Mohtar Mas’oedUniversitas Gadjah Mada

2009

GLOBAL BUSINESS ENVIRONMENT

Why should we bother?

The qualifying concept ofceteris paribus meansthat you do not need

to consider other variables

As business decision-making is affected by many different kinds of “things” or events,decision-makers have to consider many dimensions of human life, physical as well as social

WE NEED TO UNDERSTAND

INTERNATIONAL POLITICS

CHALLENGES TO BUSINESS

CRIMINAL ATTACKS

POLITICAL INSTABILITY

LEGAL CHALLENGES

ECONOMIC VOLATILITY

RISK OF FINANCIAL LOSS

What are the most challenging international

political issues facing business in Indonesia?

How does it impact on business activities?

POLITICS: REALISTPOLITICS

Struggle for power. INTERNATIONAL POLITICS

Struggle for power in international arena. Politics among nations.

POWER Ability of an actor to get others to do something

they otherwise would not do and at a cost to others

REALIST POLITICS (Cont’d)

HOW TO GET OTHERS TO DO? By having/controlling sources of power,

especially the sources of “structural power”WHAT IS STRUCTURAL POWER?

To set societal agenda; To devise rules of the game among actors; To decide how things must be done;

REALIST POLITICS (Cont’d)

THE SOURCES OF STRUCTURAL POWER Security structure

Control over security provision Production structure

Control over production Financial structure

Control over credit Knowledge structure

Control over the creation and dissemination of knowledge, information & technology

What are the most challenging issues facing

Indonesia today?What is the condition of

international politics today? (Global and regional?)

What is changing?

What stays the same?

America Factor:Changing? Into what?

THE POST-COLD WAR U.S.The only military power;Using it to offset (relative) decline in

economic statusActing unilaterally -- “pre-emptive war”;Pursuing “resource politics” using the

pretext of “anti-terrorism” campaign.

USA Under G.W.Bush: The Real Objectives?

Short-term: establish new military bases and control over oil economy.

Long-term: American “sphere of influence” in the Eurasian “middle ground” between the E.U., Russia, and East Asia.

“Next to the U.S. nuclear monopoly, there was no more universally recognized symbol of the nation’s superpower status than its overseas basing system.”-- James Blaker, former Senior Advisor to the Vice Chairman of the Joint Chiefs of Staff, 1990

Diego Garcia to south

U.S. militar

y bases, 1989

U.S. military bases since 1990U.S. military bases since 1990

1. Gulf War, 1991

2. Yugoslav Wars, 1995-99

3. Afghan War, 2001

4. Iraq War, 2003

“Their function may be morepolitical than military. Theysend a message to everyone.” --Deputy Defense Secretary Paul Wolfowitz, NYT 2002

Wars since 1990

U.S. military power entered the strategic areas. Why?

“Humanitarian” interventions to halt aggression & terrorism, topple dictatorships, protect ethnic minorities? (as US Govt claims)

Extension of U.S. “imperial” influence in oil-rich regions? (as most critics say)

Military & economic counterweight to emerging competitors (EU & Japan, China); control of their oil? (the most possible motive).

Control over Oil

””American vital interests in the Central Region are American vital interests in the Central Region are long-standing. With over 65% of the world’s oil long-standing. With over 65% of the world’s oil reserves located in the Gulf states of the region— reserves located in the Gulf states of the region— from which the United States imports nearly 20% from which the United States imports nearly 20% of its needs; Western Europe 43%; and Japan, of its needs; Western Europe 43%; and Japan, 68%--the international community must have free 68%--the international community must have free and unfettered access to the region’s resources.”and unfettered access to the region’s resources.”

--General J. H. Binford Peay III, --General J. H. Binford Peay III, Central Command (1997)Central Command (1997)

Cited in Cited in Blood and OilBlood and Oil by Michael Klare by Michael Klare (Metropolitan Books, 2004)(Metropolitan Books, 2004)

Assuring the security of the oil route that crosses many national boundaries = imposing power over other nations

Patrolling Oil Routes

POWER SHIFT?AMERICA IN DECLINE?

