by Parag Khanna
In another major case of leapfrogging, telemedicine and cheap medical devices will reduce the cost of general medical treatments and elder care by localizing the point of diagnosis and treatment so patients can evade the need for hospitals altogether. Already more than 30 million Chinese use the Chunyu Yisheng app to pair them with appropriate physicians via live video, while Alibaba has begun online prescription fulfillment. The Indian start-up HealthCube provides comprehensive diagnostics and cloud-based digital records that any patient can access and share via smartphone with a network of doctors who can remotely prescribe treatments. For treatments local hospitals don’t provide, Dubai and Singapore have become major hubs for medical tourism for elective surgeries, as have India and Thailand, which are also home to innumerable surrogacy clinics catering to Western families. Japan and India are already world leaders in pharmaceuticals, with Japan innovating low-cost medical devices that can support elderly health care across Asia and compete in the European and US markets. Even dentistry will become cheaper in Asia. In 2017, a Chinese robot performed the first fully automated dental implant surgery.
Learning for Life
Not all Asians have the same societal work ethic, but all are capable of the kind of consistent discipline necessary to push their nations forward. Over the years I’ve seen Palestinians and Jordanians toil to fix vehicles and build (and rebuild) entire towns, Indians and Pakistanis laboring on construction sites and carrying immense loads on rickshaw carts through choking traffic. East Asian professionals work interminable hours to save money for their children’s education. They endure great suffering because they have to, because they see success in countries next door or nearby, and because they know their civilizations have been great before and can be great again.
ASIA’S GRAY MARKETS
Billions of Asians are accustomed to life in the informal economy, working either in sectors unregulated by the state or for unregistered businesses. This gray economy represents anywhere from 12 to 50 percent of GDP and employment in Asian countries.
Hustling is nothing new to Asians. Westerners are only now becoming accustomed to life in the gigonomy of multiple jobs in the formal and informal economy. But tens of millions of Indians and Pakistanis are used to working half the year in low-skilled industry and the other half in seasonal harvesting. Across Asia, the informal economy accounts for anywhere from 12 to 50 percent of GDP and employment.51 But in another case of taking advantage of late development, most Asian societies have apps that allow people to be hired for part-time work based on their skills. In major Asian cities, new “homestels” (hotel hostels) are popping up that provide a mix of affordable long-term residency and coworking spaces.
Coworking spaces have become the hot real estate asset in numerous cities of southern India’s tech belt. The reason is not only India’s role as a global software hub but the large number of newly unemployed in the call center sector, with which India has become synonymous. Machine learning has caught up to Bangalore’s chatty call center workers, automating customer service, data analysis, and other tasks. The IT industry remains India’s largest employer—with 4 million workers and $150 billion in annual revenues in 2017—but net new annual hiring has plummeted from a peak of 400,000 toward zero. Top IT companies such as Infosys and Tech Mahindra will have layoffs of nearly 500,000 by 2020. Filipino back-office workers face the same risk to their call center jobs. Start-ups are absorbing some of the displaced while luring those who don’t want to work in corporate behemoths. Bangalore is home to the world’s largest start-up accelerator, founded by the Indian American serial entrepreneur Desh Deshpande, where 1,200 entrepreneurs work under one roof.
Asian nations are in a desperate rush to convert their billions of bodies into productive human capital. South Asia has achieved a nearly two-thirds secondary school enrollment rate. The Philippines did not have a formal K–12 educational system and curricula until the past five years. Most Arab countries, however, still invest far too little in high-quality schools and professional training, but their high rate of youth unemployment has forced education to the top of the Arab agenda. The growing spending on secondary education is an early indication of how the next generation of Asians will be much more employable in the formal economy. India and Pakistan have hundreds of thousands of private secondary schools operating on roadsides and in villages. Rather than curbing this education entrepreneurialism, the government is issuing vouchers to subsidize enrollment while focusing on raising standards for certification. The results have been better student and teacher performance, as well as major cost savings to the government. Start-ups such as Zoho University take small-town high school dropouts and put them through coding boot camps so they can get programming jobs. At the tertiary level, countries across South and Southeast Asia are racing to double, triple, and even quadruple their university enrollment rates but making sure to subsidize tuition to avoid the United States’ student debt crisis. The elite Indian Institutes of Technology (IITs) produce a small crop of world-class mathematics and engineering graduates annually, and some, such as IIT Delhi, are cofunding the conversion of PhD theses into start-up ventures.
To reach far deeper into India’s bulging youth cohort and upwardly mobile middle class, a new breed of hybrid technical-professional academies has emerged. Rajendra Pawar, a cofounder of India’s private education powerhouse NIIT, has scaled his on-site and online industry-linked skills programs to reach 500,000 students per year, training them on demand for Indian and global companies from oil rigs to tech parks, with curricular offerings expanding to service insurance, supply-chain management, programming, and other sectors. After completing one assignment, a student can return to be retrained for the next one. Hence NIIT’s motto, which embodies the spirit of lifelong learning: “Anadi Anant” (Without beginning, without end).
