Will Corporations change the future of Cambodia?

In September 18th 2014, H&M, Inditex (Zara), Primark, and other companies that operate in Cambodia, sent Cambodia’s deputy prime minister a letter clarifying their support in increasing the RMG (Ready-Made Garment) employees minimum wage, in order to support the workers right for fair living. The companies clarified their intentions and their expectation that the Cambodian government will help support and enforce these steps:

                       “As responsible Business’ our purchasing practices will enable the payment of  a fair living wage and increased wages … We also expect government and GMAC to establish processes to ensure all workers receive the new agreed minimum wage by monitoring wage implementation and policing suppliers that fail to meet the new minimum wage level. This will ensure an equal level playing field and create a competitive advantage for the factories that comply with the new minimum wage.”

Cambodia is one of the poorest countries in Asia. In the last decade, however, Cambodia has experienced high growth rates averaging 7.7% a year. A large part of the increase in growth is attributed to the garment industry. This industry alone account for 80% of Cambodia’s total exports ($6.78 Billion in 2013 according to World Bank).

The garment industry in Cambodia provide direct employment to more than 400,000 people in different factories. This supposed to contribute to many Cambodians’ ability to earn a stable salary and support themselves and their families. Most employees, however, experience poor work conditions and earn salaries that do not help them achieve the minimum life conditions they aspire and deserve.

Understanding that they deserve much more than what they are getting, as many other workers in developing countries have already learned in the past, factory workers have started to organize, and since May 2014 have started to strike in demand an increase of the minimum wage from $80 to $100, and recently to $177. One can expect the government would put many resources in securing the garment industry future and supporting its employees, as they are directly responsible to an extremely large amount of the country’s income, but this is not the case. The Cambodian government responded in repression acts and called the army to confront protectors.

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The government justified its acts in that increasing the minimum wage will scare off investors and send them to look for other, cheaper markets. However, the government ignored the power of unions, and more importantly the power of the media.

As I mentioned earlier, some companies that control a large amount of Cambodia’s garment factories, have come to the rescue and publicly published their support in the workers. That act stopped the protesting and can potentially result in a positive change to the quality of life of hundreds of thousands of Cambodians.

All these raise important questions in the behavior of governments and corporations and their contributions to the quality of life, and to growth. Are these company more committed to Cambodia’s growth than its own government? Indeed, Cambodia’s level of corruption is one of the highest in the world, as CIA’s analysts indicate. But does it mean that companies actually care more?

If they are committed to their employees’ rights, why are they only now acting? Why they were fine with earning billions of dollars while the simple people, their employees, cannot even support their families?

These recent acts in supporting the increase of the minimum wage provide a very positive public relations to these companies. In 1991, Nike experienced the power of the media, when activists published the wages and poor working conditions in Nike’s factories in Indonesia. It caused a painful headache to Nike’s management and badly effected its image at the time. Moving back to our current situation, the different companies know they can suffer the consequences of bad publicity, especially in the current age of social media, so they are probably acting fast in resolving the problems the Cambodian government is yet to perceive.

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These companies have greatly increased their image in the workers, unions, international media, and of course their worldwide customers’ minds.  They seem to have stronger power than Cambodia’s government in the future of the country’s economy and they are the ones that dictate policies.  Maybe the future growth of Cambodia depends on the financial decisions of H&M.

 

http://www.industriall-union.org/sites/default/files/uploads/documents/Cambodia/joint_letter_from_global_unions_and_global_brands_to_the_cambodian_prime_minister.pdf

 

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Selfie with the Mangalayan Mars Orbital Mission

Voila! I just got a picture with Mangalayan

Women Scientists in the ISRO MOM Mangalayan

September 24, 2014 will be marked as one of the most important days in Indian scientific history, because India launched its Mars Orbiter Mission and is the only country to do so in its maiden attempt. The Indian Space Research Organisation – India’s NASA has been instrumental in achieving this feat. India spent Rs.7/ km to reach Mars ( $0.12 cents per 0.67 mile).

