ASEAN's Declining Weight in the World Economy

[NOTE: An abridged version of this post appears in the Straits Times today.]

ASEAN has been considered one of the most successful regional groupings in the world since its inception in 1967 to the mid 1990s. Over the period 1980-97, ASEAN achieved higher economic growth than most other regions in the world. However, economic realities dramatically changed in the decade since the onset of the Asian Financial Crisis in 1997 and the emergence of China and India as economic powerhouse in Asia from the mid-1990s. After experiencing a sharp decline in economic performance over 1997-98 as a result of the Asian Financial Crisis, ASEAN as a group did rebound in the ensuing period, but contrary to popular impression, the region had never quite recovered its former competitiveness in the world economy. Not only had ASEAN’s share of world GDP, trade and inward direct foreign investment (DFI) declined between 1997 and 2007, ASEAN’s productivity growth (as measured by the growth of GDP per capita adjusted for inflation and purchasing power parity (PPP)) in the 1997-2007 period had declined both absolutely (when compared to the earlier period of 1980-97) and relatively (when compared to the world average).
Table 1 highlights the declining weight of the group of ten ASEAN countries (ASEAN10) in the global economy in the decade since the Asian financial crisis in 1997. While ASEAN10’s share of the world population increased over 1980-2007, its shares in the world’s GDP, trade and inward DFI all reached their peaks in 1997, and despite some recovery, were still lower in 2007 than in 1997. The most dramatic fall is in ASEAN10’s share of world total inward DFI flows – so much so that ASEAN10’s share of total world inward DFI flows had dropped below its share of world GDP and trade from 1998 onwards, a reversal of the situation before 1997.
It is true that the decline of ASEAN’s weight in the world economy coincided with the rapid rise of China and India. However, even if we net out China and India, ASEAN’s shares of the rest of the world in terms of trade and inward DFI had still not recovered to their peaks in 1997, and only marginally improved in terms of GDP share.
An even more disturbing picture emerges when we examine ASEAN’s competitiveness through the lens of productivity growth (see Table 2). After adjusting for purchasing power parity (PPP) and inflation, the six largest ASEAN countries’ per capita GDP growth in the period 1997-2007 averaged only 2.3% p.a., significantly below the 5.3% p.a. it achieved in the period 1990-97. Even if we discount the sharp drop over 1997-98, ASEAN’s growth in the 1998-2007 period (3.6% p.a.) is still substantially below the average growth it achieved a decade earlier.
More tellingly, the ASEAN6’ average GDP per capita growth performance over 1997-2007 was not only significantly less than that of China (8.7%) and India (5.5%), but had fallen behind the average of the world (2.5%), the group of low income countries (2.9%), lower-middle income countries (5.7%) as well as upper-income countries (3.1%). The only group of countries that grew more slowly than ASEAN6 is the group of high-income countries (2.0%). By 2007, China’s GDP per capita, after PPP adjustment, had already overtaken ASEAN6’s, even though it was only 42% of the latter in 1990.
The global media had rightly highlighted the last decade of the 20th century as the “lost decade” for the largest economy in Asia – Japan. Although less obvious, future economic historians may well refer to the decade after the 1997 Asian Financial Crisis as the lost decade for ASEAN. Yes, ASEAN did recover from the Asian financial crisis and achieved moderate economic growth during that decade. And yes, the rapid rise of the two Asian mega-economies -- China and India -- did contribute to the relative decline of ASEAN in the expanding global economic pie. But the fact remains that ASEAN’s productivity had not kept pace with the rest of the world in the decade of 1997-2007. ASEAN is unlikely to have done better in the recent financial crisis years of 2008-09.
Virtually all economists would agree that the slow pace of economic integration and liberalization among the ASEAN member states has been an important contributing factor in preventing ASEAN from realizing its full economic growth potential. Throughout the last decade, intra-ASEAN trade had been at or below one-quarter of total ASEAN trade, much less than in the case of the European Union (about two-thirds among EU25 and over 40% in NAFTA). As global competition continues to intensify, we can only hope that ASEAN policy makers will make up for lost time by speeding up the economic integration process in the next decade.

