History
According to Yue-Sai Kan, a Chinese-American TV celebrity and founder of one of the most successful cosmetic brands in China, modern Chinese women didn’t wear much makeup until the early 1990. Although makeup is extensively used in Chinese opera and other performing arts, the use of color on nails and lips was more used to indicate social class then as a sign of beauty. Chinese people began to stain their fingernails with gum arabic, gelatin, beeswax and egg from around 3000 BCE. The colors used represented social class: Chou dynasty royals wore gold and silver; later royals wore black or red. The lower classes were forbidden to wear bright colors on their nails.
After Mao Ze Dong came to power, the use of makeup was considered decadent and anti-revolutionary. The aesthetic taste during the Cultural Revolution (1966-1976) advocated for a "revolutionary beauty" style like the gray Mao suit, army uniform and short hair, a unisex style which went hand in hand with Mao's advocating for women as the other half of the sky. "Growing up during the Cultural Revolution, I genuinely believed these were the only measurement for beauty and the uniform was the most beautiful thing on earth, that make-up and permed hair were a horror”, said Wang Ping who is now a university professor in Minnesota .
With the opening up of China in the early 1990, the interest for makeup increased and so did the interest of companies to access this largely untapped market. Yue-Sai , an American-Chinese started her own brand in 1992, leveraging on her fame as a television star and exclusively targeting Chinese women. Other entrepreneurs saw the growing cosmetics market as an investment opportunity. The Raystar Cosmetics Company was founded by Chinese investor Li Zhida who saw the potential of being one of the first mass market producers of brand makeup in China.
L’Oreal has a history going back to 1907 when Eugène Schueller, a young French chemist, developed an innovative hair-color formula he called Auréole . In 1909, Schueller registered his company, the Société Française de Teintures Inoffensives pour Cheveux ("Safe Hair Dye Company of France"), the future L’Oréal. The guiding principles of the company that would become L’Oréal were put into place from the start: research and innovation in the interest of beauty. Today, L’Oreal is the largest cosmetics and beauty company in the world with revenues of over 14 billion Euro and more than 52,000 employees. Although the company is listed, the founder’s daughter, Lilianne Bettencourt and the Swiss Nestlé company together own more than half of the shares and voting rights.
Growing the company, a sustainable strategy for L’Oreal.
Before planning to branch out in the Far East, L’Oreal always had a healthy growth. Like any successful company, its strategy is one of careful brand management and even more careful acquisitions. Competition in the cosmetics industry is fierce. Brands like Olay and Pond’s are brought in the market by giants like Procter and Gamble and Unilever, who have extensive experience managing brands for exact target groups. Even if they haven’t marketed cosmetics in a country before they can acquire practical knowledge of local culture before marketing more culturally sensitive products. Specialist brands like Avon and L‘Oreal may have knowledge of their respective products but can only enter a foreign market once.
By focusing on 10 global brands concentrated on hair color, hair care, skin care, color cosmetics, and fragrances, the company has turned into a global force by distilling the cultural cachet of different countries into its vials . Instead of doing exhaustive marketing research and running the risk of misreading their target group, they follow a strategy of acquisitions of local companies and established brands that already have that knowledge.
It was this strategy of “becoming a local brand” that led to the acquisition of the Mininurse brand from Raystar Cosmetics in 2003 and Yue-Sai in 2004. Having learned from their negative experience with the initial introduction of the Biotherm brand in the US, L’Oreal had set up only a modest amount of counters in Shanghai, Beijing and Guangzou and opened a plant in Suzhou in 1996. Despite being a latecomer to the Chinese market they still managed fast growth and an ever increasing market share.
L’Oreals strategy of managing global brands with local variations meant that they needed to become a “local” rather than a foreign company in China. The acquisition of the successful Mininurse brand and the Yue-Sai company fits exactly into this strategy. The group has three plants on the mainland, one in Shanghai and the others in East China's Jiangsu Province and Central China's Hubei Province, with their products exported to Japan, South Korea, Southeast Asia and Taiwan Province. This gives an exclusive “locally manufactured” feel to the products. "We are creating some formulas and products specifically for China and Asia and we will invest a lot to meet the different needs of customers in China", Thierry Prevot, managing director of the group's Asian operations said in an interview with China Daily .
L’Oreal’s brand portfolio, risks and opportunities.
L’Oreal markets 14 brands in China, including L'Oreal, Maybelline, Lancome, Biotherm, Helena Rubinstein, Shu Uemura, Matrix, Vichy, Garnier, and the local Mini Nurse and Yue-Sai. China is becoming increasingly important after sliding sales in the US due to the weakening economy . As mentioned, L’Oreal’s brand strategy is based on diversifying brands to fit local culture. While many companies seek to homogenize their brands to make them palatable in myriad cultures, L'Oreal's products embody their country of origin.
For example: in 1996, L'Oreal acquired the US cosmetics company Maybelline and began a complete makeover of the brand, including moving the headquarters from Memphis, Tennessee, to New York City to promote its U.S. origins. When L'Oreal marketers discovered that the moderately successful Maybelline Great Finish nail enamel dried in one minute, they changed the name to Express Finish—to be used by urban women on the go . Maybelline's share of the nail-enamel market in the U.S. has climbed from 3% to 15% since 1996.
By acquiring existing and successful brands in China L’Oreal took a risk. Each brand not only needs to have its own image, targeted towards its market group but also needs to stand out culturally. By marketing local brands, L’Oreal runs the risk of cannibalizing its existing “core” brands or estranging buyers who don’t recognize their “local” brand anymore. When differentiating brands, a company runs the risk of fragmenting, leaving the individual brands weaker as a whole. L’Oreal however has managed to keep its brands strong by realizing that its customers are individuals and that it should cater to individuals rather than a homogenous market.
L’Oreal’s future in China
The successful acquisition of two Chinese brands hasn’t ended L’Oreal’s ambitions in China. China is L'Oreal's largest market in Asia surpassing Japan in 2008, where the group saw a drop in sales. The company is now the second biggest cosmetics provider in China after Procter & Gamble which has operated in China for more than 20 years. Maybelline is the largest brand in China with 51.88% market share. In 2005 L'Oreal decided to launch its Chinese brand Yue-Sai globally “because of growing recognition of Chinese beauty”, completing the circle from localizing a global brand to globalizing a local brand.
The growth of L’Oreal has triggered a wave of consolidations and mergers in China making the already tough market even more competitive. In 2007 China sales rose 30 percent to 523 million Euro (777.4 U.S. million dollars) signaling that the Chinese markets is far from mature yet. L’Oreal is planning to set up the Giorgio Armani brand, starting with a boutique at Hong Kong International airport. Make-up and fragrance will be the focus, although a skincare offer is planned at some point in the future .
The growing economy and increase in spending power of Chinese women means that there is no end in sight for growing opportunities. L’Oreal’s unique approach sets it apart from competitors. The Chinese tradition of having a white skin has L’Oreal’s biochemists experimenting with Chinese herbs, roots, and flowers. Hua jiao, the flower of the prickly ash tree that adds tongue-scorching spice to Sichuan cuisine, is reputed to clear up acne and will be among them, as will traditional whitening agents such as ginkgo leaf, ginseng, and mulberry.
In contrast to its coastal cities, rural China is a largely untapped market for beauty products. Retailing and distribution is still badly managed in China's hinterlands therefore the companies that have the best strategies for reaching the women there, rather than the minority who shop for imports at department-store counters, ultimately will win the cosmetics race. L’Oreal may acquire more local brands but should be careful not to fragment the market too much. The R&D center in Pudong is part of L'Oréal's transition from the image its core brand it currently projects in China--its Chinese name, Oulaiya, means "elegance coming from Europe," and its ads feature pinkish colors on white faces--to something more recognizably Chinese.
Friday, April 25, 2008
Foreign Direct Investment in China
History
China’s experience with foreign direct investment has been a quite recent one. Although the Chinese traded with far away Europe as early as 114 BC, it were always the emissaries of the emperors who established contact and kept embassies in the countries along the famous “Silk Road” and the less well know “Porcelain Route”. The heyday of the Silk Road corresponds to that of the Byzantine Empire in its west end, Sassanid Empire Period to Il Khanate Period in the Nile-Oxus section and Three Kingdoms to Yuan Dynasty in the Sinitic zone in its east end. Trade between East and West also developed on the sea, between Alexandria in Egypt and Guangzhou in China, fostering the expansion of Roman trading posts in India .
During the Qing dynasty (1644-1912) China came under growing foreign pressure to
open up its borders to the Western seafaring powers. In 1535 Portuguese traders obtained the right to anchor ships in the harbor of Macao, a small island off the coast of mainland China. In 1557 the first walled settlement marked the earliest Direct Foreign Investment on Chinese soil. The island prospered under the new administration where the Portuguese acted as middlemen for traders on the route Guangzhou-Macau-Nagasaki, shipping silks from China to Japan and silver from Japan to China. Despite clashes with the Dutch, who were looking to establish trade colonies of their own, the Portuguese managed to hold on to their outpost (with a stint of independence in 1849) until the formal handover to China on December 20th 1999 .
Britain had its own reason for investing in the Middle Kingdom. In the early 19th century, British tea imports had taken such flight that a great trade imbalance between China and the British Empire existed. Although Britain exported commodities like silver, clocks and watches to China the market was too small to counter the local demand for tea. As a result, Britain started to export opium and soon established itself as the sole provider of the addictive drug. The Qing dynasty voiced their objections through the Chinese commissioner Lin Zexu to the British Queen Victoria but when the British Empire proved to be non responsive to Chinese complaints had to revert to military enforcement of its drug laws. During the resulting opium wars (from 1839 to 1842 and from 1856 to 1860) British victories forced the Chinese government to hand over Hong Kong which soon became the second foreign trade colony on Chinese territory.
After the Second World War, cheap labor and capital brought in by refugees from Mainland China transformed Hong Kong’s economy from a trade colony to a manufacturing and industrial hub. On July 1st 1997 sovereignty of Hong Kong was handed over to China which kept the former colonies capitalist system intact and created a Special Administrative Region (SAR) .
FDI in recent times
China’s experience with foreign direct investment has been a quite recent one. Although the Chinese traded with far away Europe as early as 114 BC, it were always the emissaries of the emperors who established contact and kept embassies in the countries along the famous “Silk Road” and the less well know “Porcelain Route”. The heyday of the Silk Road corresponds to that of the Byzantine Empire in its west end, Sassanid Empire Period to Il Khanate Period in the Nile-Oxus section and Three Kingdoms to Yuan Dynasty in the Sinitic zone in its east end. Trade between East and West also developed on the sea, between Alexandria in Egypt and Guangzhou in China, fostering the expansion of Roman trading posts in India .
During the Qing dynasty (1644-1912) China came under growing foreign pressure to
open up its borders to the Western seafaring powers. In 1535 Portuguese traders obtained the right to anchor ships in the harbor of Macao, a small island off the coast of mainland China. In 1557 the first walled settlement marked the earliest Direct Foreign Investment on Chinese soil. The island prospered under the new administration where the Portuguese acted as middlemen for traders on the route Guangzhou-Macau-Nagasaki, shipping silks from China to Japan and silver from Japan to China. Despite clashes with the Dutch, who were looking to establish trade colonies of their own, the Portuguese managed to hold on to their outpost (with a stint of independence in 1849) until the formal handover to China on December 20th 1999 .
Britain had its own reason for investing in the Middle Kingdom. In the early 19th century, British tea imports had taken such flight that a great trade imbalance between China and the British Empire existed. Although Britain exported commodities like silver, clocks and watches to China the market was too small to counter the local demand for tea. As a result, Britain started to export opium and soon established itself as the sole provider of the addictive drug. The Qing dynasty voiced their objections through the Chinese commissioner Lin Zexu to the British Queen Victoria but when the British Empire proved to be non responsive to Chinese complaints had to revert to military enforcement of its drug laws. During the resulting opium wars (from 1839 to 1842 and from 1856 to 1860) British victories forced the Chinese government to hand over Hong Kong which soon became the second foreign trade colony on Chinese territory.
After the Second World War, cheap labor and capital brought in by refugees from Mainland China transformed Hong Kong’s economy from a trade colony to a manufacturing and industrial hub. On July 1st 1997 sovereignty of Hong Kong was handed over to China which kept the former colonies capitalist system intact and created a Special Administrative Region (SAR) .
