Business Asia Journal Issue 7


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Business Asia Journal Issue 7

  1. 1. BUSINESS ASIA ISSUE NO.7, Fall 2012ASIAIn Reform
  2. 2. THE BAJ TEAMEXECUTIVE BOARD EDITORIAL Editor-in-Chief Zhi-Yen Low Erica Boorstein Director of Design Yanbin Feng Jonathan Dawson Co-Presidents Jill Seong Kevin Hua Stella Zhang Denis Hurley Director of Marketing Mingxia Zhu Ajay Kailas Director of Finance Madeline Culkin Mingming Koh Ken-Ji Low University of Indonesia Maria MarciaDESIGN ASSOCIATES Advai Pathak An-Chi Dai Jiting Wang Arthur TengCover Photo Source: CONTACT US: BusinessAsia.Journal@gmail.com www.cubusinessasia.com2 Business Asia
  3. 3. EDITOR’S LETTER 2 012 has been a year brimming with uncertainty- with European leaders struggling with mounting national debt, the recent U.S. Presidential Elections, and China’s leadership transition. Our previous issue welcomed the Year of the Dragon, bearing bright hopes and expectations for the future of Asian economies. Today, the seventh issue of the Business Asia Journal welcomes the new leaders that aspire to guide us there. These are challenging times to be a leader. The growth of powerhouse economies China and India is beginning to falter, exposing deep structural fault lines within their governments. For all their newfound wealth, these economic giants are now experiencing acute growing pains. Our writers touch on current reform efforts in India, and the effects of technological development in Indian cities. China grew at breakneck speed for a decade, but growing dissent and an urgent need for financial reforms threatens future stability. China partly owes its economic decline to its One Child Policy-inflicted demographic imbalances and rapidly aging populace. The burgeoning Chinese fast- food industry is set to perpetrate widespread socio-cultural changes and increased obesity rates throughout the country, whereas the recent Sino-Japan territorial dispute has also cast dark clouds over an already fragile global economy. The future is not all gloomy, however. Our writers point to South East Asia as an alternative investment destination, with Indonesia leading the region’s growth with its high domestic demand. Also of huge growth potential is the field of microinsurance in Asia, of which large regions still remain untapped. Both of these articles highlight the potential to translate economic growth into the alleviation of poverty. Additionally, Tata Motors’ acquisition of Jaguar continues the trend of strategic directWe would like to investment in the developed west by emerging third world markets.thank the following Western fashion capitals are looking eastward, with influential Asian designers taking center stage at major global fashion weeks. Developedsponsors for their countries now face a changing landscape in their smartphone marketsgenerous support: due to the recent onslaught of intellectual property battles. Business Asia has matured as a publication since its inception four years ago. I would like to express my deep gratitude to the Editorial, Design and Marketing teams for investing so much time and effort in the production of this publication. Also, a very special thank you goes to our former Editor-in-Chief, Yun Qi Mok, for all of her dedication, mentorship, and for believing in me. Finally, thank you to you, dear readers, for your continued support. We value your opinion greatly, and would like to hear your thoughts. If you have any comments, suggestions, or would like to contribute to future issues of our magazine, please contact us at Sincerely, Zhi-Yen Low Editor-in-Chief Fall 2012 3
  4. 4. TABLE OF CONTENTS India: Going Forward 12 2 The BAJ Team in Reform 3 Editor’s Letter POLITICAL ECONOMY 6 The Microinsurance Revolution by Maria Marcia Tj. A brief history and education 18 on the field of micro finance and Hu’s out, Xi’s In: its significant role in reducing povertyTimes Ahead for Xi Jinping 9 A Case for Structural Reform by Advai Pathak China’s demographic imbalances and rapidly aging population has serious repercussions for its economic growth 12 India: Going Forward in Reform by Mingming Koh An overview of the Indian Congress Party’s proposed 9 economic reformsA Case 16 Sino-Japan Islands Dispute: A Potential Threat to Economiesfor by Jiting Wang Territorial conflict over theStructural Senkaku/Diaoyu Islands creates protests and friction betweenReform China & Japan 4 Business Asia
