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Gambling Kings of Asia:
An entrepreneurial story
Thaksinomics Cybercrime in China
Winning in Asia
PRESIDENT EDITOR-IN-CHIEF CHIEF ADMINISTRATIVE OFFICER TREASURER EVENTS COORDINATORS
Jeremy Vasquez Pamela Hidajat Phoebe Yu Bethany Zhang Grace Chan Mary Forman Joshua Lyons Moqian Chen Michael Hong Cerise Marcela Chelsea Dengel Richard Wei Jessica Cheng Wing Wai David Lam Jill Da Eun Seong Ju Song Bethany Zhang
COPY EDITORS BUSINESS ASSOCIATES
EDITORIAL So Young An Suthinee Buranaphong Eric Ang Teck Chin Deborah Chian Peng Chong Brandon Ho Teck Hon Richardson Handjaja Kilis Seo Hyun Kim Nik Kumar Jonathan Lau Diya Li Yun Qi Mok Joseph Ning Edwina Regina Sandy Tun Richard Wei Cathy Meng Xue CONTRIBUTORS Julie Lam, University of Hong Kong Andy Li, Chinese University of Hong Kong
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Cover Art by: Moqian Chen
Business Asia is an independent student publication produced by Cornell Asia Business Forum. We are an independent student organization located at Cornell University who produced and is responsible for the content of this publication. This publication was not reviewed or approved by, nor does it necessarily express or reflect the policies or opinions of, Cornell University or its designated representatives.
5 7 8
Chiang Mai Initiative by Richardson H. Kilis A deeper look into the Chiang Mai Initiatives Pathway of the Emerging Market by Nik Kumar India’s next steps after the financial crisis
| Rising Regionalization and the
| India’s Renaissance: Golden
10 12 13 16
by So Young An How Toyota lost sight of its focus on quality
| Toyota’s Crisis of Confidence
Table of Contents
Issue No. 3, Spring 2010
Not Friendly to Those Outside of it by Jonathan Lau Behind China’s economic success
| China’s Shroud of Secrecy is
Battles Old Challenges by Joseph Ning A look into Japan’s political system
| Japan: A New Government
by Eric Ang Information revolution has altered the world, but what does this mean for China? Online Shopping by Julie Lam China’s e-commerce boom led by Taobao
| Cybercrime in China
Economic Improvement or Political Power by Suthinee Buranaphong Thaksinomics has led to phenomenal growth, but is it sustainable?
| Thaksinomics: A Tool For
| The Chinese Epoch of
| Watch Your Step: Hong Kong
Legaland Compliance Issues for Businessmen and Employers by Andy Li Business law in Hong Kong
24 28 28
by Yun Qi Mok The two people you never want to gamble with by Richard Wei The man behind Microsoft Research Asia and Google China
| The Gambling Kings of Asia
| Kai-Fu Lee
by Richard Wei The ten wealthiest people in Asia
| Top 10
Market Recovery What’s Next? by Cathy Meng Xue Post financial crisis situation for HK Real Estate Market by Grace Chen The impact of financial crisis on Singapore real estate
| Hong Kong’s Real Estate
Hong Kong by Christine Seo Hyun Kim A glimpse at finance internship in Hong Kong Knowing the Chinese Counterpart by Christine Seo Hyun Kim Understanding business context in China
| Investment Banking in
| Real Estate in Singapore
| The ‘Chimerican’ Partnership:
Table of Contents
Issue No. 3, Spring 2010
36 38 41 42 44 46
by Brandon Ho & Yun Qi Mok Facts about countries in South East Asia
| Trivia of Southeast Asia, Part 1
| Outdoor Sports and Activities
in Indonesia by Edwina Regina What Indonesia’s nature offers by Brandon Ho The wonders of Dim Sum
| The Art of Dim Sum
38 48 34
| China’s Peaceful Rise: An
An interview with Professor Bush, the Director of the Center for Northeast Asian Policy Studies | Implications of Cross Broder
Investment Activities by Diya Li
Oxymoron in the Making? by Deborah Cheong
An interview with Professor Karolyi, a professor in investment management | Entrepreneurship in China,
Part 2: The Business Environment by Sandy Tun
An interview with Kevin Mc Govern, an entrepreneur in China
will continue to prove its strength throughout the year. According to the Chinese zodiac, 2010 is the year of the golden tiger, which symbolizes courage and fearless souls. And so in this issue, we continue to focus on the major countries in Asia and introduce you to ongoing developments in other nations. We also cover the changing business landscape in Asia that is affected by new regulations, political issues, and the financial downturn.
Business Asia has successfully increased the number and scope of our articles. Our mission is to present articles written by student leaders at Cornell University and other partnering universities to broaden students’ perspectives on business issues in Asia. Business Asia continues to focus on global partnerships with various universities to further our mission to promote awareness of business issues in Asia to students. We owe the success of this issue to our dedicated staff at Cornell University, our correspondents throughout Beijing and Hong Kong, and our partners at the University of British Columbia, Princeton University, Boston University, and Yale University. Finally, we value your opinion as a reader. We would greatly appreciate it if you can take a minute to fill out our readership survey available at http://www.cubusinessasia.com, where you can also learn more about our past issues and our organization. We are also actively looking for new contributors and partners, and we welcome anyone who is interested to email us at firstname.lastname@example.org. Pamela Hidajat Editor-In-Chief
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Rising Regionalization and the Chiang Mai Initiative
By Richardson H. Kilis, Cornell University
n March 24th, thirteen countries—ten members of the Association of Southeast Asian Nations (ASEAN), the People’s Republic of China, Japan, and South Korea—moved one step closer toward regional financial cooperation and stability. The Chiang Mai Initiative Multilateralization Agreement, a currency swap arrangement drawing from a foreign exchange reserves pool worth $120 billion USD, came into effect. The Chiang Mai Initiative (CMI) was conceived on the heels of the 1997 financial crisis that rocked Asia’s economies. It was announced by the ASEAN+3 ministers of finance in May 2000 during the annual meeting of the board of governors of the Asian Development Bank (ADB). The CMI called for an expansion of the existing ASEAN Swap Arrangement as well as the establishment of a network of bilateral swap and repurchase agreement facilities among ASEAN and the three East Asian countries. By October 2009, it had grown to an intricate network of arrangements worth $90 billion USD with an additional $2 billion USD available exclusively within ASEAN. Following talks of expansion, ministers of finance and central bank chiefs of the participating countries agreed on December 28th to consolidate this loose network. The expanded multilateral arrangement entitles each participant to swap its local currency with the U.S. dollar for an amount up to its contribution multiplied by its respective purchasing multiplier. Early critics questioned whether the CMI would prevent another crisis or delay badly needed reform in Asian economic systems. In an editorial following the announcement, the Asia Times wrote, “The idea that the existence of a currency swap arrangement or the wider concept of an Asian monetary fund […] could have prevented the Asian crisis or the worst of it, is both wrong and politically noxious.” The CMI almost certainly drew the attention of
the International Monetary Fund (IMF), which has been criticized for its failure to bring immediate recovery in 1997. In a 2001 interview with the Far Eastern Economic Review, then Managing Director Horst Köhler expressed his support for the initiative and stated that regionalization complements rather than opposes the IMF. He also saw the need for the IMF to rethink its role in maintaining global financial stability following the Asian crisis. There has even been talk of establishing a similar system for European countries, in light of Greece’s economic woes. Although the IMF has not explicitly supported such an arrangement due to the lack of specific proposals, economists believe a hypothetical European Monetary Fund will not compete with the IMF. They highlight the need to manage problems on a case-by-case basis instead of applying global governance. Many feared that the 1997 financial crisis destroyed any hope of regional cooperation in Asia. The multilateral CMI disproves this sentiment with countries agreeing to help one another recover from a liquidity crunch. It includes new mechanisms for surveillance and monitoring to reassure lenders. Despite the complex arrangements, no country has drawn from the pool of foreign reserves, and the system has yet to be tested. Discussion on the benefits of regional cooperation has grown louder over the past 20 years, according to the ADB Managing Director Rajat Nag, but the breakthrough was made with the acceptance that not all parties would benefit equally. Opposition to regional groupings has softened over the past several years, but economic integration in Asia still has a long way to go because there is no such precedent in its history. BA
Country Brunei Darussalam Cambodia Indonesia Laos Malaysia Myanmar (Burma) Philippines Singapore Thailand Vietnam People’s Republic of China Japan South Korea Contribution (US Dollars) 30,000,000 120,000,000 4,770,000,000 30,000,000 4,770,000,000 60,000,000 4,770,000,000 4,770,000,000 4,770,000,000 1,000,000,000 38,400,000,000 38,400,000,000 19,200,000,000
Source: Ministry of Finance, Japan
BUSINESS ASIA • Spring 2010 • 7
India’s Renaissance: Golden Pathway of the Emerging Market
[By Nik Kumar, Cornell University]
India has propelled itself robustly forward during the last decade, utilizing its booming economy to cultivate an attractive environment for independent investors and foreign companies. As one of the few markets not catastrophically affected by the recent financial crisis, India is readying itself to push even further and take on its problems of terrorism, lack of credit liquidity, and poor infrastructure in an effort to become a true global superpower.
Photograph by: Humayunn N A Peerzaada Source: http://www.flickr.com/photos/humayunnapeerzaada/370031898/sizes/o/
8 • BUSINESS ASIA • Spring 2010
ince the world entered the 21st century, India has blossomed as an emerging market and put itself at the forefront of business leaders, investors, and foreign corporations. While American markets lost a fifth of their value in the last decade, the Indian Sensex index leaped 240% in the same period. Today, as a prominent member of the influential BRIC (Brazil, China, India, and Russia), the nation has turned its economy into a dynamic one that threatens the economic supremacy of the Western elite. Allan Conway, head of emerging markets at Schrodes, the money management company in London, likens India’s rise to postwar Japan. In addition, Jeff Immelt, General Electric’s Chairman and CEO stated that “India has never offered us more potential than it does today. If we
little exposure to complex structured products, and thus the financial sector had essentially been protected from the Collateralized Debt Obligation (CDO) subprime disaster. Another problem facing the nation is the lackluster market for corporate debt. As a result, companies have relied intensively on foreign capital and equity issuance. As a result, a lot of “hot” money has flowed into the Indian stock market, making private equity a large source of funding outside of stock markets. Although the crisis has had a limited impact, profits have decreased rapidly, exporters have been affected, and industrial sectors such as automotive, cement, and real estate have contracted severely. In addition, banks are becoming even tighter on their credit and lending even less.
India has never offered us more potential than it does today. If we can grow at the same pace as the Indian economy, we can be a great company. ❞
Jeff Immelt Chariman and CEO of General Electric
can grow at the same pace as the Indian economy, we can be a great company.” Notably, since 2002, India’s economy has grown by eight to nine percent per year on average. The country’s financial system has become less regulated, allowing India to become a more established and integrated member of the global economy. As India looks to build itself internally, it still faces several obstacles that it needs to iron out. As Mark Mobius puts it, “India’s emerging market has room to run, but the beginning could be bumpy.” Currently, over-regulation in the financial markets, while significantly less than previous levels, is still prominent. India’s import duty tax is prohibitive, adding almost 45 to 55 percent to the price of goods. In addition, securitization is limited and there is notably a very small and illiquid corporate debt market. Banks in India are generally hesitant to give out too much credit, with approximately half of depositors’ cash being constrained in government-issued bonds. While these characteristics are a dent in India’s hopes for growth and expansion, they have also proved to be a shield of protection against the worst of the global financial crisis. The nation had very
In an effort to combat this, the Reserve Bank of India has engaged in a series of actions to free up the market and inject liquidity, but what really needs to be done is to make sure that liquidity moves toward the private industry. As foreign capital dries up, the government needs to heavily invest in infrastructure development to rejuvenate the economy. In addition, to encourage banks to fund infrastructure demand, the government needs to provide appropriate guarantees to cover the credit risk of large projects. This will encourage banks to lend to corporations again and restart the cash flow cycle. India’s Renaissance to an economic power has been spectacular, and to continue down the golden pathway the government needs to lift the nation out of its infrastructure doldrum that is weighing the country down. Once credit eases and liquidity flows in India, the economy of this Asian Tiger will continue the journey to glory. Today, India’s emerging market could be likened to its native elephant, slow and lumbering getting to its feet, but once up and standing strong, its economy and consumption appetite will be voracious. BA BUSINESS ASIA • Spring 2010 • 9
Toyota’s Crisis of Confidence
Photograph by: David Villarreal Fernández Source: http://www.flickr.com/photos/davidvillarreal/4408803083/sizes/o/
[By So Young An, Cornell University]
he second largest manufacturer of automobiles, Toyota, is now facing its biggest crisis yet. As soon as it overthrew General Motors to reach the throne of the largest automobile manufacturer, Toyota had to make an embarrassing recall of 437,000 hybrid cars worldwide due to a faulty brake system. The recall left Toyota with a humiliating black mark on its image. Many consumers still feel betrayed by Toyota, and this loss of faith has impacted Toyota 10 • BUSINESS ASIA • Spring 2010
sales. Now, Toyota is experiencing the largest recall in automotive history, and it seems that this crisis will not stop anytime soon. As of February 2009, Moody’s Investors Service confirmed it had placed the Aa1 senior unsecured long-term rating of Toyota under review for a possible downgrade. In order to restore the company’s image and rescue its credit from the abyss of distrust, Toyota needs to rectify its mistakes. It suspended the sale of eight popular
models, including Corolla, for potential safety problems. The company said that it would provide free alternative transportation nationwide to owners while their recalled cars were being repaired. Furthermore, Akio Toyoda, the president of Toyota Motor Corp., held a news conference, offering a “heartfelt apology” to customers. Mr. Toyoda said that he and the company would establish “a special global quality committee” and have advice from outside experts to re-exam and re-evaluate everything in Toyota that is related to consumer safety. Why couldn’t Toyota see this problem before launching the model into the market? If they had tested their models enough, they could have been able to avoid this huge crisis. The recall of the Prius model in particular has increased year by year since 2000 and the question of fundamental safety has been lurking under the surface of consumerism since 2005. The question one may ask is: what has been wrong with Toyota since 2000, and why is it seemingly unfixable? Experts say that one of the reasons can be attributed to flawed entrepreneurship by Katsuaki Watanabe, former president of Toyota. Japanese press named this recall the “Watanabe’s curse,” suggesting that there was a problem with decreasing production costs which Watanabe had pursued for 10 years. It claimed that as Watanabe accelerated a decrease in costs of components, Toyota started neglecting the quality of cars and safety checks. Yomiwuri Press also agreed with other Japanese press, adding that Toyota in particular did not check outsourced machine components cautiously enough; the brake pedal, which was the major cause of the recall, was outsourced in an area with less stringent quality control procedure. In addition, Toyota Union said that forcing the plan to decrease by 30% production costs every year, caused them to neglect safety checks of cars. Although Toyota became the largest automaker in 2008, it had, by March 2009, the greatest deficit recorded in the company’s history. As a result, Watanabe retired his position and Akio Toyoda became the CEO of Toyota as of June 2009. Another factor of this huge crisis was increasing national and global productivity in a short period of time. In the earlier part of this decade, Toyota noticed weakness among its U.S. competitors and opportunities in emerging markets like China and India. As a result, Toyota began a headlong expansion spree around the world. During this enormous expansion process, Toyota abandoned its own principle, which is to never build a new product in a new
factory with a new workforce (due to stability concerns). Any new Toyota factory would produce a model that was already once built in an existing Toyota factory because doing in this way minimized quality control variable. Experts say that this “recall crisis” might be caused by Toyota pursuing its new contradictory principle: unification of components, localization and abrupt expansion.
