The sight of a Japanese businessman crying on TV sums up the local impact of the turmoil in the markets of southeast Asia. But British economies are not yet ready to write off the tiger economies.
Jonathan Symonds, finance director at drugs company Zeneca, sees two key effects rippling out from the Asian crisis: the first impacting UK corporates, and the second affecting the UK economy as a whole.
“The primary effect is the potential loss of business in the region and the potential impact of that when translated into sterling,” says Symonds.
“Most multinational businesses are looking for disproportionate amounts of growth coming from the region, so they will have to make up that growth shortfall in other markets.” Zeneca for one will not be taking the hit lying down, but will take steps to make up ground elsewhere. Symonds expects other companies to do the same and look around at other regions. “There will be an intensification of competition in other markets and so there could be price erosion,” Symonds warns.
He believes Europe and North America, the “traditional markets”, will emerge as the prime focus for the displaced competition, though Latin America could also take a share.
The second major repercussion from Asia that Symonds foresees is the knock-on effect for UK plc. “We are already seeing reduced investment into the UK,” he says, pointing to the large amounts of inward investment in terms of production plants that have come to the UK from countries such as Japan and Korea. “We have already seen projects from that part of the world put on hold,” he says. “So for the UK economy, there has to be some reduction in growth. The same is happening in the US with the drying up of Asian investment funds.”
Most companies are keen to talk down the impact the southeast Asia crisis could have on their own performance.
A Cable & Wireless spokesman said the group’s only major interest in the region, Hong Kong Telecom, had a “very good record of trading well through economic downturns”. A spokesman for ICI said that the chemical giant’s exposure in the region was relatively limited as a result of restructuring and probably made up less than 10% of sales. He added, on a note verging on the optimistic, that growth in the region, though slower, would continue. “Growth in Asia and the merits of investing in southeast Asia haven’t gone away,” he says.
His optimism may be justified, given the findings of a report by UK investment bank Robert Fleming last month, looking at cross-border mergers and takeovers with a value over $50m completed in 1997. Though fewer Asian companies bought each other up, the value of deals by western companies increased in the second half of 1996 to $6.2bn, up from $5.7bn in the first six months of the year.
The low valuations placed on many Asian companies appear to be tempting UK multinationals to bargain hunt in the region. The southeast Asian cloud may have a silver lining after all.
Sarah Perrin is a freelance journalist.
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