Corporate Management Reorganization as the Key to Restoring the Asian Economy

ABSTRACT

As a result of currency crises, Asia was impacted by a serious economic downturn, and many Asiancompanies experienced serious management crises, forcing them to undergo restructuring. The Asianeconomy is now steadily emerging from these crises, and signs of recovery are beginning to be seen.As long as corporations, the main component of the economy, do not regain their vitality, however,basic macroeconomic improvements can not be expected. It is not an exaggeration to say that thesuccess or failure of corporate restructuring is the key to fundamental recovery in the economy.

During the currency crises, many Asian companies experienced lower profits and suffered from theincreased burden of debt repayment, resulting in serious management crises. In order to recover fromthese crises, companies carried out corporate restructuring by selling assets, businesses, andsubsidiaries, making adjustments and reorganizing business operations, restructuring debt, increasingcapital and introducing foreign capital. Also, by actually using the crises as an opportunity, somecompanies were able to increase business results. In an effort to facilitate corporate restructuring,governments of the various countries are taking steps such as mediating debt negotiations,implementing systems and easing regulations, and promoting foreign investment.

At the same time, corporate restructuring offered good opportunities for foreign investment in Asia.Following the currency crises, foreign investment mergers and acquisitions increased rapidly. Thisresult has also provided support for the corporate restructuring of Asian companies. The objectivesand methods of the mergers and acquisitions of foreign companies, however, differ greatly dependingon the country. In the case of Japanese companies, much of the investment has been made in order tomaintain joint venture business bases and in order to aid business partners.

Due to the efforts of Asian companies and policy support from the governments of the variouscountries, corporate restructuring is already beginning to show results. Corporate restructuring,however, lags behind financial institutions' efforts to get rid of bad debt, and the situation for debtrepayment continues to be severe. To achieve further restructuring, it is absolutely essential thatissues such as clarification of debt and debtor responsibilities, government intervention or injectionof public funds, and structural changes for the long-term be tackled. Moreover, external factors suchas improved macroeconomic conditions, movement of foreign capital, and recovery in the financialmarkets are also conditions for corporate restructuring.

When we consider the relationship of mutual interdependence enjoyed by Japan and the countries ofAsia, it is clear that supporting economic recovery in Asia and corporate restructuring will benefitJapan as well. Through M&A activities and cancellation of bad debt, Japan's financial institutionsand companies will be able to support and assist corporate restructuring in Asia. The Japanesegovernment's capital assistance for Asia has contributed significantly to the restoration of trust, butsupport for issues urgent to the economic recovery such as disposal of bad debt and direct support forcorporate restructuring remains insubstantial. From now on, Japan's assistance to Asia should beexpanded to include support for corporate restructuring in cooperation with the governments of thevarious countries, state-owned enterprises, and foreign and domestic private companies. Incidentally,the corporate restructuring of Asian companies should provide a good example for Japanese companies' restructuring as well.