THE Pacific : Financial Services: an Untapped Market in Asia : Great Opportunities Await U.S. Firms if They Are Patient, Economist Says

During a shopping trip at a South Korean department store, Sung Won Sohn was offered a 15% discount if he would use a credit card to pay for his purchases.

Back in the United States, economist Sohn noted, the norm is to offer discounts for cash purchases, not for pulling out the plastic. And that difference says something fundamental about the financial services industries of the United States and Pacific Rim countries.

In short, the United States has a highly developed financial services industry and most of the Pacific Rim nations don’t have much of one, said Sohn, senior vice president and chief economist of Norwest Corp., a Minneapolis-based financial services firm. The Korean department store was trying to stimulate use of credit cards in a country not known for a “charge it” mentality.

“Still, you’re talking about pretty much a cash society,” Sohn said.

The rudimentary nature of Pacific Rim financial services offers great opportunities for U.S. firms if the foreign governments continue to lower trade barriers, the South Korean native said. But at the same time, U.S. financial firms must be willing to lose money at first and to learn to do business the Asian way.

Further challenges lie ahead, he said, because Pacific Rim countries will begin to trade more with each other and with Europe, and less with the United States.

In contrast with the high level of manufacturing technology enjoyed by many Pacific Rim nations, “when it comes to financial technology, they’re pretty far behind. I’m talking 30, 40, 50 years behind,” Sohn said, adding that Japan is by far the most advanced in financial services but still lags the United States.

Can Sell Services

Mutual funds, options, credit cards and even mortgage loans are virtually unknown or little used by many Pacific Rim consumers, he said. The primary investments in those countries are local banks, which pay very low interest rates on savings, and the local stock markets--which helps explain why the stock markets in Japan, Taiwan, South Korea, Hong Kong and Singapore have shaken off any effects of the U.S. market crash in October and have risen sharply this year, he said.

“We’re not going to sell television sets to Japan or VCRs to Korea or microwaves to Taiwan,” Sohn said. “We can sell financial services.”

But so far, many foreign governments have blocked much trading in financial services.

“They feel we’re so far ahead and they’re so far behind that if they lower the walls, they’ll be swallowed up. That is their fear,” he said.

South Korea last year reluctantly allowed U.S. life insurance companies to enter that country, but only as a joint venture with majority ownership by Koreans, he said.

Aetna is interested in selling life insurance in South Korea but is still trying to get its license to do business there, as are other U.S. insurers, Aetna spokesman Gary Flynn said.

Other barriers will eventually fall in South Korea and other Pacific Rim countries.

“I think they will gradually open financial markets but they’re going to do it kicking and screaming,” Sohn said. It will be in these countries’ own interest to do so, because to become world financial powers “they have to play the game not only in the manufacturing arena but in the financial services arena.”

Psychological Barriers

That doesn’t mean that U.S. companies will find a sudden gold mine in the Pacific Rim.

“I see a great deal of opportunities for American firms doing business over there, but I’m not sure how successful we’re going to be,” Sohn said. “Most important for us is not so much the government restrictions but the psychological barriers.”

U.S. companies looking for quick profits will be disappointed, he said.

U.S. firms should begin investing now “and plan to lose money for the next five years and get to know people,” Sohn said. “Profit is important, but in the short run what supersedes it is building trust.

“I know there are products to sell, but how successful we are depends on how well we understand the Oriental psychology, the Oriental way of doing business,” he said. “A lot of Americans are pretty poor at that.”

The future will bring more trade among Pacific Rim countries and between those countries and Europe. That will mean less trade with the United States, he said.

One reason is that the declining strength of the dollar relative to many Pacific Rim currencies means “they’ve gotten richer and the United States has gotten poorer,” Sohn said. “It’s like a magnet. You go where the money is.”