Real Study guide for IB EXAM 2

Four Asian Tigers:

Hong Kong, South Korea, Singapore, and Taiwan

PAHC Model Core Idea:

Policy-Augmented Human Capital is the central concept, pairing

human capital (invention, innovation, entrepreneurship) with a clear development

roadmap led by a capable leader.

Key Drivers of Economic Miracles:

Effective industrial policies, export-led trade,

interventionist policies, and incentives.

Common Factor in ALL Eight Success Stories:

Enhanced government-business

coordination.

Economic Prosperity & Democracy: The East Asian model

suggests a causality of

Economic Prosperity to Democracy, with an initial preference for development over

democracy.

High Domestic Savings:

Viewed as an outcome of the high growth process, not a

precondition.

India vs. Asian Tigers Disparities:

Evident in investment in education and infrastructure.

PAHC Model Validation:

Validates the critical role of capital accumulation and charismatic

leadership, meritocratic politicians, bureaucrats cum Capitalist entrepreneurs.

Singapore:

• Distinction:

• Human Development Indicators (HDI):

• HP's Choice:

• Appeal Factors:

• Shared Growth Principle Strategy:

Singapore: The Exceptional City-State

• Distinction: Has never changed its ruling party since becoming fully functional.

• Human Development Indicators (HDI): Incorporates Life expectancy, infant mortality,

and income.

• HP's Choice: HP chose Singapore due to its stable Government committed to development

and a high education level of the local workforce and good infrastructure.

• Appeal Factors: Stems from its predictable government, reliable legal system, and a

business-friendly regulatory environment.

• Shared Growth Principle Strategy: Implemented public housing programs.

China: The Factory and R&D Hub

• China vs. India Comparison:

• Environmental Impacts Driver:

• MNC Entry Factors (P&G Case):

• "Made in China 2025" Plan:

• Shift to High-Tech:

• Guanxi:

• MNC Core Strategic Imperative:

• MNC Best Response to Strategic Shift:

• China's Factory Hub Status:

• Loss of Labor Competitiveness:

• Trade Conclusion:

• Initial Entry Mode:

China: The Factory and R&D Hub• China vs. India Comparison: China embarked on economic liberalization a decade ahead

of India.

• Environmental Impacts Driver: Driven by the belief that a certain degree of pollution is

essential for an economic jump-start.

• MNC Entry Factors (P&G Case): Market environment, Govt. policies, and Investment

structure.

• "Made in China 2025" Plan: Primary aim is to elevate manufacturing capabilities and

technological self-sufficiency , and to boost China's technological transformation.

• Shift to High-Tech: Driven by disillusionment with the low-value trap and the realization

that MNCs reap the greatest profits.

• Guanxi: The concept stresses the importance of relationships and personal networks for

facilitating business.

• MNC Core Strategic Imperative: Emphasize Innovation and Differentiation to counter fast-

moving domestic players.

• MNC Best Response to Strategic Shift: Make themselves indispensable to the Chinese

government, its partners, and its customers.

• China's Factory Hub Status: Continues due to its excellent infrastructure and requisite

skilled workforce.

• Loss of Labor Competitiveness: Reflects the middle-income trap.

• Trade Conclusion: China’s trade surplus is essentially a surplus in processing trade.

• Initial Entry Mode: The majority of foreign firms preferred Joint Ventures (JVs) when

China first established its "open door policy".

India:

• Demonetization Goal:

• Growth Distinction:

• Three Primary Obstacles to Growth:

• MNC Struggle with Consumer Market:

• Paradox of Inequality and Poverty:

• Most Critical Factor for Digital Economy:

• Foundational Government Digital Initiative:

• Value-Added Indian Capitalism:

• "Capindialism" Control:

• Corporate India Restructuring Revelation:

• Phase 3 Driver:

• Bottleneck to Manufacturing Shift:

• Industrial Policy for Supply Chain Diversification:

• DPI Lesson to Developing Countries:

• Low-Cost Software DPI:

India: Service-Led Growth and Digital Surge

• Demonetization Goal: Part of efforts to Formalize the economy.

