Jan. 15 (Bloomberg) -- If Asia wants a stab at prosperity, it must stop making more and more television sets, computers and mobile phones that only get cheaper and cheaper.

That's the advice of Daniel Lian, a Morgan Stanley economist in Singapore, who says a better future for Asia lies in emulating the example of some 77,000 watchmakers and precision engineering workers in Switzerland. They export $9 billion of timepieces annually and have managed to raise prices of their complicated, hand crafted watches at least 50 percent over the past decade.

Lian's idea is that -- like the Swiss watch making industry -- Asia should create niches of small businesses that tap wealthy consumers globally, using local ingenuity and resources.

An average Swiss watchmaker employs 60 people. Only 10 out of 650 Swiss companies employ more than 500. In comparison, computer maker Hewlett-Packard Co. has 6,000 workers in Singapore, while disk drive manufacturer Seagate Technology employs about 9,000.

Two questions must be asked: How practical is Lian's suggestion, and how desirable? And before we do that, let's understand where Lian is coming from.

The emergence of China has exposed chinks in Asia's model of supplying ever-rising volumes of cheap electronics to the U.S. and Europe. Thanks to its seemingly endless supply of labor, the most-populous nation is making electronics products cheaper than anyone else in Asia. While the Japanese and the South Koreans have the technology and the brands to stay ahead, Southeast Asian nations, especially Singapore, Indonesia, Malaysia and the Philippines, must rethink their growth model.

Dire Consequences

Otherwise, ``the inevitable economic consequence is relative economic stagnation and a decline in the region's standard of living for many years to come,'' Lian says.

Dependence on global foreign direct investment to generate growth and jobs is indeed becoming a risky strategy for Southeast Asia at a time when China is cornering an ever-increasing share of those volatile funds. Between January and September, Southeast Asia's share of about $120 billion of annual U.S. foreign investment was 4.4 percent, down from 12 percent last year.

Swiss watchmakers, who survived the onslaught of cheap, mass- produced Japanese quartz watches in the 1970s, can surely teach Asian entrepreneurs and policy makers a thing or two about creating ``differentiated products that target niche but direct consumption demand from upwardly mobile and affluent households,'' Lian says.

Small and Innovative

The Swiss were the first to make it possible for watches to keep going while they were being wound. It was the Swiss who introduced the use of jewels to reduce friction. In the 19th century, they devised a system for easy repair that's found in all high-end watches even today. They also made watches that are the world's thinnest, smallest and the most expensive.

To be sure, the going hasn't been all that good the last few years for Swiss watchmakers. Production fell for eight straight years, before rising 1.7 percent to 28.3 million pieces in 2002. In the first 11 months of 2003, Swiss watch exports fell 4.4 percent from a year earlier to 9.27 billion Swiss francs ($7.5 billion).

So, is Lian's advice practical in this context?

Yes, and an Asian city like Singapore should look at Geneva and ask, ``What does it take to create an environment where creative industries tend to agglomerate and multiply? Can it be done in four years, instead of the 400 years that Geneva has taken?''

Tourism May Be It

We don't know if Singapore, which recently allowed bar-top dancing and bungee jumping in its drive to become a less rules- driven society, will emerge as a hub of entrepreneurship in four years or 400. Besides, what's good for smaller nations like Switzerland (with a population of 7.3 million) and Singapore (with a population of 4.2 million), won't work for larger countries like Indonesia.

That's because in Switzerland, 7 percent of all workers are employed in watch making and precision instruments industries. If their spending power is high, it's big enough to send a small wave of prosperity running through the economy. A similar-sized group of 77,000 people, employed in a highly lucrative industry in Indonesia, would fail to create even a ripple for the remaining 220 million people.

Indonesia, too, needs small-scale businesses, but it needs thousands of them to employ millions of people. Tourism fits the bill perfectly. It could be volcano trekking in West Java province, diving off the coast in North Sulawesi, or pelagic sailing in the eastern islands.

For inspiration, Indonesia needn't look far. Closer to home, Thailand is able to squeeze Western and Japanese tourists for more dollars by marketing health spa tourism.

``Sufficient numbers of these small and medium enterprises will make a difference,'' Lian says. ``Small is beautiful.''

Last Updated: January 14, 2004 15:57 EST