Table 1 - ASEAN’s weight in the World Economy
ASEAN10’s Share in: 1980 1990 1997 2000 2007
World Population 8.1% 8.29% 8.43% 8.45% 8.46%
World GDP 2.2% 2.9% 3.9% 3.6% 3.8%
World Trade 3.3% 4.4% 6.5% 6.2% 5.8%
World Inward FDI flows 4.9% 6.2% 7.1% 1.7% 3.3%
World Inward FDI stock 2.6% 3.3% 5.5% 4.6% 3.6%

Table 2 Per Capita Income Growth of ASEAN
Compound Annual Growth Rate of Real GDP per capita (PPP)
1980-1990 1990-1997 1997-2007
ASEAN6 - 5.3 2.3
Low income 0.2 0.6 2.9
Lower middle income 3.2 4.2 5.7
Upper middle income 0.1 -0.6 3.1
High income 2.3 1.7 2.0
World 1.4 1.2 2.5
China 7.7 10.2 8.7
India 3.3 3.4 5.5

Sources for both tables: Wong, P.K. and K.K. Ng (2008), “The Competitiveness of ASEAN after the 1997 Asian Financial Crisis”, LKYSPP-ACI Monograph, December 2008

blogging vs. tweeting as forms of explorative vs. exploitative learning

I have taken a leave of absence from blogging for the last 4 months, due partly to heavy work & travel schedule, but also because I wanted to focus on experimenting with tweeting as an alternative way to share ideas and information online. Unlike celebrities who need to feed their fan with their latest happenings constantly, my goal was very modest -- to share ideas or information I found interesting with my network of 500+ or so contacts on Facebook and Linkedin. I arranged for my twitter tweets to be broadcast as updates on my Facebook and Linkedin. I wasn't focused on attracting followers who do not know me.

Based on my limited experience over the last 4 months, I've found tweeting to be particularly useful as a mean to share meta-information (information about information). Tweeting is also good for sharing snippets of interesting ideas as they emerge. Its advantage is that it takes little effort, and hence can be done almost in real-time as you yourself come across the information item or idea. In fact, I've come to rely on it as a handy way to bookmark useful ideas or information items I found on the net for myself -- besides being more readily shared with others, its advantage over conventional bookmarking is that it captures the time and annotated context I found the idea/item of interest.

However, the flip side is that tweeting doesn't quite convey sufficiently the nuances surrounding an idea and the contextual rationale/implications of an information item to those we are sharing the information with. For that, blogging is a better format, where you have more rooms to elaborate on the idea, why you found it interesting, and what inputs you are seeking from others.

Browsing tweets also represents an effective way to quickly scan potentially interesting ideas and information across multiple domains of interest -- by choosing the right mix of people to follow, one can get a good feel of the pulse of any community of interest at any moment in time, and after a while, you get a sense of the flow. There is also a greater chance to encounter the kind of serendipitious learning I talked about in an earlier blog. This is different from following blogs, which require more time commitment and a stronger sense of purpose in terms of the specific kind of subject areas or topics you want to dive more into.

Tweeting and blogging thus nicely typify the difference between explorative vs. exploitative learning that I talked about a while ago. In following others' tweets, I'm in an explorative learning mode, browsing for ideas and meta-information that I might find interesting for myself or my networks. I tend to be more targeted and focused in my information search when I read blogs -- I prefer to focus on a small number of bloggers whom I know have interesting thoughts on specific topics of interest to me. This is more akin to exploitative learning. Likewise, in sharing information via tweeting, I'm sending out thoughts and ideas as they emerge, whereas in blogging, I'm in a more reflective mode, trying to synthesize ideas and thoughts that have been brewing for a while. Tweeting is to width search as Blogging is to depth search.