• Growth Distinction: India's growth has been uniquely driven by the Service Sector

(especially IT and BPO) rather than a manufacturing base.

• Three Primary Obstacles to Growth: Labor laws, poor infrastructure, and dreadful public

services.

• MNC Struggle with Consumer Market: Because the middle class has little to spend.

• Paradox of Inequality and Poverty: No, growth by itself is not sufficient to end poverty.

• Most Critical Factor for Digital Economy: Appropriate policies to facilitate new economy

job creation.

• Foundational Government Digital Initiative: Aadhaar.

• Value-Added Indian Capitalism: Remains highly concentrated, with a small percentage of

firms accounting for a disproportionately high share of output.

• "Capindialism" Control: Profits were largely controlled by The state or entrepreneurs and

their descendants.

• Corporate India Restructuring Revelation: Showed India as a potential and viable

competitor as well as destination.

• Phase 3 Driver: Overcoming mindset barriers and leveraging India-developed

competencies (e.g., IT, R&D).

• Bottleneck to Manufacturing Shift: The need to resolve labor market bottlenecks and

reduce trade barriers.

• Industrial Policy for Supply Chain Diversification: Make in India.

• DPI Lesson to Developing Countries: Take advantage of DPI via Modular Open-Source

Identity Platform.

• Low-Cost Software DPI: Has formidable technological capabilities.

MNC Pressure in China:

China’s stagnant growth meets rising costs.

MNC Strategy to Compete with Local Chinese Companies:

Compete with local

competitors' innovations using core competencies.

Altasia Labor Advantage:

Altasia countries have a combined total labor force and qualified

workforce than China, except that China has higher manufacturing labor cost per hour.

MNC Best Response to New Business Models in China: MNCs must be pragmatic about

the challenges encountered.

MNCs must be pragmatic about

the challenges encountered.

"Born-Global Firm" Characteristic:

The firm obtains a substantial portion of total revenue

from sales in international markets from or near its founding.

Global Mindset for Born-Global Firm:

The ability to learn from the local environment and

tap into the local knowledge base.

Asian Century Focus for Executives:

Establishing priorities relevant to the Asian

century.

Asia's Outperformance over EU:

Outperforms the EU in Intra-regional FDI share.

Asia's Centrality: Due to its Share of global trade is increasing.

Due to its Share of global trade is increasing.

Intraregional Trade Flows:

Asia’s intraregional share of goods trade flows is only smaller

to Europe’s.

Closing the Infrastructure Gap:

Critical because Poor infrastructure is one of the key

impediments.

Latin America Failures

• Most Inequality:

• Productivity Trap:

• Factor NOT Contributing to Failure:

• Economic integration

• Brazil success story:

o "Custo Brasil":

• Costa Rica:

Latin America Failures

• Most Inequality: Latin America is the region with the most inequality in the world.

• Productivity Trap: Primarily associated with an export structure concentrated in primary

and extractive sectors, which undermines participation in global value chains.

• Factor NOT Contributing to Failure: An over-reliance on international financial

institutions like the IMF.

• Economic integration not working optimally.

• Brazil success story: addressing inequality; macroeconomic endeavors; trade; luck.

o "Custo Brasil": Term for the combination of general economic inefficiencies in

Brazil (red tape, poor infrastructure, lack of skilled labor, high tax burdens, and

expensive credit).

• Costa Rica: Born Global phenomenon in an open middle income country.

o Born Global or Born Regional?

China: The Strategic Imperative for MNCs

China's economic story is shifting from being just the "Factory of the World" to an innovation powerhouse. This strategic shift is crucial for MNCs to understand.

"Made in China 2025" Plan:

The primary aim is to elevate manufacturing capabilities and

technological self-sufficiency and boost China's technological transformation. This move

was driven by a disillusionment with the low-value trap and the realization that MNCs were

reaping the greatest profits.

Continued Hub Status:

China remains the central hub of the "Factory Asia Network"

despite rising costs because it possesses excellent infrastructure and requisite skilled

workforce.

Loss of Labor Competitiveness:

This is reflected in the reality of the middle-income trap.

Entry Mode Shift:

Foreign firms initially preferred Joint Ventures (JVs) but later shifted

toward sole foreign investment ownership.

