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.


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.


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China Slowdown, a Necesity for China and the Globe

China Slowdown, a Necessity for China and the Globe

The impending China slowdown has encouraged doom and gloom across global markets. Oil is at extremely low levels, the Fed is eliminating its bond buying program, and Europe is back on the verge of recession. There has been much chatter about the consequences of this, but what about the benefits to China and the World?

econ_china23__01inline__405To be sure an abrupt slowdown would have significant effects on global growth. But China cannot continue rapid growth without structural reforms for the China economy. The country must transition from an export focused manufacturing base to a larger consumer market. This is the best way to ensure continued robust growth in the long run, not just a year or two down the line.

In the aftermath of the 2008 financial crisis China pushed a mountain of credit into the market to maintain output and employment growth. Credit increased from 150% to 250% by mid 2014. This program worked in creating 12-13 million new jobs a year, however over the same period overall economic growth has become too reliant on infrastructure construction and real-estate development.

The longer that easy credit exists in China the longer the risk of defaults and misallocated investments. However, just slowing new credit supply will do little to address the underlying issues facing the Chinese Economy. It is highly unlikely that china will cut interest rates or reserve requirements to address the current slowdown. If China misses the 7.5% growth goal it will implement some targeted stimulus measures without an economy wide program. In general China cares less about growth than it does job creation. Demographics suggest this won’t be as difficult as many are stating,

“The number of 15-30 year olds will fall 25% from 2015 to 2025…As a result, China’s labor market will tighten more rapidly than many expect. Rising real wages will support the shift to a more consumption-driven economy, and declining worries about unemployment will reduce reliance on credit-fueled construction to soak up labor supply.”-Adair Turner, Project Syndicate

While rebalancing is necessary just to avoid a credit bubble and bust it is already happening without government interference. The one child policy of old may be what constrains China’s labor market to the point of rising wages and higher consumption. China being a consumer as well as an exporter is very important for future global growth. Mature economies like the US and EU cannot be net importers of goods forever. As Chinese wages rise so will demand for all types of goods. These are potential future customers to firms around the world.

Will a slowdown in Chinese growth hurt global growth in the short run? Yes, absolutely, with commodity exporters like Canada, Russia, Australia, and Brazil feeling the worst of the consequences.

But if global growth is to be sustainable in the long run China needs to consume as well as produce.

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All must strive hard to combat haze threat in China

Although China’s northern cities are no stranger to debilitating smog, recent air condition in Beijing has astonished all the citizens. On 10 Oct. 2014, thick fog and haze blanketed the city, the air quality index was reaching 400, at “seriously polluted” level, and the visibility was less than one kilometer, in some areas even two hundred meters.


After years of official rhetoric like “responded quickly and eagerly”, “noticeable improvements”, the air seems to be getting worse and bringing much more health concerns. Inspectors from China’s Ministry of Environmental Protection found that “some response plans related to people’s welfare were difficult to fully implement,” while certain protocols were even deemed to be lacking in scientific rigor and feasibility, the People’s Daily said.

How to better cope with the haze threat? The experience of two neighboring countries, Japan and South Korea, might shed some light on this issue. Both Japan and Korea used to suffer from serious air pollution problem during a similar industrial development period like what China does now, more importantly, both of them adopted effective measures and have overcome it.

In about 1955, Japan implemented a national investment plan (equivalent to the construction of China’s basic industries), in order to expand exports. The large projects concentrated on heavy industry and chemical industry in coastal areas, and then more and more projects launched. When National Comprehensive Development Plan was published in 1962, even more new industrial cities were put on the agenda. Air pollution started to trouble people’s life mainly in those industrial regions.

Korea had the same track record of environmental disasters about fifteen years later. In the 1970s-80s, the Korean government’s ambitious five year economic plan led to the rapid industrialization of heavy industry and petrochemical industries, additionally air pollution as well. It was not until the 1990s that Korea began paying close attention to the environment, but the problems have arisen so quickly, that the Korean government had struggled a long time to manage them.

