists agreed that this is largely the result of the differences in the legal regimes dealing with bankruptcy proceedings. In countries where there is a stronger insolvency practice-such as Malaysia, which is based on the English model-restructuring could be carried out relatively quickly. According to Mr. Clark, in countries such as Thailand, where the insolvency approach is closer to the civil law model, the process could be very time-consuming because a great deal of court involvement is required, which tends to slow down the process.

Professor Gilson pointed out that the experience of judges could also be crucial. In Thailand, for example, judges have different views on the meaning of "debt", which affects the assessment of potential total value of a given company and the leverage available to creditors to force companies into bankruptcy and restructuring proceedings. Sometimes, non-liquid assets such as land were used to support the argument that the company was still solvent, even though its cash flow could be dried up. Professor Gilson also speculated that there might be a cultural preference in favor of the existing owners and management over creditors' rights. However, he insists that this is likely to be only a cultural perception, and is different in kind from corruption.

This seems to explain Mr Mako's identification of a specific feature of Southeast Asia's corporate debt restructuring: while all experienced debt restructuring, there was comparatively more ownership restructuring than, for example, in South Korea. Owners are less willing to take the losses, much less to lose control. While in Indonesia, most banks were taken over by the government after the crisis, most Thai banks have resisted dilution of ownership, and maintained control.

Another possible explanation for different experiences of corporate debt restructuring suggested by Professor Gilson is the institutional design of the various bankruptcy regimes. Some Southeast Asian countries, such as Thailand, put more emphasis on liquidation than reorganization. This differs from the US rehabilitation model, in which companies are encouraged to reorganize themselves. Since the only practical alternative to an out-of-court settlement is liquidation, there is an incentive to avoid going through court proceedings, which may result in deadlock.

Professor Gilson argues that the bankruptcy laws in the region should be so reformed such that the laws should first give the companies a second chance to reorganize themselves, rather than mandating liquidation as the only eventuality. In addition, there needs to be a good balance between carrot and sticks, so that there is enough leverage for creditors to coerce companies into court on the one hand, and enough incentive for companies to enter into court proceedings voluntarily on the other hand. In 1999, Thailand reformed its bankruptcy law to allow different creditors to vote differently, as opposed to the previous norm of voting as a group. This has made the law more attractive for companies, and there is sign that the number of companies voluntarily entering the insolvency proceeding has increased.

Mr. Collins pointed out that the willingness to share pain is a very important factor in reaching a viable out-of-court settlement. All parties, including owners, creditors incurring huge loss on their loans, laborers losing their jobs, as well as government losing some domestic companies to the control of foreign investors, must be willing to accept losses.

Mr. Kittiratt observed that given the scale of damage done by the crisis, most creditors are less willing to "share the pain" because if they were prepared to share the pain at every occasion, they might end up insolvent themselves.

From a macro perspective, Mr. Clark argues that apart from bankruptcy laws, there are other factors crucial to the ability of a nation to respond to a crisis of such magnitude. Exposed by this crisis is the inability of the financial sector within individual countries to provide adequate funds to cushion and support major industries when they find themselves in a crisis situation. Mr. Kittiratt argued that the decision of the Thai central bank to deploy its foreign reserves to defend the baht depleted the capacity of the central bank, and of the Thai financial sector as a whole, to avoid the collapse of the entire economy. Perhaps this chain reaction would have been avoided if there were sufficient funds available for this purpose.

Secondly, in responding to the crisis, a social welfare safety net is very important for the economic restructuring of such magnitude. Drawing from the British experience during the Thatcher years, Mr. Clark observed that it took around 15 years to carry out a successful restructuring and modernization of the entire British economy. He believes that Mrs. Thatcher was able to accomplish that with the crucial presence of a social welfare safety net to minimize the adverse effect on the employment. Southeast Asian nations, however, do not have such a social welfare regime. This may well be another non-legal factor that has seriously hindered the speedy recovery of these nations from the crisis.

