An Comparison of Asian Business Cultures

1. What are some of the common features in terms of the development paths chosen by the three developed economies we covered (Japan, Korea, and Taiwan)? Moving forward, do you expect the paths to converge or diverge, and why

There are some common features in the development paths among three economies. The first feature I observed is that the development of each country was the result of significant interaction between domestic and foreign systems. Japan absorbed various external shocks and utilized them successfully for positive progress and growth, with keeping its national identity through the whole process. Taiwan, benefitted from Japanese colonialization and the assistance from the U.S. government, also experienced a series of impacts from outsiders and then achieve its economic miracle. Korea, colonized by Japan, shifted its structure away from agriculture towards manufacturing and set a foundation for its economic growth after the 1960s.

These three economies all rose from the agricultural economy and tried to industrialized in light industries firstly. By the end of Meiji, Japan was successfully in the textiles and railroad industry, exporting its goods and importing needed to produce. Even though the products “Made in Japan” meant low price and low quality at that time, this early success helps Japan move to heavy industrialization and machinery production much earlier during 1920s.

Followed by extensive agricultural reforms occurred from 1949 to 1953, Taiwan experienced a substantial growth in agricultural production. In the same period, the KMT government started investing in industrialization by creating state-owned companies while native Taiwanese were prominent in the private sector. For instance, the Formosa Plastics transferred from a chemical company founded by Wang Yung-Ching, the most successful Taiwanese entrepreneur. Taiwan used import substitution policy to stimulate light industry, and the industrial production exceeded that of agriculture after 1962, a trend that was created mostly by Taiwanese-owned small and medium enterprises.

South Korea policymakers also implemented import substitution policy to stimulate economic growth after the Korean War. Similar to the condition in Taiwan, the share of agriculture in GDP became smaller than that of manufacturing sector due to the implementation of substitution policy and export promotion.  

After achieving the first goal in economic development, these three economies then aimed at moving forward to other industries. Prior to World War II, Japan eliminated all the leading light industries to boost heavy industries. After 1947, the U.S. tried to support and recover Japan’s heavy industries again because of the Cold War, helping Japan enter into a period of increasing growth and become the second largest economy in the capitalist world within 20 years. By the late 1970s, the light industries in Taiwan were mainly replaced by industries such as petrochemicals, automobiles and aluminum. Under Park Chung Hee’s leadership, Korea started to build heavy and chemical industries in order to reduce the reliance on U.S. armed support. The government stepped in the financial markets and supported chaebols by providing loans at a very competitive rate. This decision brought significant influence on the Korean economy.

Except for the similarities in the industrial path chosen by each country, each economy all utilized featured organization through the process of economic development: “keiretsu” in Japan, “chaebols” in Korea and “jituan qiye” in Taiwan. Transformed from zaibatsu, Japan’s keiretsu was typically consisted of firms in diverse industries centered around the main bank to reduce the information gap between borrowers and buyers and help stabilize the performance of each firm. This special constitution of groups dominated the second half of the 20th century, helping firms make long-term innovative plans.

In Taiwan, there were two main sectors of enterprise ownership and management evolved in 1950s. Both of them contributed to the economy a lot. One is the small and medium enterprises (SMEs) employing 10 to 200 workers, and this sector became increasingly strong after the government created export processing zones which encouraged foreign investment. Another sector is the jituan qiye, which is the conglomerate operating factories and offices domestically and abroad. Some of them were owned and managed by families, and others were under corporate ownership. Compared to the SMEs, jituan qiye owned and used more modern capital, operated to a great extent in the global market, with assisted by their professionals including lawyers, accountants and engineers. Until today, more than 30 of top 50 jituan qiye came from family owned business, and the top a hundred jituan qiye, comprised about 0.1 percent of private enterprises, generated more than a quarter of GNP.

The emergence and growth of chaebol, the family owned conglomerates essentially control industries, came from the governmental intervention. In order to stimulate the export sector, the government provided subsidized credit for existing firms to expand into export producing industries or establish trading company. This policy help most chaebol groups build solid foundation before 1970. Within ten years from 1970, the combined sales of top ten chaebols increased from 15 percent to over 40 percent because the government hoped to accelerate the transition from agricultural society to an industrialized economy. Supporting the existing firms seemed more efficient rather than creating and forming new firms for the government. Fully taking advantage of cheap money supported by the government in the 1980s, the chaebol diversified into businesses other than government’s targeted industries such as consumption goods and real estate.

As what happened to all industrial countries, three countries all faced economic slowdown issues after experiencing high growth for several years. Japan’s high growth came to an end earlier compared with the other two in the early 1970s. Its annual growth rate even fell down near zero in the 1990s, resulting in a long period of deflation and recession after the asset bubble burst. After the initial shock, Japan’s economy was sent into so-called “lost decade”. Even though the government tried to deal with this stagnant economic environment by implementing several reform projects such as the privatization of several official departments and the reform of local government and bank. The whole economy performance didn’t turn well because of the global IT recession in 2001.