Of course, for someone in my profession -- academic research, education content development and start-up investing -- blogging is still very much closer to the spontaneous/explorative end in the continuum of intellectual thinking; the bulk of my thinking time remains anchored at the other half of the continuum, where highly focused information search and precisely directed exploitative analysis are essential -- that's how good quality academic journal papers are written, and that's how start-up investing due diligence and post-deal venture development work are carried out.

Explorative and exploitative learning are complementary in the intellectual pursuit of everyone. Having experimented with both blogging and tweeting, I've decided both will be an integral part of what I'll do in the future. It feels good to be back blogging again!

To Innovate, Leave Something to Chance

An old classmate of mine since primary school days has an illustrious career in construction project management. Today, he is the managing director of a leading development company listed on the Malaysian stock exchange. I once asked him what is the single most important success factor in construction project management. "Have a very good checklist, and check it religiously", he said.

What he said resonates with several other experienced project managers I spoke with in other fields such as IT project management and event management. Their common mantra -- if you want flawless execution, leave nothing to chance.

Leave nothing to chance -- this mantra has served Singapore well. Indeed, over the years, Singapore has earned a reputation for efficiency and dependability in project execution. Whether it is physical infrastructure development projects like airport and public transport, or events like the IMF convention or F1, our project planners and managers have done well when it comes to executing according to plan.

But this formula for success is only applicable when you are dealing with projects that have two characteristics -- (1) the end-targets can be well-specified ahead of time, and (2) the means to achieve the targets are also known and well-specified. In other words, you know where exactly you want to go, and you know the available roads and means (transport vehicles, fuels etc) you need to take to get there.

Unfortunately, these conditions do not apply when you are embarking on an innovation journey. When you are trying to innovate, you may know what the end goal is (e.g. kill the cancerous cells but leave normal cells unharmed), but you do not know how to get there; or you may have a fantastic new tool, but don't know what you can do with it. Often, you have incomplete knowledge of both.

Much of the innovation literature tells us that successful innovations often come about serendipitiously, i.e. the innovative ideas are often discovered by accidents and for purposess not originally pursued. Chance encounters and unexpected occurences (accidents) feature prominently as impetus for such innovative breakthroughs as the discovery of penicillin, insulin and viagra and the invention of microwave oven, vulcanized rubber, inkjet printer and paypal, just to name a few. However, this runs counter to the mindset of leaving nothing to chance. In the latter mindset, everything is regimented to achieve the planned tasks at hand, and no wandering out of the defined activities is allowed. The chance of accident has already been minimized by meticulous planning, and even if it still happens, contingent plans have already been specified to get you back on track as quickly as possible.

To improve your chance of coming up with something really innovative, however, you need to do the opposite by leaving something to chance. Allow some time to go on an explorative mode rather than your routine exploitative mode -- i.e. broaden your knowledge search to less familiar territories instead of stomping around familiar grounds . Give your ideas room to mutate by reading and trying things outside your normal routine, and having chance encounters with people you normally do not talk to. And when something unexpected does happen, sit back to ponder what it may mean and explore where it may lead you, rather than hurrying to get back on track with whatever you were originally pursuing.

To leave something to chance, you have to leave some time to chance. One of my favourite quotes is a line I read many years ago in a Princeton University brochure when I was looking for universities to apply. It went something like this -- "There is value to time that has no direction, and that can go in any direction." I have taken to heart this advice over the years.

New opportunities are staring at our face everyday. But most of us are so focused on what we are doing (the rate race...) that we miss seeing them. Are you leaving enough time in your life for chance exploration ?


NOTES

For an enjoyable account of serendipitious discoveries in science, read Royston M. Roberts: Serendipity: Accidental Discoveries in Science. Wiley, 1989.

For a more recent listing of notable serendipitious discoveries and innovations, see the Wikipedia entry on Serendipity.

Exploration vs. exploitation is a central conceptual construct (first introduced by J.G. March) in the innovation management and organization science literatue. If you like to learn more about the distinction between the two modes of innovation and their impact on firm performance, you can read this academic journal article of mine)

Promoting entrepreneurship development in Singapore: Ideas for the Economic Strategies Committee?