Japan and Korea’s experience coping with terrible pollution is instructive for China. I would like to emphasize three points.

  1. Ordinary citizens got involved in fighting towards pollution.

In Japan, air pollution was not first discovered and proposed prevention by local government, but local residents. From the beginning of 1950s, residents’ campaign on pollution took place in various regions. They asked for government attention, strict laws, or even stopped a construction plan for petrochemical factories. Maybe wearing masks and running away from northern cities are not enough for Chinese citizens, more concerning automobile exhaust and local investment plans are also needed to deal with this issue and to pressure the government.

  1. Government adopted detailed regulation on fuel use.

Until the opposition movement of Yokkaichi turned into a mass national movement, the Japanese government began to address the seriousness of this problem and developed a sulfur acidification environmental standard, which is below 0.04 ppm per hour for daily average. South Korean government adopted a strong fuel conversion policy, such as convert use of high-sulfur oil into low-sulfur oil, prohibit solid fuels use in metropolitan areas and replace them with natural gas and other clean fuels. Such a strict energy policy also encouraged firms to develop environmental friendly technology and helped with Korea’s industrial upgrading.

  1. Enhance to establish environmental laws.

Legislation should be a direct and effective way to control air pollution, so that strict standards and punishment can form binding rules to follow. Japan re-enacted “Atmospheric Pollution Prevention Act” in 1968 and largely modified it in 1970s to increase the penalties at all levels of violators. Korea created a new law in 2003 which set total emissions permit quotas for companies and also provided strict punishment standards.

As for China, it seems that government and industry responses are still quite slow, residents worry a lot but no actions taken except for largely keep themselves away from toxic air. Comparing with Japan and Korea’s cases, I think in China, all must strive harder to combat haze threat, and try to turn this bad thing into a turning point of industrial upgrading and development.


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Dollars wrapped with love

A couple of weeks ago, I came across a talk by Economist Dilip Ratha on TED Talk about remittances from international emigrants. In his talk which you can watch below, Dilip Ratha referred to these remittances as “dollars wrapped with love”. Coming from a family with overseas emigrants and being an overseas Vietnamese myself, the idea hit home – literally.

Dilip Ratha @ TED talk

Dilip Ratha @ TED talk

Dilip Ratha is the first Economist to conduct extensive research and analysis on the significance of international remittances. According to a press release in April 2014 by the World Bank, this year’s remittance inflows to developing countries will rise to $436 billion – a 7.8% growth over 2013 figure of $404 billion. To put it in perspective, this figure was more than 300% of total global foreign aids. In many of the developing countries receiving these remittances, the money has been the main source of external capital. Nepal received nearly double its revenues from export while top receiver – India with $70 billion surpassed its revenues from software services export of $65 billion. More “modest” figures were seen in Sri Lanka and the Philippines where these numbers were over 50% and 38% of their exports respectively. Figure below shows the top 10 remittance corridors in 2010 and % of GDP for receiving countries.


Apart from its significance in size, Dilip Ratha pointed out two key features of these dollars wrapped with love. The first was that this source of external capital represents a more stable and steady-growth inflow as compared to foreign aids and investments. While investors have higher propensity to pull out during times of crisis, remittances often remain stable and even grow in face of adversity at receiving countries. The second was the practical use and direct impact remittances have on the lives of families and relatives receiving them. While foreign aids and investments are often subjected to layers of processing and approvals, remittances are almost immediately channeled to use. More importantly, these usages are often prioritized towards improving lives and education for the younger generations.


At $11 billion as of 2013 Vietnam ranks 7th in the world for remittances. This reported number is however, often understated by approximately 30% as overseas Vietnamese send money home using informal remittance services. The preference for informal services stems from a variety of reasons from tax incentive, favorable exchange rate to cultural familiarity and/or habit of senders. Compared to emigrant workers, overseas Vietnamese who left after the war due to social-political reasons often send larger sum of money. However, this group also has higher tendency to use informal channel due to their lack of trust in the government. While Foreign Minister Pham Binh Minh claimed that remittances sold to bank in 2012 has increased to 30% as compared to 14% in 2011 due largely to improvements in transaction procedures, exchange rate stability and narrowing difference between bank rates and black market rates, there are rooms left for development.