FDI in recent times
Foreign Direct Investment started when China’s Communist government decided to loosen the reigns of socialist dogma and allow China to become part of the world economic community. In 1980 the first Special Economic Zones were created in Shenzhen, Zhuhai and Shantou in Guangdong Province and Xiamen in Fujian Province as well as the entire province of Hainan. In addition, 15 free trade zones, 32 state-level economic and technological development zones, and 53 new- and high-tech industrial development zones have been established in large and medium-sized cities. The SEZ’s were driven by a “four principles” policy namely:
1. Construction primarily relies on attracting and utilizing foreign capital
2. Primary economic forms are sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises
3. Products are primarily export-oriented
4. Economic activities are primarily driven by market forces
The results were astounding. In 1999, Shenzhen's new-and high-tech industry became one with best prospects, and the output value of new-and high-tech products reached 81.98 billion yuan, making up 40.5% of the city's total industrial output value. Nowadays, the city rivals Hong Kong in size and scope. Guang Dong Province has become a major hub for electronic and industrial manufacturing mainly geared towards exports. According to a report by DTZ, there are over a hundred Fortune 500 companies established in Shenzhen with a total of about 84,000 foreign expatriates. In terms of FDI, Shenzhen has maintained a high rate of growth in the last few years, with FDI in 2006 registering 10.6% higher than the year before.
China’s vast labor market, low wages, good infrastructure and relatively disciplined work ethics have led to the largest manufacturing engine in the world. Foreign Direct Investment is crucial to the building efforts of Chinese manufacturers as well as foreign companies establishing a presence in Mainland China. The development of local economies goes hand in hand with the establishment of Special Economic Zones and shows a strong relationship with FDI.
The role of FDI in the development of a country.
In colonial times, foreign investment was a matter of domination. When the Dutch established their trade colony in the East Indies, they didn’t come as partners but soon took the reins of government from the local rulers. In modern times, this has made countries like China and India weary of foreign investment. Wherever Western countries have economic interest, they want to establish political and legal authority as well. The efforts of the US to push for reforms in China’s legal and economic system are not inspired by bilateral equality but by US interests alone. Still the beneficial effects of FDI on China’s economy are so great that China’s government can’t disallow it without risking severe economic and political repercussions. However, the story of FDI in China is not quite as rosy as these summary sentences suggest. By all accounts, the policy environment for foreign direct investors in China is difficult, and much anecdotal evidence suggests that some of these investors are becoming discouraged by this environment while other potential investors have been deterred by it.
An explanation for the effect of FDI on a country’s development can be found in an analysis of the local economic situation. Countries like China, India, Brazil and Mexico have a vast population but a relatively low income level. Large families with a low income spend most of that income on food, clothing and housing, leaving little to buy the luxury items that the country produces for export. As long as local demand for domestic products is low, a country remains dependent on export which in turn means foreign investment.
Examples like Singapore and Japan show that as soon as the internal market starts developing the economy becomes more self sufficient and less dependent on FDI. Singapore’s Direct Investment Abroad (DIA) now constitutes more than 4 billion dollars while DIA is a little more than 3 billion. Singapore has a well developed service sector, excellent medical facilities and a robust internal economy. Despite the gap in income between Chinese middle class families living in Beijing, Shanghai or Shenzhen and families living in China’s rural provinces the growing prosperity is visible. According to the IMF, China’s GDP in 2007 was $3,248,522 versus a US GDP of $13,794,221. China has a population of 1,321,851,888 while the US has about a third of that number. This means that if the Chinese can raise the average wealth of the population, the internal market potential is enormous.
Has the Chinese government maximized the benefits of their FDI policy?
Despite the establishment of SEZ’s there still exist significant issues for foreign investors to enter the internal Chinese market. Despite the economic freedom enjoyed within the confines of the SEZ, China still remains a communist country. The policy of “one country, two systems” has allowed the Chinese government to benefit from the economic growth of the capitalist enclaves while keeping the old fashioned centralized communist rule intact. As shown recently by the hard handed suppression of the Tibet protests, the government isn’t willing to give up its power just yet. The FDI policy attracts companies because of the liberal tax and economic climate it creates but because of the relatively underdevelopment of the rural provinces most of these companies are export oriented. The increase in buying power for Mainland Chinese has mostly been confined to the SEZ themselves and the surrounding areas. The further you go away from the SEZ’s the lower the average income and the poorer the countryside.
As the name suggests, FDI allows for foreign investment, which does little for China’s local capital markets. China has one of the highest savings rate in the world and this money isn’t invested locally but instead exported to countries like the US. The result is that local manufacturers and other SME’s benefit little from the FDI policy and since they are not allowed to establish a presence inside the SEZ’s can’t compete with the foreign firms. The lack of domestic economic development will slow the development of the local market keeping China dependent on foreign investment down.
Another issue that isn’t addressed by the FDI policy is the lack of sharing of technological knowledge. US companies like Apple use cheap Chinese labor to make their iPods and Macs but don’t share the know-how behind the manufacturing. Concerns about protection of intellectual property keep most foreign investors from forming equal partnerships with local companies.
More liberalization of the FDI policy will attract more foreign investors. The question is if this will benefit China’s economy. The marginal value of additional investors will be less because China’s economy is already on the point of overheating. Extending the FDI regulations to (selected) local companies as well as stimulating domestic investment would be more beneficial.
Investing in China from a foreign perspective.
1. Construction primarily relies on attracting and utilizing foreign capital
2. Primary economic forms are sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises
3. Products are primarily export-oriented
4. Economic activities are primarily driven by market forces
The results were astounding. In 1999, Shenzhen's new-and high-tech industry became one with best prospects, and the output value of new-and high-tech products reached 81.98 billion yuan, making up 40.5% of the city's total industrial output value. Nowadays, the city rivals Hong Kong in size and scope. Guang Dong Province has become a major hub for electronic and industrial manufacturing mainly geared towards exports. According to a report by DTZ, there are over a hundred Fortune 500 companies established in Shenzhen with a total of about 84,000 foreign expatriates. In terms of FDI, Shenzhen has maintained a high rate of growth in the last few years, with FDI in 2006 registering 10.6% higher than the year before.
China’s vast labor market, low wages, good infrastructure and relatively disciplined work ethics have led to the largest manufacturing engine in the world. Foreign Direct Investment is crucial to the building efforts of Chinese manufacturers as well as foreign companies establishing a presence in Mainland China. The development of local economies goes hand in hand with the establishment of Special Economic Zones and shows a strong relationship with FDI.
The role of FDI in the development of a country.
In colonial times, foreign investment was a matter of domination. When the Dutch established their trade colony in the East Indies, they didn’t come as partners but soon took the reins of government from the local rulers. In modern times, this has made countries like China and India weary of foreign investment. Wherever Western countries have economic interest, they want to establish political and legal authority as well. The efforts of the US to push for reforms in China’s legal and economic system are not inspired by bilateral equality but by US interests alone. Still the beneficial effects of FDI on China’s economy are so great that China’s government can’t disallow it without risking severe economic and political repercussions. However, the story of FDI in China is not quite as rosy as these summary sentences suggest. By all accounts, the policy environment for foreign direct investors in China is difficult, and much anecdotal evidence suggests that some of these investors are becoming discouraged by this environment while other potential investors have been deterred by it.
An explanation for the effect of FDI on a country’s development can be found in an analysis of the local economic situation. Countries like China, India, Brazil and Mexico have a vast population but a relatively low income level. Large families with a low income spend most of that income on food, clothing and housing, leaving little to buy the luxury items that the country produces for export. As long as local demand for domestic products is low, a country remains dependent on export which in turn means foreign investment.
Examples like Singapore and Japan show that as soon as the internal market starts developing the economy becomes more self sufficient and less dependent on FDI. Singapore’s Direct Investment Abroad (DIA) now constitutes more than 4 billion dollars while DIA is a little more than 3 billion. Singapore has a well developed service sector, excellent medical facilities and a robust internal economy. Despite the gap in income between Chinese middle class families living in Beijing, Shanghai or Shenzhen and families living in China’s rural provinces the growing prosperity is visible. According to the IMF, China’s GDP in 2007 was $3,248,522 versus a US GDP of $13,794,221. China has a population of 1,321,851,888 while the US has about a third of that number. This means that if the Chinese can raise the average wealth of the population, the internal market potential is enormous.
Has the Chinese government maximized the benefits of their FDI policy?
Despite the establishment of SEZ’s there still exist significant issues for foreign investors to enter the internal Chinese market. Despite the economic freedom enjoyed within the confines of the SEZ, China still remains a communist country. The policy of “one country, two systems” has allowed the Chinese government to benefit from the economic growth of the capitalist enclaves while keeping the old fashioned centralized communist rule intact. As shown recently by the hard handed suppression of the Tibet protests, the government isn’t willing to give up its power just yet. The FDI policy attracts companies because of the liberal tax and economic climate it creates but because of the relatively underdevelopment of the rural provinces most of these companies are export oriented. The increase in buying power for Mainland Chinese has mostly been confined to the SEZ themselves and the surrounding areas. The further you go away from the SEZ’s the lower the average income and the poorer the countryside.
As the name suggests, FDI allows for foreign investment, which does little for China’s local capital markets. China has one of the highest savings rate in the world and this money isn’t invested locally but instead exported to countries like the US. The result is that local manufacturers and other SME’s benefit little from the FDI policy and since they are not allowed to establish a presence inside the SEZ’s can’t compete with the foreign firms. The lack of domestic economic development will slow the development of the local market keeping China dependent on foreign investment down.
Another issue that isn’t addressed by the FDI policy is the lack of sharing of technological knowledge. US companies like Apple use cheap Chinese labor to make their iPods and Macs but don’t share the know-how behind the manufacturing. Concerns about protection of intellectual property keep most foreign investors from forming equal partnerships with local companies.
More liberalization of the FDI policy will attract more foreign investors. The question is if this will benefit China’s economy. The marginal value of additional investors will be less because China’s economy is already on the point of overheating. Extending the FDI regulations to (selected) local companies as well as stimulating domestic investment would be more beneficial.
Investing in China from a foreign perspective.
So far, the Chinese FDI policy has been a great success in attracting foreign capital. However there are severe issues for foreign investors to consider when investing in China. The lack of transparency and regulatory oversight makes investing beyond the SEZ’s let alone tapping the Chinese market a risky business.
Doing business in China isn’t a matter of quick in, quick out. Establishing relationships with government officials, suppliers and local business partners is very important and can take a long time. Networking is an aspect of doing business around the world, but it takes on added importance in a society with a complex bureaucracy and a weak legal system. A web of guanxi helps firms navigate China's bureaucratic and distribution challenges.
China is a very diverse market with varying levels of development and regional industrial strengths. A mistake made by many investors is to consider the Chinese market as homogenous. Each region has its own consumer preferences and business needs. Some industries are spread all over the country, some are clustered, and others are heavily concentrated in one area.
The continuance of China’s FDI policy means that foreign investors are relatively sheltered from direct competition by local Chinese companies. If China decides to expand the SZE’s or allows economic freedom to extend beyond the zones, the effect on foreign investors can be profound. Local companies often have an established guangxi network, can benefit from an established presence and know the local market. If they can compete on equal footing and with equal access to foreign capital they have a head start in China’s local market. So far local capital is either locked up in savings accounts or has been invested abroad. If China changes or abolished it’s FDI policy in favor of more economic freedom this could lead to an influx of capital to boost local firms. Already domestic companies like Lenovo, China Mobile and Bosideng dominate the local markets. According to a survey conducted by the Business Brand Institute, International Advertising magazine and the Communication University of China Chinese consumers prefer local brands to foreign ones, with domestic products the top choice in 39 of 57 categories, or 68 percent. Foreign investors should take this into account when making a decision to invest directly or put their capital in local Chinese companies.
Remaining issues for direct foreign investors are labor and sustainability issues and their potential for reputation damage. So far, the low wages and willingness to work long hours under sweat shop conditions have given China’s workers the edge over their US and EU counterparts. As wages and prosperity increase so will the calls for better working conditions. The special tax and financial breaks that investors get through China’s FDI policy do not extend to domestic demands for a fair and equal working environment. US and EU regulations can apply to manufacturing conditions abroad which can negate the beneficial effects of the FDI policy.
Tuesday, April 22, 2008
Are the US heading towards political and economic suicide?
The image of Uncle Sam has been greatly diminished in most of the world. This had not so much to do with Americans as with the political regime that currently sits in the White House. Most Americans agree that the war on Iraq and the mishandling of the sub-prime crisis will cost the US trillions of dollars over the next 10 years. I just finished reading “The Three Trillion Dollar War” by Nobel Prize winner Joseph E. Stiglitz, who paints a bleak but realistic picture of the true cost of America’s wars. Even so, the true cost in loss of image and increased mistrust of US goods and policy can’t be calculated in dollars. Talking of dollars, the depreciation of currency makes it harder to export to the US but won’t have a large effect on trading partners like China, if they play their cards right. The internal markets of Asia and Europe combined have more potential then the ever shrinking buying power of American consumers can provide.
