9th annual Asian Business Conference

C.K. Prahalad delivers riveting keynote address

by Brian L. Goldstein, MA2 Chinese Studies

blgoldst@umich.edu

The 9th Asian Business Conference, held January 28-29, 1999 at the University of Michigan Business School, opened to a standing-room only keynote address by C.K. Prahalad. Over 600 people filled Hale Auditorium to hear Professor Prahalad, the Harvey C. Fruehauf Professor of Business Administration and Professor of Corporate Strategy and International Business, discuss prospects for recovery in Asia. The conference continued Friday with a plenary session featuring two distinguished experts on Korea and Indonesia, and then eight subsequent panel discussions on regional and functional issues facing Asian Business today (please see related articles).

Frank K. Chong, chairman of the conference, and UMBS Dean B. Joseph White offered introductory remarks to Professor Prahalad's talk. His keynote address, titled "Asia Crisis: Robust Inside and Weak Outside?" offered a broad interpretation of the Asian crisis. Professor Prahalad argued that massive industrial restructuring is required in Asia to recover from and move forward after the crisis. He pointed out that in India, all large groups are already restructuring.

In East Asian countries like Korea, there is a need to break the bonds between government and business groups, between government and financial institutions, and between business groups and financial institutions. Governments should focus on "building the institutions of capitalism", financial institutions need to recognize non-performing assets, restructure, merge and impose credit discipline, while business groups need to focus their activities, restructure via mergers and acquisitions, and enhance transparency and financial performance.

What stands in the way of such change is family control and the "egos" of family-based owners and managers. Professor Prahalad believes that countries with a small ratio of family-owned enterprises to GDP, like India, where it is 5%, are less likely to resist restructuring than those with a high ratio of family business to GDP, like Korea, where it is 50-60% (quoting figures from an A.T. Kearney study). Corporate governance is the place to start, with a transformation of the investor-manager relationship to strengthen investor rights and managementís accountability and performance orientation.

According to Professor Prahalad, family business is fine if business families do not use government and financial institutions to get privileged access to capital, and if they behave as if they are publicly-owned. He pointed out that the "private 500" are a major force in the U.S. economy, and can even be a global force, like Cargill. But the conglomerates which are often favored by family businesses are "out". Among conglomerates, however, he noted that Samsung (Korea) and GE (US) are both $90 billion businesses, but Samsung's operating margin as a percentage of sales is only 16%, compared with GE's 44%, while its debt-equity ratio is 5, compared with GE's 0.2.

Prof. Prahalad seemed to be ambivalent about the role of multinationals in the process of Asian industrial restructuring. At one point he said that "change cannot happen without active participation by multinationals" and that opposition to multinationals would retard necessary restructuring. At another point, he said that "dependence on multinationals slows down change rather than accelerates it". He particularly disparaged the dependence of Southeast Asian countries on export-oriented manufacturing, while praising the ability of India and China to "have world-scale plants within a single national market" and, in the case of India, remaining fairly closed and not integrated into the world economy.

Prahalad concluded by saying that reform in Asia should begin with the adoption of American accounting rules, and that the driving forces for corporate governance reforms were the IMF and foreign financial institutions.

Following Prahalad's keynote address and reception on Thursday, January 29, 1999, over 50 conference speakers, moderators, and student organizers adjourned to the speakers-sponsors dinner at L'Escoffier, sponsored by A.T. Kearney. Professor Prahalad, his excellency Dorodjatun Kuntjoro-Jakti (Indonesian ambassador to the United States), Dean White, and Dr. Suk-Chae Lee were among the many panelists who dined with students, conference sponsors, and returning Alumni.

The annual Asian Business Conference is the largest student-organized event at the University of Michigan Business School, with over 40 students from five different degree programs planning year-round. Essential to the success of the conference is the advice of University faculty and their participation as panel moderators. Professor Linda Lim further generously offers her time as faculty advisor to the conference.

The non-profit conference is funded through sponsorship from University organizations as well through corporate contributions. This year the conference platinum level contributors included the Asian Wall Street Journal ­ Weekly Edition, the Far Eastern Economic Review, A.T. Kearney, and PricewaterhouseCoopers. Several dozen local corporate guests support the event through paid attendance as well.

This year's conference organizers included chairman Frank K. Chong (MBA2/MA China Studies), Program Director Mark A. Guthrie (MBA1/MA Southeast Asia), Operations Director Daryl C. Wong (MBA2), Marketing Director Brian L. Goldstein (MA2-China Studies), and Finance Director Yi Man Anita Man (BBA2). The student organizers celebrated a successful conference at a post-conference bash at Kai Garden.

Please look forward to the 10th Asian Business Conference and reference the conference website at www.umich.edu/~asiabus for further information.