MNC Strategic Response

• Core Imperative:

• Best Immediate Response:

• Facing New Competition:

• Business Culture:

MNC Strategic Response

• Core Imperative: MNCs must focus on Innovation and Differentiation to compete with fast-

moving domestic players who are rapidly moving up the value chain.

• Best Immediate Response: MNCs should make themselves indispensable to the Chinese

government, its partners, and its customers.

• Facing New Competition: MNCs must be pragmatic about the challenges encountered

when competing with new business models in China.

• Business Culture: Guanxi (relationship network or connections) is deeply rooted in

Confucian philosophy and primarily stresses the importance of relationships and personal

networks for facilitating business and navigating the system.

India: Service-Led Growth and Digital Transformation

India: Social Economic history; turnaround –

• Capindialism 

India: Service-Led Growth and Digital Transformation

India: Social Economic history; turnaround – Economic liberalization & Corporate restructuring.

• Capindialism – Dynasties and State dominance.

Indias Economic Structure and Challenges

• Unique Growth Model:

• Value-Added Capitalism:

• Major Obstacles to Growth:

• Manufacturing Bottleneck:

• MNC Struggle:

• Growth and Poverty Paradox:

Indias Economic Structure and Challenges

• Unique Growth Model: India's growth has been uniquely driven by the Service Sector

(especially IT and BPO) rather than establishing a strong manufacturing base first.

• Value-Added Capitalism: Indian capitalism remains highly concentrated, with a small

percentage of firms accounting for a disproportionately high share of output. The profits

under "Capindialism" were largely controlled by the state or entrepreneurs and their

descendants.

• Major Obstacles to Growth: The three primary obstacles are labor laws, poor

infrastructure, and dreadful public services.

• Manufacturing Bottleneck: To transition to a "super-charged manufacturing" economy,

India must resolve labor market bottlenecks and reduce trade barriers.

• MNC Struggle: MNCs struggle to capitalize on the Indian consumer market because the

middle class has little to spend.

• Growth and Poverty Paradox: Rapid growth by itself is not sufficient to end poverty,

requiring an accompanying focus on inclusive growth.

India’s Digital Leap and Policy

• Foundational Digital Initiative:

• Critical Factor for Digital Economy:

• Digital Public Infrastructure (DPI):

o India’s low-cost software-based DPI has

o A key lesson for developing countries is

• Industrial Policy:

Indias Digital Leap and Policy

• Foundational Digital Initiative: The government initiative highlighted as foundational to

the digital surge is Aadhaar.

• Critical Factor for Digital Economy: Appropriate policies to facilitate new economy job

creation are the most critical factor for India to fully benefit from the digital economy.

• Digital Public Infrastructure (DPI):

o India’s low-cost software-based DPI has formidable technological capabilities.

India’s version of China’s belt & road initiative.

o A key lesson for developing countries is to take advantage of DPI via Modular Open-

Source Identity Platform.

• Industrial Policy: Make in India is the industrial policy initiative aimed at attracting MNCs

diversifying supply chains away from China.

Asia

East Asian PAHC Model

• Core Concept: Policy-Augmented Human Capital (PAHC).

• Validation:

• Disparities with India:

Asia

East Asian PAHC Model

• Core Concept: Policy-Augmented Human Capital (PAHC). It is human capital

(invention, innovation, entrepreneurship) paired with a clear development road map

led by a capable leader.

• Validation: The model validates the critical role of capital accumulation and the

leadership qualities of charismatic leadership, meritocratic politicians, bureaucrats

cum Capitalist entrepreneurs.

• Disparities with India: These are evident in investment in education and

infrastructure.

Asian Tigers & Dragons

• Asian Economic Miracle:

• Japan:

• The Tigers and Dragons:

• Singapore:

Asian Tigers & Dragons

• Asian Economic Miracle: The essence of; Shared growth principles.

• Japan: Factors contributing to Japan’s rise – significance of quality .

• The Tigers and Dragons: S. Korea, Hongkong, Taiwan, Singapore, Malaysia etc.

• Singapore: Exceptional Singapore.