You would think that the Democrats, who have been standing idly by as Bush and his neo con coalition of the willing invaded a country, whose only mistake was that it had a crazy dictator for president, would take this opportunity to do some old fashioned Republican bashing. United we stand, divided we fall indeed! The race for the White House still looks more like a slugfest between Obama and Clinton than between Reps and Dems. You would think that Bush, with his stubborn refusal to abandon his rightwing corporate cronies would have dug a deep grave for his party that is impossible to get out of. On the contrary, the Democratic in-fight is actually paving a smooth road for yet another Republican presidency.
I must say, John McCain is playing it very smart and very professional. He keeps his support for the war in Iraq, without supporting the way the Bush administration is waging it. He has an image of an outsider in the Republican party, which he will use once it is clear who his opponent will be. If it’s Obama he can play his “I’m a seasoned veteran and an experienced politician” card. If it’s Clinton, he has the “I’m not a free spending Liberal” card (even though under Republican rule, the US has squandered billions more than under any past Democrat government) or even the “I’m not an extension of the Clinton clan” card. Off course his emphasis will be on his differences with Bush and how he will be the Republican guy that will make everything better. To become president he will have to charm the “swing voters” so he can't be too closely associated with the unpopular current administration. Right now, the choice is not so much between the best candidates but who the least bad will be. Clinton and Obama should have united their forces long ago, but instead are still dragging each other through the mud of the, as of yet unpaved, road to the White House.
So what will happen if the damage the Democrats have inflicted upon themselves is too large? McCain will win off course. He will distance himself just enough from his predecessor to distinguish himself as "different" but not enough to alienate the corporate sponsors that got him in the driver seat. What will this mean for the war in Iraq? A fast exit strategy will not be on the agenda. Too many Republican sponsors have an interest in prolonging the war. Eric Prince and his Blackwater mercenaries have worked too hard to win the favor of the current administrators and will certainly try to retain their influence on a new Neo con cabinet. So will Halliburton and the hundreds of other companies who invested heavily in the Bush camp. From a political point of view the result will be even worse. With a Democratic majority in the Senate and a Republican president every major decisions will become part of the political chess game. "If you support my budget proposition for yet another year in Iraq, I will not veto your child welfare bill."
Stiglitz can already make preparations for his sequel, “The Six Trillion Dollar War”. In the meantime the rest of the world will turn its back to America and the dollar and look towards the new economic giants, China, India and even Russia. I shudder to think what it will mean for the crumbling US infrastructure. Road, railway and sewer systems in large parts of the country are in dire need of renovation. As long as the billions go towards an external war and are not invested in domestic economy, the flames that fuel the economy will die down and ultimately extinguish. At that point the foundation that made the US economy the largest in the world will start to crumble as buying power becomes too low to spend on consumer goods. The rift between poor Americans who depend on local companies for jobs and income and rich Americans who can invest abroad will become ever larger.
Let’s hope I’m exaggerating and that who ever will be in the White House won’t be as stubborn, stupid and greedy as George W. Bush. The mistakes he has made and still makes have already been made before. The name of the place where that happened, was Rome.
You would think that the Democrats, who have been standing idly by as Bush and his neo con coalition of the willing invaded a country, whose only mistake was that it had a crazy dictator for president, would take this opportunity to do some old fashioned Republican bashing. United we stand, divided we fall indeed! The race for the White House still looks more like a slugfest between Obama and Clinton than between Reps and Dems. You would think that Bush, with his stubborn refusal to abandon his rightwing corporate cronies would have dug a deep grave for his party that is impossible to get out of. On the contrary, the Democratic in-fight is actually paving a smooth road for yet another Republican presidency.
I must say, John McCain is playing it very smart and very professional. He keeps his support for the war in Iraq, without supporting the way the Bush administration is waging it. He has an image of an outsider in the Republican party, which he will use once it is clear who his opponent will be. If it’s Obama he can play his “I’m a seasoned veteran and an experienced politician” card. If it’s Clinton, he has the “I’m not a free spending Liberal” card (even though under Republican rule, the US has squandered billions more than under any past Democrat government) or even the “I’m not an extension of the Clinton clan” card. Off course his emphasis will be on his differences with Bush and how he will be the Republican guy that will make everything better. To become president he will have to charm the “swing voters” so he can't be too closely associated with the unpopular current administration. Right now, the choice is not so much between the best candidates but who the least bad will be. Clinton and Obama should have united their forces long ago, but instead are still dragging each other through the mud of the, as of yet unpaved, road to the White House.
So what will happen if the damage the Democrats have inflicted upon themselves is too large? McCain will win off course. He will distance himself just enough from his predecessor to distinguish himself as "different" but not enough to alienate the corporate sponsors that got him in the driver seat. What will this mean for the war in Iraq? A fast exit strategy will not be on the agenda. Too many Republican sponsors have an interest in prolonging the war. Eric Prince and his Blackwater mercenaries have worked too hard to win the favor of the current administrators and will certainly try to retain their influence on a new Neo con cabinet. So will Halliburton and the hundreds of other companies who invested heavily in the Bush camp. From a political point of view the result will be even worse. With a Democratic majority in the Senate and a Republican president every major decisions will become part of the political chess game. "If you support my budget proposition for yet another year in Iraq, I will not veto your child welfare bill."
Stiglitz can already make preparations for his sequel, “The Six Trillion Dollar War”. In the meantime the rest of the world will turn its back to America and the dollar and look towards the new economic giants, China, India and even Russia. I shudder to think what it will mean for the crumbling US infrastructure. Road, railway and sewer systems in large parts of the country are in dire need of renovation. As long as the billions go towards an external war and are not invested in domestic economy, the flames that fuel the economy will die down and ultimately extinguish. At that point the foundation that made the US economy the largest in the world will start to crumble as buying power becomes too low to spend on consumer goods. The rift between poor Americans who depend on local companies for jobs and income and rich Americans who can invest abroad will become ever larger.
Let’s hope I’m exaggerating and that who ever will be in the White House won’t be as stubborn, stupid and greedy as George W. Bush. The mistakes he has made and still makes have already been made before. The name of the place where that happened, was Rome.
Thursday, April 17, 2008
The global credit crunch for the rest of us.
Panic has been the prevalent sentiment on the world’s financial stage the last few month’s. Bankers have made booboos when estimating the amount of risk they run when loaning out money. Off course bankers are people too and just as bend on making a good sale as any second hand car dealer. They just earn more money and have bigger bonuses, which makes their motivation on making sales even stronger.
One of the great things about the US is that anyone can achieve their “American Dream”. Having your own house is considered a right, just like bearing your own arms. If you can’t pay for your property, no problem! The banks were always there to help you with the necessary cash at low interest, even if you weren’t sure you could pay the mortgage after Uncle Sam, Wal-Mart and Texaco had taken their cut. Millions of mortgages were sold to people who could barely pay their daily necessities, let alone an over the top mortgage. The banks weren’t too worried. Housing prices were always going up because ever one was buying. If Billy-Bob couldn’t pay anymore, he and his family could report to the nearest shelter, the bank would sell his property and still get their money, right?
Even the risk itself was a way for banks to make money. They could sell the mortgage backed debt or put them in collateralized debt obligations or CDOs. This way the liability could be kept off the balance sheet of the bank and even become an asset. Mix the mortgage backed debt with some other types of debt and presto! , a new product was born to sell to hedge funds, insurance companies and investment trusts and bring in lots of dinero. The commission alone was enough for investment bankers to finance another Lambo or a house in Aspen. Some investment companies even came up with CDOs backed by other CDOs, inventively named CDO squared. A whole new industry in trading other peoples debt sprang up and all was well in the great scheme pyramid
Billy-Bob in the meantime had great problems coming up with the cash for his mortgage every month. When finally the day came he didn’t pay, the bank told him they had no choice, put him and his family on the street and put his house up for sale. The problem was that it wasn’t just Billy-Bob that had troubles. His neighbors could soon be found in the same shelter as well and soon thousands of houses were up for sale. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure, up 79% from 2006
The problem with a great invention like the free market is that the price of everything is determined by the amount of things that are for sale versus the amount of people that want to buy those things. In the case of Billy-Bobs house, the amount of buyers was virtually zero. So the bankers began to worry because if no-one wanted Billy’s house for a decent price, the mortgage became worth a lot less then they had estimated before. In fact, the value of Billy-Bobs mortgage became virtually zero as well. The value of mortgage backed CDOs is as good as the value of the collateral behind it. Guess what? Suddenly the CDOs, Squared CDOs, quadrupled CDOs and so on were not so hot after all.
The whole structure, built like a domino row on top of a house of cards began to topple. Bear Stearns was the first to have to close down two hedge funds that primarily invested in sub prime, mortgage backed securities. On June 22, 2007, Bear Stearns pledged a collateralized loan of up to $3.2 billion to "bail out" one of its funds, while negotiating with other banks to loan money against collateral to it’s other fund, the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund. Merrill Lynch seized $850 million worth of the underlying collateral but only was able to auction $100 million of them. Millions of dollars evaporated overnight and Bear Stearns, who came to the funds rescue, finally had to foreclose the funds that once were worth billions.
In the meantime all was not so well anymore in the great scheme pyramid. Most US and a lot of European banks had invested heavily in the CDO pyramid scheme. Asian banks were a lot less exposed but since the global financial world isn’t defined by boundaries even they would be affected.
The blood of the world’s economies is pure cold cash. As long as this cash is liquid, can be spent like water, it can be used to make more cash. Companies lend money from banks, for instance to invest in new factories. Banks lend this money from other banks if they don’t have enough cash in their vaults. They can also lend money from the government but that’s bound by strict rules. When the sub-prime backed CDO pyramid started to collapse, the banks suddenly weren’t so eager to loan out money to each other or to businesses that wanted to expand. The banks’ credit portfolios, lists of expected revenue from businesses and other banks that owed money suddenly became a whole lot less valuable and a lot more risky. If Billy-Bob didn’t pay what about other companies, credit card holders and (shudder) car owners?
Like I said before, the price of everything in a free market is decided by the amount of sellers vs the amount of buyers. In this case the price of loaning money went up because the amount of eager sellers decreased dramatically vs the amount of eager buyers. The effect on the economy is still going on. Companies can’t expand because of lack of (cheap) funds. They’ll have to fire people who then don’t have money to buy stuff. Other companies can’t sell their stuff because there’s nobody with enough money to buy! Prices go down, profits slump and after a while depression sets in.
So far the only visible casualties have been Bear Stearns, Northern Rock and a few hedge funds. Dozens of banks world wide have suffered heavy losses but will survive. It’s now a matter of keeping trust. In my opinion, the world will look at Asia as the next leading economic powerhouse. It will be very interesting to see what the US government will do to make sure this won’t happen again. If I can make a small prediction, it will be something in the line of stricter regulatory rules, Basel III and tighter reigns for financial institutions. This may help in a small way but will be at best a remedy for the symptoms, not a cure for the disease. Prudent spending instead of unbridled consumerism would be a much better cure. If Americans can’t learn that a shopping spree is okay as long as you can pay in cash instead of pulling the plastic and that the extra value of your house shouldn’t be spent on a new big screen TV, the next bubble is already around the corner.
One of the great things about the US is that anyone can achieve their “American Dream”. Having your own house is considered a right, just like bearing your own arms. If you can’t pay for your property, no problem! The banks were always there to help you with the necessary cash at low interest, even if you weren’t sure you could pay the mortgage after Uncle Sam, Wal-Mart and Texaco had taken their cut. Millions of mortgages were sold to people who could barely pay their daily necessities, let alone an over the top mortgage. The banks weren’t too worried. Housing prices were always going up because ever one was buying. If Billy-Bob couldn’t pay anymore, he and his family could report to the nearest shelter, the bank would sell his property and still get their money, right?
Even the risk itself was a way for banks to make money. They could sell the mortgage backed debt or put them in collateralized debt obligations or CDOs. This way the liability could be kept off the balance sheet of the bank and even become an asset. Mix the mortgage backed debt with some other types of debt and presto! , a new product was born to sell to hedge funds, insurance companies and investment trusts and bring in lots of dinero. The commission alone was enough for investment bankers to finance another Lambo or a house in Aspen. Some investment companies even came up with CDOs backed by other CDOs, inventively named CDO squared. A whole new industry in trading other peoples debt sprang up and all was well in the great scheme pyramid
Billy-Bob in the meantime had great problems coming up with the cash for his mortgage every month. When finally the day came he didn’t pay, the bank told him they had no choice, put him and his family on the street and put his house up for sale. The problem was that it wasn’t just Billy-Bob that had troubles. His neighbors could soon be found in the same shelter as well and soon thousands of houses were up for sale. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure, up 79% from 2006
The problem with a great invention like the free market is that the price of everything is determined by the amount of things that are for sale versus the amount of people that want to buy those things. In the case of Billy-Bobs house, the amount of buyers was virtually zero. So the bankers began to worry because if no-one wanted Billy’s house for a decent price, the mortgage became worth a lot less then they had estimated before. In fact, the value of Billy-Bobs mortgage became virtually zero as well. The value of mortgage backed CDOs is as good as the value of the collateral behind it. Guess what? Suddenly the CDOs, Squared CDOs, quadrupled CDOs and so on were not so hot after all.