Kok-On Chen


China: Protecting the Knowledge-based Economy and Intellectual Property Rights

Panelists: Daniel Chow, Professor, Ohio State University College of Law; Maria Lin, Partner, Morgan & Finnegan; Bo Liu, Chief Executive Officer and President, Red Flag Linux Software Co., Ltd; Dr. Peter Feng, Chairman, Kollen House Consulting Group.

Moderator: William Alford, Professor, Harvard Law School.

This panel brought together four experts from varied backgrounds to discuss the problems facing intellectual property protection in China. Professor William Alford, a professor at Harvard Law School and author of the classic book on Chinese intellectual property law, To Steal a Book is an Elegant Offense, moderated the panel, which offered a lively and interesting introduction to and analysis of the topic.

Professor Daniel Chow began the session with a presentation on the development of trademark counterfeiting in China. Trademark counterfeiting involves creating products that are meant to duplicate brand-name products as closely as possible. It is arguably the most common intellectual property violation in China. It is estimated that 15-20% of brand goods in China are counterfeit. The influx of cheap, low quality counterfeits hurts companies both by limiting the market demand for legitimate products and by destroying the goodwill for products that depend on reputations for good quality. This problem has been complicated by the growth of export, as China has now become a leading exporter in a growing global market for counterfeit goods. Professor Chow traced the origins of trademark counterfeiting to the growth of the PRC economy and consumer market after the Cultural Revolution. The demand for famous brands and the lack of strong legal protection for brands made counterfeiting a lucrative and relatively safe commercial activity. As production of counterfeit goods increased, local government-established markets became distribution centers for counterfeit goods, leading to both direct and indirect involvement by government entities in the counterfeiting trade. While fines for trademark infringement have increased, criminal prosecution has decreased and compensation for victims is paltry. Therefore, Professor Chow argued that it is likely that the problem will continue to worsen, especially with China's entry into the WTO.

Maria Lin, a lawyer at Morgan & Finnegan specializing in intellectual property law, concentrated on the major species of intellectual property law in China and their enforcement. The Trademark Law of 1982 is the oldest of the major laws. It confers ownership rights to trademark owners and is acceptable under world standards. However, it does limit protection of "famous marks" to those that are already "famous" in China, creating some problems for international owners of trademarks trying to enter the Chinese market. The Patent Law of 1983 granted new rights to owners of patents, although until the law was amended in 2000, computer programs were not included in it. The Copyright Law of 1990 also sought to bring China in accordance with international standards, although it included a broad "fair use" exemption to copyright protection. A variety of other laws, including those related to trade secrets, round out the Chinese intellectual property regime. While China has many laws to protect intellectual property, Lin argued that enforcement of such laws has been problematic as the court system is still in the process of reform, and relevant administrative bureaus have problems delegating authority. She concluded by remarking that for China to become a truly "developed" nation, it must take the enforcement of its intellectual property laws seriously.

Focusing on a particularly problematic area for China-pirated software-Bo Liu drew on his experience as former Deputy General Manager of Microsoft China to argue that perhaps software piracy in China is not as pervasive as is normally thought. He argues that the biggest victims are not foreign software corporations who lose potential sales to piracy but are local Chinese software companies that are unable to sell enough software to prosper. This inability has hobbled the development of a local Chinese software industry. Liu sees the problem as primarily cultural. Chinese have traditionally felt that they should only have to pay for tangible goods, not intangible software. He is optimistic, however, that a combination of stronger government enforcement of current laws and a focus on educating people about the need to respect intellectual property rights will help improve the situation in the near future.

Dr. Peter Feng concluded the session by exploring the cultural underpinnings of intellectual property infringement in China. He began with two assumptions: (1) one needs an incentive to break a law; (2) one also needs incentive to enforce a law. Using an analogy to the popular pastime of karaoke, he argued that the traditional Chinese acceptance of imitation was in conflict with branding and copyright protection. This traditional view is compounded by the incentive Chinese people have to break intellectual property laws: enforcement is weak, illegal imitations are readily available, and the legal products are often prohibitively expensive. While purposely not offering a definite resolution to the problem of intellectual property protection in China, Dr. Feng surmised that as China becomes an intellectual property exporter, Chinese will find the incentive they need both to enforce intellectual property laws more strictly and to refrain from infringement.