On top of the challenge to capture more remittance at entrance, the government also faces a daunting task of attracting investment from this source of foreign capital. Large amount of remittances are sold to black market at better exchange rate. According to big remittance players, the percentage of money sold to the banks trails at 10-15%. One of the reasons is the restriction imposed by the government on buying foreign currency back from the bank when they need foreign currency for medical treatment, overseas study or travel.

Furthermore, large amount of remittances ends up with more affluent families in developed cities like Ho Chi Minh city. Monies are often used to purchase real estates, invest at higher interest rates or travel. Incentives to encourage recipients to invest in businesses to create jobs and contribute to the economy are not yet present. Though not significant, remittance has contributed to increased inequality in the country.

It is therefore, both an opportunity and challenge for the government to formalize efforts to attract this significant source of foreign capital and channel them more effectively to improve the country economic development.



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Innovation in Pakistan: Success and Future Opportunities

With a significant portion of the population under the age of 35, Pakistan is currently enjoying a youth bulge in its demographics. The effect of this on innovation and entrepreneurship in the country are palpable and the progress in these fields has emerged as a viable means of dealing with the socioeconomic problems that Pakistan faces. Political instability aside, there has emerged a technology sector full of potential and strength, which has grown immensely during the last decade. Innovation in Pakistan has largely centered on adding value to existing products rather than starting from scratch.

Key Innovation in Pakistan

The key drivers to innovation in Pakistan include a favorable demographics, private and public initiative. As ascribed to earlier, the demographics have played a significant role in fuelling this innovation. However, education and political instability are impediments to the growth of the technology sector.

But regardless of all these odds stacked heavily against them, young Pakistanis have proven themselves to be successful at innovating and implementing their ideas. Eyedeus Labs, one of the many start-ups of the last decade is the creator of several excellent technologies that have gained recognition around the world. Their debut app, Groopic, became a casual photographer favorite and has been downloaded up to 500,000 times on the Android platform, according to Google Play.

Another, iTrak,  is working on a hands-free, human computer interaction product to make computing accessible and useful for the over 20 million people in the world who have either lost their hands or are unable to control a computer mouse.

The young engineers from one of Pakistan’s leading science and technology universities have developed a low-cost way to interact with a computer using only eye movements, which are read by a camera mounted on tailor-made head gear, sort of like Google Glass. Here is a video of a field trial as well as one of the engineers using the product to tweet, watch a video, and play games on a Windows computer

The innovation isn’t all high-tech. A lack of proper sanitation still plagues developing countries and a Pakistani professor found a potential solution to the massive problem. Professor Sohail Khan headed a team at Loughborough University that designed a lavatory system that converts human waste into biological charcoal, which can be used as fuel while also producing clean water.

As a response to the fact that fertilizer was being used to make improvised explosive devices by terrorists, a Pakistan-based fertilizer company is working on a new formula that cannot be adapted into materials used for bomb-making. All fertilizer firms use ammonium nitrate as a key ingredient, which can also be used to make explosives. With some help from the US, Fatima Fertilizer, one of Pakistan’s major fertilizer manufacturers, is working on developing a non-lethal alternative to ammonium nitrate

Public-Private Partnership

The Pakistani government has faced uphill battles in governance over the past few years. However, it has become more open to the idea of fuelling entrepreneurship, and this has resulted in the launch of various programs that aid young entrepreneurs and innovators. The government of Punjab, Pakistan’s most populous province, has also launched a highly successful start-up incubator for up-and-coming firms called Plan9.