East Asians are doing the best at preparing youth for an uncertain professional landscape. Much has been made of their hard-charging parenting style, which sociologists describe as interdependent—meaning being more involved in setting children’s priorities and urging them to succeed as opposed to the more independent style of Western parenting. At the same time, the diminishing utility of rote learning in a world of automation has put a premium on creativity and teamwork, prompting Singapore to consider phasing out its dreaded Primary School Leaving Examination (PSLE), which requires intense study at the expense of a more joyful childhood. Chinese and South Koreans are also welcoming a new wave of schools focused on creative curricula. These and other Asian countries appear to be on the right track. According to the OECD’s annual Programme for International Student Assessment (PISA), which tests students in dozens of countries on subjects such as science and math as well as reading and collaborative problem solving, Singapore, South Korea, Hong Kong, and Japan not only topped traditional subjects but demonstrated the highest aptitude in group teamwork as well.
Role Reversal: Western Dependence on Asian Growth
Asia has proved that it can grow even when the West does not, and as its consumption levels rise, it has also become the crucial growth driver for many Western multinationals. This is a remarkable role reversal. Asia used to mainly produce for the West, keeping labor costs down and profits high. Now the West must also produce for Asia, catering to its diverse income levels and tastes—and in Asia to meet government demands for local content and job creation as well as to be closer to their customers in hypercompetitive markets.
Even though the United States has a low dependency on exports as a percentage of its GDP, an estimated 40 million jobs are related to producing exported goods. Asia is also a crucial set of markets for the 20 percent of the US workforce employed in higher-end sectors such as finance and technology. Western businesses have long pinned their hopes on China’s middle class, but the country’s stringent requirements for joint ventures and data security have eaten away at their profits and technological edge. So, too, have the informal requirements whereby foreign companies are obliged to
“pay to play,” funding think tanks and government research that China can itself easily afford, only to not be granted the greater market access they expect in return. China has slowly begun to license foreign credit card companies to operate in the country, but only after UnionPay achieved 80 percent market share and WeChat Pay and Alipay gained acceptance in landmark tourist sites and other locations all over the world.
Recent Western business surveys of hot markets have thus revealed a shift in focus to India, Pakistan, Indonesia, and the Philippines—their combined population being just over 2 billion. Unlike in China, where foreign companies have no chance of achieving a dominant market share, these more open economies and democratic societies present Western firms with an opportunity to capitalize on Asia’s next growth wave. From Vietnam to Myanmar, these fast-growing economies allow as much as 100 percent foreign ownership in lucrative sectors such as construction, real estate, finance, and retail. In other words, they are practically the anti-China.
Almost every sector of the US economy has benefited from Asia’s rise. Since the US Congress lifted the four-decades-old ban on hydrocarbon exports, China has become one of the largest purchasers of US oil. US natural gas sales to Japan and Korea are also growing. In fact, the United States’ trade deficit with Asia would be far higher today were it not for this rapid growth in US energy exports. Western firms are also making some of their largest energy investments in Asia. Chevron is leading a consortium to invest nearly $40 billion in expanding production in Kazakhstan’s Kashagan oil field in the Caspian Sea. France’s Total is poised to lead China’s move into fracking to extract shale oil and gas. From soybeans to pork, North American food exports have also multiplied. The Chinese firm Shuanghui’s acquisition of the American food producer Smithfield Foods has enabled far greater access to China’s market. As soy displaces corn as the United States’ most widely planted crop, North Dakota wants a new freight rail line connecting it to the Pacific Coast to speed its soy exports to Asia.
Asia is the foundation of price competitiveness and revenue prospects for the United States’ largest consumer-goods companies. Seventy percent of Walmart’s goods are made or procured in China. Though international sales are only one-third of its total revenue, Japan, China, and India are its fastest-growing markets. Despite big promises to nearshore production, Walmart has been tepid on US expansion while growing more aggressive on China through an investment in JD.com, buying Flipkart in India, and plotting Southeast Asia as its next major expansion target. Most Apple iPhones are also made in China, but 90 percent of mobile handsets sold in China are made by Chinese manufacturers, with Oppo and Vivo Global in the lead with double-digit market share, ahead of Samsung, Xiaomi, and Apple (which has at most 3 percent of the market).52 Chinese handset makers are also moving faster toward high-performance 5G chips. As China’s market has matured, smartphone sales have been declining. For both US corporate titans, therefore, the next strategic phase on which their earnings depend involves both producing and selling their housewares and gadgets aggressively beyond China.
