HONG KONG Asian companies have become a beacon of growth in an otherwise dismal global economy, but the question now is how long they can keep that bright light burning.
China's three leading internet players -- Baidu, Alibaba Group Holding and Tencent Holdings, known collectively as "BAT" -- have logged some of the most impressive growth in the region. In recent months, however, cracks have started appearing.
On May 10, Baidu's co-founder and CEO, Li Yanhong, also known as Robin Li, sent an urgent email to all of his employees.
"With the recent resentment of our users, Baidu is facing a crisis that we have never experienced before," he wrote. "We could go out of business in just 30 days if we lose our users."
Li was referring to an incident in April in which a university student died after undergoing treatment at a hospital he had found through a search on the Baidu website. It emerged that the hospital had paid a huge advertising fee to Baidu so that its website would feature prominently in search results. Moreover, the information the hospital provided online was reportedly false. Such fraudulent practices are thought to be common in health care ads, which make up 20-30% of Baidu's revenue.
Chinese authorities initiated a probe, and the company's share price has lost almost 20% since the end of April.
It is biting into its revenue as well. On June 13, the company cut its estimate for the quarter through June to between 18.1 billion yuan ($2.8 billion) and 18.2 billion yuan from the previous estimate of between 20.11 billion yuan and 20.58 billion yuan, due mainly to results of new regulatory framework implemented after the scandal.
Meanwhile, regulators have launched an investigation into accounting practices at New York-listed Alibaba. It emerged in May that the U.S. Securities and Exchange Commission requested the company to voluntarily provide accounting information for its delivery provider, Cainiao Network, and other affiliates. Alibaba owns a 47% stake in Cainiao. The company was also asked for operating data from its annual Singles' Day shopping event on Nov. 11. The company said it recorded over 90 billion yuan in sales during last year's event, a 60% jump on the year.
Alibaba, which raised $25 billion in its record-breaking initial public offering in September 2014, seems to be losing its luster. It is now trading around $75, about 30% cheaper than its January 2015 high.
The problems at Baidu and Alibaba underscore the risks of putting social concerns second to growth.
It is a lesson financial institutions on Wall Street learned the hard way after their focus on maximizing short-term profits at any cost helped spark the 2008 global financial crisis. Eight years later, public resentment toward those companies remains strong, and tighter regulations have kept their earnings growth low.
Already, circumstances are changing drastically for Asian companies. First, the slowdown of the Chinese economy will likely dampen business activity. The International Monetary Fund forecasts the growth rate of emerging and developing Asia to slow from 6.6% in 2015 to 6.4% in 2016 and to 6.3% in 2017.
Second, competition is set to intensify. The slow recovery of developed economies means more Western companies are turning a keen eye toward Asia.
According to S&P Global, Asia accounted for 7.8% of sales at 500 major U.S. companies in 2014, making the region the largest overseas source of revenue for the second straight year.
At the same time, Asia's own growth is slowing, squeezing local players. Companies on the Nikkei Asian Review's Asia300 list posted their first collective profit fall in seven years in fiscal 2015, and they are expected to see another drop this year.
EXHIBIT A The plight of Astra International, once Indonesia's biggest listed company, is a warning to other Asian companies.
Astra was the pioneer of Indonesia's automotive market. It started out in the late 1960s distributing Toyota cars and eventually set up a joint venture with the Japanese automaker to produce vehicles locally.
But in recent years, Japanese rivals such as Honda, Suzuki and Mitsubishi have stepped up their efforts in Indonesia, and Astra's market share declined from 58% in 2009 to 50% in 2015.
A cooldown in consumer spending and falling commodity prices also took a toll, and Astra's net profit in 2015 fell 25% from the previous year. Business in 2016 "will not be much different from 2015," President Prijono Sugiarto said last November.
Chang Zhenming, chairman of Citic, China's largest state-run conglomerate, is also bracing for a tougher environment. "As for industries where we can become a leader, we will continue to operate as we always have. But for other industries, we want to partner with experienced industry leaders to make up for our weaknesses," he said.
With the period of unfettered growth behind them, Asian companies are entering an era of "survival of the fittest." To make it in such an era, companies will need a more sophisticated mindset and savvier business strategies.
Nikkei deputy editor Kenji Kawase in Hong Kong and Nikkei staff writers Tetsuya Abe in Beijing and Wataru Suzuki in Jakarta contributed to this story.