Japanese press named this recall the “Watanabe’s curse, ” suggesting that there was a problem with decreasing production costs which Watanabe (former Toyota President) had pursued for 10 years.
While Toyota regards this recall as a severe crisis, other manufacturers of automobiles view it as an opportunity for them. Experts say that Honda took the greatest advantage of Toyota’s recall crisis; increasing its market share by 5%. General Motors meanwhile re-took the place of the largest automaker and Hyundai’s market share increased from 5.3% to 7.5% in the U.S. Unlike other automakers, Hyundai’s market share in the U.S. was relatively low and thus, Toyota’s recall woes are allowing smaller companies such as Hyundai improve their brand images and make this short-term increase in market share as long-term as possible. BA BUSINESS ASIA • Spring 2010 • 11
Japan: A New Government Battles Old Challenges
By Joseph Ning, Cornell University
ven before the general elections that took place on August 30th, 2009, the popular speculation was that the Liberal Democratic Party of Japan (LDP), the party that had ruled almost continuously since the 1950s, would lose to its rivals, the Democratic Party of Japan (DPJ). Multiple factors such as continuous economic stagnation, a declining fertility rate, a growing population of elderly citizens, an inefficient and cumbersome bureaucracy, and the perceived incompetence of the LDP leader, Taro Aso, contributed to a new era of DPJ governance. The DPJ, led by Yukio Hatoyama, came into power on a sweeping mandate. In an election with what was estimated to have a 70 percent voter turnout, the DPJ was able to garner 308 out of 480 seats, while the LDP only managed to win 119. Yet, even in the face of this momentous victory, Hatoyama, now the Prime Minister of Japan, acknowledged that there was much work to be done for his party, which has only ruled for 11 months in
the history of post-World War II Japan. Indeed, the dramatic circumstances of the DPJ’s rise to power seem to have set the exceedingly high expectations which it has dashed in the succeeding months. During the election, Hatoyama and the DPJ promised Japanese citizens significant changes including restructuring the aforementioned bureaucracy, cutting the fuel tax, raising the minimum wage, and granting each family a monthly 26,000 JPY ($300 USD) stipend for each child it has. Given the massive debt the Japanese government accumulated from stimulus spending incurred by the previous LDP administration, the new DPJ government was already hamstrung to a certain extent about the actions it could take to address the economic crisis. In recent months, the DPJ government has taken certain steps to try to lift the world’s second largest economy out of recession. Hatoyama’s government has injected another massive 7.2 trillion JPY ($80 billion USD) stimulus package into the economy in December 2009. It also provided incentives to consumers to buy energy efficient automobiles and appliances. Although encouraging signs have shown on the radar, including a decrease in the unemployment rate, deflation remains a severe problem for Japan. Economic growth has also disappointed those in the financial sphere, as Japan’s economy underperformed the expectations of analysts in the fourth quarter of 2009. Hatoyama’s party has taken hits in the polls because of this and multiple financial scandals that the party endured late last year. As the DPJ actively seeks to fulfill its other campaign promises, such as shifting power to elected officials from entrenched bureaucrats, the government will find it increasingly difficult as it struggles to maintain a united front. It also remains to be seen whether Hatoyama will be able to effectively address the long standing issues of low fertility, the growing elderly population, and increasing government debt. BA
Photograph by: Joe Jones Source: http://www.flickr.com/photos/redjoe/18870451/sizes/o/
A van with speakers roams around Tokyo blasting political propaganda admist the presidential election season
12 • BUSINESS ASIA • Spring 2010
Art by: ~Meeh Source: http://meeh.deviantart.com/art/Square-Face-Dude-19969506
a Tool for economic improvemenT or poliTical power
By Suthinee Buranaphong, Cornell University
BUSINESS ASIA • Spring 2010 • 13
n July 1997, the Asian Financial Crisis raised fears of a worldwide economic downturn. The crisis first started in Thailand when former Prime Minister Chavalit Yongchaiyudh declared to float the Thai baht because of the collapse in real estate and mortgage markets. Due to the Thai government’s inability to solve this financial crisis, re-election occurred subsequently. Prime Minister Thaksin Shinawatra came into power and promised the Thai citizens to rescue their economy from the recession with his economic policy, namely Thaksinomics. Thaksinomics is a set of populist policies that aims at rural people, particularly in agricultural sectors. Thaksinomics policies are implemented to increase in loans from banks to farmers and extend payback periods, to encourage small and medium-sized enterprises by the One Tambon One Product program, to subsidize fuel cost, to create the 30 baht universal healthcare program, to privatize state-owned enterprises, and to build megaprojects for public infrastructure . After these policies came into effect in 2001, Thailand’s GDP growth in 2002 reached 5.3%, the highest since 1996, followed by 7.1% in 2003 and 6.3% in 2004. Whether Thaksinomics led to this dramatic improvement has become a point of significant debate. Supporters claim that by injecting money directly into households, these policies encourage more demand of internal goods, thus making the economy less vulnerable to external shocks. They also point out that the Thaksin administration repaid the debt payment incurred from the Asian Financial Crisis to the IMF. On the contrary, critics of Thaksinomics argue that these policies are
simply the traditional Keynesian fiscal policies which stimulate the economy only in the short-run while ignoring long-term development. They also question the slower GDP growth of 4.5% in 2005. From the economic point of view, although Thaksinomics seems to mark a decent step in growth rate, the policies are a destructive mechanism on the economic structure in the long-run. First, consider the most principal policy in Thaksinomics—increasing loans to farmers, villages, and small and medium enterprises. The government ordered state-owned banks to increase loans to lowincome population especially in agricultural sectors and also issued four-year debt moratoriums for farmers. In short run, this policy stimulated the demand side of the economy by increasing the budget constraint of households. The increase in spending was observed quickly after the implementation of the policy, leading to greater investment and aggregate output. As mentioned earlier, from 2002 to 2004, the reported GDP growth rates were 5.3%, 7.1% and 6.3% respectively. However, problems arose when banks made loans without due diligence to people who had little means of repaying the loans. In addition, banks cannot infinitely make extended loans. The newly issued loans accumulated with previously loans increased the percentage of nonperforming loans (NPL). Moreover, this policy created illusive consumption power that led to overspending. People did not fully recognize that their purchasing power was funded by borrowing future income . This is why the GDP growth rate eventually dropped as the increase in demand did not originate from actual
What Thaksin’s Supporters say: ...by injecting money directly into households, these policies encourage more demand of internal goods, thus making the economy less vulnerable to external shocks
14 • BUSINESS ASIA • Spring 2010
What Thaksin’s Critics say: ...these policies are simply the traditional Keynesian fiscal policies which stimulate the economy only in the short-run while ignoring long-term development
The “red-shirt” movement, many of them followers of former PM Thaksin Shinawatra and his policies, show their support on the streets
Photograph by: SpecialKRB Source: http://www.flickr.com/photos/specialkrb/4447892576/sizes/o/
increases in income but the illusion of wealth created by the government. The massive amount of NPLs would later on become the government’s burden and lowincome people would suffer from debt repayment due to overspending. In the long run, this policy led the economy in the wrong direction. The second factor is the One Tambon One Product (OTOP) program, which stimulates the development of rural small- and medium-sized enterprises. The policy encourages each region to come up with its own products based on locally available resources. The government will help promote these products on the national level. This program was aimed at generating more economic activity for local villages so that they obtain steady sources of income and become less vulnerable to volatile economic situations. However, in reality, to sell OTOP products, the rural businesses were tremendously dependent on the international financial situation. Instead of strengthening local economies, the OTOP program exposed them even more to external shocks. Local villagers are influenced by every sway of the demand in external markets, thus losing their competitiveness. The third point of concern is the government subsidy on oil prices. In the beginning, this subsidy led to an increase in investment and aggregate output due to the lower oil prices. However, in long run, this policy contributed to a huge deficit in government spending. It failed to encourage real GDP growth because the observed increase in output and production levels came from temporary monetary injections from the government in the form of transportation cost subsidies. Sooner or
later, the government would have to pay off this deficit by raising tax revenue or by adding tariffs to oil prices. From the perspective of politics, this policy can gather popularity for the political party currently in power. However, it makes little difference in real economic variables. Lastly, we must analyze the 30 baht universal healthcare program. This program guarantees universal healthcare coverage for only 30 baht ($0.75 USD) during a visit at any state hospital. At first sight, it was hailed as one of the most successful policies, shown by the massive number of low-income people who can now enjoy medical services. Nevertheless, as time passed, the government did not hold enough revenue to subsidize the state hospitals and left them to fund the services on their own. The medication became sub-par and hospitals began to denypeople with healthcare cards. In conclusion, despite the statistical increase in GDP from 2002 to 2004, this boost of adrenaline did not represent real growth in the economy but rather short term response to government intervention, or in other words, expansionary Keynesian fiscal policy. Although Thaksinomics can turn the tides in the next election by winning over voters, it is incapable of making long-term improvements to the economy. Furthermore, this policy can become destructive towards Thailand’s sustainability and growth as people become dependent on the government’s care, raising doubts to whether Thaksin Shinawatra enforced Thaksinomics to further his own political power or to improve Thailand’s economy. BA BUSINESS ASIA • Spring 2010 • 15
Watch Your Step: Hong Kong Legal and Compliance Issues for Businessmen and Employers
Hong Kong has long been hailed as one of the best business environments in the world. How does the often cumbersome legal and regulatory framework operate in such a business utopia? What minimum requirements and assets are considered indispensible in By Andy Li Yu Hin, The Chinese University of Hong Kong this laissez-faire economy?