Just 3 days after Asia’s first and the world’s least expensive mars mission went to Mars, an Indian startup Smartur has developed a mobile application to take pictures with the MOM (Mars Orbital Mission).  Since it’s built in 3D, it gives the user an almost “real” experience of seeing Mangalayan.

A timeline of the whole mission has been explained interactively here. You could also see these short videos which give a glimpse of what the mission really is and how important it is for ISRO – Indian Space Research Organisation.

So why is India still lagging behind in the manufacturing sector, which clearly isn’t rocket science. What does this mission mean for India, a country whose global presence  you can’t ignore.

Women Empowerment

As Sandip Roy said in his article the thumbs up of the women scientists in the Mangalayan team is priceless. I couldn’t agree less.  Unfortunately, practices like female foeticide and neglect of girl education continues to be a problem in India. Where 65% of the Indian population is under the age of 35 , of which almost half are women, India can do wonders by promoting on female education and empowerment. Thus, the recognition of women in such an important mission will set forth a domino effect. A more productive work-force will certainly contribute to economic growth. And this mission will only act as impetus for more women to break glass ceilings at their workplaces. As the Prime Minister of India, Mr. Narendra Modi recently mentioned in his speech in US – India can export services of teachers and nurses to the world – a predominantly female occupation in India, will increase purchasing power of the female population in India.

Research capabilities, technogical prowess and  cost competitiveness

India joins the group of US, Russia and Europe to successfully launch space missions. It is the only Asian country to do so. Indian Space Research Organization (ISRO) took three years and Rs 450 crores to complete its Mars Orbiter Mission (MOM). The US Maven, which went into orbit on Monday, took six years and cost $679 million (Rs 4,100 crores) – as stated in a leading financial newspaper in India.

This alone for me talks about the potential cost competitiveness that India has. This was a highly technical mission – but if the national resources are used well, manufacturing high-end automobiles or machines for use in most industries is not a difficult task. India’s economic history is unique because it went from an agro-based economy to a service based economy rather quickly. The manufacturing sector today is still under-developed and the new leaders are taking note of that. India lost 3 points in the ease of doing business raking of the World Bank. But the new Prime Minister Mr. Modi set to change all that. He changed the fortunes of one state by helping businesses alone. Only time will tell if he can replicate that for the whole country but all indicators are positive. His focus is on export promotion and better public-private relationships. Use of technology and ‘Make in India’ is his motto. For this to happen, he needs to look at structural reforms – constant supply of electricity and water for industries, better storage capabilities for food that India can produces and exports, better hire and fire laws or even tax reforms.

On another note, I believe this will reverse the brain drain that has been plaguing India for the last 40 years. I am sure it will encourage businesses and schools to set up better research capabilities contributing to indigenous research in India. Another article written on this subject a year back when this mission started touches upon more issues related to India’s involvement.

The results of this mission and the election of the Modi government are seen immediately; an upgrade of the country grading by S&P and an appreciation of the rupee. The investors in India and overseas alike, as well as the general population is regaining confidence in the country . India can’t afford to let this pass.

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Can SONY get back its spark?

On September 17th, SONY, the Japanese leading electronics company, announced their downward revision for the third-quarter in 2014 and apologized that the company will not pay a dividend this year for the first time ever.

Sony Corp. President Kazuo Hirai bows at the end of a press conference at the company's headquarters in Tokyo, Wednesday, Sept. 17, 2014. Sony expects its annual loss to swell to $2 billion and has canceled dividends for the first time in more than half a century after writing down the value of its troubled smartphone business. Citing intense competition, especially from Chinese rivals, Sony said it anticipates a net loss of 230 billion yen ($2.15 billion) for the fiscal year that ends March 31, 2015. (AP Photo/Toru Takahashi)

The Financial Times / The president of SONY, Kazuo Hirai

 

SONY has been leading Japanese economy as well as Toyota since the WWII. Like Toyota built the foundations of the automobile industry, SONY built the foundations of the electronics industry not only in Japan but in the worldwide. The most well-known innovation was Walkman which was one of the icons for the Japanese postwar success. SONY also succeeded in entertainment sector such as PlayStations and TV sector. However, the company has been struggling to get out of the deficit for a few years. Why SONY suddenly fell into the red and cannot recover its business even though other rival Japanese companies like Panasonic returned to profitability this year?

