Discuss how the effective mechanisms for managing business government relations vary across three emerging economics: China, India, and Indonesia.

(a) When a company is doing business in one emerging economy, it should take a lot of factors affecting its success into consideration. One of the most critical factors is business government relationship. However, it is not easy to manage business government relations because effective mechanisms for managing the relations vary across different nations due to the heterogeneity across various Asian economies. Business Culture In general, there are a lot of similarities among business cultures of China, India, and Indonesia. All these three countries follow every strict hierarchy, and highest level people are the only decision makers. Governments in these three countries are strong enough to dominate business and judge its success or failure. The necessity of a successful business is gaining trust with government. Therefore, company must indicate its honesty, respect and outstanding business sense to obtain trust, familiarity and tight relations with government. In China, there is one specific term describing this situation: Guanxi. Network and contacts with government are not only critical to make business contract and deals, but also necessary to keep business moving smoothly and peacefully. Giving gifts is acceptable in these three countries, but there are still some differences and taboos. Alcohol is avoided when the gift is given to an Indonesian official because Islam cannot touch it. Compared to Indian and Indonesian, Chinese especially emphasize giving gift and believe them positive and favorable. However, people in India should be cautious when they are giving gifts because it is regarded as bribery. In china, government officials are very direct in communication, showing their commands and concerns very straightforwardly. However, Indian or Indonesian officials never articulate their meanings. As a smart business man, one must learn how to feel, understand or even forecast by surveying officials’ body language and expression. Therefore, it is tougher to connect with government officials in India and Indonesia. Compared with Indian, Indonesian and Chinese always avert straight argument instead of dealing with issues directly. Therefore, people who do business there should avoid pushing government to the corner when they are negotiating. Political Institutions China Chinese activated political reform from 70s of the last century and the reform contributed to a unique style of decentralization. It transformed Chinese business community and subsequently effects of accelerated competition, and emphasis on local economic prosperity and governments’ protection on local enterprises against foreign ones. China is dominated only by one party, the communist party of china, which is so powerful in decision making and policy designing. Besides, Chinese government is skillful in controlling media and public to block information distribution. Therefore, companies must be extremely careful when they are doing businesses with Chinese government, and they should also handle the relationship with competitors which are supported by government well to survive the market. Google is a vivid representative of miserable actors. They had to cease their operation in mainland China because they are not able to abide with many government regulations and Chinese government wants to cement Baidu’s monopoly in China. India The politics of India takes place within the framework of a federal constitutional republic. The President of India is head of state and the Prime Minister of India is the head of government. India’s government has been democratic from 1947. From that time, India has a federal system which initiated a powerful centralized government and facilitated the concentration of power in the Prime Minister’s office. Huge amounts of controversies, conflicts and political tension happened due to the centralization of power. Outraged by the centralization of power, populist political appeals weakened government institutions. Compared to China’s situation, it is possible to upload pressure on government by corporate lobbying, and companies doing business in India may have more bargaining power as compared to Chinese companies. Many issues exist in the Indian democratic form of governance. India has a multi-party system, and it is difficult in operating industrial or business reforms because thinking of each party are quite differentiated. Therefore, it is necessary to know about the specific party’s preferences when enterprises’ businesses are related to this party. Enterprises should also avoid offending other parties when they are getting intimate to one party for their businesses. Indonesia After its independence from the Netherland, Indonesia converted itself from a democracy to an authoritarian government. Politics of Indonesia takes place in a framework of a presidential representative democratic republic, whereby the President of Indonesia is both head of state and head of government, and of a multi-party system. Indonesia’s politics are instable. Corruption in Indonesia is very serious and legal problems such as terrorism and civil unrest are also sharp. As a result, the progress in the rear part of 20th century was very slow. However, some political reforms have taken place recently and have obtained favorable results. The unstable politics have been controlled and legal problems don’t happen as frequently as before. But the government is still authoritarian one and has extreme power in controlling everything. Therefore, enterprises must follow government’s instructions or even commands in order to survive the market. Economic China Before 1978, China was largely closed to international trade. But after the reform and opening up policy, China’s economy has changed itself to a market oriented economy with rapid growing private and its economy constantly skyrocket and break record frequently. Its GDP increases to be the second-largest economy in the word. However, it is also obvious and serious that economic development is unbalanced in China. The economic development in coastal provinces is much rapid than other regions, and economy of western areas are not satisfactory. Besides, about 200 million rural labors have immigrated to urban areas to find job, more or less causing unbalanced allocation of human resources. The “One Child Policy” causes China to be one of the most rapidly aging countries worldwide. Enterprises which invest in second-tier or third-tier cities are always recommended by government. In order to shorten the relationship with government, many enterprises donate partial of their profit to government as reward. Some