North Korea’s President Kim Jong–un ‘s reappearance in October 2014 has given controversial debates

Image: NKOREA-SKOREA-POLITICS-KIM

Photo source: http://www.nbcnews.com/news/world/north-koreas-kim-jong-un-shown-walking-cane-after-absence-n225096

Kim Jong-un is North Korea’s dictator, a successor from his father – Kim Jong-il, who died on 17 December 2011. Kim Jong-Un is child of deceased president Kim Jong-il and his late third wife Ko Yong-hui. Kim Jong-un received his education in Switzerland, however avoided the Western influences and returned to Pyongyang to engage in North Korea military. A few months into his leadership, Kim Jong-il decided to launch a rocket stating to put satellite into the orbit, however, it was not a successful plan in September 2012. Following this, there was a successful launch of satellite using 3 stage rocket in December 2012, as well as the nuclear test was carried out in February 2013.

From these moves, public and other nations such as USA, South Korea and Japan have been worried about nuclear equipment and war threats with North Korea. Other countries were worried that the 3rd generation Kim was going to be more aggressive than his father. On the other side, some also expected that Kim Jong-un was going to improve North Korea economy in more positive way. Nevertheless, we must take a look at what is the difference between the father and son’s dictator leadership style?

Kim Jong-un was born in early 1984 and has had neither many experiences with leading a country nor military exposures. Netizens also mentioned that he was too young and inexperienced and would suffer pressure politically when he was in charge of North Korea. When he overtook his father position, public speculated that he would open up a new economy era with Western influences during his school time, however, it seemed that he would still follow his father policy: no change in “military first policy”. i.e military is the main pillar of support for the regime. However, there are some differences between Kim Jong-il and Kim Jong-un: while the father had been trained over two decades by the 1st generation Kim , the son has had merely appeared in front of the public. However, 3rd generation Kim appeared to be more friendly, more smiley in front of the army and public, at least in North Korea citizen’s eyes “Kim Jong-un has, during his first month in power, reminded people of his grand father—not just in terms of physical appearance, but also in terms of interactions with ordinary people. The third-generation Kim has been shown putting his arms around soldiers, walking arm-in-arm with them, and even putting his hand up to a person’s cheek. The pictures convey a more personal and caring image than any of Kim Jong-il.”

If in the past, images and news about North Korea living conditions were not published out and speculated by the world to be a restrictive and underdeveloped economy, we can see that North Korea has slowly improved, though there is only modest change. There have been series of photos taken by foreigners when visiting North Korea. North Korea has developed its entertaining systems, recreational activities. It has its own airlines, ski resort and water park. “Kim Jong-un has gotten rid of his father’s austerity policy and Pyongyang has seen an increase in the number of privately run restaurants, luxury stores, and cellphones users. Four years ago it was difficult to spot a car in the North Korean capital, but today there are small traffic jams during rush hour.”

120726KimAmusement_6467783NK ski resort

Photo source : http://www.motherjones.com/politics/2012/07/kim-jong-un-amusement-park-photo-british-diplomat , http://luxpresso.com/photogallery-lifestyle/inside-north-koreas-newest-luxury-ski-resort/27546

China seems to be North Korea’s major trading partner. Some argued that the improvement on North Korean’s wealth is much connected with its partnership with China, especially border cities such as Dandong SEZs. However, North Korea has just gone through an internal politic battle, in which Kim Jong-un executed his uncle Jang Song-thaek, who was experienced in dealing with SEZs along North Korea’s border. This move was said to be used by Kim Jong-un to consolidate his power and prove his authority, as well as eliminate all internal opposition. Kim Jong-un also used this to send the message that he was not going to implement the same strategy as Deng Xiaoping to reform economy.

Kim Jong-un’s absence since September 2014 is notable by the public. This, however, is not the first time President of a country has gone missing and it is not even the first time North Korea dictator has not appeared in front of public for a period of time. There have been theories that his health had issues, his family members are sick, or even some politic battles are undergoing silently. However, he reappeared in an apartment complex and energy institute with his smile and specially, with the aid of “walking cane”. His reappearance with a cane is somehow a confirmation that he probably has gone through an  operation. However, he affirmatively assured that the power is still in hands. Some sources identify that it is noticeable that six top officials vanished in alleged execution, i.e there is a mystery whether or not the only communist’s dynasty dictator was busy arranging his cabinet.

