AMPLIFY  VOL. 36, NO. 6
  

During the last three decades, globalization has fundamentally transformed international flows of goods, capital, and services. One significant outcome of this shift is the substantial influence of Asian economies on the world stage.

Just over 20 years ago, countries like China and South Korea were viewed almost exclusively as low-cost production centers without meaningful domestic consumption — and certainly not sources of global leadership, capital, or innovation. Japan was perhaps the only exception to this narrative. Today’s reality is significantly different, with many of the world’s most innovative and technologically advanced economies now in Asia. 

China is obviously at the forefront of this transformation. Originally viewed by Western companies as a location for factory manufacturing, this perspective has been eclipsed by the rapid growth of China’s technology industry. China is now a global technology leader, and its strategic competition with the US in key areas like artificial intelligence and semiconductors brings this dynamic into stark relief. Beyond technology, the growth of the Chinese economy has highlighted the rise of the Chinese consumer. China is now a key export market for many countries, with Chinese consumers being a critical driver for the performance of many global companies.

China is not the only influential Asian economy. In 2022, South Korea, with a population of approximately 50 million, became the 10th-largest economy by GDP.¹ Given the formal state of war that still exists on the Korean peninsula, this is no small feat. Despite its small geographic footprint and a limited domestic market, South Korea is the fourth-largest economy in Asia, after China, Japan, and India.² In part, this is due to its strong industrial policies, including its Heavy-Chemical Industry Drive from 1972–1979, which targeted development in steel, nonferrous metals, electronics, machinery, chemicals, and shipbuilding.³

Such policies helped lay the groundwork for South Korea’s participation (along with Taiwan, Singapore, and Hong Kong) in what’s known as the “East Asian Miracle.” Today, South Korea’s influence includes the popularity of K-pop, Korean shows on streaming services, and Korean food — so-called soft power that has accompanied South Korea’s economic emergence.⁴ 

The last few years have also seen the rise of the Association of Southeast Asian Nations (ASEAN). In ASEAN, Singapore obviously represents an exemplar of economic development, but countries like Vietnam and Indonesia have emerged as dynamic markets with a large demographic of young, technologically savvy professionals and consumers.

With a total estimated population of almost 700 million, ASEAN is an important economic bloc for manufacturing, innovation, and professional services. With per capita income expected to rise in Southeast Asia, it has become an important hub of activity for Chinese, Japanese, and South Korean firms looking for continued growth in this rapidly growing region that is also taking on an increasingly important political role.

Although geopolitics has thrown the traditional globalization of the last few decades into flux, one of its lasting legacies will be how developing economies have made dramatic entrances onto the global stage, and nowhere is this trend more evident than in Asia. We now have a world where historical Western economic dominance is being offset, and in some ways displaced, by the rise of Asia’s economies.

This transition creates its own set of responses and undoubtedly contributes to the geopolitical uncertainty being navigated globally by leaders and organizations today. The realization of what scholars called the “Asian Century” is upon us and is a key factor in navigating geopolitical risk.^5,6

Navigating Today’s Geopolitical Risks

I am a witness and product of the Asian century. Geopolitics is an important consideration in my role as the CEO for Korea and Vietnam of a German company. Additionally, having grown up in Germany as a child of South Korean immigrants, I have now spent the past 14 years in Asia, living in India, Singapore, Japan, and currently South Korea.

When I assumed my role leading PRETTL SWH’s Korea and Vietnam businesses in November 2021, pandemic policies were in the process of being rolled back in South Korea. As things slowly normalized, I was in charge of an organization that had been through a major restructuring due to market changes highlighted by the pandemic.

PRETTL SWH Group is a global company headquartered in Germany. Part of the PRETTL Group, PRETTL SWH develops sensor, connectivity, and electrification solutions primarily for the automobile industry. Our wiring harnesses play a critical role in connecting thousands of automotive components, including exhaust sensors, braking components, telematics, and connectivity solutions. Essentially, our products constitute a car’s central nervous system, relaying important information and electric power to all parts of the vehicle. Globally, we have more than 8,000 employees and 10 manufacturing sites, including plants in Vietnam, Mexico, Morocco, China, India, and Ukraine.

Cable solutions integrators like PRETTL SWH are particularly sensitive to labor costs because many manufacturing processes still require manual labor. Although automated solutions are being implemented, they remain quite expensive. This is one reason that countries with a focus on manufacturing (e.g., Mexico, Morocco, China, India, and Vietnam) are so important to automotive producers in North America, Europe, and more recently, China and India.

