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Monday, Feb. 25, 2002

Possible global meltdown 'frightening'

The final session of the London Business School economic forum considered the recovery of the global economy. In her opening statement, Noriko Hama, research director at Mitsubishi Research Institute Inc., said, "We might just as well be talking about no recovery of the global economy.

News photo
Noriko Hama

"Once the going gets bad, the linkage becomes very bad as it is a case of everyone going down on each other's coat-tails," she said. "It is a very frightening prospect indeed.

"We are probably going to come out of the present dire straits as inventory cycles tend to correct themselves in 13 or 14 months," she said. "However, I don't think this cyclical aspect is the fundamental issue. I think the more relevant question is the recovery of the global economy."

Hama characterized global economic activity as a triangle whose three sides are made up of growth (in the form of employment creation), competition ("survival of the fittest") and distribution (or "refuge of the weakest.")

"If those three coexist on equal terms and with some momentum and form a perfect triangle then we're living in an ideal set of economic circumstances," she said.

The triangle that exists at present, however, cannot make up its mind which is more important, competition or distribution, and if two sides are in contradiction there is no triangle and the global economy will implode -- which is a more frightening prospect than no economic recovery, she said.

So is is possible to have growth without disparity and prosperity without equality? she asked. "Intuitively," she said, "the answer is no as we need to have competition and distribution if we are to have a growing economy."

The trick, she said, is to create a world that would not be traumatized by trying to reconcile this problem and we ought to discard the notion of the global standard if we want to build the perfect triangle.

The result is a state of diversity and competition far more intense than the latter days of the 20th century.

In terms of state economies, she said, "The smaller and more open the economies, the better equipped they are to survive. The very large and very closed find it very hard. One example of this is Japan, which must become more open."

News photo
George Yip

Professor George Yip, of the London Business School, expressed a good deal more optimism than Hama, saying there are clearly challenges to the Japanese business system, but that the country is moving "from Japan Inc. to cyber-Japan," meaning that the application of new technology can revive Japanese companies.

The new economy, he said, is made up of two old concepts that were previously not compatible; firms either used to have reach, meaning access to large numbers of customers, or richness, defined as a good relationship with a small number of customers. Now, however, now a firm can generate both by utilizing the Internet, which "has fundamentally altered what they can do," he said.

The new economy has also changed the character of its predecessor through disintermediation, deconstruction and faster competition, while universal direct communications now mean entities all have direct links with each other.

In Japan's case, he said, the keiretsu system ensured a business a critical mass of loyal customers, but this has changed -- for the better -- with the arrival of IT, an increasingly symbiotic relationship and pervasive marketing.

Yip identified three types of Japanese company that will benefit from these changes as "netbatsu," such as NTT DoCoMo, "kaisha" such as Toshiba and Sony, and keiretsu, including Mitsubishi and Sumitomo.

"NTT DoCoMo has a lot of reach and has leveraged its keiretsu position for partners," he said. "In terms of richness, it has grasped the market, disintermediation means it deals directly with the customers and in terms of speed of competition, it acts less like a telecommunications firm and more like an advertising firm."

That is not to say Japanese firms face no difficulties evolving to meet future challenges, he said. The English-language barrier remains, there is the problem of overlaying new cyber-platforms on existing systems, and managing customer relations and services online needs to be improved.

"Japanese firms need to develop the Web equivalent of the bow," he concluded.



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