As some of you may be aware, the Singapore government has recently established a high-level, inter-ministerial Economic Strategies Committee (ESC) to develop and recommend strategies to grow Singapore’s future as a leading global city in the heart of Asia. You can visit the ESC website to get more details on the composition, scope and objectives of the ESC, which aims to put forward its key recommendations in January 2010 and will release its full report by mid-2010.

One of the sub-committees (Sub-committee 2) set up under the ESC is tasked to look into "Developing A Vibrant SME Sector And Globally Competitive Local Companies". Co-chaired by Mrs. Lim Hwee Hua (Minister in the Prime Minister’s Office and 2nd Minister (Finance and Transport)) and Dr. Ricky Souw (CEO, Sanwa Group and President of Singapore Precision Engineering and Tools Association), this sub-committee will recommend strategies to:

* Develop a vibrant landscape of entrepreneurial activity
* Foster the growth and internationalisation of Local Globally Competitive Companies
* Strengthen synergies between small and large enterprises

The above issues are highly relevant to the future development of the entrepreneurial ecosystem of Singapore. In addition, there are several other ESC sub-committees that may cover issues of relevant interest to the entrepreneurial community, including Sub-committee 1 (Seizing Growth Opportunities), Sub-committee 4 (Growing Knowledge Capital) and Sub-committee 5 (Making Singapore a Leading Global City).

I would like to strongly encourage everyone in the entrepreneurial community of Singapore to contribute your ideas. You can do so directly by going to the online consultation page of the ESC website to submit your suggestions and feedback. If you like to share your ideas with others in the community so as the solicit comments and feedback from others, can I suggest that you also submit your thoughts as a response to this blog post -- hopefully we can then generate a healthy online discussion among the community.

I happened to be involved in a task force set up within NUS to provide inputs to the ESC, and so will be more than happy to not only participate in this online discussion myself, but also to champion some of the best ideas emerging from this online discussion (with appropriate attribution of course) through this channel as well. I look forward to your active contribution !

Exploiting the overlooked market niche -- how about the market for left-handers ?

One of the ways to identify business opportunities is to focus on niche, minority markets that may be overlooked by the big established players who tend to target the mass, mainstream market. One example of a minority market is the market for products designed for left-handed people. Ok, I confess this market is of personal interest to me, as I'm a left-hander myself. Actually, I'm inspired to write this blog because the official International Lef-Handers Day is coming very soon -- August 13 to be exact (that's right, there is actually such a day).

Because lefties account for only about 10-15% of the world's population, most mass consumer products are designed for right handers. While left-hander version do exist, they usually are very hard to find in the mainstream consumer outlets, and usually for high value products only (e.g. golf club, hockey stick, guitars). If you are looking for left-hand scissors, peelers, knives, mugs or can-openers, you will often be out of luck. My own favourite beef is actually the cheque-book that I get from the banks.

I have come across a shop in San Francisco, and one in London, that specializes in goods for left-handers, but I am not aware of any retail shop in Singapore that specializes in this niche market. There are of course quite a few online shops that specialize in left-handed goods, e.g. www.anythingleft-handed.co.uk, thelefthand.com, lefthanded.dk, sinistershop.com, etc but even these are mostly based in the US or Europe, so you incur hefty shipping charges if you are based in most parts of Asia.

Obviously, many of the factors that cause left-handed goods to be more expensive and less efficiently distributed apply to minority products in general -- economy of scale in production, the logic of fast inventory turnover in mass consumer outlets, higher marketing costs to target a niche customer base etc. But clearly, advances in internet and web2.0 marketing technology ought to be able to help improve the market efficiency in matching left-handed consumers with suppliers -- the long-tail argument of Chris Anderson. Notwithstanding some of the online shops I mentioned, I have not really seen this particular long-tail being exploited in most part of Asia though. It may be that, while other minority consumer markets have a higher degree of physical clustering (think of Chinatown in Western societies), left-handers are not geographically concentrated. Or it may be that it is harder to identify and hence target the left-hander consumers, since you can't readily do the segmentation based on the kind of easily available demographic or socio-economic data that marketers capture (when you fill up an application form for any service, they ask you your income and occupation, etc, but did you ever get asked whether you are left or right-handed?).