By going through all of this internal political debates, I believe that President Kim Jong-un is trying to get his power in place to change NK’s economy in more positive way, even though it is modest change. North Korea is trying to develop its tourism activities along the coast of Wonsan district and in Mount Kumgang, by recruiting foreign businessmen, which was stated in the foreign investment conference held in Dalian, China. Promisingly, even my point of view, the world is expecting a positive economy reform led by President Kim Jong-un after his reappearance.

Kim Jong Un ( 3) Blog

Photo source : http://www.voanews.com/content/analysts-north-korea-economic-reforms-kim-jong-un-growing-power/2461744.html

References :

http://www.bbc.com/news/world-asia-pacific-11388628
http://www.worldaffairsjournal.org/article/korea’s-third-kim-will-anything-change

http://thediplomat.com/2014/09/kim-jong-uns-north-korea/

http://www.theweek.co.uk/world-news/kim-jong-un/60578/kim-jong-un-another-no-show-as-north-korea-fires-on-south

http://www.voanews.com/content/analysts-north-korea-economic-reforms-kim-jong-un-growing-power/2461744.html

http://www.washingtonpost.com/world/as-kim-jong-un-returns-north-korea-becomes-slightly-more-open/2014/10/14/d0a28680-539c-11e4-b86d-184ac281388d_story.html

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Internationalization of RMB: depending on the overall national strength

On October 27th, authorized by the People’s Bank of China, Foreign Exchange Trade Center announced the launch of directly trading of the RMB against the Singapore dollar in the interbank foreign exchange market. This movement shows the acceleration of internationalization of RMB.

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Photo resource: http://www.dyxtw.com/news/2014-10-13/142240-3.html

In fact, since the financial crisis, China has accelerated the pace of promoting RMB internationalization. Since 2009, People’s Bank of China has signed bilateral currency swap agreements with more than 20 countries such as Swiss, Brazil, and South Korea. At the same time, with the acceleration of the process of internationalization of the RMB, the RMB clearing system has been initially established globally. Now, the RMB clearing system covers Asia, Europe, Australia and so forth.

In addition, the direct multi-currency transactions of the RMB have been carried out with Japanese yen, Australian dollar, New Zealand dollar, British pound, Korean won. On September 29th, after being authorized the by the central bank, China Foreign Exchange Trading Center announced the launch of direct trading of RMB against the euro in the interbank foreign exchange market. In the past few years, most developed economies were experiencing the economic recovery, which to some extent provided a good opportunity for the internationalization of the RMB.

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Photo resource: http://www.pangxiang.com

After years of continuous development, now the internationalization of RMB has made huge achievements, and the Chinese Yuan has also been recognized and supported by more and more countries.

Recently, the best proof of RMB internationalization is that the world’s first offshore RMB foreign sovereign grade bonds will be issued in the UK. According to the UK Treasury announcement, UK has officially launched the first program of only issuing RMB sovereign bonds, and delegating Bank of China, HSBC and Standard Chartered Bank as the lead underwriter for the offering. The market expected the issuance by Bank of England would reach about 2 billion Yuan, or about 200 million pounds.

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Photo resource: http://finance.huanqiu.com/comment/2013-04/3837683.html

Moreover, in the recent annual meeting of IMF and the World Bank, Xiaochuan Zhou said that some countries had already been secretly using the Yuan as foreign exchange reserves.

In fact, as the world’s second largest economy, China’s influence in the international arena has been rising in recent years, and the RMB’s ranking in international currency is also rising. According to the data of SWIFT, RMB’s ranking in the world’s major payment currency has jumped to seventh place from fourteen over the past 2 years. Moreover, since 2005’s the exchange rate reform, the appreciation of RMB against the US dollar has reached nearly 30%.

People’s Bank of China Deputy Governor Yi Gang also said that many officials in IMF and other governments were obviously aware of increasingly needs and choices of RMB and when conditions are right, the RMB will become one of major currencies in the SDR basket.

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Photo resource: http://image.baidu.com/

Of course, becoming one of the members of SDR indicates the outcome of internationalization of the RMB, but that does not mean that RMB internationalization successes. The RMB being need by more counties and the long-term recognition of RMB not only needs Chinese government to keep capital accounts open, but also depends on the steady development of Chinese economy and the improvement of the comprehensive strength.