America’s leading tech companies are also racing to help Asia take advantage of its late development. Many Asian societies are grateful to Facebook, Microsoft, and Google for laying Internet cables along their coastlines and boosting their bandwidth. In India, Google Maps powers a $20 billion location services and marketing industry and is also aiding the country’s goals of improving public sanitation by mapping the locations of public toilets. Google’s Tez (“fast”) leverages India’s Unified Payments Interface (UPI) platform to allow the use of audio commands to make mobile payments, while its machine translation and speech-to-text apps will accelerate business communication in polyglot India and ASEAN. Google is also training 100,000 Indonesian software developers and translating Udacity courses into Bahasa. The United States’ Internet and social media giants have long been focused on the greater Asia because of their lack of access to mainland China. Given Baidu’s dominance of China’s search engine market, it is in the rest of Asia that Google, Yahoo!, and others need to gain market share in mobile ad revenue. Four-fifths of Facebook users are outside the United States, with the majority in Asia: India has surpassed the United States in the number of Facebook users, with Indonesia just behind the United States. Facebook’s growing business units across the region support B2B and B2C businesses to scale. Just one of the thousands of examples is Ertos Beauty Care, founded by a down-on-her-luck Indonesian mother who turned her door-to-door cosmetics business into a multimillion-dollar enterprise through Facebook advertising and now competes with L’Oréal and other leading Western brands.
A more complex win-win story also explains how to succeed among Asia’s tech-savvy consumers. The Los Angeles–based Riot Games surged in Asia by licensing its flagship League of Legends game to SEA Group. Riot Games’ success in Asia paved the way for Tencent to buy the company outright, providing a capital influx that has allowed Riot Games to open more development offices in the United States and worldwide, hire more game coders, produce new e-games, and stage more championship events around the world—especially in Asia, where watching e-gamers compete on giant screens packs stadiums. Similarly, the Chinese drone maker DJI controls 80 percent of the world’s consumer drone market, 80 percent of which is outside China. While it vanquished the US start-up 3D Robotics (3DR) in the hardware market, the two have partnered to integrate 3DR’s Site Scan software into DJI drones. Partnering often works where direct head-to-head competition fails.
Western brands have long known that they can better reach Asia’s masses by meeting them on price, which requires producing locally and in smaller quantities. Unilever’s single-use shampoo pouches have become a well-known example of reaching the bottom billion. For the lower-middle and middle classes, which are poorer than their Western counterparts in dollar terms but active consumers of both discretionary and durable items, smaller cars and big-screen smartphones (since Asians tend not to want separate phones and tablets) have been important adaptations. Western pharmaceutical companies such as Merck, AstraZeneca, and Eli Lilly are opening labs in China and India (in joint ventures with companies such as China MediTech and BeiGene) to develop “B” lines of lower-cost medicines for Asia’s swelling populations and the rising incidence of cancer, diabetes, osteoporosis, and other ailments. Meanwhile, the United States’ and Europe’s largest insurers, from Prudential and MetLife to AXA and Aviva, are amassing assets through acquiring customers and raising premiums across Asia. Dyson, the British appliances company best known for its vacuum cleaners, employs more scientists in Asia than in the entire rest of the world, with R-and-D centers in Shanghai and Singapore and production facilities in Malaysia and the Philippines. Exposure to more Asian customers has led to product modifications such as different shapes for hair dryer handles and microprocessors that can handle volatile electric currents. Overall, Dyson’s Asia revenues have risen by 40 percent in the past decade. At the top end, luxury-goods houses such as LVMH and Richemont are focused on Asia’s swelling ranks of millionaires but are also buying start-up Asian brands by local designers who know their customers better.
Asia’s consumer gravity is a fact of life not only for the biggest Western retailers but also for upstarts such as the sports apparel supplier Under Armour. Precisely because three-quarters of its sales are in the United States, where incumbents have stunted its growth, the company’s only hope is to double down on Asia, where its sales continue to surge. A DHL client survey from 2017 showed that one-third of US SMEs prioritize Asia as a destination for their export growth versus only one-fourth that look to Europe. Indeed, Asia’s annual retail market has reached $10 trillion, double that of the United States and triple that of Europe. China’s 2017 “Singles Day” broke its own record as the world’s biggest retail spending day, with more than $25 billion in goods purchased within twenty-four hours. Forty percent of the brands selling on the Alibaba marketplace were non-Chinese. In India, Amazon leads India’s e-commerce market with m
ore than $450 billion in annual sales, providing more opportunities for US vendors to reach India’s digital consumers. Indonesia’s Tokopedia is the country’s largest e-commerce marketplace and is wide open to Western goods as well. The more e-commerce expands in Asia, the easier it becomes for foreign companies to get access to Asian customers.
Much of Asia needs a major boost in capital stock to raise productivity, creating huge opportunities for exporting high-quality industrial and technological goods to Asia. For chip manufacturers such as Qualcomm, Asian companies’ rise in the handset market is a huge opportunity: most of its revenue comes from selling chips and technology licenses in China, and its chips are boosting the processing power of Samsung phones, enabling the company to offer new augmented-reality features. Similarly, the United States’ few remaining industrial titans, such as General Electric and Honeywell, are more reliant than ever on gas turbines, nuclear power plants, and aircraft components sold to Asian markets. GE has two-thirds of its revenues outside the United States. After China, Saudi Arabia, and Turkey, India and Pakistan are large, fast-growing markets for GE. GE and Siemens are also building dozens of R-and-D facilities and plants across India to experiment with affordable ECG, MRI, X-ray, and blood analysis instruments, first for the Indian market and then outward from there.