In Hong Kong, the employment law is written, generally, in favour of employees. When we arrive at a grey area, an employee’s legal position is usually be privileged. The Labour Tribunal was set up to handle employment disputes; employees can ask the government for compensation due if their employers are unable to pay their wages. Another notable feature in Hong Kong is the lack of a statutory minimum wage level – which might be a piece of good news to employers. Dealing with the Taxman Re-structuring a remuneration package to be more taxefficient? The taxman will chase after you in the name of deliberate tax avoidance. Structuring such a tax-efficient package at the time of employment? This time, you are perfectly within legal bounds. Hong Kong has long been famous for its low tax rates and simple, straight-forward taxation system. The territorial concept is employed, which means that only activities carried out within Hong Kong can be taxed. At 16.5%, the income tax for limited companies is certainly conducive to investments, perhaps second only to tax havens like the British Virgin Islands and Cayman Islands. Then again, what is the fun of doing business if you’re spending your energy following rules and regulations all day long? The Hong Kong taxation framework allows
Working within the Law Your employee, whose job requires her to move and arrange tables and chairs regularly, has just informed you that she is pregnant. You, out of compassion, suggest that she temporarily switch to another job with a lower level of physical demand, but unfortunately you could be sued for discrimination against pregnancy right away. However, employees are somehow not protected from religious or sexual orientation discriminations. Your employee has just made a serious mistake and he was duly dismissed. To your surprise, your lawyers told you that you should re-consider the dismissal because courts would weigh his mistake against the negative impacts he will suffer as a result of the dismissal. The judges can force you to withdraw the dismissal because the employee would lose a substantial amount of long-term payment due upon normal termination of the employment contract. As the proverb says, “when in Rome, do as the Romans do”. While most of the laws are in tune with common sense, some of them are counter-intuitive. It would be prudent for businessmen to pay attention to minute details of the legal environment in which they plan to trade in order to avoid legal complications. Lawyers’ advices are invaluable here. The most troublesome fields tend to be employment and union laws, where different jurisdictions have different views regarding the extent of employees’ rights – usually at the expense of employers. 16 • BUSINESS ASIA • Spring 2010
you to use as many tax-efficient arrangements as possible, provided that you adopt them right from the start. The least you can do is taking $100,000 HKD ($12,888 USD) out of annual profits as salary to take advantage of the maximum personal salary tax allowance of the same amount (for the fiscal year 2009-10). That’s $16,500 HKD ($2,127 USD) you take back from the taxman’s hands and straight back into your pockets! Meeting the Standards You spotted a perfect opportunity in the Hong Kong insurance market. You decided to abandon your bankrupt U.S. Company and set up your business there as soon as possible to gain a head start ahead of your competitors. When you apply for a license at the Office of the Commissioner of Insurance, the guy replied, “Insurance business? No problem! Cough up $10 million HKD in capital, and find someone else to conduct your business. You failed the ‘Fit and Proper’ test for directors”. While Hong Kong does not have strange laws, like the prohibition of “naming a pig ‘Napoleon’” in
France, it does set a high entry requirement for two sets of industries. The first is financial-related industries, most notably banks, insurance companies, and money lenders. The other set includes industries that would affect a large number of consumers if they were to make a mistake. Examples are education, food, and beverage industries. In both cases, compliance requirements serve to protect the interest of consumers. Industries in Hong Kong have a tendency to establish their own regulatory organizations. These organizations set industry standards on quality and a code of ethics. As the industries develop, regulatory organizations generally become statutory bodies, thus reinforcing the industry-specific compliance requirements. Firms would have to meet the minimum requirements in order to be granted a license to conduct business. Some industries even have their own by-laws – more headaches for executives, unfortunately. In the end, these shouldn’t come as a surprise. After all, the regulatory requirements are set by the industries themselves! BA
BUSINESS ASIA • Spring 2010 • 17
China’s Shroud of Secrecy is Not Friendly to Those Outside of It
By Jonathan Lau, Cornell University
ven before China emerged from the Great Recession, investors had long been attracted to the nation. China continued to grow and significantly improve its economy; its GDP grew by 8.7% last year. China has the tremendous growth that provides huge opportunities for many firms, and it does not have the political instability that other emerging markets have. The statistics speak for themselves; China now has three of the four largest banks by market capitalization, and the two largest insurance companies. China’s rise to prominence is quite apparent, but what isn’t clear is how financial decisions are made in this nation. The reason behind this is because China’s 18 • BUSINESS ASIA • Spring 2010
government, the Communist Party, and financial institutions are so entangled that it is difficult to determine who really makes the final decisions. Consistent with how the Communist Party operates, even attempts to speculate government functions will put you in dangerous waters with dubious secrecy laws. This is not to say that China has not had incentive to make itself more transparent to become more competitive in the global economy. On the contrary, China’s State Administration of Foreign Exchange recently announced that it would begin releasing data on balance of payments on a quarterly, instead of on a semi-annual basis, in an effort to make more economic data available to global investors and policymakers.
Photograph by: » Zitona « Source: http://www.flickr.com/photos/zitona/3350210590/sizes/o/
Chinese officials employ a similar approach in their policy making; they want to be ambiguous so that they can use different interpretations of what they say, or in other words, change their minds at will
However, the Chinese government loves to be ambiguous and subtle, even if it means being deceptive. A small example of this is the announcement made by Premier Wen Jiabao in 2008 that China’s military budget would be $60 billion, in stark contrast of Pentagon estimates of up to $150 billion. According to The Economist, in light of the news that Sichuan Tengzhong Heavy Industrial Machinery Co. planned to buy out General Motor’s Hummer unit last month, the Ministry of Commerce repeatedly told reporters that it never received any “application” for the deal, playing on its definition of “application.” Chinese officials employ a similar approach in their policy making; they want to be ambiguous so that they can use different interpretations of what they say, or in other words, change their minds at will. The only repercussions they will face are criticisms and ridicule for being ambiguous and unclear. In the United States, investors pay undivided attention to the Federal Reserve chairman, Ben Bernanke, and the decisions he makes about the country’s monetary policies. In China, there isn’t such a public figure that investors can turn to. Along with ambiguous policies and information, this is another contributing factor to the existence of information asymmetry in China. Unequal access to information provides those who have the information an unfair advantage over those who do not. However, this comparison is not fair to begin with since China has never openly supported democracy.
On the other hand, there are some important observations to be made. The closeknit nature of China’s financial institutions and government is somewhat related to how the United States operate. High ranking officials in the U.S. government have long been criticized for having conflicting interests that benefit industries from which they came, instead of the overall economy. Known as the revolving door in politics, this principle states that highly influential individuals are brought into government roles for a few years, implement policies or petition for government spending in such a way that is beneficial to their industries, and return to their former jobs once their service terms end. Prominent examples include former Vice President Dick Cheney, who came from the oilfield services industry, former Treasury Secretary Henry Paulson, and other high ranking executives who worked at Goldman Sachs. If the people who make financial decisions in China are handpicked by the Communist Party itself, as many of the country’s banking executives led careers that were carefully managed and predetermined, then will there be any conflicts of interest? They might not have incentives to make conditions more favorable for any one industry, but they can still benefit themselves. Many examples serve as indirect proof. Chinese banks can be described as pure utilities, since the government takes an active role in making important credit decisions. Because of this, a firm’s greatest asset in China is often its ties to the government, which often determine its success. When such importance is placed on government relations, unfair play becomes a concern. China has long been notorious for a place of insider trading, especially between government officials and businesses Coupled with the fact that China still does not have the regulatory framework to ensure investor safety, as companies still post false and misleading financial statements, the average investor can only be cautious when investing in China. The growth and investment opportunities are certainly there, but it becomes much harder to pinpoint true opportunities when they are shrouded in secrecy. Perhaps the only conclusive thing from China’s ambiguity is that those who can secure good government ties will most likely benefit the most. BA BUSINESS ASIA • Spring 2010 • 19
and tearing down the barriers of formerly reclusive countries like China. Indeed, China’s widespread adoption of the Internet has heralded a new age of transparency and freedom within its borders, with social networking tools like Tencent’s QQ leading the pack. However, just as every rose has its thorns, China’s disgruntled By Eric Ang, Cornell University intellectual elites have been taking advantage of this newfound freedom for their own nefarious purposes. In January 2010, Google China disclosed in a blog post that it had detected a “highly sophisticated and targeted attack on [its] corporate infrastructure originating from China.” Google claimed that this hacking attempt resulted he information revolution of the past two in the loss of intellectual property from more than 33 decades has fundamentally changed the major multi-national corporations, including industry world, enabling fast and instantaneous giants like Intel and Yahoo. More significantly, Google exchange of information across the world asserted in the post written by Chief Legal Officer David (Source: Sophos)
CyberCrime in China
China was one of the top countries from which malicious software and spam spread in 2009
Top countries hosting malware on their servers, 2009
US US China China Russia Russia Peru Untitled 1 Peru Untitled 1 Germany Germany South Korea South Korea Turkey Turkey 6.3% 6.3% 4.3% 4.3% 3.5% 3.5% 2.7% 2.7% 2.5% 2.5% 39.6% 39.6% 14.7% 14.7%
Top countries relaying spam from their servers, 2009
US US Brazil Brazil China China 10.7% 10.7% 6.0% 6.0% 5.1% 5.1% 4.7% 4.7% 4.3% 4.3% 3.5% 3.5% 15.7% 15.7%
India India Turkey Turkey South Korea South Korea Russia Russia
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Drummond that a primary goal of the attackers was Despite China’s roaring economic success and to access the Gmail accounts of Chinese human rights double digit GDP growths, the quality of life for the activists. Google did not specifically accuse any source, average Chinese citizen may not be as high as it should be, but it announced on January 12th, 2010 that it was “no due to the serious curtailment of freedom in all aspects longer willing to continue censoring [its search] results on of life, especially in the online world. However, many of Google.cn.” China’s intellectual elites have found ways to circumvent In response to rising international pressure to the paternalistic state’s censorship and control of the restrain cybercrime in China, Chinese officials have Internet. In doing so, these hackers have been labeled as started to take action on hot-zones of cyber crime, hei-ke by the Chinese government, which translates literally namely universities and online forums. The New York to “an evil person”. Times reported that the hacking attempt on Google.cn Certainly, it is hard to condone the contributions was traced to computers at China’s Shanghai Jiaotong that the talented hackers in China are making in the University and Lanxiang Vocational School in Shandong realm of cyber-crime, but our condemnation of their Province. actions must be weighed against the struggle that they are On the 9th of February 2009, officials in Shanghai spearheading in order to achieve freedom of speech in announced the bust of a major cyber-hacking ring, known the online world. The ideals of freedom which we hold as Black Hawk Safety Net, which was labeled “the country’s so dear should extend into the online world just as the largest distributor of tools used in malicious Internet Secretary of State, Hilary Clinton, remarked in her speech attacks” by the state media. According to China’s Xinhua on Internet Freedom on January 21, 2010 that it was the news agency, this online crime network generated around responsibility of the United States to “help ensure the free $1 million from more than 12,000 subscribers. However, exchange of ideas, [an ideal that] goes back to the birth of industry experts suspect that this move by Chinese our republic.” BA officials served simply to placate the rising chorus of voices calling for action against cybercrime. Fundamentally, the enforcement action been taken by the (Source: Center for Strategic and International Studies) Chinese government is but a tiny drop in an endless, roiling sea. In a survey of Nations in Survey deemed to be more than 600 information technology of ‘most concern’ as source of executives in 14 countries, China was ranked 2nd in the world in terms of cyberattacks the likelihood of being a cyber attack origin. China’s online world resembles US a free-wheeling, anything-goes frontier 36% despite the Chinese government’s China state-run censorship system. Anything 33% from hacking software, which is Russia euphemistically named “training tools,” 12% to pornography can be easily gotten U.K. 5% for a fee, despite China’s best efforts to clamp down on such trade, which it France 2% regards as an outrage of its Confucian philosophy. China’s Internet censorship Germany 2% policy is labeled as “pervasive” by the 10% OpenNet Initiative’s global Internet Other filtering map, the worst ranking used.
BUSINESS ASIA • Spring 2010 • 21
The Chinese Epoch of
By Julie Lam, The University of Hong Kong
hile Google has become a verb for online searching, Taobao has entered the Chinese vocabulary as “online shopping”. With an internet population of over 380 million growing at 18% annually, China is poised to welcome the next e-commerce boom. Taobao, which literally means treasure-hunting in Chinese, is the largest shopping website in China established by the Alibaba group in 2003. According to latest figures, its membership count has reached 145 million, and its transaction volume of skyrocketed to $99.96 billion RMB ($14.64 billion USD). How does Taobao build its success upon a still developing Chinese society?
Building Confidence When eBay entered China, it expected to cultivate and capture the China online shopping market easily. Instead, its payment system – PayPal, bank transfer, or credit card payment – completely lost its sway in China and dragged down the whole attempt to enter the market. Jack Ma, the CEO of Alibaba, realized that directly transferring payment to the sellers before the confirmation of the receipt would not work in China. Back in 2003, when Taobao was first established, online shopping was still a growing trend in China. Transferring money to online sellers that you never met looked exactly like an online fraud to Chinese consumers. They didn’t trust online sellers who can evaporate behind the screen
Photograph by: sfllaw Source: http://www.flickr.com/photos/sfllaw/380959080/sizes/o/
22 • BUSINESS ASIA • Spring 2010
the moment you transfer money to their account. In short, the online shopping market was too immature for the Chinese to trust online sellers. Buyers rejected to pay first because of the risk; but sellers also rejected to ship the goods first for fear of buyers defaulting. Jack Ma found the balance by dividing the risk 50/50. He established Alipay, a third party online payment platform, and used it to process Taobao transactions. Sellers are obliged to ship the goods after buyers debit the amount to their corresponding Alipay accounts. But the amount will not be transferred to sellers’ accounts until the buyers’ receive the goods. Filling the Communication Gap The sense of insecurity in online shopping arose from the fact that the buyer cannot scrutinize the commodity in person before clicking the pay button. The obvious solution is to facilitate communication between the two parties who can exchange information about the commodities, hence building consumer confidence. Embedding an instant messenger onto the website is undoubtedly the most plausible and effective option as it provides an instant platform for communication. However, most online shopping websites, including eBay, reject this option as information exchange through instant messengers is difficult to control. If users manage to settle the payment privately through instant messengers, eBay’s commission from online payment will disappear. Jack Ma thought otherwise. He boldly introduced a specialized instant messenger, Aliwangwang, in Taobao to bridge the communication gap between sellers and buyers. Besides enabling information exchange, conversation records in Aliwangwang also served as legal proof in case any disputes arise from the transaction. The immaturity of the online shopping industry in China turned out to be an advantage for Taobao. Most users regard the security provided by Alipay as indispensable. Consequently, private settlement through instant messenger communication is the least concern. According to many Taobao users, they prefer Taobao to eBay in China due to the former’s provision of Aliwangwang.
delivery companies specializing in delivering goods for sellers on Taobao. Other than providing a stable delivery channel, this drives down the market price. Delivery within the border of China, excluding Taiwan, Hong Kong, and Macau, now costs only some 5 RMB ($0.73 USD) for the first kilogram and 1 RMB ($0.15 USD) for every subsequent kilogram of goods. The delivery merely takes one or two days depending on the distance. Adopting to the Chinese Market The core ingredient in Jack Ma’s successful formula is the ability to assimilate the model of eBay into the context of Chinese culture. Shopping on eBay is an individual activity that can be summarized in two steps. First, check the product introduction and feedbacks on that specific product. Second, click the pay button or leave it. On the other hand, Taobao resembles an online bustling market place. Besides going through the lengthy details and feedbacks of the products, buyers debate vigorously in the forums concerning the quality of specific products. They will also socialize with the online sellers on Aliwangwang for more information before paying. One side proclaims American simplicity and individuality, while the other imitates a Chinese community with emphasis on human interaction. The experience of Taobao is a lesson on localization.
