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Asia faces up to India and China

Despite the high growth in the two giants, other Asian firms are confident that they can see off the challenge.

india Updated: May 06, 2006 12:19 IST

Despite the robust economic expansion rates being turned in by China and India, companies in other parts of Asia are quietly confident that they can see off the challenge posed by their rapidly growing giants.

While accepting they now have to face up to two new economic superpowers on their doorsteps, companies from countries such as Taiwan, Malaysia, Singapore and Thailand attending last month's Hanover Trade Fair believed that they could beat off the growing might of India and China.

"We are facing major competition (from India and China)," said Bob Chen of Survex Corp, a Taiwan-based precision products company that derives 60 percent of its sales from overseas. "Their labour costs are much lower than in Taiwan."

But echoing the views of other Asian companies in Hanover, Chen said if they could not compete in terms of cost and price, they would focus on other factors such as the quality of their products as well as the speed and efficiency of deliveries.

Many also hoped to head off the threat posed by India and China by focusing on niche markets, with Chinese companies in particular seen as more interested in big industrial and consumer orders in mass markets.

Moreover, companies from Singapore at the trade fair, the world's biggest industrial and technological show, believed that their nation's strict product protection and copyright regime helped them to shore up their positions in the face of tough global competition.

"It is the major strength of Singapore," said one of the country's executives.

Like other parts of Asia, Singapore has been dramatically recovering from the financial storm that swept across the region in the late 1990's with the country's manufacturing sector growing at 5.3 percent last year.

But overall economic growth in Asia is expected to lag behind both China and India. A report released this week by the International Monetary Fund predicted that Singapore and Taiwan would grow by 5 plus per cent in 2006 and 4.5 per cent in 2007.

At the same time Indonesia, Malaysia, the Philippines and Thailand are forecast to chalk up growth rates of 5.1 per cent in 2006 and 5.7 per cent in 2007.

In the meantime, economists are not expecting China's economy to draw breath in the next two years and to expand by about 10 percent. India's is likely to move ahead by about eight percent this year.

"I am not afraid of China and India," said Ho Yeong Cherng, production manager with Taiko, a Singapore-based telecommunications company.

Having built up markets in other parts of Asia such as Japan, Malaysia and Thailand, Cherng said his company was now gearing up to make inroads into Europe.

He said that instead of China and India, his main concern was what he perceived to be the reluctance of European companies to consider Asian products.

He, however, said one of the key problems facing Singapore and other Asian states is how the emergence of India and China has helped to underscore their comparatively high cost structure.

The result has been companies shifting to set up shop in India and China but also in neighbouring Vietnam and Indonesia. Costs are about 300 per cent lower in Indonesia than in Singapore. On average costs in China are about five times lower than Singapore.

It is a similar problem for Malaysia with its companies moving to nations such as Indonesia and China.

"Competition from China is very strong, now we are facing competition from India and Vietnam," said Goh Cheng Meng from Malaysia's FMM Services.

"We have to look at collaborating with India and China instead of competing with them," said Lawrence Chan from the Singapore Manufacturers Federation.

While Chan acknowledged that many Asian companies believed that they could beat China in the quality game, he warned: "China is catching up fast."

At the moment, Eric Chang, deputy general manager of Taiwan technology group Tanong, said his company was managing to keep ahead of Asia's new powerhouse economies, especially China.

But he was not so confident about the future. "In the next 10 years they will definitely follow up with similar technology," said Chang, whose company derives 80 per cent of its turnover from overseas.

"We will try to extend the technological gap between ourselves and our competitors and to focus on niche markets.

"Competition from cheap labour means we have to seek out niche markets," said Ajarin Pattanapanchai of Thailand's Board of Investment.

Pattanapanchai said Thailand's free and open society backed up by the rule of law would help it to secure its place in the global battle for investment.

Nevertheless, the result of the growing competition from nations with low labour costs is for some nations to begin restructuring their economies.

Singapore's goal now is to concentrate on the service sector and tourism rather than manufacturing, which represents a dwindling part of the country's economy. In the late 1980's and early 1990's manufacturing represented about 80 percent of nation's economic activity.

It is now down to 65 per cent.

Likewise, Malaysia is pulling back from labour intensive industries and is giving priority to areas such as the high-tech sector.