Given these industry dynamics, the rise of geopolitical risk factors is making it increasingly important to never depend on a single source for manufacturing. Due to this mentality, robust contingency planning, and experienced leadership, PRETTL SWH was able to continue our operations in Southwest Ukraine during the war. In contrast, other wiring harness manufacturers were offline for weeks or months, causing shutdowns at several OEM plants.⁷

In a similar vein, vehicle sales dropped precipitously due to pandemic lockdowns. In Asia, this market dynamic was compounded as local governments introduced public health policies that heavily restricted operations. For example, only business operations deemed critical were allowed to continue in many countries. Specifically, in Vietnam, a major manufacturing site for our Korean operations, travel was restricted from state to state, making travel from Hanoi to our plant in Hai Duong extremely difficult. Having never encountered such a situation, this experience served as a meaningful reminder that companies need to account for local government policies and regulations in the context of both standard operations and their contingency planning.

When Western companies initially located manufacturing to Asia, cost was typically the determining factor. Given today’s geopolitics, cost is no longer the primary factor: variables ranging from logistics to sanctions to environmental, social, and governance concerns all come into play. This broader perspective has become a necessity for leaders as they navigate today’s geopolitical risks. It is certainly a lesson I have learned during my leadership tenure.  

Taking a Macro View

When I joined PRETTL SWH Korea and Vietnam in 2021, my initial focus was moving past the pandemic, creating strategic plans amid uncertainty, and focusing on our people. In some respects, I had a very traditional view of managing and leading the business. As I reflected further, however, I realized I needed a broader perspective to build a sustainable company that could thrive for the long term. As part of this process, I found myself considering more macro types of questions such as:

• How might energy prices change in the next few years? Russian sanctions have caused energy prices to rise and fall dramatically since mid-2022, especially in Europe.

• What is the investment outlook for China? President Xi Jinping began a new term in March 2023. There is also a US presidential election coming up. What will this mean for Western companies operating in China?

• Do our policies guarantee business continuity during an emergency? Most companies have plans in place for natural disasters like earthquakes and hurricanes, but many have not considered the possibility of war. Given the open-ended nature of the Korean War (since a peace treaty has never been signed) and continuing North Korean weapons tests, do our business continuity plans contain sufficient guidance in the case of armed conflict?

Of course, these types of questions do not have definitive answers, but the exercise of discussing them helped myself and my colleagues account for geopolitical risk factors that would not typically have been meaningfully considered in planning and operations. I have found that big-picture questions are a key starting point for navigating geopolitical risk. 

Changing Asia, Changing Leadership

As Asia has changed dramatically, so have its business leaders. Frankly, a generation ago, it’s unlikely someone like me would have been given the opportunity to lead. In the past, it was common for many multinational companies to transfer someone from headquarters in, say, Germany or the US to lead a business operation in Asia. These individuals typically had only minimal local experience, a cursory understanding of the culture, and a smattering of the local language. They would rotate back to headquarters after a few years, having stamped the international experience card in the hopes of a promotion.

Asia’s economic emergence demands a new chapter of leadership. There is a burgeoning pool of talent across Asia that is educated, ambitious, and international — imbued with experience from both the West and Asia. In fact, Shanghai, Singapore, and Seoul are now just as cosmopolitan and globally connected as New York City, Paris, and London, and many cities in Asia are more technologically advanced than their Western peers due to superior infrastructure, prudent government policies, and close ties to innovative companies.

The days of relocating an inexperienced manager from HQ to Asia are waning, if not gone. For companies to flourish in the dynamic ecosystems we see in Asia, local knowledge and culture connected with global perspectives are necessary. This local-plus-global knowledge is key to navigating geopolitical risk because it allows for proper contextualization of how events on the other side of the world could impact your market.

This period known as the Asian Century will see further changes to the traditional global pecking order, which demands executives with a wider perspective to accurately choose the right strategies and successfully navigate global uncertainties.

References

¹   “Indicators of Economy in South Korea.” WorldData.info, accessed June 2023.

²  “List of Asian Countries by GDP.” Statistics Times, 1 November 2021. 

³  National Bureau of Economic Research. “South Korea’s Industrial Policy: Growth with Inefficiency.” The Digest, No. 11, November 2021.

⁴  Lee, Chung Min, and Kathryn Botto. “The Case for South Korean Soft Power.” Carnegie Endowment for International Peace, 15 December 2020.

⁵  Pocress, Michael. “The Asian Century Just Arrived. Now Get Ready.” Cornell SC Johnson College of Business, 4 September 2020.

⁶  “Asia 2050: Realizing the Asian Century.” Asian Development Bank (ADB), August 2011.

⁷  Macho, Andreas, Crina Balea, and Isabelle Wermke. “We Will Never Give Up — These German Companies Are Defying the Ukraine War.” PRETTL SWH Group, 24 April 2022.