From World Factory to International Brands The success of Taobao has a profound meaning to China. The growth equation of China has been acting as the world factory to cheaply produce goods for affluent Western consumers. However, Taobao is enabling more and more small- and medium-sized factories to take their first step in establishing their own brands. Knowledge and skills accumulated during their experience as manufacturers in the past decades plus the cost-effective online retail channel provided by Taobao enabled companies like 1% and Ando, shoes and clothing manufacturer-retailers, to sell their own products without a prohibitive capital investment. Perhaps it is crazy to compare those local brands with world-renowned mega brands right now, but let’s think of the costs cut by eliminating retailing Logistics: Deliver It Cheap and Quick overheads. It is nearly impossible for Western companies Shipment is another issue for online retailing. to compete with Chinese manufacturers in terms of Fortunately, China has a well developed and cost-effective price. Taobao might have actually jump-started the era of network for express delivery. The increasing popularity of Oriental leadership. BA Taobao is accompanied by the rapid growth of express BUSINESS ASIA • Spring 2010 • 23
The Gambling Kings of Asia
By Yun Qi Mok, Cornell University
For at least half a century, two men ruled the gaming industry of Asia from their thrones in gambling paradises located in Genting and Macau. Born into poverty in 1918 in Fujian, China, Lim Goh Tong eventually amassed a fortune of $4.2 billion USD, while Stanley Ho, born in Hong Kong in 1921, rebuilt the fortune of his clan to an estimated $9 billion USD. These two great entrepreneurs, these two famous Kings of Gambling, bet everything on their wit and vision to craft empires, which has undeniably changed and reshaped the courses of their local economies.
Photograph by: nd.strupler Source: http://www.flickr.com/photos/strupler/3038756978/sizes/o/
24 • BUSINESS ASIA • Spring 2010
Humble Beginnings The cards dealt to Lim Goh Tong and Stanley Ho were far from favorable, but like truly skilled gamblers, they strove to pursue their own goals rather than wait for fortune to fall into their laps. Lim grew up in a village just after the collapse of the Qing Dynasty, a time when China was being torn apart by foreign invaders and local warlords. Political stability and peace were unknown, and when Lim was 19, he joined the waves of Chinese immigrants fleeing to Southeast Asia and settled in Malaysia. He began to work as a carpenter, but then ventured into the scrap metal and hardware trading industries because the demand for heavy machinery after the Japanese Occupation of Malaysia was enormous. With such foresight, Lim embarked on his journey to greater heights. Unlike Lim who was born into poverty, Stanley Ho was a shao ye, or “little master”, of the illustrious Ho Tung family in Hong Kong, until he was thrust into destitution when the family went bankrupt after the stock market crash in 1934. He grew up pledging to become a successful and rich man, a pledge which he ultimately kept. He studied for two years at the University of Hong Kong after receiving a scholarship, but had to flee to Macau because of the invading Japanese forces. Working for a Japanese import-export firm, he made his first fortunes smuggling luxury goods into China during World War II. According to Joe Studwell, author of Asian Godfathers: Money and Power in Hong Kong and Southeast Asia, it was then that Ho first gained his formidable reputation by regaining control of his ship from a band of marauding pirates. In 1943, he set up a kerosene and construction business, which provided him the financial resources necessary to build his real fortune. The Casino Empires As the story goes, Lim Goh Tong was enjoying the crisp air of the Cameron Highlands one night in 1964, and conceived the idea of building a beautiful casino resort on top of a mountain near Kuala Lumpur, the capital of Malaysia. Research found the Ulu Kali Mountains to be the ideal place to set up his resort, despite it being an utterly remote locale. Wagering his entire fortune on this dream, Lim began this monumental task in the face of seemingly insurmountable odds of success and disapproval from fellow businessmen, and set up the Genting Highlands Berhad Company in 1965; the road to his vast riches started with the construction
of what was to become the Genting Highlands Resort. The project was finally completed in 1971, with him on the brink of bankruptcy, with the opening of the resort’s first hotel, and was heartily supported by Malaysia’s then Prime Minister Tunku Abdul Rahman (as Lim’s project was an effort to increase Malaysia’s tourism industry without any government help). Because he dared where no one else did, Lim became the sole holder of a casino license in Malaysia. Without any domestic competition, the resort flourished, and in 2006 became the home of one of the largest hotels in the world, the First World Hotel. Lim catered his casinos to the local population by introducing many Chinese games such as tai sai and pai gow instead of western games which he believed his customers would be unfamiliar with. Aside from providing table games, Lim tried to create a place for children and families by building vast theme parks, shopping plazas, and theatres, not unlike the style of Las Vegas casinos. To make access to the resorts more convenient, Lim spent over $73.8 million USD to build a series of roads and cable cars to the resort. Lim did not stop with his business there, but continued to diversify his empire by venturing into the highly profitable plantation, power, oil, and gas industries. By believing in what he called in his autobiography the “power of conviction,” Lim built up his business step by step, but unlike the traditional mercenary image of a successful businessman, “avoid[ed] stepping on others’ toes and making enemies.” As former Malaysian Prime Minister Mahatir Mohamad said, “even without the advantages of higher education, [Lim] has proven that nothing is impossible.” Stanley Ho joined up with Hong Kong tycoon Henry Fok, Yip Hon and Teddy Yip to win the bid for Macau’s gaming monopoly by paying a colossal sum of about $410,000 USD coupled with sweet promises to the Macau government, then run by the Portuguese, to promote tourism and develop Macau’s weak infrastructure. Ho’s brainchild, the Sociedade de Turismo e Diversões de Macao (STDM) was born in 1961 with the famous golden Lisboa Casino at its helm. He also created the Shun Tak Holdings Ltd. which was listed on Hong Kong’s Stock Exchange, bought over the TurboJET, which brings passengers between Hong Kong and Macau, took over the Macau Jockey Club, launched Asia’s first football and basketball lottery, and even an online casino website called DrHo888.com (in Cantonese, the numbers 888 are pronounced “faat faat faat,” which is synonymous to the BUSINESS ASIA • Spring 2010 • 25
word meaning to prosper). However, even Stanley Ho could not fight against the momentous historical changes taking place between the real political kings behind Macau, Portugal and China. When Portugal finally handed Macau back to China in 1999, Beijing began clamping down on what Frank Fahrenkopf, president of the American Gaming Association, called Ho’s “seedy” gambling businesses; by 2002, his forty year monopoly in the gaming industry finally collapsed. American investors, starting with Sheldon Adelson with his glitzy $260 million USD Sands casino and $2.4 billion USD Venetian casino on the Cotai strip, followed by Steve Wynn and his $1 billion USD Wynn Macau casino, poured into Macau, and they were determined to create a Las Vegas of the East. Their casinos varied greatly from Ho’s no-frills styled casinos, by including luxurious shopping centers, first class restaurants, convention centers and other forms of entertainment besides gaming, and this novel concept did initially haul in great profits. However, Ho was not fazed, and betting on his belief that Macau’s gamblers were much more focused on actually gaming than on the auxiliary entertainments provided by Las Vegas styled casinos, Ho opened the Grand Lisboa, shaped like a giant golden lotus, which cost $1 billion USD to build, half the cost of Adelson’s Venetian casino. When it came time for the showdown between Ho and all his new competitors who include his own children Lawrence and Pansy Ho, Ho swept them away, controlling 30 percent of the gambling market, followed by Adelson’s Sands which owned 22 percent of the market in an estimate by Reuters in February 2010. In his 2009 Global Gaming Expo award acceptance speech, Ho
remarked bluntly that “the success of one market model cannot be repeated [in] another market.” Unfortunately, his fame and rise to wealth, unlike Lim Goh Tong’s path of steady hard work, has not been without scandal. Openly polygamous, he has four wives and seventeen children. Additionally, whisperings of his underworld connections to Chinese triads have surrounded his name for decades; prostitutes, shark loaners, gangs, and drug dealers were known to lurk in the shadows around his flamboyant and golden casinos, especially during the regime of his monopoly. While organized crime in Macau has disappeared on the surface after China regained control of the ex-Portuguese colony, there is little doubt that they continue their activities deep underground, or, as the rumors say, in the VIP rooms of the casinos. Despite the lack of evidence linking Ho to these groups, Ho’s effort to expand his empire overseas has been met with great difficulties; his bids for casinos in Canada, Singapore, and even Australia were not approved by the respective local governments. Nevertheless, Ho believes that “what [he has] done over the years for Macau’s gaming business and for the overall community, fulfilling [his] obligations to society, [has been] a wonderful source of happiness and satisfaction.”
Sources from left to right: http://2.bp.blogspot.com/_byWnUw6HNv8/SoUNf0W7_BI/AAAAAAAAAeA/24oPuu81VUU/ s400/Genting+Lim+Goh+Tong.JPG, http://elitechoice.org/wp-content/uploads/2007/09/bronze-horse-headauction.jpg
The Legacies Lim Goh Tong passed away in 2007, leaving behind an empire which nevertheless continues to grow. Under the leadership of Lim Kok Thay, Lim Goh Tong’s son, the Genting Group has expanded more than ever. It forayed into the British gaming industry, and increased its investment in London Clubs International which owns
Pictures from Left to Right: Lim Goh Tong, Stanley Ho 26 • BUSINESS ASIA • Spring 2010
Sources from left to right: http://www.flickr.com/photos/travlinman43/3297173552/sizes/o/in/set72157613654349464/, http://www.flickr.com/photos/lim_lik_wei/3288449800/sizes/o/in/set-72157613990963221/
high end casinos throughout the world, and bought into Stanley Leisure which is Britain’s largest casino operator. More significantly, the Genting Group which recently acquired the right to build the first Casino in Singapore (along with Las Vegas Sands) in 2006 with a $4.5 billion USD investment, is opening the doors of the Resorts World Sentosa on Sentosa island this year. The Genting Group managed to win the bid because of their brilliant proposal detailing the construction of the first Universal Studios theme park in Southeast Asia. Despite the risks and costs being enormous, the Genting Group continues in the spirit of Lim Goh Tong, taking up challenges and hopefully turning them into success stories. Operating in Singapore will undoubtedly be difficult, because of the restrictions the Singaporean government places on the casinos. For example, as a disincentive to gamble regularly, an entrance fee of $70 USD has to be paid by local Singaporeans. In addition, families can request that addicted family members be barred from the casino. According to Citigroup analyst Dominic Noel-Johnson, initial expectations for Sentosa’s gaming revenues are “far too high,” and even meeting the Citigroup gaming revenue estimate of around $1.2 billion USD is already very difficult. Nevertheless, the Genting Group’s Resorts World Casino will have created thousands of jobs, and will definitely let the Singaporean government win by drawing visitors who will have spillover effects on hotels and tourism. Despite Stanley Ho’s somewhat murky business dealings, he has in his own way brought prosperity to Macau, changing its poor business condition into one
that is named by the World Bank as a “high income economy.” More than 50% of Macau’s GDP is derived from the gaming, tourism, and hospitality industries, and thousands of jobs are created from those industries. Despite the 7.3% crash of Macau’s gaming revenue in 2008, 2009 saw Macau’s gaming scene hit the jackpot with record revenues of $14.875 billion USD. As the economy picks up over the next few years, the numbers are only going to increase. In addition to molding Macau’s economy, Ho was able to use his vast fortune to buy and donate to the Chinese government a Qing dynasty relic of a bronze horse’s head, originally stolen during the burning and destruction the Yuanmingyuan Park, the Old Summer Palace in Beijing, by foreign invaders. As a firm believer in the power of education, Ho has also set up several scholarships in his name, including one in Pembroke College, Oxford. Conclusion Both Lim Goh Tong and Stanley Ho were selfmade men, who achieved everything through belief in themselves and hard work. As Lim once said, “once the goals have been clearly defined, with the greatest amount of determination and hard work, one can conclusively realise one’s goals.” In a similar vein, Ho once commented, “I’m not a gambler. People call me the casino king, but I don’t play.” The two men who built their fortunes from other people’s failures in gambling at casinos know best that lady luck kisses only those who have worked their BA lifetimes for her.
