Missing Innovation dulls south-east Asia’s sheen

Missing Innovation dulls south-east Asia’s sheen

The three largest economies in South-East Asia—Malaysia, Indonesia and Thailand—are risking future growth by failing to create companies that matter.

The deficit in homegrown enterprise in these nations was brought into sharp focus this month by Boston Consulting Group’s annual ranking of 100 companies from 14 developing economies that, it says, are changing the world.

These companies have several things in common: They have all built a serious international presence and have either crossed—or are fast approaching—the $1 billion (Rs3,940 crore) threshold in annual revenue that Boston Consulting analysts say is crucial to go global in a big way. Finally, all of these companies have the financial muscle to expand quickly.

Unsurprisingly, 41 of these 100 companies are from China, with India next with 20.

What is surprising, however, is that Indonesia, with a $365 billion economy last year, has only one company on the list, unchanged from 2006. Hungary, whose economy is only one-third the size of Indonesia’s, is now doing just as well.

Thanks to a rise in the price of commodities such as coal and palm oil, the combined wealth of Indonesia’s 40 richest people has swelled to $40 billion, from $22 billion last year, according to Forbes Magazine. Yet, this near doubling of businessmen’s personal fortunes seems to have done nothing to make their companies more competitive globally.

The only company from Indonesia to make the Boston Consulting list remains PT Indofood Sukses Makmur Tbk, the world’s biggest instant-noodle maker.

Malaysia has two global contenders. Both Petroliam Nasional Bhd, or Petronas, and its unit MISC Bhd, the world’s biggest operator of liquefied natural gas tankers, are state-owned companies. Take them away and Malaysia—a former “Asian Tiger"—has little to show by way of genuine, non-government entrepreneurship that’s also globally competitive.

The two Thai companies on the Boston Consulting list are Charoen Pokphand Foods Pcl., the country’s biggest meat producer, and Thai Union Frozen Products Pcl., the world’s second biggest tuna canner.

The business scene in Thailand is dominated by a few, all too-powerful families. The entry barriers are high for newcomers: The Forbes list of India’s 40 richest people this year had 10 fresh names, whereas Thailand had only one new entrant not tied to an existing clan.

The ability to incubate companies that are at the cutting edge of globalization is now a key imperative. Without it, Southeast Asia will become increasingly irrelevant.

The Association of South-East Asian Nations will, by 2015, create a common market in which goods, services, capital and skilled professionals will be allowed to move freely across the region. Seamless access to a market and production base of 500 million people would help businesses in the region expand their reach, build scale and improve competitiveness.

However, that alone won’t be enough.

There’s something wrong with the very composition of the capitalist class in South-East Asia.

While South Korea and Taiwan are on their way to becoming serious innovators, South-East Asia’s progress is being held back by tycoons who are out of their depth in today’s globalized, knowledge-driven world.

In his book Asian Godfathers: Money and Power in Hong Kong and Southeast Asia, Joe Studwell paints an eloquent picture of the crony capitalism that has plagued the region.

Malaysia had a per-capita income of $5,500 last year, while the average was $3,000 in Thailand and $1,400 in Indonesia.

All three countries are now above the poor-country threshold of $826 a year.

That, however, doesn’t mean they can continue with their old ways. Earlier this year, the World Bank warned of a “middle-income trap" in East Asia.

“History shows that while many countries have been able to make it from low income to middle income, relatively few have carried on to high income," the Bank’s researchers said. “A lot of complex challenges have to be met, from raising the skills and innovativeness of the labour force, to creating sophisticated financial systems, to maintaining social cohesion, to greatly reducing corruption."

These are also the prerequisites for fostering the spirit of enterprise, without which the biggest economies of South-East Asia may just remain stuck where they are.

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