With the continuous improvement of the supporting measures, the openness of China’s capital accounts will continue to increase. However, the development of China’s political, economic, cultural, military and other comprehensive strength is also very crucial. Conversely, if a country’s own economy cannot achieve high-speed and stable economic development, its currency status will eventually decline.

Reference:

http://finance.sina.com.cn/money/forex/20141028/212420666449.shtml

http://finance.qq.com/a/20141028/044379.htm

http://finance.sina.com.cn/china/20141028/150020664080.shtml

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The Rich and Poor in China

Currently, the second most millionaires on the planet live in China. A number only topped by millionaires living in the United States. What makes this even more astonishing is how fast the number of Chinese millionaires is increasing. However, poverty is still pressing issue for China and one of the major concerns of the Chinese government.

A Chinese family hace dinner at their makeshift shelters next to a construction site of new buildings in Zhejiang province. Photo: Reuters

A Chinese family hace dinner at their makeshift shelters next to a construction site of new buildings in Zhejiang province. Photo: Reuters

Poverty still a pressing issue

In 2012 approximately 1.5 million millionaires lived in China. In 2013 the number increased further to 2.4 million. Eventually, the number of millionaires is projected to double again until 2015. Without a doubt impressive numbers. But according to senior government development official Zheng Wenkai over 82 million Chinese still live on less than about US$1.25 a day. Hence, plenty of people that did not benefit from China’s incredible growth rates so far. This number is even higher if the Worldbank’s definition of extreme poverty is taken into account. Those are people who have less than US$1 a day. Thus, as Wenkai admits the number of poor Chinese can be considered to be actually closer to 200 million. Which implies that every sixth Chinese person is poor.

Those segments of Chinese population not only have insufficient amounts of capital but also have no access to clean water, electricity, and health care. They often live in rural areas that are regularly hit by natural disasters such as earth quakes, droughts, and floods.

China successful in fighting poverty

Nevertheless, one cannot deny that China made impressive progress in regards of fighting poverty. Over the last 20 years China’s GDP grew by an average of approximately 9% per annum which helped the government to lift more than half of 1.3 billion Chinese out of poverty. The average per capita income today is tenfold as compared to the per capita income in 1980. Around 350 million Chinese enjoy a lifestyle today that is similar to the lifestyle of people in the developed countries. Moreover, China contributed significantly to bisect global poverty until 2015. An essential objective in the United Nations’ Millennium Development Goals.

Accordingly, extreme poverty is barely visible in Chinese cities. There are still many migrant workers but most of them earn enough to afford decent accommodation and are additionally able to send money home to their families in the countryside.

The places were extreme poverty can still be found

Hence, the question where poverty can be found remains unanswered. Not too long ago the answer was obvious. The poorest Chinese people were found in the countryside far away from shiny cities and promising opportunities. A lot, however, has changed. Tremendous infrastructure projects initiated by the government in Beijing helped to connect rural areas to the prosperous rather industrialized eastern parts of China. In particular, large industrial areas were created and helped poor provinces such as Guizhou, Gansu, and Yunan to achieve the highest growth among Chinese provinces.

Most of the extremely poor people are farmers who live in the particularly remote areas in the west and north west of China. Here, farmers live on assigned ground and pursue subsistence farming. It is assumed that it is only a matter of time before those people achieve better living standards as well.

The risk of a widening gap between rich and poor

What China should be concerned about in the meantime are the extreme differences in wealth and incomes. According to a study published by Beijing University 1% of the population controlled more than one third of the entire wealth in 2012. The bottom quarter, however, controlled only 1% of the wealth. While the progress made in fighting poverty is remarkable the gap between the poor and the rich is considerably widening. According to researchers at the University of Michigan the Gini coefficient, a measure of income distribution, for China was at a high 0.55 (United States: 0.45), the higher the coefficient the more inequality. The last thing the Chinese government could use in addition to demands for more democracy are intensified social tensions evoked by increasing inequalities in regards of income and wealth. Especially in times of slower growth and when the previously made promises are increasingly difficult to keep.