 

Some reasons can be considered. The primary reason is the failure in the smartphone sector. The company is far behind in smartphone sector from the other international competitors like Samsung and Apple. In 2012, when the president Hirai took his place, his goal was becoming the third largest smartphone company following Samsung and Apple. While Samsung has 24% of the world share and Apple has 11%, SONY has only 3% and it is not even in the fifth largest. In addition to the smartphone sector, SONY lags behind other companies in terms of the business in the emerging countries such as India. SONY tried to construct a new model for the developing countries which has a huge demand but requires low cost. Nevertheless, as developing the new business, SONY lost its originality and resulted in the stagnation. This backward in the emerging market allowed other major companies to dominate the smartphone business in the world.

 

In addition to these factors, SONY might be facing the time to change the company’s mission. SONY has been trying to create the innovative electronic devices like Walkman. However, as the technology has developed, it gets more difficult to create the completely new product. Like Panasonic, many of the Japanese electronics companies have shifted their strategy from creating one big innovative product to focusing on different growing sectors. Some people still believe that electronics companies should make something that is new and people want to buy but the others also argue that they need to play a roll suited to the times. SONY needs to find out and decide the specific plans for the reconstruction and that is the only key to recover its business.

 

Last year, Japan finally started the economic reform called Abenomics and the country is trying to recover from the longtime economic recession. Because of the depreciation of yen, this is a good chance for SONY as a big export company in Japan. In addition, it is also true that SONY still has the high technology and keeps investing the research and people still believe the recovery of the “SONY brand”. The company is facing a crucial point.

 

 

You can also check the following articles.

http://www.ft.com/intl/cms/s/0/e5a88c3a-3fd5-11e4-a381-00144feabdc0.html?siteedition=intl#axzz3E4E7a4LQ

http://www.economist.com/news/business/21618863-dismal-results-show-need-more-vigorous-restructuring-pouring-cold-water

http://blogs.wsj.com/japanrealtime/2014/09/18/more-iphones-fewer-sonys-mean-more-deficits-for-japan/

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The Mobile Millionaires

A recent study by Barclays provides insight into the trend of high net worth individuals becoming more international and moving between countries. While globalization is an obvious driver of this trend, other factors include the growth of entrepreneurship as a more prevalent source of attaining wealth (as opposed to inheritance), technology, and the shift of economic weight towards Asia. In fact, by the end of this year, Asia is predicted to become the largest regional market of millionaires in the world. China already has the second largest number of millionaires after the United States.

The influence that the number of high net worth individuals (HNWI) from Asia has on the ‘rise of the global citizen’ brings up some questions. What drives these millionaires, many newly minted, to leave their budding economies, pack up and move abroad? And, how will this affect the economies of their home country?

It is estimated that 47% to 64% of Chinese millionaires plan to leave their country in the coming years. While motivating factors are generally attributed to financial reasons, better tax rates for instance, the Barclays study also found that among the under 45 crowd, better education for their children, economic opportunity and career development dominated priorities when considering a global move.   Interesting enough, better weather was a dominant factor as well, possibly a result of the pollution and weather changes resulting from rapid urbanization and development.

During the global economic downtown, countries spanning from North America to the EU have opened their doors to newcomers willing and able to invest in the adopted country. And, as these markets rebound, Chinese and other Asian high net worth individuals can profit from investment opportunities in rebounding economies. 62% of those from the Asia Pacific list better opportunities for high returns and/or interest rates as the reason behind holding financial assets outside of their home country.

