In an Asia in Crisis, U.S. Firms Find Opportunities
It wasn’t long ago that David Beatson’s Asian competitors were flush with cash and flaunting their ambitions of global glory. Now, his San Francisco-based freight company has bought control of one of them and doubled his business.
For a fast-growing number of U.S. companies, that’s the silver lining in the Asian financial crisis--one that holds the prospect of dramatic long-term changes in Asia’s connections to the rest of the world.
For U.S. firms convinced that Asia’s battered economies will eventually regain their footing, the meltdown--brutal as it is--has created a wealth of opportunities as weakened currencies drive down prices and beleaguered Asian governments invite foreigners into their economies.
Little hard data exist to document the flow of U.S. capital investment into Asia, but where statistics are available--for example, a 34% surge in South Korea this year--they are impressive. So is the anecdotal evidence.
This trend could certainly be reversed if the global turmoil that followed Russia’s collapse takes a bigger bite out of U.S. and European companies, or if more Asian countries follow Malaysia’s lead in throwing up barriers to the movement of capital or goods. There is already resentment against foreign inroads in Asia, and that could worsen.
But Asia’s downturn has paved the way for what could be the modern-day equivalent of Commodore Matthew Perry’s historic 1853 visit to Japan, which led to that nation’s isolationist rulers opening their ports to Western traders.
“People with the longest time horizon and the deepest pockets are being given a once-in-a-generation opportunity,” said Donald Straszheim, president of the Santa Monica-based Milken Institute and former chief economist at Merrill Lynch & Co. “The business and financial and economic landscape in Asia is changing now, probably more and faster than any time in the last quarter-century.”
In this case, it is foreign lenders who are pressuring Asian governments to speed the opening of lucrative areas such as finance and telecommunications that have historically been controlled by the government or powerful domestic firms.
The financial pressures are also accelerating a global trend toward consolidation as Asian companies are forced to take on foreign partners.
By buying up or partnering with Asian firms desperate for capital and technology, U.S. companies are gaining entry to long-protected markets, getting access to distribution networks and creating a low-cost manufacturing base at rock-bottom prices.
Though concerns remain that this Asian buying spree could provoke a nationalist backlash as rising prices and mounting unemployment take their toll, Asian officials are aggressively marketing potential projects overseas and promising future wealth to those willing to ride out the rough times ahead.
“U.S. companies committed to staying in Asia can expect to reap great rewards,” Barry Desker, chief executive of the Singapore Trade Development Board, told a group of Orange County business leaders earlier this month.
Some U.S. Companies Have Failed in Efforts
There have been high-profile failures.
Last month, Ford Motor Co. dropped out of the bidding for South Korea’s bankrupt Kia Motors Co. after the firm’s creditors balked at writing off debts that totaled about $10 billion.
Many deals have fallen through because shellshocked Asians are reluctant to drop their prices low enough to satisfy Western purchasers.
On Wednesday, Hanwha Group, one of South Korea’s largest conglomerates, canceled the sale of its power-generating and refinery unit to AES Corp., an Arlington, Va., firm. The two sides said they could not reach an agreement on the terms of the $874-million deal.
“The biggest difficulty coming into this market is pricing,” said Jeffrey Jones, an attorney and president of the American Chamber of Commerce in Seoul.
But out of the limelight, U.S. firms are expanding their operations in Asia with strategic investments in such areas as maintenance, distribution and retail networks, and finance--fields in which local firms have long had the advantage because of their close government ties, knowledge of the local business network or protectionist barriers.
Access to these areas--the relationship-based businesses that are a key link between the producer and the consumer--has traditionally presented the toughest obstacles for foreign firms and been the bane of U.S. trade negotiators for decades.
Foreign investors poured $3.7 billion into South Korea during the first seven months of this year, a 34% jump over the previous year. Most of those funds came from blue-chip firms such as Procter & Gamble Co., Hewlett-Packard Co. and Seagram Co. expanding their presence by taking over troubled local firms or subsidiaries of heavily indebted domestic conglomerates.
U.S. heavyweight General Electric Co. is on a buying spree. So far this year, General Electric’s financial subsidiary, G.E. Capital, has acquired the consumer finance business of Japan’s Lake Corp. and formed a joint-venture life insurance firm with Toho Mutual of Japan.
“Anybody looking ahead at the size of the market in Asia can see that this is certainly a place you want to be,” said Bruce Bunch, a G.E. spokesman.
Asia’s sharp decline in air traffic has forced even the most efficient government-owned airlines to cut costs and find new sources of cash.
Heavily indebted Philippine Airlines Inc., Asia’s oldest airline, was forced to close its doors last week. Northwest Airlines Corp. has been reported as a possible buyer.
Asian airlines are looking for other ways to raise money. This has led to a spate of joint ventures between airlines and foreign engine makers seeking entrance to Asia’s aircraft maintenance business, which is expected to grow as airlines are forced to keep their planes longer.
Already this year, G.E. Aircraft Engines has created joint-venture maintenance companies with Eva Airways of Taiwan and Malaysian Airline Services, and Pratt & Whitney has formed a joint venture with Singapore Airlines to offer a similar service.
U.S. Subcontractors Benefit as Well
This has been a boon to U.S. subcontractors as well.
Bill Robinson, regional sales manager for Advanced Ground Systems Engineering Corp., expects his firm’s business in Asia to double this year. The Anaheim company, a manufacturer of engine maintenance equipment, is a major supplier to U.S. engine companies.
Buying out local competitors is an increasingly popular way of gaining market share in Asia.
Earlier this year, San Francisco executive Beatson, president and chief executive of Circle International Group Inc., bought control of Singapore-based Concord Express and its logistics arm, CE Logistics, for an undisclosed price.
Overnight, Beatson’s freight-forwarding firm doubled its volume in Southeast Asia’s most important transshipment point and gained access to Concord’s large high-tech customer base.
“Five years ago, these [Asian] companies were fiercely independent and did not want to be acquired,” Beatson explained. “Today, they are not only interested but are seeking out partners like us.”
As recession cuts into sales of products from such luxury manufacturers as Gucci, Armani and Mercedes-Benz, discounters such as Wal-Mart Stores Inc. and Costco Inc. are exploiting Asia’s new cost-consciousness by buying warehouse stores in South Korea.
U.S. firms are especially scouring Asia for companies with strong distributor networks because the region’s vast geography and cultural diversity have posed a huge hurdle for Western firms.
In December, Ingram Micro Inc., a giant Santa Ana-based computer products distributor, bought 21% of Singapore-based Electronic Resources Ltd., one of Asia’s largest computer product distributors.
That investment gave Ingram access to a distribution network in 10 Asian countries, notably China and India. It’s a good thing: One of Ingram’s chief competitors, CHS Electronics Inc. of Miami, has made similar inroads.
“We’re constantly looking at expanding our role in Asia,” said Kirsten Frosh, an Ingram spokeswoman.
* BIG BANKRUPTCY IN JAPAN
A leasing firm made a $17.9-billion bankruptcy filing, the biggest in Japan’s history. D1