Pictures from Left to Right: Grand Lisboa (originally opened by Stanley Ho), Genting Highlands (originally opened by Lim Goh Tong) BUSINESS ASIA • Spring 2010 • 27
The Founder Two of the world’s most powerful corporations, Microsoft and Google, went head-to-head in court for this man and the impact he is making. In the golden age of technological advancement, he worked with the likes of Steve Jobs, Bill Gates, and Eric Schmidt. He was the founder of Microsoft Research Asia and Google China. His name is Kai-Fu Lee. Perhaps, Lee’s was one of the most unfortunate paths to stardom. Lee became the focal point of the PC and Internet world in 2005 when Microsoft sued him and Google over violation of their non-competition agreement. The case was eventually settled confidentially will resign from Google China and pursue his own venture in mainland China. His new company is Innovation Works. The Angel Investor You must be asking yourself right now, “What exactly is Innovation Works?” The company name hardly reveals a clue about its nature. In reality, the purpose of Innovation Works (Chinese: 创新工厂) is similar in technique to an incubator, in that it provides startup funding for young and promising entrepreneurs and their companies. However, Innovation Works will not provide indiscriminate funding to all arrays of companies. Lee announced that the company shall focus in three
By Richard Wei, Cornell University
and soon forgotten, but the name Kai-fu Lee had left its mark. Lee has served four dedicated years at Google China, and within this period of time, Google China has surpassed expectations to reach a market share of 43% at the end of 2009, second only to Baidu’s 56%. The Departure from Google Was this too good to be true for Google China? Well, it was. What has stifled the existence of YouTube, Facebook, and Twitter in China—the PRC’s Great Firewall—strikes again. One of Google’s missions is to provide its users with the most objective, unbiased results through its engine, a mission more or less impossible China. It soon became clear to Google officials and the international community that changes had to be made in response to the censorship. In September of 2009, Kai-fu Lee made the sudden and surprising announcement that he 28 • BUSINESS ASIA • Spring 2010 fields: “Internet, mobile Internet, and cloud computing technology.” What can make a man give up a senior executive position in one of the fastest growing corporations in the world? A puzzling question indeed. Regarding this, Lee gives a brief explanation in an interview with Rob Hof of BusinessWeek. Lee says that the timing is perfect for a company like Innovation Works because of the absence of “angels” and significant early-stage funding in China, thus Innovation Works will fill this void. In his bestseller Chinese biography, Making a World of Difference: the Kai-fu Lee Story, Lee emphasizes his burning desire to aid talents in China and that one of the motivating factors comes from the work and attitude of his father, a Chinese scholar and historian. Throughout his professional career, Lee has held hundreds of public lectures for Chinese university students. However, these reasons combined
Photograph Source: http://www.cs.cmu.edu/afs/.cs.cmu.edu/Web/copetas/kfl.jpg
Kai-Fu Lee’s Statement as Founder of Innovation Works: We will develop an optimized model to match entrepreneurs, engineers, ideas, and capital, leading to improved success rate and time-to-market. ❞
still don’t seem to be enough to cause Lee to suddenly move away from Google. It is unclear to whether the recent friction between Google China and the Chinese government regarding censorship contributed to Lee’s decision, but Google’s surprising threat to exit China just 4 months after Lee’s absence adds another layer of mystery to the matter. Lee himself has not commented on any connections between Google’s dilemma regarding censorship and his departure. Nevertheless, the timing of the series of events incites speculation. Despite the lightning-paced startup, Innovation Works has ample funding and its methods are under way. Innovation Works has already raised $115 million USD from the likes of co-founder of Youtube, Steve Chen and WI Harper Group. With a succinct and purposeoriented website (see below), Innovation Works has attracted 7,000 resumes on its first day. This astounding achievement further reflects the potential and enthusiasm of the entrepreneurial environment in China. Without a doubt, Kai-Fu Lee’s personal popularity and involvement with education in China played key roles in this venture. The Innovation Works website also has a fully functioning
English version, which aims to better open up the new company’s future to global investment. On the website, one can find the passionate and daring mission statement, “Innovation Works will pro-actively collect, analyze, and prioritize projects in Internet, mobile computing, and cloud computing targeted at the Greater China market, and build ‘dream teams’ to execute the most promising ideas.” The future looks bright for Innovation Works, not only because of its excellent timing and strong backing, but also because of the enormous rate of growth of the Chinese entrepreneurial environment. As a prototype angel investor, Innovation Works will be warmly welcomed and supported by the citizens. In addition, Kai-Fu Lee has acquired extensive knowledge and experience regarding both fast-paced technology and executive management. His leadership and charisma will undoubtedly guide Innovation Works in the right direction. If Lee’s efforts keep up, his company will discover and cultivate talented minds while helping them to become giants in the world economy. BA
Chinese Website of Innovation Works (Source: http://www. innovation-works.com) BUSINESS ASIA • Spring 2010 • 29
By Richard Wei,
This page will promise you a list of some of the most prominent and influential people in the business world. We will put aside the common stereotype of the “filthy rich” and take a firsthand look at the Top 10 Wealthiest Businessmen in Asia in 2009.
1: Mukesh Ambani
Net worth: $19.5 billion Citizenship: India Age: 52 Fortune: Inherited Industry: Petrochemicals Occupation: Chairman of Reliance Industries Ambani is the overseer of India’s most valuable company by market share, Reliance Industries. Having been a part of Reliance since 1981, he initiated Reliance’s backward integration strategy from textiles into petrochemicals, and further into oil exploration and production. Net worth: $19.3 billion Citizenship: India Age: 59 Fortune: Inherited Industry: Steel Occupation: Chairman & CEO of ArcelorMittal Mittal started out working in his family’s steelmaking business. Due to differences with his family members, he branched out and took over the international operations of Mittal Steel. In 2006, the merger between Arcelor and Mittal made this man the head of the largest steel company in the world. Net worth: $16.2 billion Citizenship: Hong Kong Age: 81 Fortune: Entrepreneurship Industry: Real Estate, Retail, Ports, Plastics Manufacturing Occupation: Chairman of Cheung Kong Holdings and Hutchinson Whampoa Ltd. Li, according to Forbes, is ranked the sixteenth richest person in the world and the wealthiest person of East Asian descent. With his crown jewels, Hutchinson Whampoa Ltd. and Cheung Kong Holdings, he is by far the world’s largest container terminal operator.
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3: Li Ka-shing
2: Lakshmi Mittal
4: Kwok Brothers
Net worth: $10.5 billion Citizenship: Hong Kong Age: Raymond Kwok, 58; Thomas Kwok, 59; Walter Kwok, 60 Fortune: Inherited Industries: Real Estate Occupation: Sun Hung Kai Properties From their father, these three brothers inherited Sun Hung Kai Properties, one of the largest real estate businesses in Hong Kong and all of Asia.
7: Sunil Mittal
Net worth: $7.7 billion Citizenship: India Age: 52 Fortune: Entrepreneurship Industry: Telecommunications Occupation: Chairman of Bharti Airtel It may seem surprising that our seventh place finisher is the first electronics billionaire on our list. Though his fortune does not rank at the very top, Sunil Mittal’s control over India’s largest mobile phone service is not to be trifled with.
5: Anil Ambani
Net worth: $10.1 billion Citizenship: India Age: 50 Fortune: Inherited Industry: Diversified Occupation: Chairman of Anil Dhirubhai Ambani Group The brother of Mukesh Ambani and the third wealthiest person in India, Anil Ambani is undoubtedly one of the most influential people in the Asian business world.
8: Tadashi Yanai
Net worth: $6.0 billion Citizenship: Japan Age: 61 Fortune: Entrepreneurship Industry: Clothing retail Occupation: President of Fast Retailing Our eighth billionaire comes from Japan, a country that has traditionally been the economic leader in East Asia. The fact that Japan’s wealthiest man ranks only eighth in the continent may indicate a comparatively more even distribution of wealth in Japan than in other Asian nations.
6: Lee Shau-Kee
Net worth: $9.0 billion Citizenship: Hong Kong Age: 82 Fortune: Entrepreneurship Industry: Real Estate Occupation: Chairman of Henderson Land Development, Company Ltd., Hong Kong and China Gas Company Ltd., and Miramar Hotel and Investment Hailed as “Hong Kong’s Buffet”, Lee Shau-Kee has a stake in several of the largest firms in Hong Kong. Although his wealth shrunk by almost half in 2009, he still landed himself among Asia’s business giants.
9: Azim Premji
Net worth: $5.7 billion Citizenship: India Age: 64 Fortune: Inherited Industry: Software Occupation: Chairman of Wipro Technologies Ltd. Residing in the tech-savvy Bangalore, it is no doubt that our ninth-place billionaire controls Wipro, one of the largest software companies in India. Wipro was originally a vegetable oil trading firm, but when Azim took over upon his father’s death, he revolutionized the company and eventually entered the technology sector. Another set of brothers is here to wrap up our Top 10 list. They are in charge of managing one of India’s largest conglomerates, the Essar Group, which has holdings in multiple sectors, including steel, energy, communication, and construction.
10: Shashi & Ravi Ruia
Net worth: $5.6 billion Citizenship: India Age: 65 Fortune: Inherited Industry: Steel, Energy, communications, shipping Occupation: Essar Group
BUSINESS ASIA • Spring 2010 • 31
Hong Kong’s Real Estate Market Recovery – What’s next?
By Cathy Meng Xue, Cornell University
s of 2009, Hong Kong has the fifth most expensive property market in the world, next to Monte Carlo, Moscow, London, and Tokyo. Hong Kong’s housing market was severely affected by the global financial crisis. However, after falling 18% in real terms (after adjusting for inflation) from June to December 2008, residential price index rose by 21% from 2008’s low point to August 2009, according to the Ratings and Valuation Department. Hong Kong Island, Kowloon, and the New Territories all saw strong price increases in the first two quarters of 2009. Price gains for luxury property have surpassed 40%. Factors that have contributed to Hong Kong real estate market’s recovery include a strong increase in buyers from mainland China, the Hong Kong government’s stimulus packages, and low interest rates. The Chinese government implemented a stimulus package amounting to 4 trillion RMB ($585 billion USD) in November 2008, reviving the Chinese housing market and prompting a surge of mainland buying in Hong Kong. As much as 40% of the current new-home buyers come from mainland China, according to the Wall Street Journal. Newspaper reports of luxury properties sold to mainland Chinese at staggering prices 32 • BUSINESS ASIA • Spring 2010
are now commonplace. Heavy intervention by the Hong Kong government also helped – stimulus measures in May 2009 included $2 billion HKD ($256 million USD) for the housing sector. Policies include that two months’ worth of rent for public housing will be paid by the government; tenants paying additional rent will only pay the basic rent; for non-elderly tenants, the government will pay two-thirds of the rent. The government also strengthened support for the mortgage market. From September 2008 to March 2009, the Hong Kong Monetary Authority (HKMA) increased liquidity assistance to banks including longer borrowings from the discount window and foreign exchange swaps and increased the maturity time of the debts in the discount window from one to three months. The HKMA also implemented measures that caused the best lending rate – the basis for mortgage interest rates – to fall to 5% in September 2009 from 5.25% in October 2008, which benefited borrowers. To stimulate borrowing in the mortgage market, the Hong Kong Mortgage Corporation (HKMC) issued, in October 2009, a Fixed Adjustable Rate Mortgage program which enabled
Photograph by: kwongyue Source: http://interfacelift.com/wallpaper_beta/Df6a5a21/01638_darkknight_2560x1600.jpg
A view of the Hong Kong skyline from the Victoria Harbor
A panoramic view of Hong Kong at night from Victoria Peak
Sources from left to right: http://www.flickr.com/photos/davelau/674275112/sizes/o/, http://www.flickr.com/photos/trodel/3598488389/sizes/o/
borrowers to lock in a predetermined interest rate within an agreed period. Due to the stimulus packages, Hong Kong’s financial system remained liquid, confidence in the economy and the real estate sector was sustained, and borrowing and purchase were encouraged. Loans for house purchase increased and transactions rose 10.6% from January to August 2009, as compared with the same period of the previous year. Shortly after the real estate recovery, worries of overheating began to surface. Since 2002, the government, who owns all land in Hong Kong, has tightly limited the supply of new land for housing purposes. In 2008, completed dwellings decreased by 16.1%. The tight supply of new houses arguably contributed to the rise in property prices. In the luxury market, the price-to-rental ratio, an important yardstick to gauge whether housing is overpriced, is 42% higher than that during the 1997-peak and 122% above its 1982-2009 historical average. Likewise, in the mass market, the latest reading is not only back to the 1997-peak, but also 53% higher than its historical average. Moreover, the price-to-income ratio, another useful indicator, is also significantly higher than that of the 1997peak as well as its historical average. The above signs of over-pricing have incurred concerns that low interest rates, high liquidity, and a tight supply of new apartments can fuel irrational exuberance. The rise in price is expected to continue, at least for the near future. A housing bubble may be forming, which usually means a sharp rise in property prices, generating
expectations of further increases and attracting buyers or speculators who are intend to make a quick profit from short term buying and selling. This again drives up demand and prices to unjustifiable levels. However, an analysis of the various key symptoms including overvaluation, speculative activities, leverage scale, and expectations for future price gains, shows that while current prices are high, other indicators are yet to reach alarming levels. Moreover, demand is currently mainly user-oriented, with 90% of transactions in the mass-market property, suggesting that a bubble may not have formed yet. To prevent overheating, the Hong Kong Monetary Authority has requested banks to lower the loan-to-value ratio from 70% to 60% for residential properties priced at $20 million HKD or above For loans less than $HKD20 million, the 70% ratio remains, but the loan amount is capped at $12 million HKD. As a result, mortgage demand has eased from a few months ago. Ultimately, future demand will depend heavily on whether foreign funds will continue to flow into Hong Kong, which in turn is reliant on how fast the central banks in the advanced economies exit their ultra-loose monetary policies. With the global recovery still fragile, it can be difficult for the U.S. and European central banks to withdraw monetary stimulus in the near future. The Hong Kong real estate market, while closely regulated by a diligent and insofar, wise government, is soaring from the bottom of the financial crisis with yet a small risk of bubble formation, all pointing to a promising outlook, at least in the near future. BA BUSINESS ASIA • Spring 2010 • 33
Real Estate in Singapore
By Grace Chen, Cornell University
s the wave of foreclosures brought on by the subprime crisis swept across America, American property prices suffered sharp declines that cut across all socio-economic barriers. In South East Asia, however, a different story was unfolding. Although Asian markets were certainly affected by the recession in the West, they proved more resilient overall and continued to make gains after a brief period of correction. While American banks have not generally been in good shape, Asian banks have been relatively unaffected by the American banking crisis and are still lending actively, especially in the area of residential loans. Given the recent low rates of growth in the manufacturing and service sectors, lending for real estate has been one 34 • BUSINESS ASIA • Spring 2010