The Pakistan Innovation Foundation (PIF), started by a World Economic Forum awardee Athar Osama, is a private-sector entity that promotes science, innovation and entrepreneurship in Pakistan. They have provided seed capital, mentorship and other entrepreneurial resources to several start-ups in recent years.

The public research university COMSATS Institute of Information Technology confers the Best IT Innovation Awards (BITA), with the aim of recognizing and encouraging innovation in IT. The Pakistani government’s Planning Commission has also been working since 2011 to reverse a policy environment that has been identified as not conducive to entrepreneurship and innovation, outlining its plans in a detailed document published three years ago.

The Road Ahead

The demographics aside, the IT infrastructure in the country is improving significantly as well. A Chinese telecom company recently paid over $500 million to purchase the bandwidth spectrums for 3G and 4G data. Over 140 million Pakistanis have access to mobile phones (amongst the highest mobile phone penetration in the world) at extremely affordable rates. Online commerce is starting to become more commonplace with the ‘cash-on-delivery’ model, since payment gateways are not utilized widely. This remains another viable growth opportunity in Pakistan.

This presents an interesting road ahead for aspiring Pakistani entrepreneurs as well as the Pakistani diaspora around the world, provided that the government and socio-economic conditions improve to lay the groundwork.

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Corruption in China, South and Central Asia

One of the major challenges of the developing countries is Corruption. It represents one of the most serious threats to investor confidence and economic growth of a country. The World Bank has estimated that only the global value of bribes is $1 trillion US dollars. This figure does not include embezzlement, theft, misuse of public funds and government procurements.

Transparency international, a non-governmental organization which issues information on corruption, in its 2013 corruption perception index annual report, among 177 nations, has ranked China and some of the South & Central Asian countries as following, the index ranks countries based on how corrupt their public sector is perceived to be: China 80, Srilanka 91, India/Philippines 94, Thailand 102, Indonesia 114, Vietnam 102, Bangladesh/Pakistan/Azerbaijan 127, Kazakhstan 140, Kyrgyzstan 150, Tajikistan 154, Turkmenistan/Uzbekistan 168, Afghanistan 175.

The index shows that some of the most corrupt countries are in south and central Asian region. Whereas, countries with the least corruption are mostly in the European Union or North America.

Between, Oct 2011 to Sep 2012, according to official figures, corruption cost $5.92 billion of US dollars in India. To put that in perspective, India’s healthcare budget for the year 2012-2013 was $4.05 billion dollars. Over the last five years, endemic corruption has hampered industrial production, the development of infrastructure and extraction of natural resources. Perhaps the greatest cost has been to India’s social fabric which is being irreparably harmed, leading to a deficit of the public’s trust in government. Though, there has been a number of arrests of senior government officials in India but there hasn’t been any major sentences.

China is also fighting corruption on its turf, though the exact amount of money being usurped by corruption is not available but the amount is for sure in billions of dollars. Just recently, Chinese authorities have seized assets worth at least $14.5 billion US dollars from family members and associates of retired domestic security tsar Zhou Yongkang. Zhou’s illicit assets included bank deposits totaling 37bn yuan, domestic and overseas shares and bonds worth 51bn yuan and 300 apartments and villas worth around about 1.7bn yuan.

Widespread corruption in China is eating away whatever is left of the Chinese Communist Party’s legitimacy. Realizing the seriousness of the problem and its potential to topple the party, the new Chinese rulers have started a campaign to rein in corruption. Only recently, Central Discipline Inspection Committee, the party’s anti-graft watchdog, has arrested 317 senior and middle level officials including more than a dozen ministers and senior executives of state-owned enterprises.

Moreover, in Indonesia more than 8 in 10 Indonesians say that corruption is widespread throughout the nation’s government and businesses. Compared with citizens in other Southeast Asian countries. Indonesians are much more likely to say that corruption is prevalent in both the government and business sectors.