Sources:

http://www.scmp.com/news/china/article/1616956/more-82-million-poverty-china-official

http://sinosphere.blogs.nytimes.com/2014/10/17/despite-poverty-efforts-china-still-faces-wealth-gap/?_php=true&_type=blogs&_r=0

http://data.worldbank.org/country/china

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Mr. Abe: Increase Women Workers in Japanese Workplace

With its aging population and dwindling workforce, Japan more than ever is looking to women. Japan’s biggest companies may soon be required to make public plans to hire and promote female workers, as the government tries to impose numerical quotas to get more women into leadership roles.

Bill approved on women in the workplace

The cabinet approved a bill on Oct. 17 that would require firms with 301 employees or more to choose targets – say the percentage of women in management positions, or that of women hired – and announce their plans to achieve those goals.

The proposed legislation comes as Prime Minister Shinzo Abe tries to raise the participation rate of women in the workforce to offset the drain on the economy from a declining population. He has brought the issue to the forefront of his economic-growth policy known as “Abenomics,” proclaiming a goal to fill 30% of leadership positions in Japan with women by 2020.

Situation of women in Japanese workplace

Japan educates its women to a higher level than nearly anywhere else in the world: its girls come near the top in education league-tables compiled by the OECD. But when they leave university their potential is often squandered, as far as the economy is concerned. Female participation in the labor force is 63%, far lower than in other rich countries. When women have their first child, 70% of them stop working for a decade or more, compared with just 30% in America. Quite a lot of those 70% are gone for good. According to government figures, only one in 10 managers in Japan are women, compared with 31% in Singapore, 38% in Germany and 43% in the U.S.

スクリーンショット 2014-10-26 午後6.42.48スクリーンショット 2014-10-26 午後6.44.12

Women worker issue in Abenomics

Mr. Abe says he wants to change this situation. In April 2013 he announced that allowing women to “shine” in the economy was the most important part of his “Abenomics” growth strategy. To demonstrate the need for change, Mr. Abe himself appointed five women as ministers to his new cabinet in September—increasing the female representation to 26% from 10%.

“I believe that the hard work of the women in the cabinet will bring on social change,” Mr. Abe said after the reshuffle.

 スクリーンショット 2014-10-26 午後6.48.21

Will it work?

In a study that compared the reasons why Japanese and American college graduates leave their jobs, American women cited child-care and looking after elderly relations as the main factors. Japanese women blamed dissatisfaction with their jobs and a feeling of being put into “dead-end” roles. The fact that their husbands, who spend more time at work than their counterparts in other developed countries, spend less time on child-care or household chores, adds to the perceived need to stay at home. In addition, in wealthy places like Tokyo many women simply do not wish to work. “It’s about work-life balance, worker productivity, training female employees, diversifying work styles—issues that companies have been trying to address for about 20 years,” says Yoko Yajima, a diversity consultant at Mitsubishi UFJ Research and Consulting.

The situation of less women in Japanese workplace than in other developed countries is not only caused by the policy in Japan. Changing Japanese women’s mind may be another important aspect to achieve Mr. Abe’s goal.

References

http://www.economist.com/news/briefing/21599763-womens-lowly-status-japanese-workplace-has-barely-improved-decades-and-country

http://www.nytimes.com/2014/08/02/opinion/women-and-japans-workplace.html?_r=0

http://online.wsj.com/articles/abes-goal-for-more-women-in-japans-workforce-prompts-debate-1410446737

http://blogs.wsj.com/japanrealtime/2014/10/17/japan-cabinet-approves-bill-on-women-in-the-workplace/

http://www.japantimes.co.jp/life/2013/03/03/people/japanese-women-strive-to-empower-themselves/#.VE2Vp9yxhSU

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Hong Kong: Occupy Central Movement, A Gain or A Loss?

The “Occupy Central” movement in Hong Kong has lasted for almost one month. The whole world is still looking at Hong Kong, wondering how the central government will tackle this hot potato. Just like a tough parent to a rebellious stage “disobedient child”.

There is no doubt that the movement, lasting for so long, has affected a lot of business in Hong Kong. The question remains on whether the influence a short-term injury or a long lasting damage? How much that Hong Kong could gain from this war for democracy? And what will Hong Kong loss at the same time? It is really worthy?