of the strongest components of loans growth for many Asian banks. The banking crisis has caused U.S. interest rates to fall to the neighborhood of 0%, and many Asian countries that rely on exports to the US and Europe for economic growth were loathe to let their currencies appreciate against the dollar, preferring instead to decrease their own interest rates in parallel with the American situation. Interest rates in Asia plunged to record lows as a result, sharply increasing the affordability of housing loan installment payments. One overall consequence of this is a much higher demand for housing than would appear to be justified by the current state of many Asian economies. In Singapore, demand and prices were weak at the end of 2008 and the start of 2009; accordingly to the Urban Redevelopment Authority’s quarterly statistics, overall
Photograph by: nlann Source: http://www.flickr.com/photos/nlann/4456318373/sizes/o/
prices in Singapore’s private residential property market fell by 14.1% quarter-on-quarter in 1Q 2009. However, residential property prices in Singapore increased 7.4% in the last three months of 2009 as the property market made a quick recovery from a bearish start to the year. In the public sector of the housing market, prices were rising so fast that members of the public were becoming increasingly vocal about the difficulty of owning and paying for a home of one’s own. In the 3rd quarter of 2009, concerns about the escalating prices of resale flats prompted the Minister for National Development to assure Singaporeans that Housing Development Board (HDB) flats remained affordable to most. Since its conception in the 1960s, the HDB has been responsible for providing housing for the masses at affordable prices. As median incomes in Singapore rose over the past few decades, the HDB has tried to modify the housing options it provides along with changing public preferences. HDB-built apartments of the past few decades were staid affairs that looked mostly the same from every angle, indistinguishable from each other. Newer HDB projects, however, have become more similar to the private condominiums that middleincome Singaporeans aspire to own. A notable project, the Pinnacle@Duxton, consists of seven buildings linked at the 26th and 50th floors by “skybridges” that contain gardens and other facilities, features that have never before been incorporated into Singapore’s public housing flats. Executive condominiums with swimming pools, gardens and other facilities have also been built for households with monthly incomes of up to $10,000 SGD ($7,142 USD). However, as all public housing in Singapore is based on a 99-year lease (which, as the name implies, expires after 99 years), investors might be more interested in private housing options based on “freehold” tenures that do not expire. Since the official formation of the republic in 1965, private residential property prices have increased by leaps and bounds, and look set to continue rising at a greater pace than inflation. In the private sector, with fewer governmental controls in place than in the public sector, prices are more closely related with fluctuations in the economy. With the Asian economy fast recovering from the effects of the 2008 financial crisis, housing prices in Singapore look set to be making new highs. In February of this year, the Ministry of Trade and Industry (MTI) expected gross domestic
product to grow by 4.5 percent to 6.5 percent in 2010, up from a forecast of 3 percent to 5 percent made a month before. New-home sales in January 2010, with 1,476 units sold, were record-setting and several times higher than the 481 units sold in December and 601 sold in November 2009. One sign that private residential property prices are set to surpass the previous high before the recent crisis is that the 1,476 units sold in January 2010 were more than the average of 1,230 units sold per month in 2007 – a year which saw a record 14,811 new homes snapped up. Local property agency PropNex confirmed that “the middle- to high-end markets are certainly moving. Some 76 percent of homes were sold at above $1,000 SGD per square foot, a proportion not seen for over 30 months.” In a separate report, property consultancy DTZ Research stated that the move towards higher-priced homes was already evident in the last quarter of last year, when home purchases of $3 million SGD and above made up 8% of all transactions, a slight increase from the 7% of the previous quarter. Singapore’s residential property prices look set to rise in the near future, but at the present moment have not yet reached the peaks seen in late 2007, just before the worst of the subprime crisis emerged. BA
BUSINESS ASIA • Spring 2010 • 35
Trivia o f Southe ast Asia, Pa rt 1 By Bra ndo
n Ho &
ll Univ un ersity
Cambodia Laos Brunei East Timor
36 • BUSINESS ASIA • Spring 2010
Did you know that the ancient ruin, Angkor Wat in Cambodia, is the largest religious temple in the world? It has become a symbol of Cambodia, appearing on its national flag, and it is the country’s prime tourist attraction.
Did you know that Laos is home to 51 airports? However, only nine of them have paved runways!
Photograph by: Minnesota Historical Society Source: http://www.flickr.com/photos/minnesotahistoricalsociety/3150759157/sizes/o/
Did you know that Brunei is one of the few countries in the world that does not hold elections? As a constitutional sultanate, Brunei has enjoyed such a long period of political stability that has resulted in an absolute rule.
Did you know that East Timor has only 775,000 people? Within this population, two-thirds to three-quarters engage in subsistence agriculture.
Thailand Singapore Indonesia Myanmar Malaysia Philippines Vietnam
Did you know that Thailand is called the “Land of the Free”? This is derived from the fact that Thailand is the only Southeast Asian country that was never colonized by a European power.
Did you know that Singapore is the largest exporter of ornamental fish in the world? Although it is one of the 20 smallest nations in the world, Singapore accounts for 25% of the world market for ornamental fish exports.
Did you know that Indonesia consists of at least 17,508 islands? The name Indonesia derives from the Greek word nesos, meaning “island”.
Did you know that Myanmar was once called Burma? In 1989, the military government officially changed the English translations of many colonial-era names, including the name of the country to “Myanmar”. This prompted one scholar to coin the term “Myanmarification” to refer to the top-down program of political and cultural reform during which the renaming was done.
Did you know that the currency of Malaysia is the ringgit? It means “jagged” in Malay, referring to the jagged edges of Spanish silver dollars once circulated in the region.
Did you know that in the 1960s, this Philippines was regarded as the second wealthiest in Asia, next to Japan? However, the leadership of Ferdinand Marcos proved disastrous by gradually transforming the market economy into a centrally planned economy. Only in the 1990s with a program of economic liberalization did the economy begin to recover.
Did you know that the traditional female garment of Vietnam is the “Áo Dài”? It is a long dress worn for special occasions such as weddings or festivals. White Áo dài is also the required uniform for girls in many high schools across Vietnam.
BUSINESS ASIA • Spring 2010 • 37
Outdoor Sports and
By Edwina Regina, Cornell University
ndonesia is the world’s largest archipelago. It is dotted with volcanoes, covered with lush green vegetation, and surrounded by coral reef. Therefore, one can enjoy any imaginable outdoor activity in Indonesia, making this island nation one of the premier destinations for outdoor enthusiasts of all types. Indonesia is also home to myriad rare animal and plant species, such as the orang utans, Komodo dragons, one-horned rhinoceros, anoa, and babi rusa. Exotic white-sand beaches reach towards warm tropical seas, which are replete with coral and marvelous marine life in some of the most colorful, breathtaking sea gardens in the world. Indonesia, therefore, is one of the few places in the world where everyone is invited to be part of its nature. Surfing The island of Bali, a surfers’ paradise, offers a number of surf spots, with the most famous one being Uluwatu. There is always some swell in Uluwatu, so it is crowded all year round. Furthermore, there are different types of waves in Uluwatu, making this a must-go place for novice and expert surfers alike. For those looking out for a more adventurous experience, Grajangan, located at the southern coast of Java and more commonly known as G-Land or Gee-Whiz Land would be the perfect place to visit. Its beautiful, uncharted waves are out there, but it is a long, tedious, and sometimes dangerous job finding them. That is why G-land does not offer only the perfect wave, but also the perfect adventure. I would suggest bringing at least 2 boards, because Indonesian waves are powerful enough to break boards. Be prepared for the thrill! 38 • BUSINESS ASIA • Spring 2010
Other surf spots such as the Parangtritis Beach in the Southern part of Java offer a mystical experience in addition to the surfing experience. It was said that some lucky visitors get the chance to meet Nyi Roro Kidul, the Indonesian Goddess that comes in the form of a greenclothed mermaid. Therefore, visitors are strictly forbidden by that belief to wear green colored clothing when going out to the Parangtritis Beach. Diving/Snorkeling There are several diving destinations in Indonesia. The Banda Islands, located 80 miles from Ambon, Sulawesi would offer an enjoyable trip for beginner or expert divers. It offers stunning a tropical scenery, a remarkable history, friendly villages, and some of the globe’s most pristine, biologically diverse coral reefs. The water reaches a depth of more than 6,500 meters. Among the 10 different diving sites are the presence of different types of marine life – including but not limited to sharks, enormous turtles, Napoleon Wrasse, giant groupers, tuna, rays, and huge lobsters – that neighbor generous schools of reef fish. The seas around Banda are the sites of the famous Maluku sea gardens with their bright corals and colorful fish darting through the crystal-clear waters; they are perfect for diving, snorkeling, or simply sightseeing. Other diving spots such as the Bunaken in Manado offer entertainment for non-divers as well. Tourists can take a stroll along the beach on foot or by riding in one of the horse-pulled carriages, dokar, which are usually forbidden on most beaches except a few in Indonesia.
Photograph by: permanently scatterbrained Source: http://www.flickr.com/photos/iamagenious/367740093/sizes/o/in/set-72157594370745331/
Activities in Indonesia
Rafting Only in recent years, Indonesia has started utilizing its rivers to provide high-adrenaline recreational entertainment, in the form of white-water rafting and kayaking. Whether you are in Bali, Java, Sumatera, or Sulawesi, there is always enough adventure to satisfy your white-water appetite. Additionally, the experience is complemented by environmental and cultural experiences, such as passing by local villagers gathering at the river banks as rafters pass through the deep valleys and terraced rice fields. Depending on the season, the adventure can be somewhat different. During the dry and rainless season, the adventure is relaxing, but after heavy rains, the ride turns to a roller-coaster ride. Don’t worry. Since the sites are commercially operated, rafting sites will be closed when the river-flow becomes too dangerous. sense that they house animals, birds, and exotic flora and fauna that can only be found in Indonesia. This experience will stay in your mind for the rest of your life.
Mountain Climbing Puncak Jaya (which literally means “Victory Peak”) reaches up to more than three miles above sea level, standing as the tallest peak in the entire oceanic continent. Due to its height, it was the only place that snow could ever exist on the whole Equator. In fact, Jan Carstensz, a Dutch explorer who first sighted the peak in 1623 was ridiculed by his fellow men for saying that he had seen snow near the Equator. Unfortunately, the climb is considerably physically taxing, thus beginners are not recommended to participate in the climb. Rinjani Mountain, which is located in Lombok, the southern island of Indonesia is more suitable for beginners. With an elevation that is about two miles above sea level, this active volcanic area offers a breathtaking view of the crater lake and the lush vegetation around it. Jungle-Trekking Jungle-trekking in Indonesia will take you into close Locals living around the area are friendly and usually love quarters with the rich biodiversity and scenic beauty of to bring tourists around for a guided tour. the country. There are many trekking paths in Indonesia’s dense jungles. For the best trekking experience, the islands Parks There are several national parks in Indonesia, of Irian Jaya, Kalimantan, and Sumatra offer remote terrains, but beautiful and untouched trails. Some of the with the major one being the Komodo National Park. trips can take hours while most of Irian Jaya’s treks take a It has been identified by the World Wildlife Fund and week to complete. There is a possibility of encountering Conservation International as a global conservation local tribes and activities in the midst of jungle-trekking, priority area. This national park serves as the home for thus it is always safe to bring an experienced guide to the world’s largest reptile known as the Komodo dragon. accompany your trip. Indonesia’s jungles are unique, in the There are several other terrestrial endangered snake BUSINESS ASIA • Spring 2010 • 39
species, mammals, and birds. Komodo National Park is also one of the world’s richest marine environments, consisting of cnidaria, sponges, crustaceans, bony fishes, marine reptiles, and other marine mammals. Some species with high commercial value such as the Napoleon Wrasse are housed within the park to protect them from extinction. As most of the activities above are located far from metropolitan life, one might think that there are no fun outdoor activities for urban dwellers that have to endure the hectic city life. However, the truth says otherwise. Golf There are tens of golf courses located in, outside, and around the capital city of Indonesia, Jakarta. Golfing is an important part of city life’s sport and business culture. Most of the course layout is challenging and renowned for its treelined fairways, making it a true test for golfers of all levels. In Indonesia, golfing experience is enhanced to be more special, because after playing, guests are indulged with a number of in-house facilities such as, jaccuzzi, spa, and sauna. What I have described are not all that Indonesia has to offer. Non-swimmers, the elderly, and children can find their own paradise in other tourists’ destinations to relax and enjoy the breathtaking views this country can offer. Tourists can take part in sightseeing tours, culinary tours, cultural tours, monument tours, and even shopping tours in traditional markets and modern shopping centers located all across the archipelago. In Indonesia, anyone can find a unique and personal adventure that can never be found anywhere else in the world. BA 40 • BUSINESS ASIA • Spring 2010
...one can enjoy any imaginable outdoor activity in Indonesia, making this island nation one of the premier destinations for outdoor enthusiasts of all types
Sources from top to bottom: http://www.flickr.com/photos/oxborrow/2887744550/sizes/o/, http://www.flickr.com/photos/abnelgonzalez/1469535308/sizes/o/in/set-72157602229593789/, http://www.flickr.com/photos/39891373@N07/3666276078/sizes/l/
The Art of Dim Sum
By Brandon Ho, Cornell University
Photograph by: ~MVI~ Source: http://www.flickr.com/photos/bigberto/4423438315/sizes/o/
hy is the cuisine dim sum called dim sum? When I first heard the term when I was seven, I pondered long and hard. What’s so dim about a cuisine as artful as dim sum? Is it a sum of sorts, like how fusion food works? Little did I know that dim sum is the Cantonese pronunciation of a wonderfully imaginative Cantonese cuisine. Dim sum has its roots in the yum cha (tea-drinking) culture in Hong Kong. During the post-war era in 1950s and 1960s, Hong Kong experienced an influx of refugees from mainland China. Male refugees, most of whom were single, met over breakfast tea to socialize and exchange tips on jobseeking and bird rearing. This was the typical backdrop in Hong Kong tea houses at that time. As society progressed, yum cha moved from a venue for socialization amongst men to a gathering place for the family. Snack foods were later introduced to complement tea-drinking, and they evolved to what we know as dim sum today. From the ubiquitous shrimp dumpling, steamed buns and egg tarts to the more cringe-worthy chicken feet and fried intestine, dim sum is the epitome of variety. One can be easily fascinated by each attractive morsel and tantalized gastronomically by delectable treats. Dim sum literally means “touch the heart” in Cantonese, and there is no better way to describe it. Chefs in Hong Kong train for years to master the art of making a variety of aesthetically intricate bites for yearning diners. Every garnish, every fold, and every nuance, is a masterpiece of the chef ’s cultural pride and an apt expression of his cultural identity. I remember watching a program where the renowned chef Gordon Ramsey was helplessly trying to mimic the skillful execution of dim sum preparation by a southern Chinese chef. It was an important reminder to me that food is laden with rich meanings, far beyond functional satiety. There was something about the way that the Chinese chef kept rejecting the poorly-wrapped dumplings that the British chef produced – defiant, persistent, and unyielding.
