Bay Area fights off Asian flu
Excerpt: "Patrilla [Wells Fargo] is bullish on "technology and telecomvprojects and equipment. Those projects are stillvgoing forward."
By David Armstrong
OF THE EXAMINER STAFF
Sunday, May 3, 1998
sfgate.com
Concentration of high-powered
companies keep crisis at arm's length
The so-called Asian Contagion -- the fiscal crisis
that has sickened East Asia since July -- may be
circling the world like a supersonic sneeze, but
Northern California is resisting the bug quite nicely,
thank you. It may not be strictly accurate to say this
region is immune, but business leaders and analysts
say the concentration of high-technology and
financial services companies provide de facto
booster shots.
Indeed, the Bay Area seems to be doing better
than the nation as a whole, even with occasional
lapses such as United Airlines' decision to suspend
daily nonstop flights between San Francisco and
Seoul.
Nationally, analysts blamed the Asian crisis when
the U.S. trade deficit widened to $12.11 billion in
February, up 22.7 percent from $9.86 billion last
February. Yet analysts say they are cautiously
optimistic, suggesting an Asian recovery is in sight if
not imminent.
According to Claudine Cheng, an international
trade attorney who chairs the Bay Area World
Trade Council board of directors, "The currency
crisis in Asia has not really deterred the interest in
and the resources available to certain industries."
Silicon Valley tech firms, Cheng says, are still doing
brisk business with their counterparts in Asia,
especially businesspeople from Hong Kong,
Taiwan and mainland China.
"People are coming over here, definitely," says
Hong Kong-born Cheng, who adds that the fiscal
crisis has shown Asians that Asia "is not the most
perfect place. The United States has proven to be a
safe haven, and a source of technological exchange
and research and development."
Intel Corp., the Santa Clara chipmaker, which has
major manufacturing plants in Asian such locales as
Penang, Malaysia, is still doing good business in
Asia, and has no plans to pull out or drastically cut
back, says Intel media relations officer Robert
Moretta.
Quite the contrary. In a March speech in Seoul,
incoming Intel CEO Craig R. Barrett said Intel
plans to invest $1 billion in plants and equipment in
Asia and purchase $1 billion of products from
South Korea this year. Moretta adds that while
"Japan was flat for the previous quarter, the rest of
the Asia-Pacific region actually rose three points for
us."
Also last month, Palo Alto-based Hewlett-Packard
Co. announced plans to invest $300 million in
South Korea.
California tech companies see Asia as key to
long-term profit once the present difficulties are
ironed out. That said, Japan, which boasts the
world's second-largest economy, after the United
States, remains a concern to many.
Dave Zuercher, president and CEO of Wells Fargo
HSBC Trade Bank, told a San Francisco Chamber
of Commerce breakfast forum on the Asian
currency crisis last week that Japan has made "a
lethargic response" to necessary reform.
Greater transparency in financial markets and the
banking system is badly needed in Japan and some
other parts of Asia, argues Zuercher, who blames
the currency crisis on "unregulated banks in Asia
who made a lot of loans and didn't underwrite
those loans properly."
Wells Fargo Bank senior economist Gary
Schlossberg, speaking at the same forum, said he
believes an Asian recovery has begun, although it
will take "18 months to two years to wash through
the system."
According to Wells Fargo media relations officer
Mark Marymee, Wells Fargo HSBC Trade Bank
was launched in October 1995 as a joint venture
between San Francisco-based Wells Fargo Bank
and the Hong Kong and Shanghai Bank of China.
"The Trade Bank," Marymee says, "offers very
good intelligence," as well as selling credit insurance
and extending terms of credit to businesses in Asia
and elsewhere.
Marymee says the Trade Bank has purchased
accounts receivable from unnamed companies
doing business in Asia, paying them, for example,
"95-96 percent cash in hand up front. Then it's up
to the Trade Bank to deal with the buyers' bank to
collect payment."
Ken Patrilla, senior vice president with the Wells
Fargo HSBC Trade Bank, points out that while the
U.S. trade deficit hit $12.11€billion in February,
largely because of turmoil in Asia, high-tech
companies cushioned the blows considerably in the
Bay Area.
"The trade deficit is ballooning, but on a more
micro level, I see additional opportunities for
financing trade for Silicon Valley exporters," Patrilla says.
Patrilla is bullish on "technology and telecom
projects and equipment. Those projects are still
going forward. Medical instrument sales are still
going fairly well," although he allows that "sales of
personal computers are down."
Like most observers, Patrilla takes care to
distinguish between countries. Hong Kong,
mainland China and Taiwan are reasonably strong,
he says. But Japan induces worries, and "Korea
and Indonesia are problematic, for sure."
Some Bay Area companies, tracking changes in the
fiscal weather, are waiting for the storm to blow by.
One such company is the Walnut Creek-based
Round Table pizza chain, which operates nine
restaurants in Indonesia and five in Taiwan.
David Lundgren, senior vice president of
development for Round Table Franchise Corp.,
says, "Our Indonesian operations have been
impacted by the currency devaluation. The cost of
goods has gone up dramatically, and ceilings have
been placed on the ability to pass on those costs."
Lundgren said that Round Table's operations in
Taiwan, where the economy is more stable, are
holding steady.
Separately, Lundgren told the trade magazine
Restaurant Business that Round Table plans to
enter mainland China once the crisis passes, and
has its eye on South Korea, too. "Long-term, there
are great opportunities in Korea, for example, once
the situation has stabilized. We'll definitely take
another look at it," he said.
In the meantime, says the World Trade Center's
Cheng, small companies without the clout of an
Intel, Wells Fargo or Round Table have to ride out
the storm as best they can. With many Asian
consumers made suddenly cash-poor by currency
devaluation and Asian businesses destabilized,
doing business with Asia is far from routine these
days.
At Tai Seng Video, this country's largest distributor
of Asian movies on videotape, general manager
Helen K. Soo says resource-strapped Asian
filmmakers are turning out less product. "They're
not getting movies made there," says Soo, "so you
see directors and stars coming here."
One upside for South San Francisco-based Tai
Seng, which was instrumental in introducing Asian
stars such as Hong Kong action hero Jackie Chan
to U.S. moviegoers, is "certain raw materials are
slightly cheaper, like blank tapes." The company
didn't cite dollar amounts.
This is no small factor for Tai Seng, which keeps
more than 1,000 videocassette recorders going
round the clock in its South Spruce Avenue
warehouse, duplicating Asian films for distribution
to video stores across America.
Northern California analysts and business people
express confidence that the Asian flu will run its
course and patients on both sides of the Pacific will
return to health.
"Actually, I don't think we should use these terms
anymore," says Cheng of the Asian flu. "As the
market system tries to adjust itself worldwide, what
happened in Asia is a healthy development in the
long run."
Wells Fargo's Patrilla concurs. The Asian crisis, he
says, should lead to better "risk-mitigation
techniques" for U.S. companies doing business with
Asia, and stepped-up "manufacturing locally (in
Asia) to control costs." In any case, he concludes,
"Another thing that's positive for the Bay Area,
being led by technology and Silicon Valley, we're
better positioned. We have a nice mix."
c1998 San Francisco Examiner |