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Gathering in Harcourt Eoad, Oct.01 2014       Protesters live in the tents in Mong Kok, Oct.26 2014

The Background

The Occupy central movement started from the end of September this year. Initiated by an associate professor of Law at the University of Hong Kong, the movement intends to3 pressure the Government into granting a real electoral system, which will not be under the control of the Beijing central government. The campaign experienced several ups and downs since the first gathering in 28th September. As the event developed to present time point, the mainstream protesters are still the students group. By 26th October 2014, the organizers shelved the electronic ballot, which planed to be held today, after the movement said there were too many different views among supporters on the voting issues and validity of the poll.

Achievements Of The Event

One of the biggest achievements for OCLP so far is that the government has already agreed to start conversation with the students. Under such huge public opinion pressure globally, the Hong Kong government seems have no choice to make concessions. Although there is no sign showing that Beijing Government will accept to bring forward the 2017 universal suffrage, the event pass out an important sign to the central government that they are not satisfied with the offered new election system and its schedule. This also taught the local government a lesson that neglecting and perfunctoriness dose not helps in a developed area like Hong Kong, especially for an pro-democracy protests campaigns like OCLP.

Negative Impact

According to the reports and comments from various economics. The damage that OCLP brings to Hong Kong economic is huge. Although 2008 global recession has already gone, Hong Kong, as a world class finance center who relies greatly on financial service and global trade, its economic is still facing huge downward pressure. The negative impact to Hong Kong economic includes two parts: Direct impact and Indirect impact

  • Direct impact:
    • Increase of government expense: In react to the occupation, government needs to spend more money out of budget. This will either increase the pressure of government deficit or grab fund from other segments, which could originally benefit economy instead.
    • The stock market fell and investment halt: In a short period, it seems the event is not that serious to Hong Kong’s economy and will not fluctuate Hong Kong’s position as Asia financial and trading center. However, if the event keeps unsolved, it shakes the faith of investors. Especially giving the recent Shanghai new financial center plan, both capital and investors would be pushed to choice substitutes in long run. or at least they will start to consider the substitutes.
    • The local business and travel industry: As one of the important pillars for 4Hong Kong economy, travel and local commercial bore a great loss due to the event. October used to be the golden week for Hong Kong travel industry. However, the OCLP stopped the traveler from all over the world, especially from Mainland China. Only for the first week of October, the loss was estimated to be 3500billion HKD.
  • Indirect impacts are hard to measure but tend to have greater effects. Those effects might be a butterfly effect on government deficit/budgeting, customer/investor behaviors, overall stock market reactions and the relationship with Mainland China.

Questions to OCLP

OCLP do have great achievements and successfully attracted global attention. However, after looked at and analyzed the whole event context, got to know the initial triggers and the background, I start to doubt the real purpose and the effectiveness of this event. By a glance, OCLP seems to be a war for democracy, which people are fighting for their own election right. In fact, the central government had agreed the common election schedule on 2017 long back to 2007. So why those protesters can’t wait any more after has 8 years and start to strike when there are only two years left? Under the decision of 2017 universal election, there is a constrainer that the nomination should base on the premise of patriotic. People are criticizing the requirement because the local government owns the right to judge and it result in a “false universal suffrage”.

Standing in the shoes of Beijing Government, actually there is no reason and no way to ruin or harm the benefit of Hong Kong. The reason why Beijing are trying to control election is to avoid unexpected opposes and extreme activism people to in charge Hong Kong and break the relationship with Main Land China. What the central government wants is to keep a good relationship with Hong Kong and everyone agrees that a good relationship benefit Hong Kong with its economic development. Considering the idea in this way, it seems an unreasonably troublesome for Hong Kong protestors to require so-called real election when central government had already to do so by 2017. Together with the various negative impact to Hong Kong economy, either repairable or not, I think those professors and students should pause for seconds and rethink whether these efforts are worth or not. Maybe we can find other better ways to communicate with a strong power government like Beijing.

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Reference:

  1. http://en.wikipedia.org/wiki/Occupy_Central_with_Love_and_Peace
  2. http://news.xinhuanet.com/fortune/2014-10/26/c_127141349.htm
  3. http://www.bbc.co.uk/zhongwen/simp/indepth
  4. http://www.scmp.com/news/hong-kong/article/1625058/occupy-central-scraps-poll-way-move-protests-forward-11th-hour
  5. http://news.sohu.com/s2014/dianji-1478/index.shtml
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Chinese waterway in Central America

Why America got rid of mosquitoes in Panama

Malaria has been one of the most deadly tropical diseases over the course of human history. The WHO estimates that approximately 200m people contracted malaria in 2013. The economic toll is significant too: one study suggests that malaria reduces Africa’s GDP by around $12 billion each year.  This disease is also present in some parts of Latin America. But thanks to the US Army, the risk of catching the disease in and around the Panama Canal Zone is pretty low. How come?