  5. 5. TABLE OF CONTENTS18 Hu’s out, Xi’s In: Tough Times Ahead for Xi Jinping 33 Asian Designers are the Future of Fashion by Zhi-Yen Low by Erica Boorstein As newly anointed chief of China’s Western fashion capitals looking Communist Party, Xi Jinping has tough eastward for up and coming Asian reform challenges ahead designersGENERAL BUSINESS TECHNOLOGY21 Looking Beyond Chinese 35 iLitigate by Denis Hurley Borders: A G.E.M. Within Samsung, Apple, and the Southeast Asia Wave of IP Suits Changing the by Ken-Ji Low Smartphone Market Landscape Exploring South East Asia as an alternative strategic investment destination INTERVIEW24 Cyberabad by Ajay Kailas 38 Interview with Sean Hu by Stella Zhang An inside look into the growth and Sitting down with Sean Hu, Managing flourishing of India’s Silicon Valley Partner of Bionest Partners to hear his insights on U.S. healthcare consulting26 Revival of the Big Cat by Advai Pathak Exploring cross-border M&A’s through Tata Motor’s acquisition of JaguarLIFESTYLE30 Super-Sized China: Burgeoning Chinese Fast Food Industry by Kevin Hua Socio-cultural changes and the growing fast-food industry are major contributors to Chinese obesity rates Fall 2012 5
  6. 6. POLITICAL ECONOMY The Microinsurance by Maria Marcia Tj. | University of Indonesia Revolution I magine this. You’re a farmer in Rajasthan, a northern Indian state near the Thar desert. You We all have heard the term What is microinsurance? microfinance – especially after ance serves as a safety net. With microinsurance, they don’t have to worry about falling into abject have been taught a new technique Muhammad Yunus and Grameen poverty when they try new tech- of irrigation that can conserve wa- Bank received Nobel Peace Prize niques to increase their income. ter and boost crop yield. Would you in 2006 for their efforts to cre- The International Asso- implement the new technique? ate economic and social develop- ciation of Insurance Supervisors As an undergraduate busi- ment by pioneering microfinance (IAIS) defines microinsurance as ness school student, I thought in India. Lasting peace can be “protection of low income people the answer to be simple and log- achieved through the eradication against specific perils in exchange ical: Yes –since increased yield of poverty and microfinance is for regular premium payments would also mean increased in- one of the many ways to do that. proportionate to the likelihood come. On the other hand, that For the Rajasthan farm- and the cost of the risk involved.” may not be the logical answer ers, microfinance is a helping The main challenge here for low income individuals. Why? hand for them to buy new seeds is low income individuals. How Farmers are risk averse – crop or equipment. But what about do we sell insurance to someone failures for them would mean the crop failures? This is where who has never heard of the con- a disaster that could push their microinsurance comes in. For the cept? How do we convince them families into abject poverty. Rajasthan farmers, microinsur- to pay for something they cannot6 Business Asia
  7. 7. see, touch, or feel? More impor- claims handling processes that in the world, cover 80% of thetantly, how do we make money can prevent misunderstandings. global microinsurance market,out of policies with the premi- sixty percent of which is in In-um at just a few dollars a year? dia. However, the growth of cov- Low income individuals do ered risk in Asia is not limited to The reach of microinsurancemanage their risk. They save, re- Approximately 83% of these two countries. In The Phil- in areas of Asiaduce expenses (sometimes even bywithdrawing their children fromschool), borrow emergency cred-it from relative or money-lenders, Approximately 83% of peopleand sell whatever assets they have. l ­iving in Asia are classified as lowThese existing risk managementpractices work, but they make low i ­ncome, making Asia the center ofincome people very risk averseand thus, may halter development. m ­ icroinsurance development. Insurance is not high ontheir list of risk management artil-lery, but that may be because of the people living in Asia are classified ippines, 14.2 million low incomeunderdeveloped state of insurance as low income1, making Asia the individuals have microinsurance.culture. Nevertheless, supplying center of microinsurance devel- Bangladesh and Pakistan are alsosomething that is new and perhaps opment. In 2011, there were 350 showing significant growth, whilenot trusted requires investments to 400 million insurance holders Cambodia, Indonesia, and