The whole structure, built like a domino row on top of a house of cards began to topple. Bear Stearns was the first to have to close down two hedge funds that primarily invested in sub prime, mortgage backed securities. On June 22, 2007, Bear Stearns pledged a collateralized loan of up to $3.2 billion to "bail out" one of its funds, while negotiating with other banks to loan money against collateral to it’s other fund, the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund. Merrill Lynch seized $850 million worth of the underlying collateral but only was able to auction $100 million of them. Millions of dollars evaporated overnight and Bear Stearns, who came to the funds rescue, finally had to foreclose the funds that once were worth billions.
In the meantime all was not so well anymore in the great scheme pyramid. Most US and a lot of European banks had invested heavily in the CDO pyramid scheme. Asian banks were a lot less exposed but since the global financial world isn’t defined by boundaries even they would be affected.
The blood of the world’s economies is pure cold cash. As long as this cash is liquid, can be spent like water, it can be used to make more cash. Companies lend money from banks, for instance to invest in new factories. Banks lend this money from other banks if they don’t have enough cash in their vaults. They can also lend money from the government but that’s bound by strict rules. When the sub-prime backed CDO pyramid started to collapse, the banks suddenly weren’t so eager to loan out money to each other or to businesses that wanted to expand. The banks’ credit portfolios, lists of expected revenue from businesses and other banks that owed money suddenly became a whole lot less valuable and a lot more risky. If Billy-Bob didn’t pay what about other companies, credit card holders and (shudder) car owners?
Like I said before, the price of everything in a free market is decided by the amount of sellers vs the amount of buyers. In this case the price of loaning money went up because the amount of eager sellers decreased dramatically vs the amount of eager buyers. The effect on the economy is still going on. Companies can’t expand because of lack of (cheap) funds. They’ll have to fire people who then don’t have money to buy stuff. Other companies can’t sell their stuff because there’s nobody with enough money to buy! Prices go down, profits slump and after a while depression sets in.
So far the only visible casualties have been Bear Stearns, Northern Rock and a few hedge funds. Dozens of banks world wide have suffered heavy losses but will survive. It’s now a matter of keeping trust. In my opinion, the world will look at Asia as the next leading economic powerhouse. It will be very interesting to see what the US government will do to make sure this won’t happen again. If I can make a small prediction, it will be something in the line of stricter regulatory rules, Basel III and tighter reigns for financial institutions. This may help in a small way but will be at best a remedy for the symptoms, not a cure for the disease. Prudent spending instead of unbridled consumerism would be a much better cure. If Americans can’t learn that a shopping spree is okay as long as you can pay in cash instead of pulling the plastic and that the extra value of your house shouldn’t be spent on a new big screen TV, the next bubble is already around the corner.
Monday, April 14, 2008
Fines, fines, fines
They say that Singapore is a fine city because you can get a fine for just about anything. When I started living in the Red Dot, I had already visions of policemen everywhere jumping from behind trees shouting "AHA!" whenever I crossed the street without looking left and right first. So far I've noticed the opposite. That rules are necessary but need to be enforced to mean something I experienced yesterday. The underpass from Parkway Parade to East Coast Park has large signs at the entrance to warn prospective bicyclists not to ride their bike down but to dismount and push the bike through the tunnel. I must say, the first time I crossed the tunnel I didn't see a good reason for this, as the tunnel is long and wide enough for bicycles. Yesterday however I changed my mind. I pair of kids came hurtling down the ramp on their ATBs ready to go to the other side. They obviously hadn't counted on the fact that there might be pedestrians in the tunnel and that their brakes where made in China. The combination of those two factors resulted in one bike coming down at me like a missile almost smashing into the wall making a bike-wall sandwich with me as the cheese. By jumping aside at the last second I could prevent turning myself into sandwich topping but the steering handle badly scratched my hand. The "no cycling, $1000 fine" sign wasn't damaged at all... My wife was more upset then me and wanted to call the police.
Where is a CCTV camera when you need one.? There are about 20 in each MRT station, but none in the tunnels which are much more prone to muggers, rapist and bikers smashing into innocent pedestrians. Anyway, the morale of this story: you can have a fine for everything but if you never collect, it doesn't mean anything.
Friday, April 11, 2008
Work on Singapore’s cultural image to attract top dollar
This article I wrote for "Today" newspaper in response to an article about what Singapore can do to attract tourists.
In his article, Mr Chia made the point that a company - and Singapore, byand large - needs to be either a cost leader or a cost differentiator, rather than be “stuck in the middle”, as it will end up poorer for it. With this, he made a classical marketing error that many companies still make. Instead of starting with what the customer - be it Singaporeresidents or visitors - wants, he immediately jumps to the finishedproduct and its price. In my opinion, Singapore should be asking itself if it wants to be a cheap and relatively good holiday stay or a premium destination with resort type facilities.
Does it want to give the best facilities to its citizens or does it want to put its wealth into yet another bland shopping mall or an amusement park? In comparing Singapore with world renowned cities like London andParis, one should be reminded that these cities are much more than placesto live, work and shop. If Singapore really wants to command top price forits hotel beds, it needs to work on its cultural image. In The Netherlands, the city of Groningen - where I grew up in -had the challenge of attracting tourists, even though it’s far from thestandard tourist trail. It answered this challenge by building a world-class modern artmuseum, making the inner city car free and attracting shops that are“different” from the standard mall type outlets. At the same time, itattracted businesses like biotech and IT to settle down on the outskirtsof town. Couple this with a charming centuries-old city centre and youhave a tourist magnet.
To be like London, Paris and even New York, Singapore needs so muchmore than integrated resorts, spruced up streets and luxury hotels. Find out what kind of people you want to attract before offering them what you think they want. The price becomes much more irrelevant after that.
In his article, Mr Chia made the point that a company - and Singapore, byand large - needs to be either a cost leader or a cost differentiator, rather than be “stuck in the middle”, as it will end up poorer for it. With this, he made a classical marketing error that many companies still make. Instead of starting with what the customer - be it Singaporeresidents or visitors - wants, he immediately jumps to the finishedproduct and its price. In my opinion, Singapore should be asking itself if it wants to be a cheap and relatively good holiday stay or a premium destination with resort type facilities.
Does it want to give the best facilities to its citizens or does it want to put its wealth into yet another bland shopping mall or an amusement park? In comparing Singapore with world renowned cities like London andParis, one should be reminded that these cities are much more than placesto live, work and shop. If Singapore really wants to command top price forits hotel beds, it needs to work on its cultural image. In The Netherlands, the city of Groningen - where I grew up in -had the challenge of attracting tourists, even though it’s far from thestandard tourist trail. It answered this challenge by building a world-class modern artmuseum, making the inner city car free and attracting shops that are“different” from the standard mall type outlets. At the same time, itattracted businesses like biotech and IT to settle down on the outskirtsof town. Couple this with a charming centuries-old city centre and youhave a tourist magnet.
To be like London, Paris and even New York, Singapore needs so muchmore than integrated resorts, spruced up streets and luxury hotels. Find out what kind of people you want to attract before offering them what you think they want. The price becomes much more irrelevant after that.
GoVibe DAC mini review
Last Sunday I received a Go Vibe DAC (thanks Wilson!) and off course immediately had to run it through its paces. First thing that stands out is how small this DAC is . It looks like a miniature version of a Xin SMIII which is to say it's built like a tank. It's made of black eloxated aluminium which makes it a bit susceptible to finger prints.
There are only two connectors, one USB mini and one headphone jack. No volume knob, no charging jack just the basics. A led indicates if the DAC is idle (green) or working (red). The device comes in a small velvet bag with a cord so you can wear it around your neck. A USB to mini USB cable is included.My plan is to use this DAC with my Kohjinsha SA1F00A, a small UMPC running Windows XP. I connected it to one of the two USB ports and plugged in my Shure E500's.
Windows XP recognised the GoVibe as "USB speakers" which is a bit strange but I haven't been able to change that. Unfortunately that's as far as I could get because the sound that came out of my IEM's was horribly distorted. I've tried disabling the internal soundcard, reinstalling drivers and installed ASIO drivers but nothing helped. For the moment the Kohjinsha is out . Good thing I still have my desktop PC although that beast is a bit less portable The connection there went a lot smoother. Vista recognised the DAC correctly as a USB Burr Brown (Onkyo) DAC. I quick test revealed that there was nothing wrong with the GoVibe, sound came though crystal clear.On with the test. Because there is no impedance switch and no volume knob all adjustments are made on the computer.
There's quite a bit of hiss when the DAC is idle which could be because my E500's are so sensitive. With a pair of cans that are less sensitive (I tried the GoVibe with iGrado's for a few minutes) there shouldn't be any problems. The most important part of course is the quality of the sound it produces and it's here that the DAC started to shine. The GoVibe DAC puts the music on a whole new level! Highs are incredible detailed, mids are well defined and lows are nice and crisp. It puts my iPod-AE2 combo to shame. All music I played through the DAC came out very clean as if I had opened a (dirty) window. Even with the high levels of hiss it was a joy to listen to the choirs in Lord of the Rings and Mozart's requiem.
The E500's are very good at reproducing percussion and the GoVibe gives them a lot of extra kick. The soundstage is huge and placement of each instrument is very precise. I'm a sucker for details and the GoVibe gives them in spades. I just might sell my Soundblaster SX although that external card is more versatile.
Conclusion: good things come in small packages, this DAC is certainly worth it's price. I hope that my Kohjinsha will be friends with the GoVibe soon, it just might be I found my next portable music solution!
Just tried the new burger stand at Lau Pa Sat. HotShots is quite well known in the Phillippines and in Indonesia as well. They make their burgers fresh and flamegrill them (like Burgerking does). I had the blue cheese burger, a variety I often make myself. The patties are much thicker then BurgerKing (not to mention the McD plast-o-burgers) and coarser ground. The blue cheese was okay, although I suspect they use blue cheese spread and not the real thing. The buns are a bit too soft for my taste, would be better if they were toasted as well. The potato wedges were very nice.
Anyway, nothing beats my own recepy:
Mix it all together and add more breadcrumbs if the mixture is too wet. Form patties and grill them (preferably on charcoal but a grill pan will do as well).
Toast the bread (I don't like the hamburgerbuns here, too sweet but you might like them )Put mayonaise on the bread, patties on top and cover with blue cheese.Put under a hot grill or over the charcoal until cheese has melted.HotShots indeed!
Anyway, nothing beats my own recepy:
- 200 g ground pork (I found out that pork is much juicier then beef!) for 2 patties.
- 1 egg
- 1 cup of breadcrumbs
- (Bacon)salt
- Pepper
- Finely diced onion
Mix it all together and add more breadcrumbs if the mixture is too wet. Form patties and grill them (preferably on charcoal but a grill pan will do as well).
- White bread
- Mayonaise
- Danish blue cheese
Toast the bread (I don't like the hamburgerbuns here, too sweet but you might like them )Put mayonaise on the bread, patties on top and cover with blue cheese.Put under a hot grill or over the charcoal until cheese has melted.HotShots indeed!
Thursday, April 10, 2008
The risk of growth in China
Working in Singapore for an international bank, it's easy to see the shifting of Asian economies from US domination towards China. The size of the Chinese internal market makes it hard to keep up with growing demand, as prosperity increases. The weakening dollar acts as an extra incentive to divert export from the US to China (and to a lesser extent India). The biggest issue with the Chinese economy is the lack of transparency and regulatory oversight. This could create bubbles that will create shockwaves of Enronian proportions when they collapse. Already the housing prices in cities like Shenzen and Shanghai are on the same level as Hong Kong and Singapore. Rising consumerism puts pressure on the lower-middle class to keep up and banks are not saying no. This could create whole new set of Asian sub prime- and credit crunches. Chinese do not have a tradition of living on borrowed money, like most Americans do and once used to easy credit, might lack the discipline to only buy on credit when absolutely neccesary. Rampant corruption and 'guanxi' (http://en.wikipedia.org/wiki/Guanxi) make it hard for foreign investors to invest in the country. Rising wages will also make investing less attractive in the long run. The best way for other Asian nations to become less dependend on Chinese export is to cooperate and develop their own economies, much the same way the EU are doing. The Asian Pacific Rim countries sshould look at non-Pacific regions as well. ASEAN is a good step towards this goal but there is still a lot of distrust and (again) corruption. The difference in size and development of countries like Singapore, Malaysia and Thailand compared to their poorer brothers Vietnam, Cambodia e.a. make integration a difficult task not to mention that in Birma there's no economic freedom at all.