In 1904 the US Army was tasked with helping construct a canal to connect the Caribbean Sea to the Pacific Ocean, to speed up the shipping of goods between the east and west coasts of the US. America was not the first country to attempt this deed. The British contemplated the same thought, but were deterred by the hostility of the politics and geography. The French, encouraged by the successful construction of the Suez Canal in Egypt, decided to take on the project. But the deadly mosquitoes hampered another French success.

When the US government bought the land in 1904, thousands of American troops were sent in with orders to destroy every habitat that could harbour the mosquitoes. The scale of the operation was huge and successful, at least in relative terms.

Panama Canal (Source: http://www.everyculture.com/No-Sa/Panama.html))

Picture 1: Panama Canal in 1914 (Source: http://www.everyculture.com/No-Sa/Panama.html))

 

 

 

 

 

 

A good investment for America

Shipping distance for certain US cities

Chart 1: Shipping distance for certain US cities

There was almost no commercial traffic on the canal during the First World War. However, from 1921 onwards the gains were quick.  This was largely due to the lack of competition in the region surrounding the Panama Canal. The the dawn of an American century gave way to the US west coast enjoying an oil boom and wanted a cheaper way than the steam train to move goods and fuel between the Pacific and Atlantic (refer Chart 1). By 1922 real shipping rates on some routes had dropped almost one-third. American taxpayers quickly recouped their investment.

The canal also had strategic value. After the Spanish-American war in 1898, the United States needed a naval route between Atlantic and Pacific. In the later years, the canal was central to America’s economic penetration into Asia, Europe and Africa. As indicated in the Picture 3 below, the canal was pertinent to not only reinforce US trade dominance in the Americas region, but to also assert its economic power in previously untapped Asia and Europe.

After the Second World War, America’s trade with Asia soared much more than that between its east and west coasts. As indicated in the Chart 2 below, over the history of the Panama canal’s life, a large part of the traffic growth is due to the increase in US-Asia trade.

Panama Canal Traffic

Chart 2: Panama Canal Traffic

Changing dynamics – China has its eye on the canal

With the canal soon to complete its first expansion in a century, there are again hopes that it will transform interoceanic trade. Although approximately 100 years have passed, numerous commercial and geopolitical interests are still at play, more so now than before. On the eve of the anniversary of the Panama Canal’s opening in August 2014, the Egyptian government announced a plan to upgrade the Suez Canal for the first time in its 145-year history, backed by some Chinese investors. In addition, Nicaragua once considered too earthquake-prone for a big canal, is trying to rekindle its 19th century dream. Its government has endorsed a 278 km (173 miles) route for a $40 billion canal linking the Atlantic to the Pacific, financed by an agreement between a little-known Chinese magnate and the country’s government.

To add to the intrigue, in August 2014, a delegation of Chinese businessmen from the state-owned China Harbour Engineering Company visited Panama to explore the idea of building and financing a fourth set of locks—even before the third set (part of the existing expansion plan) are in place. All of these indications reflect China’s intention to have a bigger say in Americas region, which has been to-date dominated by the US. Some would also say this is an extension of the China’s motives to dominate trade and commerce through its strategic involvement in ports and canals along the “silk route” and therefore will have greater implications for international relations in the medium to long-term.

Conclusion

While time will indicate the directions of the geopolitical power play between the two biggest economic super powers in the Americas regions, two conclusions can be drawn. Firstly, China will have a foothold in central America as it is in its economic and political interest to do. In recent years, China has invested in strategic infrastructure projects throughout Latin America and so it of no surprise of its interest in the Panama Canal expansion.

Secondly, Panama should focus on the long-term.  The country has done a good job of running the canal so far. In a fiercely competitive shipping market, the key to country’s competitiveness may be issues like the size of its tolls. Further, contemporary Panama is better placed to reap the benefits of potential FDI flowing in. The public employees of the ACP have shown they can earn money honestly and effectively. If the state’s other servants follow their example in spending it, the rising waters of the newly expanded canal may truly lift all Panamanian boats.