Questions?

Short-term question: “What’s the relative power coming out of the current recession? What is the situation going to be after all the damage is done in 5 years?” As the current recession tends to be a deep and long

one and to hurt everybody, it’s very difficult to predict. Longer-term question: “What is the distribution of power

going to look like in 15 or 20 years? Who’s going to be on top?” There is clearly going to be a redistribution of power of

the world. On a long-term Yes, the US will have to share power with other countries. China & India are in the best position to share power with the US.

Is the US in Decline?

It certainly is, in relative, not absolute, sense. The amount of power that US enjoyed in the post-Cold

War era was very unusual. It stood by itself, a giant alone, astride the world stage with no one to check it or balance it.

Now, Asia is on the rise. By 2050 the four largest economies in the world will be 1) China, 2) India, 3) USA & 4) Japan (Goldman Sachs prediction).

So the relative power that America will enjoy in the 21st century will progressively get smaller.

The Return of Asia? As Angus Madison has shown, up to 1820 the

two largest economies in the world were consistently China and India. So the last 200 years of Western domination of the world were essentially were an aberration.

What we are seeing remarkably now in the 21st century is a return to the norm, the normal world where China and India once again become the two largest economies.

So the biggest story here is what can be called the “rebirth of civilizations.”

The Return of Asia? (2)

Why China is succeeding? Because the Chinese minds are being opened up at a ferocious rate. What differentiated China and India in 1960’s? India

was an open society with a closed mind, while China was a closed society with an open mind.

Indicator: Why are the leading universities in the world, including Harvard, Yale, Princeton, Stanford, rushing to partner universities like Beijing, Fudan, and Tsinghua?

Isn’t it a recognition that these are “world-class” universities with “world-class” thinking going on?

Zero-sum Game?

Yes, the US has suffered a tremendous loss of credibility. It has also the problem of indebtedness, especially to China.

But, it’s not a “zero-sum” game. Where one’s loss is somebody else’s gain.

Yes, China holds so many treasury bonds and other kinds of American assets. Will China sell it off one day and US will go bankrupt?

But, China’s economy is so symbiotically connected to the US economy that American problems are dragging China down and China’s recovery will be a function of America’s recovery.

Can Asians Learn?

Since the end of World War II, Europe and the Americas have been peaceful and productive. Hundred years of animosity & hostility in Europe has gone.

Can Asians learn from the best practices of the nations in Europe and the Americas?

OBAMA’S ZEITGEIST?WHAT CHANGES?

Obama’s Innaugural Address (Jan 20, 2009)

“… our power alone cannot protect us, nor does it entitle us to do as we please. . . “

China Factor: Emerging and Challenging

Possible flash-points

Spratley Islands

Taiwan

Korea

Possible flashpoints

Conflict overSpratley Islands,South China Sea

Possible flashpoints

Korea

One Way to Perceive the Issue:

To see China as a power in transition to

great power status.In order to secure great power

position,the power-in-transition tends to

challenge the status-quo

(Power transition theory)

Power Transition Model

THE CROSS OVER POINT

RISING CHALLENGER

DECLINING HEGEMON

TIME

GROSSNATIONALPRODUCT

TESTING THE THEORY:China Question (a)

Will China surpass the US?Is China dissatisfied?

Is China powerful?

Nominal GDP Nominal PPPCountry GDP $B PPP $B GDP GDP--------- -------- ------- per capita per capitaU.S. 9,234 9,234 33,835 33,835Japan 4,370 2,935 34,519 23,465Germany 2,111 1,748 25,694 21,841China 997 5,201 790 4,228

Source: (2001)

Will China Surpass the US?Probably. But China Starts Out

Significantly Behind the U.S.Probably. But a Moderately Long

Lead Time Exists (2020?).

Is China Powerful?

Annual GDP Growth (in %)

-2.00.02.04.06.08.0

10.012.014.016.0

1971

-80

1981

-90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

World

China

United States

India

Japan

Is China Powerful?