Owen Lewis

The Future of Wireless in China

Panelists: David Beatty, Co-Chairman and Chief Executive Officer, Orient EXNET Corp; Desmond Shum, President, China PalmInfo Holdings Co., Ltd.; Victor Wang, Founder and President, GWCom, Inc.

Moderator: Ravi Vijayaraghavan, Professor, Harvard Business School

Moderator Ravi Vijayaraghavan engages with the speakers of Technology Panel I.

Structuring this panel as an extended question-and-answer session, moderator Professor Ravi Vijayaraghavan led an informative discussion where the three panelists offered insights into the future of wireless in China.

Professor Vijayaraghavan began the session with a brief overview of the current situation of wireless in China, and asked the panelists to state what they saw as the potential for future growth in the market. Building on a current subscriber base of 70 million people shared by two companies, China Mobile and China Unicom, the Chinese wireless market should expand, according to the three panelists, to somewhere around 250 to 350 million subscribers in the next four or five years. David Beatty noted that most of this expansion will be concentrated in the coastal regions and the average revenue per subscriber will continue to decline.

When asked about the effects of the current duopoly of China Mobile and China Unicom on the growth of the Chinese wireless sector, Victor Wang noted that originally the duopoly allowed the carriers to fix prices at a high enough level to finance the costs of building a wireless network where other financing was unavailable. With the emergence of capital markets in China, however, such price fixing is no longer needed, and the introduction of at least one more carrier would benefit the industry by promoting healthy competition. Desmond Shum agreed that more carriers are needed to hasten growth, emphasizing that the current duopoly is simply a product of political control. All three panelists agreed that at least one or two more carriers would be granted licenses to operate in China within the next few years.

Shifting the focus from service providers to vendors, Professor Vijayaraghavan asked about the potential for Chinese vendors in the wireless technology market. Mr. Shum focused on handset technologies and argued that there would be a shift towards Chinese vendors in the low-end market, while the high-end market would still be dominated by such international companies as Nokia and Motorola. This splitting of the market, he believes, will squeeze out middle-level vendors from the Chinese market. Mr. Wang agreed that Chinese vendors will be unable to catch up with foreign vendors in the high end market, but argued that catching up in the low-end market will still require a large commitment of funds for research and development, most likely through government investment. In terms of infrastructure technology, Mr. Beatty asserted that Chinese companies will be unable to raise the necessary capital for research and development needed to compete with global leaders such as Nortel, and therefore will not emerge as wireless infrastructure producers.

The future of wireless data in China seems less certain. Mr. Shum predicted that the Chinese wireless companies may not be able to duplicate the success of NTT DoCoMo in Japan, which has seen amazing growth in its wireless data services business. Mr. Wang concurred with Mr. Shum, citing data that shows that current Chinese wireless data usage is focused on financial services, whereas such usage in Japan is predominantly entertainment related, appealing to a larger market. Mr. Beatty stressed that affordability will be the key issue for future growth in wireless data services. As long as only a small percentage of the population can afford such service, growth will be limited and the focus will remain on financial services.

Although provision of wireless data in China may not experience growth comparable to that in Japan, the three panelists all see the development of wireless service applications as the best opportunity for investment in the Chinese wireless market. Mr. Wang believes that as the Chinese wireless subscriber base becomes saturated, the Chinese companies will need to focus on data services as a source of future growth, similar to what occurred in Japan. In the meantime, Mr. Beatty argued, there has been enough adoption of wireless data that there is promise for future development.

Owen Lewis

Asia's Silicon Valleys

Panelists: John Park, Founder and Chief Executive Officer, Asia Evolution, Inc.; S. Ramadorai, Chief Executive Officer, Tata Consultancy Services; Hiroshi Uchikoga, Chief Executive Officer, VISIONARE Corporation; Yong Ying-I, Chief Executive Officer, Infocomm Development Authority of Singapore.

Moderator: Lynda Applegate, Professor, Harvard Business School

The key question for this panel was whether the Silicon Valley experience is transferable to Asia. The four speakers discussed their entrepreneurial experiences, the application of the concept of Silicon Valley to Asia, and factors in its potential realization. Together with the floor questions, the panel discussion provided interesting insights into developing technology businesses in Asia.