Still, 10-15% is not exactly a small market segment, so I do believe that there is an under-exploited market opportunity here. Moreover, unlike trying to customize product for other minority market, where you really need to thoroughly understand what features to customize (e.g. color preference, size, packaging) and hence there is considerable product design risk, the cost for customizing product design for the left-handers should be quite low, as it usually involves nothing more than a mirror reflection of the standard product design.

So for the entrepreneurs out there, especially if you are left-handed yourself (or have loved ones who are), why don't you start thinking of ways to exploit this niche market opportunity?

I believe the key challenge is in developing the right marketing strategy. For starters, you could probably target your marketing pitch to parents of young left-handers. During my time, I get punished by some of my primary school teachers for using my left-hand in writing -- that is why I developed stammering as a child, as I was forced to write with my wrong hand for a number of years -- but these days adults are more understanding, and indeed parents with left-handed children (like me -- I have a left-handed daughter, although my son is right-handed) are usually anxious to ensure their children are not handicapped because of their handedness. And in case you do not know, there is no shortage of famous left-handers that you can draw upon for your marketing pitch -- for the artistically inclined, there's Michelangelo, Leonardo Da Vinci, Picasso and Mozart; for the scientist to be, there's Albert Einstein and Marie Curie; for the entrepreneurial, there's Henry Ford, John Rockefeller and of course Bill Gates; and for the politically inclined, there's Julius Ceasar, Napoleon, Alexander the Great and in more recent times, Mahatma Ghandi, Bill Clinton and - yes, Barak Obama. (For those of us who are Singaporean, I'm told that our very own Prime Minister, B.G. Lee, is also a left-hander.)

Do contact me if you know of any interesting venture that targets this niche market opportunity, or if you just want to share with me your own favourite grouses about wrong-handed products.

Silicon Valley-Southeast Asia Entrepreneurial Links

(Note: A slightly abbreviated version of this was published in The Bold Entrepreneur --TIECON 2009 Special Edition (May 2009), p. 16)

Much has been written about the growing entrepreneurial links between Silicon Valley (SV) and Asia. Up until the late 1990s, the links have been mainly one-way – from Asia to SV. A significant reverse flow has developed since then, with many SV-based Asians returning home to start ventures. In addition, the phenomenon of entrepreneurial circulation and cross-continent venturing has also emerged strongly. Many SV-based VCs have also started operations in Asia.

Much of the public media attention on the growing SV-Asia entrepreneurial links has centered on India and China (including Taiwan), and rightly so. Although the overseas diasporas of Southeast Asia – especially Vietnamese and Filipinos -- have already become sizable in SV since the 1990s, the phenomenon of reverse flow of entrepreneurial talents to Southeast Asia remains nascent. Nevertheless, I predict that entrepreneurial links between SV and Southeast Asia will gain much more visibility over the next decade. In particular, I believe that one spot in Southeast Asia – Singapore -- will play a prominent role in this process. This belief stems not only from my on-going research on SV-Asia entrepreneurial links, but is also bolstered by my own personal experience working on the ground, both in my role as the director of entrepreneurship promotion programs in a leading university in Southeast Asia (the National University of Singapore) as well as in my capacity as an angel investor.

Since the beginning of 2000s, the National University of Singapore (NUS) has established a new entity called NUS Enterprise with the mission to inject an entrepreneurial dimension to NUS education and research. An incubation ecosystem has been established to nurture technology spinoffs by NUS professors and students. Besides physical incubation space, we have established several seed-funding schemes to give promising ventures a head-start. A mentoring scheme has also been developed, involving not only local experienced entrepreneurs and investors as mentors, but also a number of mentors who are SV-based.