This gives the adopted country, the United States for example, the opportunity to cater to these individuals in ways that will benefit both parties. For instance, private Chinese investment funds can be used to build up property, as real estate remains a favored asset class. But, as a new generation of Chinese HNWIs migrates west, and 43% do head to North America, perhaps they can also participate and help fuel other industries. Whether providing capital to start up companies or other more risk tolerant investments, the inflow of wealth from Asia could be a valuable crutch in the recovering American economy. Essentially, as Chinese and other Asian HNWIs diversify in their geographical ‘home,’ they will begin to diversify in their investments opportunities.

But, what happens back at home in their home country? Just as many countries fear a ‘brain drain,’ is there cause for concern that Chinese HNWIs are leaving the country opportunities abroad? The full impact remains to be seen. I would imagine that a second citizenship or residency and opportunity to park investments abroad would not hinder HNWIs to continue to participate in their home country’s economy. Rather, the opening borders to the wealthy elite give them more options in diversifying their investments. Furthermore, the sources of the wealth, as they are now more entrepreneurial, would also remain within the country. On the other hand, there has been a migration within China as well, with the wealthy leaving rural area to the economic hubs. As the wealthy then begin leaving for and investing abroad, the economic conditions in rural China could be damaged and left out of the growth and prosperity.

https://wealth.barclays.com/content/dam/bwpublic/global/documents/shared/wealth-inisghts-volume-18.pdf

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China’s recent food issues: An opportunity?

In August 2014, a junior school student in Sichuan province bought 70 small cakes to treat classmates on her birthday. However, after eating those cakes, 27 students began vomiting and having stomachache. Then they all were sent to hospital to receive medical treatment.

According to the article from Hong Kong, South China Morning Post, China decided to implement “the most severe punishment” for food safety violations and to further reform the food and drug safety administration. Vice Premier Wang Yang made the statement on Friday when visiting Beijing food safety monitoring center. In China, food safety is the problem that everyone worried about.” In China, there have been a lot of food safety scandals such artificial eggs and gutter oil.

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According to an article published on U.S. Forbes magazine website on September 25, For China, ensuring that all citizens have enough food will become a more difficult task in the future. What is worse, the problem is not only about the quantity of food in China, but also the quality of food. Over the past five years, Chinese consumers have been facing various problems from toxic milk to expired meat.

For China the major problem today is to ensure the quantity and safety of food. In the meantime, it is also a top priority to bring the greatest profit opportunities for companies and investors in food industry. From a global perspective, China’s growing demand for food supports the prices of agricultural products, which can be beneficial for everyone from Midwest farmers to poultry producers in Thailand, no matter whether they sell products to China or not.

In China, there is a general tendency that people have started to shift their dietary structure from rice-based to meat diet. With the gradual increase in per capita income, the demand for meat will soon exceed China’s own meat production capacity. China is expected to become a major importer of meat by 2050. It is believed that China will import $ 150 billion of chicken, pork and beef annually.

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Although China’s food problems is a huge problem for Chinese government headache, it is, to some degree, a “grace” for both Chinese and foreign enterprises. For example, Shuanghui International, Kohlberg Kravis Roberts, Tyson Foods and John Deere Company all have benefited from China’s food industry. As they say, every cloud has a silver lining. By helping China solve the problem of food, companies and investors can apparently earn lucrative profits.

Reference:

http://news.baidu.com/ns?ct=1&rn=20&ie=utf-8&bs=%E5%81%87%E9%B8%A1%E8%9B%8B&rsv_bp=1&sr=0&cl=2&f=8&prevct=no&word=%E9%A3%9F%E7%89%A9%E4%B8%AD%E6%AF%92&tn=news&rsv_sug3=9&rsv_sug=0&rsv_sug4=1530&rsv_sug1=1&inputT=2988

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How to write a post

Before you start, “accept” the invitation to open an account as an author on our blog.  Let me know if you haven’t received an invitation yet. Then log into the site when you are ready to post. At first, you might want to prepare your blog in Word first, and put that file and any visual materials in JPG files in a convenient place for uploading.