The Power Transition (US 3% and China 6%)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1990 2000 2010 2020 2030 2040 2050

Year

GN

P $

tril

lio

n (

PP

P)

US

China

Source: (2001)

Is China Powerful?

Is China Powerful?(These ICBMs can reach Los Angeles)

Is China Dissatisfied?

Rejects a World Run by Capitalists Demands Prestige (or its “Place in the Sun”)

BUT Not Territorially Expansionist Increasingly Integrated in International

System Needs Investment, Trade, and Technology

(That’s why China loves to host the coming Olympic Game)

Source: U.S. Embassy in China, Trade & Investment Briefing

Hong Kong

Japan

USATaiwan Other

Singapore

Problems with the Theory

The “power transition” theory is derived primarily from the European experience to project onto and explain Asia.

The fact: 16 years after the end of the Cold War, Chinese does not start war over the status of Taiwan; North Korea does not attack South Korea; Japanese rearmament is not increasing. In fact, there has not been a major war since the 1978-79 Vietnam-Cambodia-China conflict

SECURITY ISSUES: TRADITIONAL

vs.NON-TRADITIONAL

Traditional Security IssuesThe protection of states’ territorial integrity,

political independence & sovereigntyWith the end of the Cold War and the

removal of Communist threats attention is shifted to other issues: Conflict over resource-rich areas Conflicts over border areas “Wars of the Third Kind”

Seven

states

contest

the area

of the

South China

Seas

“WARS OF THE THIRD KIND”No distinction between state, society,

and military. Civilians increasingly the target.

No definitive beginning or end to hostilities.

Intra-state and trans-state, as opposed to inter-state, war. No territorial battle-lines. Examples: Ethnic and religious war,

“cyberwar” and terrorism.

Non-traditional Security IssuesThe greatest threats come from

The spread of infectious disease Environmental depredation Trafficking in arms, narcotics and

people Unorganized violence Trans-national crimes

They Become Security IssuesWhen they reach crisis pointWhen they undermine and diminish the

survival chances of significant proportions of the citizens of society, and

When they threaten the stability and integrity of society

Ramesh Thakur & Edward Newman, Broadening Asia’sSecurity Discourse and Agenda (Tokyo: UNU, 2006)

The Straits of Malacca Malacca Straits extends 600 miles (900 km) from

its widest point (about 350 km between Northern Sumatra and Thailand) to its narrowest (less than 3 km wide between southern Sumatra and Singapore).

At its shallowest, it has a reported depth of just 25 meters.

At least 50,000 ships sail through this strait every year (International Maritime Organization).

About 30 per cent of the world’s trade goods and 80 per cent of Japan’s oil needs are being transported through this busy waterway.

The Straits of Malacca (Cont’d)

Malacca Straits One of the world’s most strategically

important waterwaysSingapore

The world’s second largest port The biggest container port (2003-2005)

The BRIC(Brazil, Russia, India &

China):A Concert of Power?A Way to the Future?

Russo-Chinesede facto Alliance

Shanghai Cooperation Organization (SCO, est. 1996) Members: China, Russia, Kazakhstan, Uzbekistan,

Kyrgyzstan and Tajikistan Observers: Mongolia, India, Pakistan and Iran

Originally to handle regional security issues, uniting countries bordering China; now, economic issues also.

Brazil-China Agreement(November 2004)

Brazil recognizes China as a market economy. An important step towards getting better trade terms from the WTO.

Because China is currently deemed a "non-market economy,“ it has face anti-dumping trade barriers on its exports until it gains market economy status.

Brazil and China are to strengthen a new bloc called BRIC (Brazil, Russia, India and China) - that flexed its muscles at trade talks in Cancun in 2003. It is to form a counterweight to the industrialized nations. As they have very different political systems, the grounds for their

alliance are economic, i.e. a common interest in changing the rules that cover world trade.

Impact on Indonesian Business?What’s to be done?

“Balancing” against the Strong? Joining BRIC to check the American power?

“Bandwagoning”? Joining the American power to benefit from

it?Or, else?

Can we stay away from it?