S. Ramadorai mentioned a number of factors that are transforming India into a technology center. Government efforts include a reduction of tariffs and privatization of the telecommunications industry. For years, the educational sector has made technology training its focus to fuel the rapidly expanding industry, which has enabled India to become a critical supplier of engineers in the world. Increased internet access and enhanced funding from venture capital firms have also helped the industry to prosper. A number of technology incubators exist in Bombay and Bangalore.

Yong Ying-I's vision of Singapore's Silicon Valley is more than simply a clustering of technology companies; it is an ecosystem that has a free market for capital. Singapore already has the basic hardware infrastructure to support its own version of Silicon Valley. This includes a modern city, an adequate power and water supply system, a good fiber optic network, and last but not least, a well-educated population. However, Singapore needs a better capital infrastructure and more liberal human resources practices, which have historically been de-emphasized in Asian companies, as well as empowerment or learning organizations within these companies. Deregulation and privatization of the public sector will play critical roles as well. As of 2001, the Singapore has almost fully liberalized its telecommunications industry. "Go-regional, go-global" is the main theme of this liberalization, and recently more than 100 telecommunications licenses of all sorts were granted to local and foreign companies.

John Park agrees that the Silicon Valley is transferable to South Korea, given its vibrant workforce, available capital, and feverishly developing entrepreneurship. However, notorious bureaucracy and restrictive labor laws are potential barriers. Similar constraints are pervasive in Asian countries. For instance, it is extremely difficult to become an internet service provider (ISP) or internet content provider (ICP) in China, due to tight government control. Nonetheless, Park is optimistic about the future. South Korea, with a population of only 46 million, already has 19 million internet users, while the number of internet domains is rising steeply by day. Close to 60% of the population are mobile phone users. All this presents a promising market for the technology industry.

Park also described the challenges to the industry. Government officials are greatly concerned about Korean chaebols buying out new start-up companies. Park himself was questioned by antitrust authorities after several chaebols approached him about a possible merger. South Korean law prohibits companies from firing permanent employees. This can be a hurdle for start-up companies since employees become part of the fixed cost once they pass the probation period lasting six to nine months. To ensure the quality of permanent employees, everyone interviews a potential hire in Park's company. Moreover, there is "fierce competition per concept," which drives down profit for start-up companies. In fact, his company is the only profitable advisory and consulting incubator in Korea.

Hiroshi Uchikoga offered his personal experience as a technology entrepreneur in Japan. When he was working at Toshiba, the company decided to enter the desktop PC market, to which he strongly opposed because the desktop market was already saturated with competitors. Disappointed by Toshiba's misguided strategy, Mr. Uchikoga left the company and joined Softbank, where he founded GeoCities Japan, the most accessed community website in Japan. Later, his observation that Japan lacks the huge online advertising market of the U.S. led him to start Knowledge Inc., a high-tech incubation and consulting company. He realized that the success of a start-up company depends more on its people than its ideas. Putting that observation into action, Mr. Uchikoga gathered several very talented engineers, and started VISIONARE, a developer of digital data control software products.

After the panelists finished their presentation, the audience began to pose questions to the panelists. Responding to the question of how big companies should nurture great ideas, Mr. Ramadorai argues that a company should be so structured that great ideas can float to the top level. Ms. Yong remarked that the mindset of the organization more than anything else is crucial to the treatment of ideas. In particular, a major challenge to a large organization is how to continue to move forward in times of success.

When asked what features of the Silicon Valley are the most difficult to replicate, Mr. Uchikoga retorted that that there is no need to replicate, as Tokyo will never be the Silicon Valley. He observes that unlike their American counterparts, the smartest people in Japan tend to work for large established companies, and it is difficult to lure them to join start-ups. However, success stories of start-up companies have begun to provide incentives for talented people to found or join startup companies. Mr. Park, who has incubated nine companies to date, agrees that recruitment is the toughest part. It is also important to "remain paranoid forever", that is, to prevent employees from becoming complacent. For example, to combat potential complacency among employees after an enormou