Sources:

http://www.porttechnology.org/images/uploads/technical_papers/PTI-3.pdf

http://useconomy.about.com/od/tradepolicy/p/Panama-Canal-Expansion-Impact-On-U-S-Economy.htm

http://businessroundtable.org/media/blog/panama-canals-centennial

http://www.ibtimes.com/panama-canal-anniversary-2014-world-changing-economic-impact-canal-1656834

http://www.economist.com/node/15014282

http://www.miamiherald.com/news/business/article1979570.html

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The Times They Are McChangin’

Just last week McDonalds posted a 30% decline in net income, resulting in a 3.3% drop in total global sales. This drop comes from all sections of the business, though it is primarily driven by the Asia sector. But let’s be real, who cares? It’s a gigantic multinational corporation, I’m sure they will shrug it off — let’s just go out and grab a McDouble.

mcdonald stock price

You SHOULD care. This is more than a nominal loss and will result in large scale changes to McDonalds, both in products offered and the brand image. The 3.3% drop in sales is driven by a nearly 10% drop in sales in Asia — one of McDonald’s largest drivers of growth. To put it politely, McDonalds has been making a few more-than-obvious mistakes in this market and will need to make big changes in order to combat the slump in sales.

Let’s just get this right out in the open: in July, one of the major food suppliers to McDonalds in Asia was shut down by the Shanghai Food and Drug Administration because the food being sold was past the expiration date. This would clearly have a large negative impact on sales, and according to analysts, this supply-side problem was only temporary. This is good news for McDonalds, but it doesn’t explain why the sales continue to decline.

Ben Cavender, senior analyst at China Market Research Group, feels that rising competition domestically and abroad is the major cause of decreased sales in Asia. When McDonalds initially came to Asia, it had the appeal of a cool western restaurant; now, McDonalds is just one of many options in the market. There has also been increase in the amount of competitors in the market, such as Dicos, who threaten sales in every location a store is opened (and whom are now at about 2000 stores in China).

The real world is not the only place McDonalds has been failing to deliver (or delivering post-expiration). On the social media front, McDonalds recently began to invite customers to ask questions about the food in order to improve their product’s image for the consumer. This ranged from answering questions about worms in the beef or the pink goop that creates chicken nuggets.

mcdonald opinions

And, as you may have guessed, this initiative was a failure. Not only did it associate horrible notions (Worms in the beef? Ew.) of the product to consumers who may not hold these ideas, but it helped to prove just how bad their brand image is. Rather than help promote transparency of information to ultimately allow consumers to make better and more educated decisions, McDonalds was able to reinforce their own poor image and help spread the misinformation. Worms in the beef or not, what is seen cannot be unseen.

Don Thompson, CEO of McDonalds, agrees with consumers that McDonalds has got to change for the better. He stated that McDonalds will simplify its menu starting in January, in part to remove low-selling products, as well as plan to give the company’s 21 domestic regions more autonomy in rolling out products that are locally relevant. McDonald’s also plans to roll out new technology in some markets to make it easier for customers to order and pay digitally and to give people the ability to customize their orders, part of what the company terms the “McDonald’s Experience of the Future” initiative.

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Don Thompson goes on to take some of the blame for McDonald’s corporate image problems. Given that he has been CEO for only the past two years, it is reasonable to say that he does not bear the fault entirely. Going forward, however, it is his responsibility to change McDonalds brand and modernize to compete with companies like Chipotle.

Will Don Thompson rise to the challenge of improving McDonalds brand and products? The outcome is unclear; even the best strategies and implementation can still lead to failure. Perhaps the market demand has shifted away from fast food like McDonalds to other areas, or perhaps the poor name of McDonalds will drag them into bankruptcy. One this is for certain, however: McDonalds does not put worms in their burgers.

References:

http://online.wsj.com/articles/mcdonalds-profit-falls-30-on-u-s-china-woes-1413893397

http://online.wsj.com/articles/mcdonalds-china-challenge-rising-competition-1413965503

http://www.reuters.com/article/2014/10/21/us-mcdonalds-results-idUSKCN0IA1BT20141021

http://www.cbsnews.com/news/china-food-scandal-mcdonalds-sales-take-a-hit/

http://yourquestions.mcdonalds.ca/

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