Superclans And The Shift To An Asian-Centered Global Economy

Forbes

3 days ago

Radu Magdin is CEO of Smartlink Communications. Global analyst, consultant, passionate about leadership, communications and competition.
In preparation for one of my upcoming reports on "Asian century superclans," I had the opportunity to speak with several prominent Asian business families and would like to share some useful insights from these conversations and my research.
Reframing The 'Asian Century'
First, it should be noted that, as with most terms that gain currency in academic, business and policy circles, "the Asian century" contains both elements of insight and overstatement.
Its insights center on the growing gap in gross domestic product (GDP)—whether measured by purchasing power parity (PPP) or current market exchange rates—between Asia and the rest of the world, particularly Europe and North America. In terms of wealth, technology and culture, it is not difficult to see why the century can be seen to look increasingly Asian; it is predicted that by 2075, up to seven of the world's largest 14 economies will be Asian. A lot of the growth is expected to be intra-Asian, and already, 60% of Asian trade is intra-regional.
The exaggerated aspect of "the Asian century" comes from uncritical repetition. I am certain that the United States will remain richer by almost any financial measure that takes into account population. What are currently emerging markets will not account for a majority of global capital for quite some time, meaning that it is likely a lot of that Asian growth will continue to pay dividends to the U.S.
That growth is best understood as a convergence in per capita productivity across regions. To illustrate, Asia produced (paywall) about 61% of global output in 1820, 20% in 1950 and 48% in 2018. The American dollar standard, while wobbly, is mainly under potential threat within the U.S. itself.
The Evolution Of Asia's Business Elite
With that, we can understand how a specific class of businesspeople grew and may come to dominate global business. They came about during what may be one of the largest, and possibly last in our lifetimes, great expansions of the middle class as per capita incomes in East Asia began converging with the West, first with Japan, then the East Asian tigers phenomenon and, finally, with the sheer mass of China.
While 80% of the population growth in the world is expected to occur in Sub-Saharan Africa and South Asia, it's becoming increasingly evident that the middle-class boom may have been unique to East Asia—driven in large part by manufacturing jobs, which moved roughly 30% of the labor force into the middle-income bracket.
That means many rose and came of age, manufacturing stuff that the middle class wants. Further, many of the business classes trace their roots to a particular mix of nationalism and capital scarcity. Many received bank loans with the informal agreement that part of their task as industrialists was more than business, but the goal of national modernity through technological and economic convergence with a West that has been the benchmark in the room for most of the past century.
That means capital structures tend to be heavily tilted towards debt capital, contemporaneously about as much as in the 1990s. Furthermore, while corporate governance is generally regarded as improved, conglomerates remain the standard rather than the exception; According to McKinsey, conglomerates account for 80% of the largest companies by revenue in South Korea, with figures of 90% in India and 40% in China.
Family Ties
Finally, as I have touched on in past articles, it cannot be emphasized enough that these are families running a family business in a manner reminiscent of European aristocratic families running their age's business: agriculture-based fiefdoms and import-export value chains.
About 70% of the alluded to conglomerates are family businesses, and there is little to indicate this will change significantly in the future. Furthermore, while in the West, the common definition of a family-owned company is as little as a family holding 5% of ordinary shares, Asian conglomerates such as Reliance or Samsung tend to be almost wholly family-controlled.
Furthermore, new entrants in the category, such as VinGroup, tend to follow the same model. Personally, my belief is that this business model will continue well into the future and end up controlling a significant proportion of the global GDP, with the current crop of "superclans" serving as the first draft of what may become some of the richest families in history.
Takeaway
While the term "Asian century" is often overused and sometimes misunderstood, it does reflect a meaningful and lasting shift in economic influence toward the continent. One of the effects of this is the advancement of a particular sort of business from the periphery of the business world to its center stage: the family-owned conglomerate.
Business leaders will have to learn to navigate and interoperate with this type of business as effectively as they do with the equity-financed Western corporation.
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