China and its neighbours
China’s growth as a regional economic powerhouse has been rapid. However, the historic ties between the mainland Chinese manufacturers and the local Chinese traders go back for centuries. Already in the 15th century the “Straits Chinese” or Peranakan (土生華人) established a trading route between China and Malacca in Malaysia[1]. From there the influence of Chinese traders expanded to most of the South East Asian region, eventually taking over major parts of the local economies. In Indonesia, despite severe discrimination, 70-80% of the country’s economy is influenced if not owned by Chinese. Singapore has a population of 80% of Chinese origin, The Philippines, Vietnam, and most other SE Asian nations have an influential and economically powerful Chinese minority. It wasn’t until the economic reforms initiated by Deng Xiaoping in the late 70’s that China began to directly influence SE Asian - and to a lesser extend - Australian economies.
South East Asia countries have always looked at their big brother China with ambivalence. On the one hand China imports raw materials and agricultural products from countries like Burma (Myanmar), Indonesia and Thailand. On the other it exports silk, rice and in modern days electronics and heavy machinery to feed the booming Asian economies. It has not been until recently that the domestic market in China has developed to a point that domestic supply isn’t sufficient anymore. To complement their manufacturing capabilities China is now looking to develop services for their local financial, IT and administrative needs. China's software outsourcing revenue will more than double, to $5 billion, by 2005. Gartner Inc. predicts that by 2007 China will pull in $27 billion for IT services, including call centers and back-office work, matching India[2].
One of the major issues for China will be to keep up with demand. Local talent is scarce and mostly focused on manufacturing, the backbone of China’s booming growth. Local wages continue to rise making local Chinese companies increasingly look to opportunities abroad. One of the big 4 banks in China has established a call center in The Philippines where customers can inquire in Mandarin or Cantonese. Chinese clothing manufacturers are already looking to establish a presence closer to the US market by outsourcing to Mexico. Original brand manufacturing (OBM) is gaining penetration in China. Big electronics chain stores—Gome and Suning, for example—outsource both design and manufacturing of consumer electronics to top Chinese manufacturers. Assembly no longer takes place in China but has been off shored to Indonesia, where local wages are lower than even Chinese can accept.
The growing dependence of APAC economies on the Chinese domestic market means that if this market stops growing there will be no substitute unless these countries manage to get their own internal markets growing.
At home, China faces even bigger issues. To keep even with the population growth and the number of new workers entering the workforce each year, the Chinese economy has to grow by 7% a year. If it doesn’t, the resulting poverty will end domestic demand before it takes off. The resulting gap between the rich coastline cities and the poor inland provinces can cause major political and social disturbances, eventually ripping the country apart. When this happens, the end of China as the manufacturer of the world will be at hand. Despite the appearance, China is not one unified country but a collection of different peoples with as varied a background as any European country. Since the Chinese emperors and their communist successors, the union of China has been assured by central rule alone. If the Chinese government fails to hold the country together the resulting chaos will cause foreign companies to withdraw their assets which in turn can lead to China withdrawing their foreign investments, which are substantial. For instance, almost half of US State Bonds are owned by China, which recycles the US dollars it gets back into the US economy financing the US trade deficit. The result will be a collapse of the US economy which in a way has been financed by China all along[3].
In the APAC region, the result of a disappearing or severely shrinking Chinese market will be even more severe. In the scenario described above, the US market will be heavily affected by the collapse of the Chinese economy. The resulting downturn of the US market combined with the halt in Chinese investment means there is no way to fuel the domestic economy anymore.
The best way local governments can avert the worst effects of the China-US scenario is to create an independent, unified internal market. ASEAN, the Asian economic organization, is the first step towards this goal. There is still a long way to go though. The mistrust between the member states, combined with blatant corruption and local political issues make a unified market like the European Union has an option that is far away. Indonesia so far has failed to fully leverage its potential to create critical mass for its internal market. Like in The Philippines, there are issues with local corruption as well as a possible disruptive terrorist threat[4]. Inconsistency in foreign relation policies is a possible impediment for economic unity as well. For instance, Singapore was dependent on Indonesia for the supply of sand to support the real estate boom the small country is currently enjoying. Indonesia in an attempt to leverage this dependency to solve some long standing but unrelated political issues suddenly banned the export of sand to Singapore[5]. This halted Singaporean construction almost immediately causing real estate prices to rocket. Investing in local infrastructure, schooling and a fair and open wage policy is something all local governments should strive for. In ASEAN member state Myanmar, the very basics of democracy have been suppressed by a dictatorial government. Still, Myanmar ruling General Tan Shwe could freely travel to Singapore to receive treatment for an intestinal tumor[6].
Now China has become a member of the WTO it faces similar issues. Despite the name, The WTO is basically a US dominated body which brings the main issues of the US-Chino relationship to light. One of the issues is China’s record of human rights abuse. Despite the fact that the US presently is known one of the worst human rights abusers in the world China is constantly reminded that as a WTO member it should put human rights high on the agenda. In itself there’s nothing wrong with that as long as the criticism can go both ways.
A major issue is China’s shallow integration into the world economy. Its protective stance is not only limited to trade tariffs but also affects information services. Later this year the US and the EU will take China to the WTO over the fact that financial news companies are not allowed to interact directly with their customers. The companies are not allowed to have their own local branch but must act through the China Economic Information Service. The CEIS has its own vested interests as a news provider[7].
Most political issues China faces have to do with its obsessive control over its own population. One major problem however is its policy on Intellectual Property rights. The US film, music industry claim losses of billions of dollars because of pirated movies and CD’s. Branded clothing designers like Louis Vuitton don’t mind using Chinese sweatshops to add to their bottom line but resent the fact that the $5 knock offs available at Beijing’s local markets are virtually indistinguishable from the real thing. As long as a genuine copy of Microsoft Windows Vista costs the equivalent of 6 months of wage, this issue will not go away.
South East Asia countries have always looked at their big brother China with ambivalence. On the one hand China imports raw materials and agricultural products from countries like Burma (Myanmar), Indonesia and Thailand. On the other it exports silk, rice and in modern days electronics and heavy machinery to feed the booming Asian economies. It has not been until recently that the domestic market in China has developed to a point that domestic supply isn’t sufficient anymore. To complement their manufacturing capabilities China is now looking to develop services for their local financial, IT and administrative needs. China's software outsourcing revenue will more than double, to $5 billion, by 2005. Gartner Inc. predicts that by 2007 China will pull in $27 billion for IT services, including call centers and back-office work, matching India[2].
One of the major issues for China will be to keep up with demand. Local talent is scarce and mostly focused on manufacturing, the backbone of China’s booming growth. Local wages continue to rise making local Chinese companies increasingly look to opportunities abroad. One of the big 4 banks in China has established a call center in The Philippines where customers can inquire in Mandarin or Cantonese. Chinese clothing manufacturers are already looking to establish a presence closer to the US market by outsourcing to Mexico. Original brand manufacturing (OBM) is gaining penetration in China. Big electronics chain stores—Gome and Suning, for example—outsource both design and manufacturing of consumer electronics to top Chinese manufacturers. Assembly no longer takes place in China but has been off shored to Indonesia, where local wages are lower than even Chinese can accept.
The growing dependence of APAC economies on the Chinese domestic market means that if this market stops growing there will be no substitute unless these countries manage to get their own internal markets growing.
At home, China faces even bigger issues. To keep even with the population growth and the number of new workers entering the workforce each year, the Chinese economy has to grow by 7% a year. If it doesn’t, the resulting poverty will end domestic demand before it takes off. The resulting gap between the rich coastline cities and the poor inland provinces can cause major political and social disturbances, eventually ripping the country apart. When this happens, the end of China as the manufacturer of the world will be at hand. Despite the appearance, China is not one unified country but a collection of different peoples with as varied a background as any European country. Since the Chinese emperors and their communist successors, the union of China has been assured by central rule alone. If the Chinese government fails to hold the country together the resulting chaos will cause foreign companies to withdraw their assets which in turn can lead to China withdrawing their foreign investments, which are substantial. For instance, almost half of US State Bonds are owned by China, which recycles the US dollars it gets back into the US economy financing the US trade deficit. The result will be a collapse of the US economy which in a way has been financed by China all along[3].
In the APAC region, the result of a disappearing or severely shrinking Chinese market will be even more severe. In the scenario described above, the US market will be heavily affected by the collapse of the Chinese economy. The resulting downturn of the US market combined with the halt in Chinese investment means there is no way to fuel the domestic economy anymore.
The best way local governments can avert the worst effects of the China-US scenario is to create an independent, unified internal market. ASEAN, the Asian economic organization, is the first step towards this goal. There is still a long way to go though. The mistrust between the member states, combined with blatant corruption and local political issues make a unified market like the European Union has an option that is far away. Indonesia so far has failed to fully leverage its potential to create critical mass for its internal market. Like in The Philippines, there are issues with local corruption as well as a possible disruptive terrorist threat[4]. Inconsistency in foreign relation policies is a possible impediment for economic unity as well. For instance, Singapore was dependent on Indonesia for the supply of sand to support the real estate boom the small country is currently enjoying. Indonesia in an attempt to leverage this dependency to solve some long standing but unrelated political issues suddenly banned the export of sand to Singapore[5]. This halted Singaporean construction almost immediately causing real estate prices to rocket. Investing in local infrastructure, schooling and a fair and open wage policy is something all local governments should strive for. In ASEAN member state Myanmar, the very basics of democracy have been suppressed by a dictatorial government. Still, Myanmar ruling General Tan Shwe could freely travel to Singapore to receive treatment for an intestinal tumor[6].
Now China has become a member of the WTO it faces similar issues. Despite the name, The WTO is basically a US dominated body which brings the main issues of the US-Chino relationship to light. One of the issues is China’s record of human rights abuse. Despite the fact that the US presently is known one of the worst human rights abusers in the world China is constantly reminded that as a WTO member it should put human rights high on the agenda. In itself there’s nothing wrong with that as long as the criticism can go both ways.
A major issue is China’s shallow integration into the world economy. Its protective stance is not only limited to trade tariffs but also affects information services. Later this year the US and the EU will take China to the WTO over the fact that financial news companies are not allowed to interact directly with their customers. The companies are not allowed to have their own local branch but must act through the China Economic Information Service. The CEIS has its own vested interests as a news provider[7].
Most political issues China faces have to do with its obsessive control over its own population. One major problem however is its policy on Intellectual Property rights. The US film, music industry claim losses of billions of dollars because of pirated movies and CD’s. Branded clothing designers like Louis Vuitton don’t mind using Chinese sweatshops to add to their bottom line but resent the fact that the $5 knock offs available at Beijing’s local markets are virtually indistinguishable from the real thing. As long as a genuine copy of Microsoft Windows Vista costs the equivalent of 6 months of wage, this issue will not go away.
Mote Aquaculture Park - Sturgeon Project
Abstract
This paper is an analysis of a case study entitled “Mote Aquaculture Park – Sturgeon Project” (Ritchy & Michaels, 2005). The case study gave a detailed overview of the creation of an aquaculture fish farm for the production of sturgeon meat and caviar. It describes the setup of the plant and its administrative facilities, a history of domestic and international seafood production and a short description of the level of demand and supply of seafood in the US. This analysis will address economic, political-legal, technological and socio-cultural challenges and opportunities. Using Porter’s trade theory of National Competitive Advantage, the salient issues associated with cultivated seafood production are identified. Finally an advice on follow up actions based on this analysis will be given.
Caviar is to dining what a sable coat is to a girl in evening dress.
~ Ludwig Bemelmans
Economic opportunities of cultivated sturgeon production.
Few types of food bring up images of affluence and decadence like the roe of the sturgeon, otherwise known as caviar. The word caviar originates from the Turkish khavyar, first appearing in English print in 1591. Once only served to royalty it was degraded to canteen food for construction workers during the early nineteenth century. As recently as the 1870s, a half-ton white sturgeon was selling for twenty-five cents at wholesale fish markets At that time the American rivers were so abundant with sturgeons that prices for domestic caviar dropped to near zero until the German immigrant Henry Schacht decided to export the eggs to Europe where it was sold as coveted “Russian caviar” which was considered a premium, fetching prices of more than a dollar per pound.