Since 2001, we have also started a global entrepreneurial immersion learning program. Each year, about 50+ NUS undergraduate students are sent to SV to intern in early-stage high tech start-ups for one year, while taking entrepreneurship courses at Stanford University on a part-time basis. This NUS Overseas College (NOC) program has since been extended to Philadelphia, Shanghai, Stockholm, Bangalore and Beijing.

As a result of the foundation laid by these and other NUS Enterprise programs, as well as various new support schemes for start-ups by the Singapore government, I am now witnessing a growing stream of new start-ups by our NOC returnees, particularly those returning from SV. Some of these have begun to explore expanding their ventures back in SV. Our incubator has also been receiving increasing enquiries from SV-based ventures to start their Asian operations in Singapore.

As an angel investor and the founding chairman of Business Angel Network Southeast Asia (BANSEA), I am also seeing a growing number of business plans coming from outside Southeast Asia, including from North America. Personally, I have invested in a SV-based venture several years ago to help it establish its Asian regional headquarter in Singapore, and am finalizing a second such deal.

As the saying goes, the best way to predict the future is to create it. I look forward to the opportunity to work with the entrepreneurial community in SV to build stronger links with Southeast Asia.

The virtue of diversity

It's been a few months since I last blogged. This is partly deliberate, as I tried to experiment with diversifying the media channels to share my ideas. Besides the usual academic journals and conferences that I continue to pursue as an integral part of my day job as a professor in NUS, I have gone back to writing for the traditional print broadcast media (2 articles in the local newspapers & 2 in niche overseas magazines), done 2 overseas radio interviews, taken on more overseas speaking engagements than perhaps I should have (Hong Kong, Paris, Penang and Barcelona...), tried a couple of international webinars, and dabbled in more social networking sites (besides Linkedin, I've added Facebook, Academia, and Twitter).

In reflecting on my experiment with diversifying media outlets over the last few months, I came to 3 basic conclusions. First, different media are good for different purposes, so maintaining a mix of media presence is necessary. The local dailies remain the most effective in local reach; I have acquaintances whom I haven't been in touch for years contacting me after reading my articles in the local newspapers. Face-to-face speaking engagements are still the best mechanisms for reaching new, high power contacts; I not only generated a number of instant consulting/ collaboration invitations from these, but a steady stream of referrals as well. Social networking sites are good for consolidating prior contacts, although not that good for generating new ones.

Second, the diverse channels do have complementary effects. People who met me face-to-face at my speaking engagements subsequently visited my Linkedin homepage and asked to be connected. People who read my newspaper articles searched and downloaded my academic publications online.

Last, but not least, openness to exploring diverse channels is important to develop the kind of novel learning & discovery experiences that lead to what Johansson has aptly called the intersection ideas in his book, The Medici Effect. Basically, intersection ideas are novel ideas that emerge from combining and synthesizing ideas from diverse & unconnected sources, vs. directional ideas that incrementally refine or extend existing ideas within a single field or paradigm. As he persuasively argued in his book, truly radical innovations tend to come from intersectional ideas, not directional ideas.

Some of the more intriguing ideas I have generated over the last few months have emerged from the less common channels I experimented with. For example, I spoke in April at a World Bank-INSEAD forum in Fontainebleau (near Paris) which was primarily targeted at innovation policy makers & practitioners from the former Soviet Union. Although I had spoken in Estonia, Hungary and the Czech Republic and lectured senior Kazakhstan officials before, I claim no real expertise in these transitional economies, and had no intention to do research or make angel investment there. I was amazed, however, to find people from some of these economies who have actually read my stuff, and one of them raised interesting questions that gave me new thoughts about the role of entrepreneurship in economic development. The interactions also convinced me how important Russia is, even though no one from Russia was even there. Two serendipitous outcome emerged: one, I now have Moscow as one of the dots I plan to connect in the near future, and two, I'm now doing new research on the role of entrepreneurs as differentiation agents in complexity economics.

The bottom-line, then, is that if you want to have an innovative edge in what you do, try pursuing diversity of information channels. Explore more dots. You may be surprised by the connections that can emerge.