enterprises also focus on Corporate Social Responsibilities by investing in projects of rural areas. India India has one of the most diversified economy covering village farming, modern industries, agriculture, services and so on. Among them, services have been major source of economic growth. Compared to services industry, agriculture occupies more work force, and about 3/5 of the workforce belongs to agriculture, directly forcing the government to adopt an economic reform program including developing basic infrastructure to boost economic performance. Indian government once controlled foreign trade and investment strictly, but now it obviously relieves its control on that. However, higher limits on foreign direct investment were permitted in some key sectors including telecommunications and so on. Indian economy keeps an average growth rate of over 7% during about one decade since 1997 and the growth rate elevated to 8-9% in the last several years. In the meanwhile, poverty, the most painstaking problem to the government, has reduced by approximately 10%. India has great resources of well-educated people skilled in Computer science and English. However, too many exports of talents also frustrate government so much because lost of talents may suffer the country’s economy. Besides, high unemployment constantly suffered government so much. Enterprises concentrating on hiring local employees are always supported by government. Indonesia Indonesia’s economy is a market-based one and its government plays a critical role in its economy. Indonesia has over one hundred state-owned enterprises, and the government has undeniable authority in pricing basic goods, such as fuel, rice, electricity and so on. Although Indonesia’s economy was bad in last century, its economic indicators are recently satisfactory. Compared with what Indonesia before, current macro-economic indicators and political stability have been improved although its FDI is not high. Its debt-to-GDP ratio has been steadily declining, its foreign exchange rate is high, and its stock market is always one of the strongest in the world. Besides, the government has adopted effective and significant reforms in financial sector for sustainable economic development. However, there are still a lot of drawbacks which may lag Indonesia’s economy down. The country is suffered by poverty, unemployment, inadequate infrastructure, corruption, complex regulatory environment and unbalanced distribution of resources among regions. Although the bank financial sector is strong, the non-bank financial sector such as insurance and pension funds are still weak, and capital markets are underdeveloped. (b) For each of these three economies, discuss how the “optimal” mechanisms for managing business-government ties might have changed over time. The economic, cultural and political institutions of China, India and Indonesia vary overtime. Accordingly, mechanisms for managing business-government ties also changed. India TATA is the most famous representative of Indian family business which started by establishing textile, iron and steel industry. Before India got freedom, Indian government praised TATA and encouraged enterprises to operate like TATA. After the freedom, the Indian government converted itself to be democratic socialism but scales of private sector are not quite different. Although private sector was not quite accepted by government, big business houses were silently accommodated because they supported political leader during the freedom battle. Big business houses and government realized perfect mutual benefits and understanding during that period. For example, businessmen became considerate when government asked businessmen to be understanding when they became restive because the terms of industrial policy resolution was unfavorable to them initially. After the reform of government, the government adopted a lot of policies and instructions to control the order of national economy. They designed “license raj” to elaborate regulation and principles in setting up and running businesses in India. But this policy caused some side effect, and it subsequently generated monopolies. Corruption became increasingly serious because the business houses bribe government officials with money for more relaxed and favorable policies specifically for them. It was almost impossible for a new enterprise to get license although they were qualified. Corruption skyrocketed to its perk in India and government officials collected money from enterprises at the cost of the prosperity of economy and country. Although constitution promised equal and fair allocation of resources and wealth, the reality was that polarization became more serious. “License raj” also controlled production capacities and in turn ceased the economics of scales of enterprises. Many businesses suffered by this policy. In order to fight against the government, many enterprises began to pressurize the government by gathering funds for new demanding groups. Before that only FICCI (Federation of Indian Chamber of Commerce and Industries) was active in pressurizing the government. The government had to treat them well because they helped government in elections and national disasters such as floods and wars. In another word, enterprises which had supported government more before had more bargaining power to government for more benefits. When people were increasingly aware of their rights with the rising literacy rate, they formed more pressurizing groups such as Labor Unions to submit their problems and concerns to the government. Enterprises always represent employees in negotiating with government for their benefits. After Liberalization in the Early 1990s In the nineteenth century, the “license raj” was terminated by the liberalization reforms, and Indian business was opening up to international competition from then on. The Indian economy was self-reliant in many raw materials. Universities provided millions of graduates every year, which improved store of talent resources of India. With the development of external environment and internal resources, now the government is confident on the private sector and is willing to offer them infrastructural facilities through the public sector enterprises. The relationship between private sectors and government become much harmonious and peaceful than before. China Before the “Reform and Opening-up Policy” Chinese government began to be responsible for managing and coordinating the national economy since 1949. During that period, almost all the domestic enterprises were state-owned ones, and the foreign trade system was monopolized by the state in the government. The government controlled everything and enterprises did not have any