Serving and eating caviar has always been seen as a sign of affluence. To celebrate the birth of her son to the Grand Duke Paul, Catherine the Great of Russia gave a banquet of such magnificent proportions that the English Ambassador to the Russian Court made up a detailed report of the affair, saying that there were "... jewels and caviar..." on the banquet table to the amount of more than two million sterling. With supply dwindling and demand growing, the price of caviar has grown so high that cultivation of sturgeons becomes economically viable. It stands to reason that with a carefully maintained image the demand for caviar isn’t anywhere near its peak. At this moment most caviar is consumed in Russia and surrounding countries, Europe and Japan.
The economic rise of countries like India and traditionally fish loving China has resulted in an equal increase of the number of affluent and super-affluent individuals. These “new rich” like to show their wealth by driving expensive cars, wearing expensive clothes and eating expensive food. For instance, the consumption of abalone during Chinese New Year is ever increasing even though this shellfish is considered one of the most expensive. With careful marketing, caviar could be considered as an even larger display of wealth especially since it lends itself perfectly to Chinese versions of dishes like the Russian blini. Though less glamorous, sturgeon meat is considered a good source of amino acids and cultivation efforts for that purpose are well underway in China.
The status sensitive Chinese are well on their way to become the largest market for designer brands like Louis Vuitton while India’s largest conglomerate Tata has recently bought the Jaguar car brand from Ford, confirming India’s rise in the world economic ranks. Indian chefs are now serving caviar to their customers. "Earlier, mostly expats and hotels bought caviar; now people order it even for birthday parties. Demand has skyrocketed." Sripal Khanna of `All Things Nice,' an up market south Delhi grocery admits. With the continuing increase in economic wealth, the demand for luxury goods like caviar will keep rising as well.
Political/legal opportunities.
The overfishing of sturgeons to the point of extinction has caused concern, not only in the environmental protection community but with governments and regulators as well. The precarious position of the sturgeon was recognized in 1997 by the Standing Committee of CITES – the Convention on International Trade in Endangered Species of Wild Fauna and Flora – at their annual meeting. They decided to regulate the international trade in sturgeon, and included all 23 species of the Acipenseriformes (sturgeon and its cousin, the paddlefish) in Appendix II, the list of species “not necessarily threatened with extinction, but in which trade must be controlled in order to avoid utilization incompatible with their survival.” In 2000, the Committee recommended “the introduction of a universal system for caviar labeling to help identify legal caviar in trade” and curb poaching and illegal caviar trafficking. although until 1966, any fish roe that could be colored black could be called caviar. This ended when the Food and Drug Administration defined the product, and established rules for its labeling.
“The name ‘caviar’ unqualified may be applied only to the eggs of the sturgeon prepared by a special process. Fish roe prepared from the eggs of other varieties of fish and prepared by the special process for caviar must be labeled to show the name of the fish from which they are prepared, for example ‘whitefish caviar.’ All words in the name should be in type of substantially the same size and prominence. If the product contains an artificial color, it must be an approved color and its presence must be stated on the label conspicuously. No artificial color should be used which makes the product appear to be better or of greater value than it is. The label should bear a statement of ingredients listed by their common or usual names in descending order of predominance because no standard of identity has been established for any form of caviar.”
Curiously, caviar has always played a marked role on the international political stage. During the Cold War it was considered “unpatriotic” to serve Russian caviar at US state dinners. After the fall of the Iron Curtain, a new enemy was found in Iran, which plans to produce 50 tons per year by 2012. As tensions between the US and Iran rise, the export in Iranian caviar to the US, or other countries when paid in dollars, is banned even though “Cavear Emptor” an organization that creates awareness of the plight of the wild sturgeon, considers Iranian cultivated caviar production an example of sustainable farming.
For domestic aquaculture companies, the political and legal issues could be an advantage. Sustainable cultivation of sturgeons will change the image of caviar production being the cause of the extinction of sturgeons. Political tensions may cause domestic and foreign consumers to switch to US produced caviar. Finally trade restrictions can severely hinder the export of caviar from countries like Iran causing demand to switch to caviar produced in non restricted countries.
Technological opportunities .
The near extinction of wild sturgeons has led to an ever dwindling supply of its roe. Sturgeons are not the easiest kind of fish to cultivate and the quality of American cultivated caviar has never reached the level of Iranian Osetra or Russian Beluga. Technological breakthroughs in the use of sustainable aquaculture methods will give Mote’s sturgeon project an advantage. Traditional aquaculture as used by Iranian companies in the Caspian Sea use a combination of natural and planned production. Mote will use a completely controlled self contained system that allows for less water consumption and more importantly better quality control. Global warming is causing weather patterns to behave unpredictably and fish farms out at sea are much more vulnerable then aquaculture production plants on dry land. Cross breeding can produce sturdier sturgeons with higher egg production and better meat.
Socio cultural opportunities.
The new target markets India and China are steeped in tradition when it comes to food. Certain kinds of food are only eaten at certain occasions, other are eaten because of their wealth bringing qualities (like the abalone (bao yu, 鮑魚)). The medicinal qualities of caviar are not scientifically proven but there are hand creams containing the protein rich eggs and the beneficial properties of fish eggs in general have been studied by practitioners of Traditional Chinese Medicine (TCM). Care must be taken not to market caviar as a decadent Western food but as a traditional sign of wealth.
Economic threats of cultivated sturgeon production.
One of the biggest issues of producing cultivated caviar is that of image damage. The consumption of caviar is always linked to its price and its (perceived) rarity. Like diamonds and fur, caviar is seen as something refined and sophisticated. Both diamonds and fur have sustained damage to their image. Fur production will always have the stigma of dead and mistreated animals even when these animals are bred in sustainable ways. Diamond producers are heavily campaigning to retain the glamorous image of their product after it became known that civil wars in Africa are financed by so called “blood diamonds”. Diamond prices are strictly controlled by a system of site holders, diamond wholesalers who get their cue from one of three major mine holders, the largest of which is De Beers. Overproduction of caviar will influence the price which will in turn affect the exclusive image of the product.
The state of the US economy increases the risk of a worldwide economic depression. When this happens the demand for luxury items like caviar will be hit first. Decrease in demand will cause prices to drop with again an added risk of loosing the exclusive image of caviar.
Political/legal threats.
As described earlier, caviar production and -sales have become the subject of regulation. Although domestic production will guarantee a stable political environment, regulatory and liability risks are higher. Export may expose the company to trade barriers as countries move to protect their own domestic production. Caviar, once packed is a relatively simple product with few additives (although some countries use borax which is frowned upon by the FDA). Political threats could come from countries taking a reciprocative stance towards US trade barriers or boycotts.
Technological threats.
The use of advanced technology to cultivate sturgeons brings a dependence on that same technology. Patents ensure that this technology will not be used by competitors. In fact the cross breeding of sturgeons might result in a sub-species that can be patented itself, creating a competitive advantage. Sustainability and protection of the sturgeon as a species is one of the main concerns. Because the sturgeon’s habitat is self contained any contamination can have severe effects on the population. Contamination or a breakdown of the circulation system are also risks that have to be addressed.
Socio-cultural threats.
The image of caviar as a decadent product can work against it from a cultural point of view. Even common products like Pepsi Cola are seen as an attempt to dominate or even supplant native culture. If domestically produced caviar is seen as an exclusive American product there might be resistance in Middle Eastern and other Muslim dominated countries.
Competitive advantage.
According to the theory of National Competitive Advantage, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process.
In the case of caviar production, the first attribute of Porters “Diamond” comprises the availability of land to build the production facility, the availability of skilled workers to operate the facility and the availability of infrastructure to transport the product. The US has these factors in abundance. As an industry, aquaculture farms need to be innovative because of environmental concerns. Porter’s stand is that lack of resources forces a firm to become innovative. In the case of Mote, the lack of resources can result in more efficient ways to grow, maintain and harvest the fish, create fish that have higher roe production and/or are more resistant to disease.
The second attribute in the “diamond” is demand. Caviar has always been a niche product and needs to keep the image of exclusivity and luxury. This may cause a slow market growth but since demand is still outpacing supply, it shouldn’t be an issue. Quality should be a primary concern since the target group for caviar tends to be sophisticated and well informed. Competition with Iranian- and other high quality caviar producers will force Mote to sell a consistently high quality product.
The third attribute, related and supporting industries doesn’t play a large role in caviar production. Apart from suppliers of fish food and the initial setup of the plant there are no supplies needed, the fish do most of the work.
Firm strategy, structure and rivalry, the fourth attribute defines the position that Mote as a US caviar producing company has on the international market. There are few competitors in the industry but the some of them are owned or heavily backed by governments. Kazakhstan sees the production of caviar as a matter of national pride and would do anything to back its wild- and cultivated caviar industry. A ban on Kazakh caviar has left the market with one main competitor, Iran which already faces sanctions on its own.
Actions.
The trade barriers for Iranian and Kazakh caviar has left the US domestic market open for domestic product. Left without the large US market however, both producers can concentrate on exporting to the markets that Mote is aiming for. Establishing a high quality brand name should be the first thing Mote should do. The cultivated fish eggs should be able to compete with the finest the competition can offer. Because of its luxurious image, the target market group should be high net-worth individuals and the group just below. Because Mote is a production company, it should hire a marketing company to successfully position its product in China and India. Connection with local food culture is crucial in these countries. In China this can be achieved by emphasizing the wealth and health bringing qualities of caviar. In India it should be seen as a rare luxury to be given to business associates and family as a sign of affluence.
Mote should take care to protect its intellectual property rights and patent breeding methods, technology and production. Especially when entering the Chinese market, the risk of “copycats” producing an inferior product is large.
This paper is an analysis of a case study entitled “Mote Aquaculture Park – Sturgeon Project” (Ritchy & Michaels, 2005). The case study gave a detailed overview of the creation of an aquaculture fish farm for the production of sturgeon meat and caviar. It describes the setup of the plant and its administrative facilities, a history of domestic and international seafood production and a short description of the level of demand and supply of seafood in the US. This analysis will address economic, political-legal, technological and socio-cultural challenges and opportunities. Using Porter’s trade theory of National Competitive Advantage, the salient issues associated with cultivated seafood production are identified. Finally an advice on follow up actions based on this analysis will be given.
Caviar is to dining what a sable coat is to a girl in evening dress.
~ Ludwig Bemelmans
Economic opportunities of cultivated sturgeon production.
Few types of food bring up images of affluence and decadence like the roe of the sturgeon, otherwise known as caviar. The word caviar originates from the Turkish khavyar, first appearing in English print in 1591. Once only served to royalty it was degraded to canteen food for construction workers during the early nineteenth century. As recently as the 1870s, a half-ton white sturgeon was selling for twenty-five cents at wholesale fish markets At that time the American rivers were so abundant with sturgeons that prices for domestic caviar dropped to near zero until the German immigrant Henry Schacht decided to export the eggs to Europe where it was sold as coveted “Russian caviar” which was considered a premium, fetching prices of more than a dollar per pound.
Serving and eating caviar has always been seen as a sign of affluence. To celebrate the birth of her son to the Grand Duke Paul, Catherine the Great of Russia gave a banquet of such magnificent proportions that the English Ambassador to the Russian Court made up a detailed report of the affair, saying that there were "... jewels and caviar..." on the banquet table to the amount of more than two million sterling. With supply dwindling and demand growing, the price of caviar has grown so high that cultivation of sturgeons becomes economically viable. It stands to reason that with a carefully maintained image the demand for caviar isn’t anywhere near its peak. At this moment most caviar is consumed in Russia and surrounding countries, Europe and Japan.
The economic rise of countries like India and traditionally fish loving China has resulted in an equal increase of the number of affluent and super-affluent individuals. These “new rich” like to show their wealth by driving expensive cars, wearing expensive clothes and eating expensive food. For instance, the consumption of abalone during Chinese New Year is ever increasing even though this shellfish is considered one of the most expensive. With careful marketing, caviar could be considered as an even larger display of wealth especially since it lends itself perfectly to Chinese versions of dishes like the Russian blini. Though less glamorous, sturgeon meat is considered a good source of amino acids and cultivation efforts for that purpose are well underway in China.
The status sensitive Chinese are well on their way to become the largest market for designer brands like Louis Vuitton while India’s largest conglomerate Tata has recently bought the Jaguar car brand from Ford, confirming India’s rise in the world economic ranks. Indian chefs are now serving caviar to their customers. "Earlier, mostly expats and hotels bought caviar; now people order it even for birthday parties. Demand has skyrocketed." Sripal Khanna of `All Things Nice,' an up market south Delhi grocery admits. With the continuing increase in economic wealth, the demand for luxury goods like caviar will keep rising as well.
Political/legal opportunities.
