Asian crisis effect on Nevada uncertain

Monday, Feb. 23, 1998 | 10:15 a.m.

The gloom of the Asian financial crisis hasn't settled over Nevada's economy.

But if and when it does, it could hit on two fronts, analysts studying Southern Nevada's economic health said.

The tourism industry would feel the pinch first. Because the financial well-being of the resort community touches suppliers all over the valley, the domino effect of a downturn fueled by Asian woes could hurt small businesses that operate as vendors to hotels and casinos.

On another front, small exporters based in Southern Nevada may feel the effects of the so-called "Asian flu" on a long-term basis. The jury is still out on how badly those companies will be hurt -- some of them say there has been a moderate impact already while some say they've yet to be touched by the crisis generated by financial market crashes and currency devaluations.

Observers monitoring the situation in Asia and determining its impact in Southern Nevada said there are a number of mitigating circumstances that could play a role in whether the Asian flu will be a 24-hour bug or a malady that requires intensive care:

* The percentage of international visitors to Las Vegas from countries affected by the Asian financial crisis is relatively low. According to U.S. Department of Commerce statistics, 11.8 percent of international visitors to Las Vegas in 1995 were from Japan, South Korea, Hong Kong and the Philippines. Visitation from Taiwan was not a part of the percentage because the Commerce Department lumped it together with China, which isn't considered among the impacted nations though economists say its currency is overvalued.

The U.S. Department of Commerce estimated the total number of Asian visitors to Las Vegas in 1995 to be around 371,000. That's about 12 percent of the total number of international travelers to Las Vegas.

* While some casinos have expressed concern there won't be as many high-rolling baccarat players populating their tables, Keith Schwer, director of the Center for Business and Economic Research at UNLV, said there may not be much to worry about. Spending patterns following the Mexican currency crisis that spanned 1994 and 1995 showed that wealthy visitors continued to buy, even though it was more expensive after the peso lost value. Schwer said the big concern is whether volume will be affected because if that happens it could hurt a broader segment of the economy.

* While Asia has foundered, California has rebounded. Howard Roth, vice president and senior economist for the Bank of America, said California has quietly built steam, which generally translates into increased visits. The Golden State is the top source of visitors to Las Vegas. Ironically, California is likely to suffer more from the Asian flu bug's bite than any other state because of the large number of business relationships that exist on the West Coast with partners on the Pacific Rim, Roth said.

* Historically, Nevada's exports to Asian nations are a very small cut of a large pie. Nevada companies exported goods to 136 countries in the first nine months of 1997. Of the top 10 countries of destination, three -- Japan, South Korea and Hong Kong -- are among the troubled Asian nations, but exports to them represent less than 1 percent of the total.

* Exporters learned some valuable lessons from the Mexican experience and local companies doing business in Asia are taking appropriate actions. Peter Cunningham, the recently departed director of international trade for the Nevada Commission on Economic Development, said most of state's exporters to Asia are well positioned in their markets and intend to stand by their investments. Cunningham, who this month took a similar position with the state of Pennsylvania, said the general trend in the wake of the crisis has been to maintain status quo in existing relationships, but not strike any new deals or develop any new programs until the situation eases.

* Some say a turnaround in Asia's economy is already in the works. Cunningham and Roth said policies demanded by the International Monetary Fund have been adopted by financial leaders in some countries, but it's a slow process to change ways that have been a part of the existing business culture.

The immediate concern for the local economy centers around visits to Las Vegas. Local travel professionals say it's difficult to gauge just how many visitors won't come to Southern Nevada because of the devalued currency abroad, since many pleasure travelers book to the West Coast, then make arrangements to Las Vegas after they've arrived. Many of the reservations booked for Asian visitors come directly from Southern California.

Schwer, who monitors statistics like visitor volume, airport passenger numbers and sales tax collections, said it's too early to tell if there will be a significant drop directly attributable to the Asian flu.

"There are many unknowns at this point," said Schwer. "It's possible that people will continue to come here, but just spend less money when they arrive."

In addition to not having reliable advance-booking figures, some of the traditional hot spots for foreign travelers are a little slow in December, January and February. Air tour operations, for example, usually cut back in the winter months because people normally vacation here when the weather is more favorable.

One group of Asian visitors that can be tracked -- international guests to the Comdex computer trade show in November -- haven't backed off on plans to be here.