To make/upload a new post, log into your account and click on “New Post” on the top line. This gives you a form with spaces for the title and text of your post. Type them in, or copy them from the Word file you made in advance.  When done, click “Save Draft” in the upper right hand corner. Within a day or two we will review it and publish it.

To edit an already existing post, log into your account, click on “Dashboard” and then “Post” and then click on the title of the post that you want to change.

To put a picture into your post:
1. Move your cursor in the text of your blog to where you want the picture.
2. Click on “Add Media” above the text, which opens a new media page.
3. Pick up (from your computer) and drop (into the media page) your picture file.
4. Click on “Insert into post” at the bottom of the media page.
5. If you don’t like the location or size of your picture, you can later edit it by selecting the picture and clicking on the pencil (edit) symbol.

Good luck!
Peter Petri

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Consumption Tax Increase a Necessary Next Step for Japan

Decades of deflation and economic stagnation has left Japan in a struggle to restore fiscal health. However, despite outrageous public debt levels (over 200% of GDP), the country’s rapidly aging population has put pressure on the government to increase spending on public services. Forced to evaluate the country’s various sources of revenue, the government boldly raised Japan’s consumption tax from 5 percent to 8 percent as of April 1st.

Since Prime Minister Shinzo Abe’s induction into power, he has focused his efforts on stimulating economic growth through a series of structural reform measures referred to as “Abenomics”. Despite economic progress, particularly in conquering deflation, Japan’s recovery is still fragile. A consumption tax increase at this stage of economic recovery has the potential to undo much of Abe’s progress. However, new revenue generation measures is vital to restoring Japan’s fiscal health and bringing down Japan’s high level of public debt.

Social security spending, coupled with low economic growth, is the main factor behind Japan’s surge in public debt. As a direct result of Japan’s rapidly aging population, social security spending has risen by roughly 60 percent since the early 2000s.

Alternatively, capital spending has been on the decline and non-social security spending has remained stable at 16 percent of GDP, one of the lowest percentages in the OECD. With little room for adjustment in other areas of government expenditures, a rise in the consumption tax rate is the most efficient way to meet Japan’s increasing demand for social security.

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Japan’s persistently weak economy and decline in working age population has resulted in a significant drop in tax revenue.  Japan’s 5 percent consumption tax rate is among the lowest in the world, making it the most appealing source of revenue generation to adjust. According to Bloomberg Businessweek, by raising the consumption tax to 8 percent, the government should be able to generate an additional 4.5 trillion yen ($43.6 billion) in the new fiscal year.

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Besides its comparatively low rate, the consumption tax increase is appealing for a number of other reasons. As opposed to raising income taxes, a rise in the consumption tax provides a more stable source of revenue. An aging population implies that spending exceeds income, making the consumption tax increase more robust. With a steady decrease in the working population, generating revenue through labor will become progressively less effective.

Furthermore, an increase in Japan’s Value Added Tax (VAT) is the most efficient source of revenue compared to its alternatives. In the final stage of implementing the new tax law, the tax rate is expected to again increase to 10% in 2015. However, given the incremental rise and low starting level of the increase makes this the least detrimental to economic growth. According to the IMF, unlike a tax on income, a VAT rate increase won’t distort household saving decisions, investment decisions, or trade.

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Lastly, raising the consumption tax is relatively easy to administer. Japan’s VAT has a broad base and a uniform rate that is more easily implementable than would be a tier based income tax increase.

Although contradictory to some of the policies and goals of Abenomics, a rise in the consumption tax is a necessary next step for Japan’s overall fiscal stability. A progressively aging population, an increasing demand in public service spending, and public debt levels over 200% of GDP calls for the Japanese government to rethink their revenue strategies. Japan’s decision to incrementally raise the consumption tax could prove to be just what the country needs to begin stabilizing its fiscal imbalance and continue on its road to recovery.

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