West needs to regain competitiveness
Recent global developments such as turbulent financial markets, problematic fiscal management in the U.S., the near bankruptcy of Southern Europe, and riots in the U.K. have showcased one trend: the West is in trouble. Three key problem areas need attention by business leaders, politicians and educators.
Lack of competitiveness
Western society has lost its performance
Western education no longer challenges students’ performance and behavior. There is less discipline with teachers being prevented from reprimanding student misbehavior and poor performance. Contrast this to Asia where emerging economies such as China, Korea and Singapore put great emphasis on performance, discipline and respect in their education system, subsequently peak performing in international student competitions such as the Program for International Student Assessment (PISA). Shanghai (China) is first and Korea second, in contrast to Greece 32nd and Italy 29th. The Confucian-based education approach has made the young in East Asia academically strong, ready for a competitive world.
Western education’s reduced focus on competitiveness is reflected in a shift of economic power to Asia. The manufacturing of cars, ships and electronics has long moved to China, Japan and Korea; services Western businesses rely on, such as research, technical support and customer service are often “produced” in India. Western companies such as Motorola, Nokia and Siemens once had pioneering roles in the cell phone sector, but that has been lost to Korean, Taiwanese and Chinese companies like LG, Samsung, HTC and Huawei.
The West losing brand dominance and jobs stands in sharp contrast to Korea's top brands such as LG, Samsung and Hyundai/Kia for example, which have gained global market share as market leaders in their categories. The rise of Eastern brands has been swift, with Samsung climbing from 42nd on the Best Global Brand’s ranking in 2001, to 19th last year, managing the global recession without cutting jobs in the thousands like HP, Intel and Nokia.
Asian brands also outperform Western service providers. Skytrax has awarded only Asian airlines their highest five-star rating, with companies including Asiana, Singapore Airlines and Cathay Pacific generating strong competitive advantages with a penetrative service orientation. Hospitality in combination with a rich history and culture has triggered the Korean wave, or hallyu, growing Korea into an attractive tourist destination. China has been projected to become the world’s largest tourist country.
In contrast, Western travel brands like American, United and U.S. Airways lag far behind with only three Skytrax stars due to lackluster service and comfort. The West has, by and large, lost some of its competitive edge, while East Asia peak performs.
Self-serve shop democracy
Politicians are voted in (and out) by the people. So politicians have to please their voters and offer what voters want rather than what they need. Substantial social welfare programs have been implemented to capture voters’ emotions, but are reducing competitiveness. European problem countries Greece, Spain and Italy spent more than 20 percent of their GDP on welfare programs in 2007, the U.S. spent 16.2 percent, but in contrast Korea managed on a mere 7.6 percent, and China spent even less. Not constrained by voters’ pressures, China can focus on growing its economy, improving infrastructure, and developing into a global key player.
Asia’s strong focus on economic progression and infrastructure upgrades is best reflected in its airports, such as Incheon International Airport, Singapore’s Changi and Hong Kong, where state-of-the-art technology and comfort make them attractive hubs, generating travel and business. More basic infrastructure projects such as transportation and water also demonstrate China’s focus on investment for the future with the U.S. spending 2.4 percent of its GDP on infrastructure in 2011 whilst China was investing almost quadruple that amount, at 9 percent.
Private and public consumption and savings behavior
The Chinese and Koreans consume based on their means and income, not based on borrowing as is the case in the U.S., with the Chinese saving almost a third of their income. Before the recession, Americans were only saving 0.5 percent of their income, and although that rate has risen to 5 percent, it is still significantly less than the Chinese. The East Asian principle of frugality is also reflected in the public service management in China and Korea, with governments maintaining debt to GDP of roughly 20 percent and 30 percent respectively. In contrast, the U.S. and Southern European governments have heavily overspent for questionable wars, social welfare programs and stimulus packages, spending themselves into debt beyond what they are easily capable of repaying. Greece’s debt amounts to over 150 percent of its annual GDP, and the U.S.’s reached 100 percent of GDP last month.
The debates in the U.S. and in Europe on the severe budgeting problems excluded strategies on increasing competitiveness, managing political processes more effectively, and realistically restraining public spending. American politicians call for job creation, not realizing that jobs can only be created if investors perceive the level of competitiveness and productivity to be on equal footing with the new Asian powerhouses.
While the West frantically discusses bailouts of companies and countries (Ireland, Portugal, Italy and Greece), the Asian region (China, Korea and Singapore) focuses on performance in education, society and business activities rather than on redistributing income and wealth.
The Chinese and Korean governments are investing heavily in their education systems, with Korea spending 15.8 percent of its total government spending on education in 2008, whilst Greece spent a mere 9.2 percent in 2005, before the economic downturn. East Asia is further investing in, and upgrading their education and infrastructure, preparing the region for continued economic progression.
Dr. Chris Baumann is a senior lecturer at Macquarie University in Sydney, Australia. He is a visiting professor at the University of Aarhus in Denmark, and has research collaboration with Simon Fraser University (Canada) and Seoul National University (Korea). Dr. Hamin is a lecturer in business at Macquarie University where he teaches business forecasting and marketing research. His research interests include country of origin effects, customer loyalty and structural equation modeling.