bargaining power to government. Government determined the prices of commodities, managed the deployment of investment funds, decided wage levels, drafted the financial policies and banking systems, allocated energy system and assigned output targets for enterprises. Business was hampered because people’s consumption of goods must follow government’s quota, and there were almost no big trade activities and business operations in all cities. Besides, the government dominated the procedures of production such as ownership, production, distribution and consumption completely. In sum, the relationship between government and enterprises was like the relationship between the king and warrior. Enterprises had to follow whatever government said although they were sometimes irrational. Otherwise, they would be regarded as “anti-government” and be punished. The relationship between government and enterprises was also akin to the relationship between parents and children. Enterprises did not have any freedom and autonomy when government controlled each detail of production, and the only thing that enterprises had to do it is submission without any doubt. After the “Reform and Opening-up Policy” With the advent of reform and opening-up policy of the government in 1970s, the government began to encourage transformation and economic development of the country. The reform and opening-up policy enabled the government to take a lot of measures and actions to amend its own role, balance the relationship between itself and enterprises, and stimulate more investment and production. The government adopted the contract responsibility system to promote business activities according to which the goods beyond the quota was sold in free market at the unregulated prices. To attract foreign investment, the government established special economic zones to provide policies such as lower tax rates in coastal regions favorable to enterprises. Compared to the relationship between the government and enterprises before the policy, their relationship became much more equal and cooperative. In order to relieve the bureaucratic inefficiency and to improve the huge administrative system, the government also adopted various policy changes including administrative decentralization and deregulation. Contrary to the situation that the decision-making power was controlled by the central government before, the decision-making power is assigned to local units with the decentralization strategy. Therefore, local governments became more autonomous in coordinating economic activities and meanwhile local officials supported business with required policies. The deregulation strategy is composed of changes in both process and structure. For the process change, the government reformed China’s new venture approval system in order to support business development. For the structure change, the government separated the economic enterprises from the administrative agencies. The reform of state-owned enterprises is a vivid example of structure change, state-owned enterprises gained more freedom in decision-making for production. It transformed into the modern enterprise system later. Then effective corporate governance was established to address issues related to financial and social security. From then on, the relationship between government and enterprises became sole cooperative relationship. As a result of the serial of revolution, amazing improvement in China’s macroeconomic performance and business development happened. China’s GDP constantly skyrockets every year and it continuously breaks its historical record. Indonesia The government was attempting to support local people by financial support from banks and by specifically deploy certain markets to local business after its independence. From the end the 50s to the middle of 60s, the government under the dominance of Sukarno focused on import substitution, self-sufficiency and denying western capital. As the result, Indonesia encountered hampered growth rate because of political instability and inappropriate economic policies. During Suharto’s Regime In order to recover the country from the depression under Sukarno’s dominance, the government under Suharto gained financial support from IMF and adopted many methods to recover the economy by facilitating private market development. In the meanwhile, government also improved relevant regulations accordingly due to concerns and worries about external challenges and internal issue. The government got very great success in earning a lot of money from oil revenues, and it planned to make good use of the money by investing them in reinforcing basic industries. Moreover, the government also raised trade barriers to protect its basic industries such as steel and concrete. During that period, enterprises of basic industries enjoyed government’s considerate care and shield against external competitors. The enterprises capable of helping government on large-scale modernization projects are only few large conglomerates because only they had enough capital to support government by dominating the private sectors. Among them, the two top conglomerates had significant holdings in private firms across all sectors ranging from manufacturing to services. As a reward, they also benefited the most from government. The reason why they gained so much from government was that they kept intimate tiers with government. These enterprises and government realized balanced and mutual benefits to each other. The government offered them monopolizing privileges on production and imports of key industrial products, in the meanwhile, they helped government achieve its industrialization goals by taking up important investment projects. After knowing that the system only benefited privileged minority by offering them import monopolies, people were outraged. Small private businesses raised voices against the monopoly, policy and trade direction. In turn, small groups structured the Chamber of Commerce and Industry in Indonesia which focusing on the communication between business and government. When oil revenues declined, the government asked for help from international loaner to solve the balance of payment issues. These enterprises took advantage of it and pressurized the government to adopt trade reforms. These reforms reduced the conglomerates’ benefits, enhanced competition to state-owned enterprises and thus stimulated several measures prepared for possible eventual privatization. Post-Suharto era The financial crisis suffered Indonesia so much by ruining its GDP. Indonesia has since recovered itself by recapitalizing its banking sector, improving oversight of capital markets, taking steps to stimulate growth and investment particularly in infrastructure.