The overfishing of sturgeons to the point of extinction has caused concern, not only in the environmental protection community but with governments and regulators as well. The precarious position of the sturgeon was recognized in 1997 by the Standing Committee of CITES – the Convention on International Trade in Endangered Species of Wild Fauna and Flora – at their annual meeting. They decided to regulate the international trade in sturgeon, and included all 23 species of the Acipenseriformes (sturgeon and its cousin, the paddlefish) in Appendix II, the list of species “not necessarily threatened with extinction, but in which trade must be controlled in order to avoid utilization incompatible with their survival.” In 2000, the Committee recommended “the introduction of a universal system for caviar labeling to help identify legal caviar in trade” and curb poaching and illegal caviar trafficking. although until 1966, any fish roe that could be colored black could be called caviar. This ended when the Food and Drug Administration defined the product, and established rules for its labeling.
“The name ‘caviar’ unqualified may be applied only to the eggs of the sturgeon prepared by a special process. Fish roe prepared from the eggs of other varieties of fish and prepared by the special process for caviar must be labeled to show the name of the fish from which they are prepared, for example ‘whitefish caviar.’ All words in the name should be in type of substantially the same size and prominence. If the product contains an artificial color, it must be an approved color and its presence must be stated on the label conspicuously. No artificial color should be used which makes the product appear to be better or of greater value than it is. The label should bear a statement of ingredients listed by their common or usual names in descending order of predominance because no standard of identity has been established for any form of caviar.”
Curiously, caviar has always played a marked role on the international political stage. During the Cold War it was considered “unpatriotic” to serve Russian caviar at US state dinners. After the fall of the Iron Curtain, a new enemy was found in Iran, which plans to produce 50 tons per year by 2012. As tensions between the US and Iran rise, the export in Iranian caviar to the US, or other countries when paid in dollars, is banned even though “Cavear Emptor” an organization that creates awareness of the plight of the wild sturgeon, considers Iranian cultivated caviar production an example of sustainable farming.
For domestic aquaculture companies, the political and legal issues could be an advantage. Sustainable cultivation of sturgeons will change the image of caviar production being the cause of the extinction of sturgeons. Political tensions may cause domestic and foreign consumers to switch to US produced caviar. Finally trade restrictions can severely hinder the export of caviar from countries like Iran causing demand to switch to caviar produced in non restricted countries.
Technological opportunities .
The near extinction of wild sturgeons has led to an ever dwindling supply of its roe. Sturgeons are not the easiest kind of fish to cultivate and the quality of American cultivated caviar has never reached the level of Iranian Osetra or Russian Beluga. Technological breakthroughs in the use of sustainable aquaculture methods will give Mote’s sturgeon project an advantage. Traditional aquaculture as used by Iranian companies in the Caspian Sea use a combination of natural and planned production. Mote will use a completely controlled self contained system that allows for less water consumption and more importantly better quality control. Global warming is causing weather patterns to behave unpredictably and fish farms out at sea are much more vulnerable then aquaculture production plants on dry land. Cross breeding can produce sturdier sturgeons with higher egg production and better meat.
Socio cultural opportunities.
The new target markets India and China are steeped in tradition when it comes to food. Certain kinds of food are only eaten at certain occasions, other are eaten because of their wealth bringing qualities (like the abalone (bao yu, 鮑魚)). The medicinal qualities of caviar are not scientifically proven but there are hand creams containing the protein rich eggs and the beneficial properties of fish eggs in general have been studied by practitioners of Traditional Chinese Medicine (TCM). Care must be taken not to market caviar as a decadent Western food but as a traditional sign of wealth.
Economic threats of cultivated sturgeon production.
One of the biggest issues of producing cultivated caviar is that of image damage. The consumption of caviar is always linked to its price and its (perceived) rarity. Like diamonds and fur, caviar is seen as something refined and sophisticated. Both diamonds and fur have sustained damage to their image. Fur production will always have the stigma of dead and mistreated animals even when these animals are bred in sustainable ways. Diamond producers are heavily campaigning to retain the glamorous image of their product after it became known that civil wars in Africa are financed by so called “blood diamonds”. Diamond prices are strictly controlled by a system of site holders, diamond wholesalers who get their cue from one of three major mine holders, the largest of which is De Beers. Overproduction of caviar will influence the price which will in turn affect the exclusive image of the product.
The state of the US economy increases the risk of a worldwide economic depression. When this happens the demand for luxury items like caviar will be hit first. Decrease in demand will cause prices to drop with again an added risk of loosing the exclusive image of caviar.
Political/legal threats.
As described earlier, caviar production and -sales have become the subject of regulation. Although domestic production will guarantee a stable political environment, regulatory and liability risks are higher. Export may expose the company to trade barriers as countries move to protect their own domestic production. Caviar, once packed is a relatively simple product with few additives (although some countries use borax which is frowned upon by the FDA). Political threats could come from countries taking a reciprocative stance towards US trade barriers or boycotts.
Technological threats.
The use of advanced technology to cultivate sturgeons brings a dependence on that same technology. Patents ensure that this technology will not be used by competitors. In fact the cross breeding of sturgeons might result in a sub-species that can be patented itself, creating a competitive advantage. Sustainability and protection of the sturgeon as a species is one of the main concerns. Because the sturgeon’s habitat is self contained any contamination can have severe effects on the population. Contamination or a breakdown of the circulation system are also risks that have to be addressed.
Socio-cultural threats.
The image of caviar as a decadent product can work against it from a cultural point of view. Even common products like Pepsi Cola are seen as an attempt to dominate or even supplant native culture. If domestically produced caviar is seen as an exclusive American product there might be resistance in Middle Eastern and other Muslim dominated countries.
Competitive advantage.
According to the theory of National Competitive Advantage, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process.
In the case of caviar production, the first attribute of Porters “Diamond” comprises the availability of land to build the production facility, the availability of skilled workers to operate the facility and the availability of infrastructure to transport the product. The US has these factors in abundance. As an industry, aquaculture farms need to be innovative because of environmental concerns. Porter’s stand is that lack of resources forces a firm to become innovative. In the case of Mote, the lack of resources can result in more efficient ways to grow, maintain and harvest the fish, create fish that have higher roe production and/or are more resistant to disease.
The second attribute in the “diamond” is demand. Caviar has always been a niche product and needs to keep the image of exclusivity and luxury. This may cause a slow market growth but since demand is still outpacing supply, it shouldn’t be an issue. Quality should be a primary concern since the target group for caviar tends to be sophisticated and well informed. Competition with Iranian- and other high quality caviar producers will force Mote to sell a consistently high quality product.
The third attribute, related and supporting industries doesn’t play a large role in caviar production. Apart from suppliers of fish food and the initial setup of the plant there are no supplies needed, the fish do most of the work.
Firm strategy, structure and rivalry, the fourth attribute defines the position that Mote as a US caviar producing company has on the international market. There are few competitors in the industry but the some of them are owned or heavily backed by governments. Kazakhstan sees the production of caviar as a matter of national pride and would do anything to back its wild- and cultivated caviar industry. A ban on Kazakh caviar has left the market with one main competitor, Iran which already faces sanctions on its own.
Actions.
The trade barriers for Iranian and Kazakh caviar has left the US domestic market open for domestic product. Left without the large US market however, both producers can concentrate on exporting to the markets that Mote is aiming for. Establishing a high quality brand name should be the first thing Mote should do. The cultivated fish eggs should be able to compete with the finest the competition can offer. Because of its luxurious image, the target market group should be high net-worth individuals and the group just below. Because Mote is a production company, it should hire a marketing company to successfully position its product in China and India. Connection with local food culture is crucial in these countries. In China this can be achieved by emphasizing the wealth and health bringing qualities of caviar. In India it should be seen as a rare luxury to be given to business associates and family as a sign of affluence.
Mote should take care to protect its intellectual property rights and patent breeding methods, technology and production. Especially when entering the Chinese market, the risk of “copycats” producing an inferior product is large.
Rise, demise and change of Lesotho’s textile industry
Clothes make the man. Naked people have little or no influence on society. ~Mark Twain
Abstract
This weeks’ paper will give an analysis of the textile industry of Lesotho. The case study “The market and the mountain kingdom; changes in Lesotho’s textile industry” (Rawi Abdelal cs. )
provides a description of the rise, demise and change of textile companies in the small African kingdom. Chinese and Taiwanese investors as well as the influence of changes in the global textile market have had a profound influence on the country’s economy. This paper will give a closer look at the reasons behind the creation of an labor and resource intensive industry in a country with limited infrastructure. It will place the role of textile manufacturing in a larger context, focusing on the role of international regulation. Finally it will analyze the role of government, labor organizations and foreign investors in the lifecycle of Lesotho’s textile manufacturing.
1. The emperor’s clothes; why textile is big in Maseru.
Lesotho, formerly known as Basutoland is a small kingdom that gained its independence from the UK in 1966. Surrounded by South Africa, the country was ruled by the Basuto National Party for the first 20 years. After a short but violent period from 1990 to 1993, during which king Moshoeshoe was exiled, constitutional government was restored. In 1998 elections resulted in violent protests culminating in an intervention by South African and Botswanan military forces. Since 2002 the country has been relatively peaceful although elections are often hotly contested and demonstrations are common[i].
The story of textile manufacturing in Lesotho doesn’t begin in the small African kingdom but starts with its larger brother South Africa and with Chinese entrepreneurs that have been present in most of Africa for centuries. As early as 1980, South African textile companies opened factories in Lesotho to circumvent sanctions on South African products because of the country’s strict apartheid policy[ii]. Most of the textile manufacturing plants were owned and run by Chinese and Taiwanese immigrants, who had come over in search of trade opportunities and found the less discriminating policy of Lesotho preferable to the racist apartheid laws in neighboring South Africa. After the end of apartheid the influence of China became even larger. The primarily agricultural economy of the mountain state was transformed when outside investors like the Taiwanese Formosa Mills started hiring more than 50,000 workers (mostly women) to man the cutting tables and sewing machines under sweat shop conditions. In 2005 the average wages was $38 per week working long hours on often unheated factory halls[iii]. Under the Multi Fiber Agreement and later under the Agreement on Textile and Clothing, Lesotho’s garments enjoyed preferential treatment over cheaper Chinese products in both the US and European markets. The effect the MFA treaty had on local manufacturers became even more apparent when it ended in 2005 abolishing quotas for Chinese made garments. For the Chinese and Taiwanese factory owners it made more economical sense to relocate to mainland China where labor cost was much lower and productivity higher than in Maseru. The results for the Lesothon industry were disastrous.
2. AGOA and the rescue of Lesothon textiles .
After the expiration of the MFA, Lesotho could still export to the EU market where it enjoyed a duty free status as least developed economy. In 1998 this status ended, leaving the industry in a serious predicament. Overnight, factories were closed, leaving the workers without pay let alone a severance package. Most of the factory workers had no warning of their employer’s intentions. Returning from a Christmas holiday they found the doors closed, the investors had left the country. Since only 11 percent of the kingdom's textiles industry was held in local hands it was easy to just close up shop and leave. Taiwan was by far the single largest foreign investor with a 65 percent share, followed by Hong Kong (13 percent), South Africa (five percent), Singapore (three percent) and Israel (three percent)[iv]. After the expiration of the MFA, little was left of this investment.
In 2000, the African Growth and Opportunity Act (AGOA) was passed. Drafted by Jim McDermott, a Democratic congressman, it was signed into law on May 18, 2000 as Title 1 of The Trade and Development Act of 2000. The Act offers tangible incentives for African countries to continue their efforts to open their economies and build free markets[v]. AGOA provides trade preferences for quota and duty-free entry into the United States for certain goods, expanding the benefits under the Generalized System of Preferences (GSP) program. Notably, AGOA expanded market access for textile and apparel goods into the United States for eligible countries.
The reasons for adopting this liberal stance towards potential competing countries on the textile market were more political then economical. As a democrat, McDermott saw the liberation of African countries out of the poverty trap as one of paramount importance. As the world’s largest export market, the US could help struggling economies like that of Lesotho attain a better standard of living. AGOA also appealed to Republican politicians because it granted economical freedom and allowed developing countries to enhance their position on the global market. The fact that AGOA could be used as a carrot and a stick at the same time should however not be underestimated. US policy in Africa after the cold war had decreased significantly. AGOA would boost US economic interest in Africa and would make African economies dependent on US import.
To benefit, African countries must convince Washington that they are not engaged in gross human rights violations and are making continual progress toward establishing a market-based economy. The latter provision effectively requires African countries to comply with structural adjustment programs (SAPs) and protect foreign investors and intellectual property rights. Civil society organizations in the US and in Africa have opposed such criteria as favoring multinational companies at the expense of poor Africans.
“This is less about African growth and more about American opportunity”, Dorothy Keet of the University of Western Cape told. The so-called market access that they are giving us, they are actually going to have to give to everybody over the next 10 years under the (World Trade Organization). But for a very minimal offer, they are extracting very heavy quid pro quos from us[vi]. For the eligible countries however, the results were more important than the “hidden” costs.
