The Asian crisis has forced international engineering firms operating in the region to accelerate cost-cutting and restructuring to overcome a much longer period of poor demand and low profits.
South Korea, however, may offer a glimmer of hope to exporters in the region. Here, investor confidence has revived. The country has a current account surplus of $40bn, a strengthening won, and a record trade surplus, ensuring no repeat of last year’s near-default on its foreign debt.
Like the former East European communist countries, Korea is embarking on a difficult transition that will produce growth but also unemployment. Short-term prospects may look good, but the government and industry has yet to put in place a long-term economic plan.
Labour strife from highly organised and militant unions is what the government fears most. Unions have demonstrated recently against a planned deal between Samsung Motors and Daewoo Electronics.
The big Korean trading conglomerates, or chaebol, have reluctantly agreed to government brokered deals including Samsung’s sale of its car company and the merger of Hyundai and LG’s chip-making businesses. But they remain loath to dispose of assets which would reduce their business standing, and are retaining many unproductive factories.
A second option for exporters to the Far East is Taiwan. This is a tough nut to crack, but its economy is under little strain because domestic companies have long been exposed to global competition, have strong corporate structures, and do not suffer from the official corruption endemic in neighbouring countries.
Kevin Hobgood-Brown, director of international business for Asia and America at analyst Deacons, Graham & James, believes the most important factor for companies entering the Taiwanese market is not the ability to compete for tenders or finance joint ventures, but the legal aspects involved.
Hobgood-Brown advised engineers wanting to take part in Taiwan’s large infrastructure projects to set up subsidiary companies and to put clear contracts, including confidentiality agreements, in place. He said letters of credit were the safest and most reliable method of payment, and that sales on open account should be avoided, as if payment is not received it can be almost impossible to recover the money.
Japan holds the key
Meanwhile, Japan’s fortunes underpin hopes of recovery on the Pacific Rim. Japan’s official efforts to boost its economy have been virtually fruitless. A belated slump in China and more trouble in Russia and Brazil will also delay regional recovery.
Restructuring has barely begun in most countries of the region, and essential reforms will mean more bankruptcies alongside the job losses. Optimistic talk of regional recovery is premature, counter-productive and potentially damaging, as it gives corrupt officials and incompetent corporate executives the excuse to do nothing.
This restructuring will not only be economically and socially painful but politically sensitive, bringing governments into conflict with powerful vested interests, such as former president Suharto’s Chinese cronies in Indonesia.
This could result in a general slowing down of restructuring because of a potential unwillingness by central governments to take unpopular decisions.