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INTERNATIONAL POLITICS: Challenges to Indonesian Business. Mohtar Mas’oed Universitas Gadjah Mada 2009. GLOBAL BUSINESS ENVIRONMENT. Why should we bother?. UNCERTAINTY. The biggest problem in the decision-making. Meanwhile. Economics does not help. The qualifying concept of - PowerPoint PPT Presentation
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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?