Nomura Research Institute, Ltd. (NRI: Tokyo, Japan; Akihisa Fujinuma, President, CEO & COO) has created a growth scenario for Asia during the 2010s based on the findings of our survey and research activities. This scenario has been built through means of our on-site surveys along with discussions and interviews with researchers in China, India, Thailand and Vietnam, as well as with the executives of local Japanese companies.

Assumptions

(1)	While the basis for this assumption depends on continuation of the current trends of economic growth and fluctuations in the yuan rate, in terms of economic scale, China is projected to rank at the top in Asia around 2015 by surpassing the size of the GDP registered by Japan. The rise of China will benefit neighboring Asian countries in the sense that it will offer them a number of opportunities for growth. At the same time, however, the increased prominence of China will also produce a strong sense of caution among them as competitors. Because we foresee no major issues that might hold back its growth, the Chinese economy will continue to grow until around 2015. However, whether China successfully implements ongoing structural reforms in the socioeconomic environment (the 11th Five-Year Plan covering up to 2010) will affect the sustainability of its development after 2015 and beyond. China holds the key to achieving harmonious and sustainable growth in all of Asia.
(2)	In India, consumer markets are finally ready to grow rapidly. However, the growth momentum of India is not as forceful as that of China. In addition, in evolving business operations in India, attention should also be given to negative aspects such as frequent labor disputes, high wage increases and delays in the development of infrastructure. Such risks require that companies participating in the Indian markets take solid “defensive approaches.” At the same time, the firm commitment of management executives at the head office is also required.
(3)	Among ASEAN countries, the most significant changes in Asia during the next decade will take place in the Greater Mekong Subregion (GMS). This is an area around the Mekong River consisting of Thailand, Vietnam, Laos, Cambodia, Myanmar and China’s Yunnan province. Such major changes will be brought about through the development of transport infrastructure and by a growing labor force within the subregion. When high standard highway routes throughout the subregion are completed, economic communities in South China, China’s Yunnan province, Vietnam and Thailand will be integrated. The resulting economic block is expected to develop into a base to supply products to major consumer markets including China and India in addition to Japan, the US and Europe. Turning our eyes to other ASEAN member countries such as the Philippines, Indonesia and Malaysia, we find some negative aspects discouraging investments by other countries. These include an unstable political situation, the growing disparity between the rich and the poor and delays in promoting the creation of high value-added industries. If no corrective actions are taken, the race between the ASEAN member countries might be over before it has a chance to begin.
(4)	In China, India, Thailand and Vietnam, new purchaser segments will emerge. These segments, which will undoubtedly be referred to as “the new Asian middle classes,” consist of people in their 20s to 40s who have access to the latest information and new technology and a new sense of value. In general, Japanese companies have so far been unable to develop strong brand recognition among these newly emerging segments. To be successful competitors in the growing Asian consumer market, Japanese companies must be equipped with brand, marketing and product strategies that appeal to these segments.

Growth Scenario
From 2010 to 2015, Asian countries will increasingly engage in discussions and negotiations to enter into agreements such as a Free Trade Agreement (FTA) and an Economic Partnership Agreement (EPA) to establish and strengthen cooperation and partnerships in Asia. These efforts will bring about a framework in Asia, on which Japan, NIEs, ASEAN, China and India will base their cooperation with each other to grow dynamically. Under this framework, each country will correspondingly perform certain roles. Specifically, China and India will serve as vast consumption markets. The primary roles of Japan, South Korea, Taiwan and Singapore will be to provide capital and technology. The ASEAN countries will use the invested capital and technology to provide production functions. Establishing closer relationships based on such separation of roles that makes the best use of the characteristics of each country/region will further accelerate the growth of the Asian economy in the 2010s.

Japan’s Roles
As further growth is achieved in Asia, Japan will meet with increased expectations. While China can take the lead in Asia in terms of consumption and investment activities, it is difficult to imagine that China will support the creation of a high value-added industrial structure, which is what other Asian countries most desire, as well as develop and train sufficient human resources to achieve this goal. China's growth will benefit neighboring Asian countries. At the same time, however, China's increased prominence will give rise to the danger of being lost in competition. In an effort to improve competitiveness, each country considers it desirable to promote further cooperation with Japan. In addition, we believe that Japan can contribute in a number of fields such as resource and energy savings and environmental measures. Accordingly, we also believe that Japan will be expected to play greater roles in these spheres in Asia in the future.

By considering these circumstances, Japanese companies should redesign their Asian strategies for the future. To fully utilize the advantages generated through closer regional tie-ups and partnerships in Asia, Japanese companies should implement management reforms to operate businesses embracing all of Asia, rather than implementing business strategies targeting specific countries/regions as in the past. Definite measures for this purpose include the development of human resources well versed in Asia as a whole, the rebuilding of company-wide functions to enable the formulation of strategies envisioning all of Asia and decision making from a perspective that covers Asia as a complete entity.

Both the Japanese government and Japanese companies should be more strongly committed to Asian issues and contribute to the establishment and promotion of mutual tie-ups and partnerships within the region.

NRI plans to publish our projections on the outlook for Asia in the 2010s and our proposals for business strategies to be taken by Japanese companies as a book entitled “2010-nen no Asia to Nihon (Asia and Japan in 2010)” on November 2 by Toyo Keizai Inc. In the future, NRI will continue to analyze business trends in Asia and propose appropriate directions for business throughout all of Asia.

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