Under the AGOA, more specifically under the “Special Rule”, garments from Lesotho were granted duty free entry to the US market. The Special Rule provided this access as long as exports were below 3% (later 7%) of overall US garment exports. The results for the faltering garment industry were spectacular. By 2004 employment had almost reached its pre-MFA expiration numbers. Wages and conditions for factory workers had not improved however, most of the benefits were for the importing companies like Levy’s and GAP who could now import at lower cost.
3. Governments, Unions and Investors response.
The reaction of the Lesothon government has been almost completely passive. Their role in attracting investment and securing better conditions for its citizens, laboring long hours for minimum compensation has been very small. Companies were attracted to the small mountain state because it didn’t have the racist apartheid regime of South Africa and therefore could export without the sanction impediments placed upon its larger brother. There were little or no legal obstacles to build a factory, nor were there any repercussions when the owner decided to leave the country, leaving the workers often destitute. "Taiwanese companies together with ministers in our government, who are shareholders, are running the companies. It is very difficult to enforce the law", said Billy Macaefa of the Lesotho Clothing & Allied Workers Union[vii]. Like mentioned above, governments that did influence Lesotho often did so for political reasons not out of idealism. The US and EU governments are primarily concerned with protection of their domestic industries. As long as Lesotho doesn’t pose a viable threat and does what its foreign economic masters tell it to do, Lesotho will continue to be treated as a favored country.
The militant stance of the labor union has shied away a number of foreign investors. When China became Lesotho’s biggest competitor on the textile market, it became clear that even the low wages that Lesothon workers earned couldn’t compete with Chinese salaries. Exploitation of workers became an important point on the agenda of the LCAWU. Despite limited results, the Union represented a threat to the Chinese employers, who didn’t have to deal with their influence if they would relocate to China. The union claimed companies arbitrarily dismissed workers and many refused to recognize trade unions.
Investor’s response to the changing economic climate in Lesotho has been predictable. AGOA has created more opportunities for American companies to invest in Lesotho. Even China, faced with rising labor cost is re-outsourcing to Africa again.
To remain competitive, a company needs to keep cost down in the entire manufacturing chain. The original plants used readymade fabric from as far away as South East Asia to produce their garments. This made the transportation cost a major factor. Because Lesotho is an enclave, there are no cheap ways to provide large quantities of materials by ship. All materials were trucked in or transported by rail, and manually unloaded. To cut costs manufacturers have started to install weaving machines to produce fabric from cotton. The shorter supply chain allows easier management and lower inventory. High transportation cost remains an issue though.
A new response from investors is a result of the rising interest in “ethical” clothing. According to the ComMark Trust, a group working to develop Lesotho's textile industry, British shoppers spent almost $50 billion on ethical goods and services in 2005 - a high percentage of which was on clothing. Julia Hawkins, of the London-based Ethical Trading Initiative, says the demand in the US is just as high[viii]. The sweat shop conditions and low wages that attracted many investors before are now slowly replaced by alternative smaller scale plants that produce at higher cost but can be bought guilt free. Edun introduced the ONE Campaign T-shirt, made at its Lesotho factory, advertising that $10 of the $40 price tag would go to a new program that brings HIV testing and treatment to Lesotho's textile workers, an estimated one third of whom are HIV positive, another issue that remains unresolved. More than 30,000 shirts have been sold since they were introduced.
Sources:
[i]
[ii]
[iii]
[iv]
[v]
[vi]
[vii]
[viii]
Abstract
This weeks’ paper will give an analysis of the textile industry of Lesotho. The case study “The market and the mountain kingdom; changes in Lesotho’s textile industry” (Rawi Abdelal cs. )
provides a description of the rise, demise and change of textile companies in the small African kingdom. Chinese and Taiwanese investors as well as the influence of changes in the global textile market have had a profound influence on the country’s economy. This paper will give a closer look at the reasons behind the creation of an labor and resource intensive industry in a country with limited infrastructure. It will place the role of textile manufacturing in a larger context, focusing on the role of international regulation. Finally it will analyze the role of government, labor organizations and foreign investors in the lifecycle of Lesotho’s textile manufacturing.
1. The emperor’s clothes; why textile is big in Maseru.
Lesotho, formerly known as Basutoland is a small kingdom that gained its independence from the UK in 1966. Surrounded by South Africa, the country was ruled by the Basuto National Party for the first 20 years. After a short but violent period from 1990 to 1993, during which king Moshoeshoe was exiled, constitutional government was restored. In 1998 elections resulted in violent protests culminating in an intervention by South African and Botswanan military forces. Since 2002 the country has been relatively peaceful although elections are often hotly contested and demonstrations are common[i].
The story of textile manufacturing in Lesotho doesn’t begin in the small African kingdom but starts with its larger brother South Africa and with Chinese entrepreneurs that have been present in most of Africa for centuries. As early as 1980, South African textile companies opened factories in Lesotho to circumvent sanctions on South African products because of the country’s strict apartheid policy[ii]. Most of the textile manufacturing plants were owned and run by Chinese and Taiwanese immigrants, who had come over in search of trade opportunities and found the less discriminating policy of Lesotho preferable to the racist apartheid laws in neighboring South Africa. After the end of apartheid the influence of China became even larger. The primarily agricultural economy of the mountain state was transformed when outside investors like the Taiwanese Formosa Mills started hiring more than 50,000 workers (mostly women) to man the cutting tables and sewing machines under sweat shop conditions. In 2005 the average wages was $38 per week working long hours on often unheated factory halls[iii]. Under the Multi Fiber Agreement and later under the Agreement on Textile and Clothing, Lesotho’s garments enjoyed preferential treatment over cheaper Chinese products in both the US and European markets. The effect the MFA treaty had on local manufacturers became even more apparent when it ended in 2005 abolishing quotas for Chinese made garments. For the Chinese and Taiwanese factory owners it made more economical sense to relocate to mainland China where labor cost was much lower and productivity higher than in Maseru. The results for the Lesothon industry were disastrous.
2. AGOA and the rescue of Lesothon textiles .
After the expiration of the MFA, Lesotho could still export to the EU market where it enjoyed a duty free status as least developed economy. In 1998 this status ended, leaving the industry in a serious predicament. Overnight, factories were closed, leaving the workers without pay let alone a severance package. Most of the factory workers had no warning of their employer’s intentions. Returning from a Christmas holiday they found the doors closed, the investors had left the country. Since only 11 percent of the kingdom's textiles industry was held in local hands it was easy to just close up shop and leave. Taiwan was by far the single largest foreign investor with a 65 percent share, followed by Hong Kong (13 percent), South Africa (five percent), Singapore (three percent) and Israel (three percent)[iv]. After the expiration of the MFA, little was left of this investment.
In 2000, the African Growth and Opportunity Act (AGOA) was passed. Drafted by Jim McDermott, a Democratic congressman, it was signed into law on May 18, 2000 as Title 1 of The Trade and Development Act of 2000. The Act offers tangible incentives for African countries to continue their efforts to open their economies and build free markets[v]. AGOA provides trade preferences for quota and duty-free entry into the United States for certain goods, expanding the benefits under the Generalized System of Preferences (GSP) program. Notably, AGOA expanded market access for textile and apparel goods into the United States for eligible countries.
The reasons for adopting this liberal stance towards potential competing countries on the textile market were more political then economical. As a democrat, McDermott saw the liberation of African countries out of the poverty trap as one of paramount importance. As the world’s largest export market, the US could help struggling economies like that of Lesotho attain a better standard of living. AGOA also appealed to Republican politicians because it granted economical freedom and allowed developing countries to enhance their position on the global market. The fact that AGOA could be used as a carrot and a stick at the same time should however not be underestimated. US policy in Africa after the cold war had decreased significantly. AGOA would boost US economic interest in Africa and would make African economies dependent on US import.
To benefit, African countries must convince Washington that they are not engaged in gross human rights violations and are making continual progress toward establishing a market-based economy. The latter provision effectively requires African countries to comply with structural adjustment programs (SAPs) and protect foreign investors and intellectual property rights. Civil society organizations in the US and in Africa have opposed such criteria as favoring multinational companies at the expense of poor Africans.
“This is less about African growth and more about American opportunity”, Dorothy Keet of the University of Western Cape told. The so-called market access that they are giving us, they are actually going to have to give to everybody over the next 10 years under the (World Trade Organization). But for a very minimal offer, they are extracting very heavy quid pro quos from us[vi]. For the eligible countries however, the results were more important than the “hidden” costs.
Under the AGOA, more specifically under the “Special Rule”, garments from Lesotho were granted duty free entry to the US market. The Special Rule provided this access as long as exports were below 3% (later 7%) of overall US garment exports. The results for the faltering garment industry were spectacular. By 2004 employment had almost reached its pre-MFA expiration numbers. Wages and conditions for factory workers had not improved however, most of the benefits were for the importing companies like Levy’s and GAP who could now import at lower cost.
3. Governments, Unions and Investors response.
The reaction of the Lesothon government has been almost completely passive. Their role in attracting investment and securing better conditions for its citizens, laboring long hours for minimum compensation has been very small. Companies were attracted to the small mountain state because it didn’t have the racist apartheid regime of South Africa and therefore could export without the sanction impediments placed upon its larger brother. There were little or no legal obstacles to build a factory, nor were there any repercussions when the owner decided to leave the country, leaving the workers often destitute. "Taiwanese companies together with ministers in our government, who are shareholders, are running the companies. It is very difficult to enforce the law", said Billy Macaefa of the Lesotho Clothing & Allied Workers Union[vii]. Like mentioned above, governments that did influence Lesotho often did so for political reasons not out of idealism. The US and EU governments are primarily concerned with protection of their domestic industries. As long as Lesotho doesn’t pose a viable threat and does what its foreign economic masters tell it to do, Lesotho will continue to be treated as a favored country.
The militant stance of the labor union has shied away a number of foreign investors. When China became Lesotho’s biggest competitor on the textile market, it became clear that even the low wages that Lesothon workers earned couldn’t compete with Chinese salaries. Exploitation of workers became an important point on the agenda of the LCAWU. Despite limited results, the Union represented a threat to the Chinese employers, who didn’t have to deal with their influence if they would relocate to China. The union claimed companies arbitrarily dismissed workers and many refused to recognize trade unions.
Investor’s response to the changing economic climate in Lesotho has been predictable. AGOA has created more opportunities for American companies to invest in Lesotho. Even China, faced with rising labor cost is re-outsourcing to Africa again.
To remain competitive, a company needs to keep cost down in the entire manufacturing chain. The original plants used readymade fabric from as far away as South East Asia to produce their garments. This made the transportation cost a major factor. Because Lesotho is an enclave, there are no cheap ways to provide large quantities of materials by ship. All materials were trucked in or transported by rail, and manually unloaded. To cut costs manufacturers have started to install weaving machines to produce fabric from cotton. The shorter supply chain allows easier management and lower inventory. High transportation cost remains an issue though.
A new response from investors is a result of the rising interest in “ethical” clothing. According to the ComMark Trust, a group working to develop Lesotho's textile industry, British shoppers spent almost $50 billion on ethical goods and services in 2005 - a high percentage of which was on clothing. Julia Hawkins, of the London-based Ethical Trading Initiative, says the demand in the US is just as high[viii]. The sweat shop conditions and low wages that attracted many investors before are now slowly replaced by alternative smaller scale plants that produce at higher cost but can be bought guilt free. Edun introduced the ONE Campaign T-shirt, made at its Lesotho factory, advertising that $10 of the $40 price tag would go to a new program that brings HIV testing and treatment to Lesotho's textile workers, an estimated one third of whom are HIV positive, another issue that remains unresolved. More than 30,000 shirts have been sold since they were introduced.
Sources:
[i]
[ii]
[iii]
[iv]
[v]
[vi]
[vii]
[viii]
Why did I start this blog?
As a Dutch guy living in Singapore there's a lot to learn every day. I've never had the opportunity to write down the ideas and experiences I gain here. My work as an anti-money laundering specialist also gives me lots of insites. Lately I have been writing a lot of reports for my MBA study at Webster University. I've come to realise I'd like to share these with other people. Don't expect to many regular updates but keep checking and you might read something you like!
Tuesday, April 1, 2008
Please read the legalese before you use or reproduce.
This blog is a collection of papers I've written for my MBA at Webster University, it also contains articles on political, economic and other events and bits and pieces of my life here in Singapore. All texts are my own intellectual property and can't be used in any way without my express, written permission. The MBA papers are published without source links, this is not meant to infringe on copyrights, I'm just too lazy to reformat my Word documents. The complete papers can be obtained by dropping me an email.
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