I’m currently reading How Asia Works by James Studwell – a sequel of sorts to Asian Godfathers (another brilliant book). It was listed by Bill Gates as one of his top 5 books for 2014. Good enough for Bill, good enough for me!
It’s fascinating reading. From the same starting point, why is it that South Korea is now on track to have a better standard living than the French by 2020 yet Philippines is … well still the Philippines? Why is Singapore now arguably one of the richest countries in the world?
I believe the only path to creating enduring, long-term sustainable businesses is to build up a “moat” in whatever it is that you do. This then allows the generation of supernormal profits which goes on to accumulate and compound into extraordinary wealth.
Unfortunately for most South East Asian countries, their governments simply doled out moats to their business elites in the form of government concessions, exclusivities and monopolistic assets (e.g. ports, utilities, infrastructure, real estate etc) for very little in return to their country (but maybe to others). So why would any savvy business person prefer to go through the hard yards of building a globally competitive moat when they can simply obtain a domestic moat from the government?
It then follows, does the fact that you’ve commissioned General Electric to build a power plant that you will operate as a monopoly really add much value to the development of the country? Does the country actually gain anything in terms of learning and attaining technical know-how through this process?
On the contrary, General Park Chung Hee literally forced South Korean business elites at gun point to build export competitive industries in designated areas (e.g. steel making, automobile, ship building etc) in exchange for allowing their rent seeking activities to continue. It didn’t happen overnight but what resulted were globally competitive industries with enduring moats. POSCO, for example, is now one of the most efficient steel manufacturers in the world. South Korea is now a successful developed country with global technological leadership in a number of areas.
It is disappointing that we rarely differentiate between rent seekers and moat creators. Business literature about South East Asian tycoons are typically all about humble beginnings, hard work along with bite sized quotes of wisdom as their key success factors. Now, these tycoons are definitely world class business people, there is no argument there but as always we should separate the real key success factors from the narrative.
P.S. Interestingly, I know the son of one of these South East Asian tycoons. Tellingly, he has a single template for business ideas which generally goes (1) source Western technology / intellectual property; (2) secure exclusivity for his home country; and (3) “opening the floodgates” by leveraging his family connections for distribution.