To get relief from the menace of corruption, governments in corruption-stricken China, South & Central Asia must allow anti-corruption agencies to investigate and prosecute corruption independently. Independent and free Anti-graft agencies can bring corruption to light and the corrupt to justice

These countries must make transparency laws more effective, governments should appoint information officers in every public agency responsible for dealing with requests from the public. They should also launch public campaigns to raise awareness about the duty of public bodies to provide them with information.

People who blow the whistle on corruption are exposed to dangerous risks because laws to protect them are either too weak, or unknown and not publicized. Thus, governments should provide a sense of security to whistle blowers and create social awareness about the laws.

Furthermore, Governments should foster a culture of transparency where watchdogs, civil society and the media can make their voice be heard, without retribution, and expect a constructive response from those in power.

Lastly, Governments will find that transparency is the best investment they will ever make. Ordinary people can ensure their communities are served by governments, whistleblowers can save billions by exposing fraud and Trust in politicians will be higher if people know there is a body that will hold the corrupt to account.

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What Lessons can Bhutan Learn from Singapore?

By : Krishna Adhikari

Economic growth and development in Bhutan is reasonably high especially after considering the fact that it is one of the poorest and least developed countries in the world. With a population of about 700,000 and an area of 46,000 square kilometers, it is a very small economy. Bhutan is sandwiched between two economic giants, China and India, making it very venerable to stiff competition. Bhutan’s GDP grew at an average of 8.2% during 2000-2009, making it one of the rapidly growing economies in the region. In fact, the world bank forecasts show that the growth would significantly strong in the coming three years although a bit lower then at the start of the millennium. A large part of the growth has been due to the significant resources invested to tap its hydropower potential ( and the promotion of tourism.


Although Bhutan is slightly larger than Singapore and has one of the most difficult terrains in the world, there are lessons that the country could learn from the developmental strategies employed by Singapore to enhance its own economic prospects. As Singapore made history with the following steps, I believe Bhutan also has the potential to take the road already taken:However, such impressive growth figures do not provide a detailed picture of the country’s economy. The United Nations Development Program indicates that 30% of the population is below poverty line living on less than US$ 1.25 per day. Bhutan’s economy is mostly dependent on agriculture and livestock providing livelihood to over 80% of the population. There are barely any industries except for some mineral and mining industries. The country is very dependent on external aid for its developmental programs and its major trading partner is India, which provides 70% of its imports and is the market for 80% of its exports.

  1. Diversify: Bhutan is very much dependent on few sources of income. Hydropower, minerals and mining and tourism are its core economic drivers. Although constrained with inaccessible landscape and lack of adequate infrastructure, Bhutan would have to diversify to other areas for economic growth. Singapore became a successful economy vastly due to the investment made in the service sector, which should also become a priority area for the Bhutanese growth model.
  2. Infrastructure Development: Being a landlocked country, Bhutan’s only transport option is the roads. The high peaks and narrow valleys do not provide adequate options but the country needs to upgrade its transport facilities to encourage production. As the population mainly depends on agricultural products, swift transport of such perishable items could facilitate better returns. (
  3. Balanced Regional Growth: Singapore is just a city so it did not have the difficulties Bhutan faces in encouraging growth in all parts of the country. Bhutan could develop proper sites for its industrial projects and provide incentives to foster private investments.
  4. Combat Corruption and Misuse: Bhutan relies on external aid for all its developmental activities and it would be wise to create proper measures to enhance accountability and transparency. The government debt is about 70% of the GDP and any misuse could only increase the burden on the government and the society.
  5. Sustainability: Sustainable growth has been a philosophy for Bhutan and its protection programs for the environment certainly suggests so. However, waste management, illegal logging and infiltration are areas where the government could improve. The government could also learn from Singapore’s growth of trying to increase environmental growth as opposed to maintaining what is available.

While these areas of concerns, if addressed properly, should propel Bhutan to higher economic growth, there is still a question of funds for such programs. Bhutan has started allowing a few FDIs and with appropriate regulations, should encourage investments in areas where the government is unable to do so. Human capital could also be a major investment opportunity and the country should encourage proper education system to enhance that.


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