"As far as Comdex Fall (the next show in November), we have not seen any erosion by any of the Asian companies," said Peter Shaw, executive vice president of strategic marketing for Ziff-Davis Comdex and Forums, the show's planners. "Actually, we've seen an increase."

Shaw said he attributes the trend to technology companies recognizing that they're operating within a global marketplace.

"When there are downturns in one market geography, the impetus is to look to other market geographies to take up the slack," said Shaw. "When a marketplace dips in terms of buying activity, the one thing you don't want to do is reduce your marketing visibility."

The Comdex show in Las Vegas is the Asian technology market's golden opportunity to reach U.S. markets. Of the approximately 220,000 delegates to last year's show, about 20,000 were from Asian nations suffering economic upheaval, Shaw said. Of the 2,200 exhibitors at the show, about 200 were from Asia.

Shaw said there was no sign of an Asian retreat at the Comdex France show conducted earlier this month.

The importance of serving a global marketplace is key to the small companies that export goods overseas.

Westwood Studios, which produces computer games including the popular "Command & Conquer" series, has no plans to cut back production in the wake of Asia's financial woes.

"We've had our eye on it, that's for sure," said Laura Wheeler, Westwood's senior marketing director.

Although Westwood would figure to be particularly vulnerable because its product targets discretionary income, Wheeler said sales forces overseas have a strategy to press forward.

"When you're talking about hard-core gamers, you're talking about players who really want their hard-core games," said Wheeler. "And that's what we provide. They may want to reduce their budget, maybe buy five games a year instead of 10, but we figure to be among those five."

Taking a more cautious approach is Las Vegas-based Flavor Consultants, a company that exports food seasoning and flavoring supplies to foreign producers. Tim Wallace, the principal officer for the company that has $4 million in sales to Pacific Rim nations, said because the United States is such a strong producer of soybeans, corn and wheat, foreign nations are likely to keep coming to companies like his.

"A lot of companies over there are taking a wait-and-see approach to what's happening," said Wallace. "Japanese business, for example, is very tough to capture, but once you capture it, it's very tough to lose" because Japanese businesses tend to be loyal to their partners through tough times.

Wallace said different products with which he works receive different responses overseas. That's because most of Wallace's competitors are from other nations and their own currency fluctuations have an impact on what price will be most favorable to the manufacturer.

"Even though the price is a little sideways, we may have a better price than a German or Swiss company that offers the same thing," Wallace said.

He added the tendency during tough times is to hang onto and protect existing business relationships, but not initiate any new contacts. Cunningham concurred that's a trend exporters tend to follow whenever an incident with international repercussions affects the business world.

Wallace left last week for Taiwan, which he referred to as "one of the windows into China." He said he already has confirmed $75,000 in orders for instant soup products, drinks and whiskey flavorings for teas, juices and milk products.

Another potential impact to Southern Nevada, said Robert Young, president of Las Vegas' Asian Chamber of Commerce, is that locally based Asian business people may encourage family members still living overseas to relocate here.

There are about 1,200 businesses owned by Asian Americans in Southern Nevada, 300 of which have an Asian chamber membership.

Young said Nevada Asians are helping families in their native lands get through the crisis. Many are sending money, which goes a lot further because of the favorable exchange rate, and others are planting ideas encouraging moves to the United States.

Young said the Asian population of 80,000 in Southern Nevada is encouraged that while the worst of the crisis may not be over, steps are being taken to soften the blow through IMF policies.

"The worst is not over," said Young. "But the Asian people know that when this correction is over, the people will still need to make a living."

Cunningham said in the wake of the Mexican currency crisis a number of business people opted to stand pat on their investments and weather the storm.

"They have so much invested in building a relationship with a foreign country," said Cunningham. "There has to be a pretty significant shakeup to abandon that."

Schwer noted that like the Mexican incident, the Asian crisis is likely to hurt California more because the scale of its business relationships abroad is so much greater. He added that large domestic retail corporations could also contribute to making the crisis worse for Americans because it's less expensive to buy goods from nations with devalued currency. But that shouldn't hurt Nevada, he said, since the manufacturing sector is so small.

"It's hard to measure everything that's flowing through Wal-Mart from outside areas," said Schwer. "A lot of stuff that will show up in retail may come from overseas. Instead of Wal-Mart buying from a manufacturing plant in St. Louis, it may be cheaper to get the same things from the Philippines.

"But right now, there's no smoking-gun information to tell us exactly what's happening."

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