A quote by E.N. Anderson, Professor of Anthropology at the University of California, Riverside, says that “the Chinese fondness for snacks and small eats reaches a kind of apotheosis.” Because food is divine and because culture cannot be reproduced, dim sum becomes an asset that the Cantonese has to safeguard. Perhaps the Chinese chef will never approve of Gordon Ramsey’s shrimp dumpling. But things have changed. When I first saw “boiled coke with ginger”, “luncheon meat ramen” and “saffron chicken stew” featured on a menu in a Hong Kong restaurant, it suddenly hit me like an asteroid. It was hard to ignore the absence of old men in their tight singlets propping their legs on the table like in the past. No more cigarette smoke, only clear, airconditioned air. No loud bantering, only hushed, soft voices. No more traditional bamboo baskets, only functional metal containers. Young waitresses are in tight skirts pushing carts around. The eager tourist is snapping photos of food. The menus are replete with awkward English translations. A new hybrid beverage called yin yeung, which is a mixture of coffee and tea, makes its advent. Meals are so big that Hong Kong health officials are beginning to warn against dim sum due to its saturated fat and sodium content. Does dim sum still “touch the heart”? Or did it simply clog our arteries? Worse still, does it pollute our culture? As a sophisticated cosmopolitan city on one hand, and an extension of Chinese culture with long-standing Cantonese traditions on the other, Hong Kong perfectly exemplifies the effects of globalization. As dim sum evolves with the era and fights for space on the dinner table with new entrants like burgers, sushi, and burritos, we too have to evolve. However, we must not forget the tenets that the art of dim sum expresses – creativity, tenacity, and a respect for tradition. Only then can we progress graciously, march forward as a people, without forgetting our glorious past. BA
BUSINESS ASIA • Spring 2010 • 41
China’s Peaceful Rise:
By Deborah Cheong, Cornell University
an Oxymoron in the Making?
Richard C. Bush III is the Director of the Center for Northeast Asian Policy
Studies, a Senior Fellow for Foreign Policy, and the Michael H. Armacost Chair at the Brookings Institution, a think-tank based in Washington DC. Before joining Brookings, his two-decade public service career included stints in Congress, the intelligence community, and the U.S. State Department. He currently focuses on China-Taiwan relations, U.S.-China relations, the Korean peninsula, and Japan’s security. He is the author of, among other works, A War Like No Other: The Truth About China’s Challenge to America, Untying the Knot: Making Peace in the Taiwan Strait, and At Cross Purposes: U.S.-Taiwan Relations Since 1942.
BA: Business Asia || RB: Richard Bush
BA: As of late, “China’s Peaceful Rise” has been a catchphrase used by many foreign policy officials to describe China’s foreign policy approach as she moves forward. Despite her many reassurances that she will be a responsible world leader, there have been signs such as the recent show of military might during her 60th Anniversary celebrations that suggest otherwise. What are your thoughts on these conflicting messages and do you think China’s rise can be peaceful?
RB: If I were in China’s position and saw the anxiety of neighboring countries, I would do exactly as they are doing – explain over and over again that my intentions are benign and that my growing power is not going to result in war. However, one of the litmus tests to determine the true nature of China’s intentions will be to observe how BA: On that note, whether or not China’s rise is peaceful, far she tries to push outward into the oceanic area where do you believe that the US should feel threatened by the actions that China has taken vis-à-vis attempting to the U.S. military currently operates. expand her oceanic presence? 42 • BUSINESS ASIA • Spring 2010
Furthermore, whether China’s rise ends up being peaceful, depends very much also on how we, the United States, interacts going forward. The cumulative of all actions between China and other powers will define what kind of great power she will be again. Of course, it is not possible to conclude for sure that China’s rise will be peaceful. Hypothetically, China could have goals that could be a challenge to the U.S.. However, she could be waiting till she was more powerful before fully pursuing these goals, and practicing a risk-adverse attitude in the meantime. Hence, the U.S. cannot be 100% confident and should continue to guard our interactions with North Korea, Taiwan, etc. We do not want China to challenge us because of misunderstandings.
...one of the litmus tests to determine the true nature of China’s intentions will be to observe how far she tries to push outward into the oceanic area where the US military currently operates
RB: Some of what China is doing makes sense. As China has had a very limited defense perimeter, she, like any other country would want to push this oceanic buffer outwards. However, some of the other things that China is doing are not as easily explained. For example, her recent military buildup agaisnt to Taiwan, given that their political relationship is in better shape, is a situation which I do not fully comprehend. Thus, the U.S. has seen it necessary to provide arms to Taiwan so that Taiwan is less vulnerable. But in the long term, there are many other opportunities for both sides to show that they are benign, thus reducing the feelings of threat. creates boundaries for China and acts as a stabilizing force in Asia. For China to behave in a constructive way, the perception that U.S. is strong in East Asia must be maintained. If and when we show our weaknesses, China can easily take advantage of us and our allies. For example, with regard to the North Korea denuclearization issue, Japan really cares that this be addressed seriously. This is also the U.S.’ opinion on the issue. However, it is not as clear how strongly China feels toward North Korea giving up its nuclear weapons since China’s words and actions do not paint the same picture. Thus, in this case, if the U.S. was not to remain firm, it might be the case that Japan and South Korea end up bending to China’s will BA: Additionally, many people have touted the 21st and accommodating her. Century as one that belongs to the Chinese. There also seems to be a school of thought believing that China’s rise BA: On a surface level, it seems that China’s rise has sparked coincides with the decline of the West or the U.S. What the American imagination. Many young Americans are your thoughts? Specifically, what impact does China’s are studying Chinese, there are TV programs teaching children to speak conversational Chinese (Ni Hao, Kairise have on the U.S.? Lan), and President Obama has recently announced that RB: This correlation could be true, but it is definitely not he will send more students on academic exchanges to automatic. Whether we (the U.S.) decline is up to us. We China. Surely this has an impact on US-China relations have the capacity to maintain our lead over China vis-à- and how the US plans to negotiate China’s rise? vis our military, scientific, and economic prowess. The question is whether we want to or not. Is the American RB: These programs, efforts, etc. cannot hurt. There has public willing to make the sacrifices that are necessary been a lot of misinformation that students across the to build a strong country? Whether or not we decline years have received. However, in the end, I do not think depends a lot on how we see our place in the world and these will greatly impact U.S.-China relations. What is most important is how the U.S. and Chinese military and not just how we see China’s place in the world. For the U.S., China’s rise means that we must be government view each other. It is much more important willing to engage with her. Also, there is a need to ensure to get that right than to possess the ability to speak or that, our military is present in Asia in a visible and serious understand Chinese. The latter is not trivial but real way while continually working to maintain alliances with impact on policy stems from active and vocal minorities Japan, South Korea, Australia, and other powers. Our and group interests, not public opinion as a whole. BA security presence need not challenge China, but this BUSINESS ASIA • Spring 2010 • 43
Implications of Cross Border Invesment activities By Diya Li
Professor George Andrew Karolyi
is an internationally known scholar in the area of investment management, with a specialization in the study of international financial markets. He has published extensively in journals in finance and economics, including the Journal of Finance, Journal of Financial Economics and Review of Financial Studies. He is a recipient of the Fama/ DFA Prize for Capital Markets and Asset Pricing (2005), the William F. Sharpe Award for Scholarship in Finance (2001), the Journal of Empirical Finance’s Biennial Best Paper Prize (2006) and of the Fisher College of Business’ Pace Setter Awards for Excellence in Research and Graduate Teaching. Professor Karolyi received his Bachelor of Arts (Honors) in Economics from McGill University in 1983 and worked at the Bank of Canada for several years in its Research Department. He subsequently earned his M.B.A and Ph.D. degrees in Finance at the Graduate School of Business of the University of Chicago. He joined the faculty of the Cornell University’s Johnson School in 2009, after teaching for 19 years at the Fisher College of Business of The Ohio State University. He leads various executive education programs in the U.S., Canada, Europe, and Asia, and is actively involved in consulting with corporations, banks, investment firms and stock exchanges.
A remarkable phenomenon of the past quarter century all around the world has been the decline in state-owned business. However, in the last five years or so, governments have begun accumulating stakes in purely private companies through cross-border investment activities. Government institutions acquiring such stakes include not only large sovereign wealth funds, like the Abu Dhabi and Kuwaiti Investment Authority, Singapore’s Temasek Holdings, and the China Investment Corporation, but also large state-controlled corporations and agencies. These powerful government institutions tend to come from countries like China, Singapore, UAE, and Saudi Arabia, that have maintained large foreign currency reserves through strong export-led growth or large stocks of oil wealth, but they also include countries, like France, Italy, Sweden and Japan, which have large government-controlled state agencies that dominate markets. Most notably, these government acquirers have been actively targeting investments in developed economies, including in the U.S., U.K., Australia, Canada, Hong Kong, and much of Western Europe. There have been serious and growing concerns by the regulatory officials in these targeted countries about the security implications from the expanded role of government-controlled acquirers. Some of the most prominent deals have include failed attempts, such as Dubai World Port’s incomplete acquisition of Peninsular and Oriental Steam Navigation in 2006 for $7 billion, China National Offshore Oil Corporation’s attempt to acquire Unocal in 2004, and, most recently, Aluminum Corporation of China Limited’s failed $20 billion acquisition of a 20% stake in Rio Tinto in 2009.
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, Cornell University
BA: Business Asia || GK: Professor George Karolyi
to potential security concerns from overseas governmentcontrolled acquirers.
BA: Has there been an increase in foreign acquisitions of BA: In times of globalization, do you think that national American targets by Asian companies? concerns will gradually adapt to the changing investment GK: There has been $620 billion worth of cross-border landscape? acquisition activity led by government-controlled acquirers over the past 20 years of which $310 billion, or one-half, GK: I am sure that we have not seen the end of the debate has taken place in the last four years alone (2005-2008). The or discussion about these national security concerns. The US has been the largest target by far ($124 billion over the worries will be expressed by those governments promoting whole period) and $45 billion (or about 40%) has arisen the overseas acquisition activity through their own statecontrolled agencies as well as the regulators in countries from Asian acquirers. that represent their primary targets. Globalization is a force BA: In which industries have these deals been most active of change in global capital markets that is too strong in the long-run for these temporary regulatory restrictions to slow. in? GK: They have been targeting a variety of industries, BA: What are the some synergies from mergers and although they have been focusing on banks and financial acquisitions between Asian and American companies for the firms and the general economy? services during the most recent years. BA: What do you think is the reason behind it, given that GK: My research study (with Professor Rose Liao of Rutgers most of them do not have such experience decades ago? University) entitled “What is Different about GovernmentControlled Acquirers in Cross-Border Acquisitions?” tries Do you think the acquisitions are successful? to answer this question. We examine 5,300 of these crossGK: I think there has been this dramatic increase in border deals worth over $620 billion led by governmentgovernment-controlled cross-border acquisition activity controlled acquirers and compare them to the 150,300 such in large part because of the large accumulation of foreign deals valued cumulatively at over $11 trillion of corporate-led currency reserves in these sovereign wealth funds. So, the cross-border deals. We show that the flow of such activity in reason that they are investing in stakes in overseas private terms of the home country from which the acquirers come companies is because of the opportunities in terms of risk or the destination country in which the target is located is no and return not easily found in their home markets, in other different between the two types of deals. The motives for those two types of deals and the economic consequences types of assets, or securities markets. also appear to be no different. The types of deals that they BA: What are some obstacles Asian firms face when go after in terms of attributes of the target firm, the terms of the offers and even how the shareholders of the targets acquiring American companies? react (which is typically positive for target stakes above 5%) GK: In 2007, the U.S. Congress passed the Foreign are also no different. Investment and Security Act that gave legal status to a little-known Committee on Foreign Investment in the U.S. BA: What are the differences between the Asian, American, (CFIUS), a multi-agency group formed in 1975 to monitor and European capital markets? U.S. policy on foreign investments that might have an impact on national security. This new Act gives significantly more GK: Ever increasingly, less and less is different about these power and control to CFIUS with specific guidelines on markets. Foreign investors – both in direct and portfolio what kinds of acquisitions could trigger a review. It explicitly forms – are a growing presence in terms of holdings of identifies the potential security concerns associated with local markets and their traded securities. More and more government-controlled acquirers. Many countries around companies are sourcing their debt and equity capital from the world are now changing their regulations with respect overseas. The force of globalization is making sure of it.BA
BUSINESS ASIA • Spring 2010 • 45
Entrepreneurship in China, Part 2: The Business Environment
A graduate of Cornell University, Kevin McGovern ’70 is currently the chairman and CEO of McGovern Capital, a private investment firm and global intellectual property rights strategist. He is the key shareholder in more than 15 companies and has engaged in multiple ventures in Asia. In 2007, he was honored the Cornell Entrepreneur of the Year award, which is given to those who exemplify entrepreneurial achievement, community service, and high ethical standards. An active member of the Cornell Board of Trustees, McGovern also founded the Cornell Club in New York City. McGovern earned a law degree from St. John’s University School of Law (1975) and also studied at the London School of Economics. McGovern is also the cochairman of Angstrom Publishing, and of the Silver Shield Foundation, which provides scholarships and benefits to children of police and firefighters killed in the line of duty in New York, New Jersey, and Connecticut. McGovern is currently working on The Water Initiative, a system aimed at providing clean water, which will be active in Asia very soon.
By Sandy Tun, Cornell University
BA: Business Asia || KM: Kevin McGovern BA: As you said in our previous interview, China is looking more at multi-national companies. And it’s hard for the middle market to develop there. Do you see that changing? KM: Definitely. The Chinese have learned from the Americans that the backbone of the American economy is not the multinational companies. It’s what’s called SME: Small Medium Size business. That’s the backbone. That’s where the innovation takes place in this country. It happens in Silicon Valley, in Route 128, etc. It happens where inventors are given freedom to create and innovate. People all over the world including the Asians are learning that smaller businesses and encouraging entrepreneurs to develop their own businesses is the best way that they can innovate and create new opportunities, technology, etc. So it’s very important to create an atmosphere that spawns and encourages early stage businesses to grow, particularly around intellectual centers, such as universities where there’s so much good peculation of thought. You want to have a fertile atmosphere, an atmosphere for companies to grow and for early stage entrepreneurs whether it’s graduating students, graduate students, or professors in collaboration with students to allow them to build companies. BA: You have a lot of experience in China. Where do you see China
46 • BUSINESS ASIA • Spring 2010
heading in the next 5-10 years? Are there particular areas to go in Asia other than China is Singapore. There’s a very that you see developing faster? powerful Chinese community in Singapore, so again it’s a circle back to relationships. KM: I think China right now is too dependent on exports. They really have to develop a greater consumption BA: What are some advantages you see are unique to of their goods by their own people. So the mindset of businesses in Asia? consumerism has to grow much more in China for it to become the mature giant that it wants to be. I think it will KM: Businesses in Asia are built more on relationships. I take place. I go to some of the main shopping boulevards am a lawyer, so I am very sensitive to legal infrastructure. and yes, it’s crowded, but the real brand names from the U.S. are not so crowded. I think there’s more statistical evidence of consumerism than physical evidence. In China, I don’t see it as much. A lot of the money invested by the government is in infrastructure. It’s in the Beijing Olympics. It’s in the Shanghai Expo. It’s in construction. What it needs is investment in entrepreneurship in business, in laws to protect business people, and in laws to protect intellectual property. China is now realizing that the ability to protect your rights is important for them internally. Otherwise, when they grow, they will go through some pains. And now we’re a little old. China is very young and maybe they can learn from us. And maybe we can join together to create something we can individually form. I realize that 1 plus 1, China and the U.S., together can equal so much more than the two of us trying to compete with each other at every level. Collaboration and cooperation on an economic level will hopefully transcend any political issues that we may have. And I think China needs that. I am very worried about China’s ecological and environmental issues. I know the water in China is a long term health problem. A lot of their water is polluted, so The best I can say as a foreign person doing business my key focus now is clean water. China is becoming much in Asia is that I don’t rely as much on the legal side as more environmentally conscious, but it would still need much as I do in the United States. As I have said, it’s a much more green investment. people thing. You really need local expertise. Just because I am a good businessman in the United States, it doesn’t BA: It seems that only a few people control the businesses make me a good businessman in China. If I have good in Asia. What is your take on that? instincts and I learn from the people I hire in China who understand China, I will be okay. But I am not going in KM: Just like every place in the world, a small group of on my own. I do not believe in going in to do business by people control the economy and make the investments to myself. I always try to find smart people who can really help out the business economy. Traditionally over centuries, help me understand the subtleties. Sure, we can read the Chinese has been merchants and the business class of books and regulations. But it’s the subtleties that make Asia. Even if I go to Malaysia, it’s often the Chinese in us successful in understanding the cultural differences. Malaysia who are the business leaders. Similarly when I go The understanding of the subtleties of doing business to Thailand, it’s the Thai with Chinese ancestry who are can take a lifetime. That does not take a year of learning. much more business oriented. It’s amazing that it’s a small You need to build a team of local expertise plus global loop of people who all know each other. My favorite place expertise. That’s the best of all. BA
Just because I am a good businessman in the United States, it doesn’t make me a good businessman in China. If I have good instincts and I learn from the people I hire in China who understand China, I will be okay. But I am not going in on my own.
BUSINESS ASIA • Spring 2010 • 47
Investment banking in Hong Kong
By Christine Seo Hyun Kim, Cornell University
technical skills with a lot of follow-up questions. For behavioral questions, I looked through my resume and summarize it. I thought of different experiences that I have and how they are relevant to the position that I am interviewing for. I have always believed that interviewing is also a process of knowing more about myself. The best way to prepare for interviews is to interview! Interviews can be intimidating at first, but you should just go into the interview room and get comfortable with the intense atmosphere. BA: Did you talk to alumni, info session, or people at career centers? YC: Attending information sessions help, but it is not the most essential part. By talking to people who are currently working in the financial services industry, I have become more comfortable with the fast-paced and high stakes environment. I have also reached out to the people in the career centers, and they are really helpful with reviewing resumes and cover letters. BA: Are there differences within the interview in Asia or U.S., and how many rounds? How is it different? YC: The formats of the interviews in Asia are different from the ones in the United States. The application process for banks in Asia require applicants to complete online numerical tests. In Asia, we usually have first round interviews conducted through the phone. Then, if we pass the first round, we will get invited for a Super Day in New York City. The second set of interviews are usually three to four rounds. There are instances where interviewees are asked to complete paper based numerical tests and mandarin tests. Keep in mind that cultures do vary among banks in Asia, and interviewees will have higher chance of being accepted when they find that they have things in common with the interviewers.
Yunyun Cai, a junior in College of Arts and Sciences, who has gotten into Deutsche Bank in Hong Kong, was interviewed for her success in finding this internship.
BA: Business Asia || YC: Yunyun Cai BA: What is your background? YC: I am from Shanghai, China. As a freshman, I was more interested in the humanities, as I wanted to explore journalism as a career. However, as I progressed academically, I realized that I enjoyed more quantitative classes and decided to change my major to Math and Economics. BA: What first drew you into finance? YC: When I came to Cornell, I joined my friends and attended information sessions for banks. The topics during the presentation were interesting, and I wanted to find out more about finance. The more exposure I had to finance, the more I found it to be intellectually-stimulating as it combined various disciplines, including math, economics, and psychology. After speaking to people in the financial services industry, I found that a career in finance involves a lot of interactions with people, which makes it fun and exciting. After considering my strenghts, I knew that a career in finance, especially in the investment banking division, fits perfectly with my skill set, as it involves both social and technical aspects, i.e. financial modeling, research, etc. BA: How did you decide which division within a bank that you would be most attracted to?
YC: I thought about where I would thrive best. Hours are usually long in the investment banking division; but compared to trading, the pace in the investment banking division would allow me to have more time to make decisions and implementing these into actions. The environment in the investment banking division is quieter than that of trading, but it is still dynamic, cooperative, and requires a lot of patience. In addition to that, I have always been BA: Any other comments? interested in the financial modeling aspect of the work. YC: The finance industry in Asia is dynamic and fast-growing. If you have an interest in finance, consider working in Asia, as it will BA: How did you prepare for the interview? provide many opportunities in your future career But my biggest YC: I reviewed the Vault Guide to Finance Interviews. It was advice is to reach out to alumni and learn as much as possible very helpful as it prepared me for the technical and behavioral about the industry. Be sure that it fits with your personality and parts of the interview. For technical questions, I found reviewing strengths. If you have no previous background in Asia, do not be the course material on a class in Financial Statemnet Analysis to intimidated as there are a lot of people willing to help if you reach be especially helpful. Interviewers from Asia tend to focus on out to them.
Photograph by: Max Braun Source: http://www.flickr.com/photos/maxbraun/1269673910/sizes/o/
48 • BUSINESS ASIA • Spring 2010
The ‘Chimerican’ Partnership: Knowing the Chinese Counterpart
By Christine Seo Hyun Kim, Cornell University
Photograph by: futureatlas.com Source: http://www.flickr.com/photos/87913776@N00/3033615378/sizes/o/
fter 31 years of U.S.-China trade normalization, “Chimerican” business strategies have recently been reemerging. Understanding one’s Chinese business counterpart is a crucial method for U.S. or foreign business to gain prolonged success in
China. Creating a mutually beneficial strategy is a key to sustaining a prolonged economic relationship between U.S. and China. For instance, twice the population of U.S. uses cell phones, while 74% of the businesses remain very profitable. On the Chinese side, however, due to an increasingly domestic-driven economy, more companies are reluctant to accept foreign investments
without extensive research. Recently, Chinese companies are being more cautious before entering into partnerships with foreign investors, thus making joint ventures the only possible solution. Therefore, it is the foreign firms’ duty to help design a win-win strategy that will continuously allow Chinese firms to accept them in the future. The win-win strategy is also exemplified in Korean-Chinese businesses. With a similar culture and history, China remains the most lucrative market for Korean companies. For instance, SK Group, the third largest multinational corporation in Korea, has been establishing Chinese business infrastructure by adapting to China’s local investment venture in energy sectors (i.e. SK BUSINESS ASIA • Spring 2010 • 49
Wohorim and local technology sales). Also, SK Group was successful in receiving an official medical permit from China, the first for any Korean company to do so in Beijing. The opening of hospital ventures also means the expanding of the possible business sector. Thus, even for South Korean companies, understanding the Chinesecounterpart is the key to long-term success.
Business culture in the U.S. is goal-oriented and based on individual achievements, whereas business culture in Asia focuses on harmony and conformity. Individuals who cannot work well in group settings cannot easily fit into the Asian business culture even if they have all the necessary skill sets.
Challenges remain in understanding the complexity of Chinese government, the people, and nation-based cultural preference. For instance, what a U.S. party may consider to be a finished negotiations may not be complete on the Chinese side. Rather than presenting all issues at the outset, adapting the “when in Rome” approach in China by following the local practice 50 • BUSINESS ASIA • Spring 2010
is without doubt a clever strategy for foreign companies. This mutual understanding of different business protocols serves as a strong and lasting business strategy. These contextual challenges can only be overcome if research is done about the nuances of the Chinese market before the actual business initiatives. In addition, there is misunderstanding surrounding guanxi, which literally means “relationship,” an important element of Chinese business. Contrary to popular belief, guanxi is not a necessity for foreign businesses to succeed, and guanxi does not necessarily mean corruption. Through guanxi, companies can navigate their way through China’s complex bureaucracy by interacting with reliable local personnel—ranging from government officials, business leaders, consultants, etc. In China, mianzi, which literally means “face,” also plays an important role whether it be in transactions or internal businesses. Foreigners should especially be cognizant of giving their Chinese counterparts their due mianzi. Finally, understanding Chinese collectivist culture in business environments may help individuals understand each other better. Business culture in the U.S. is goal-oriented and based on individual achievements, whereas business culture in Asia focuses on harmony and conformity. Individuals who cannot work well in group settings cannot easily fit into the Asian business culture even if they have all the necessary skill sets. In addition, in Asia, employees usually wait to leave until the boss finishes his work as a courtesy. Internalizing these nuances may help any foreign business fully understand the Chinese business sector. Thus, aligning business plans with China’s working culture is extremely important. The financial crisis has brought a greater focus to China, a land of opportunity that also requires deeper insight into internal customs and perspectives. Economically, a stronger Chinese business sector requires foreign companies to form a joint venture to succeed. Socially, understanding government regulations and cultural sentiments will serve an effective long-term business strategy to gain prominence in China. Although entering business in China requires as much insight as any other markets, one’s willingness to understand the Chinese business counterpart will add to bilateral partnership between China and any other foreign countries in the future. BA
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