Sri Lan-in market education about wheth- covered in Asia.2 China and India, ka are beginning their such a product is necessary. the two most populous countries According to Microin- To make money out of mi- surance Compendium Report,croinsurance, simplicity is a must. there are several reasons whyThe small premiums and claims Asia is ahead on the microin- surance trend: large and dense 1 World Research Institute – Therequire low transaction costs for populations, interest from pub- Next Billion (2007)both the insured and the insur-ers. Low transaction costs means lic and private insurers, proper 2 Microinsurance Compendium,efficient products, policies, and distribution channels and active government support, for example Protecting the Poor Volume 2. through subsidies. The countries Published by ILO and Munich Re in Asia that offer the greatest im- Foundation (2012) mediate potential for microinsur-The World Economic Pyramid (2006) ance are India, Indonesia, China, The Philippines, and Vietnam. India has well-developed microfinance institutions, so mi- crofinance and microinsurance are often sold as a one package deal. In Indonesia, there are state restric- tions that impede market develop- ment for microinsurance, but pilot schemes are already underway. There is also potential for Takaful (Islamic) insurance in the country. Microtakaful, also called Sharia microinsurance, can increase the reach of insurance to low income groups, who may hesitate to buy conventional insurance out of re-Source: Thematic Research Highlights by Generation InvestmentManagement, 2007 Fall 2012 7
  8. 8. nels. These new products are helping microinsurance to reach Estimated Outreach of Microinsurance in the World more people than ever before. Microinsurance coverage is growing substantially over the years and the demand is too. To- tal demand is growing more than 10% every year, with premium increases outstripping those in developed markets. Commercial insurers have also seen the mas- sive opportunity of microinsur- ance and entered the low-income market, creating economies of scale. At least 33 of the 50 largest commercial insurance companies in the world now offer microin- surance, up from only seven in Source: Microinsurance Compendium, Protecting the poor Volume 2005. The MicroInsurance Centre 2. Published by ILO and Munich Re ligious considerations. China, like ance. In 2009, the number grew estimates there will be one bil- Indonesia, has state restrictions to 135 million people. As of this lion policyholders in the world by that may hinder the market devel- year, nearly 500 million people 2019. With the number currently opment of microinsurance – but are covered by microinsurance. at 500 million policyholders, that in the short term. In The Philip- Technology develop- number looks quite achievable. pines, there are concessions in ment is one of the factors that The goal of microinsur- place for microinsurance. Compa- support the growth of microin- ance is to end the poverty cycle, nies are also lobbying government surance. Cell-phone providers but it cannot possibly lift poverty to exempt microinsurance from and local minimarket chains, by itself. However, it is a valuable taxes. In Vietnam, income distri- despite being non-traditional, tool to break the cycle and the po- bution is weighted to the urban can be intermediaries for mi- tential growth of microinsurance poor rather than the rural poor. croinsurance, making it easy to business is massive. This may just For microinsurance to reach by low income individuals. be that one area of promising busi- grow, it needs to be tailored to Climate change, popula- ness to get into without having to the countries’ specific needs, tion growth, and rapid urbaniza- choose between charity and profit. situations, and opportunities. tions have the greatest impact on the lives of low income peo- ple, who have the least ability to adapt. These increased un- Potential Growth of In 2007, four billion peo- certainties have positive im- Microinsurance ple in the world are classified as pact on insurance culture in low income. They have combined developing countries, helping annual purchasing power of USD microinsurance market to grow. 5 trillion. They are eligible for mi- According to the Micro- croinsurance and severely under- insurance Compendium Report, served. According to Lloyds Mi- there have been many innovations croinsurance Report in 2009, 1.5 in the field of microinsurance billion of low income individuals over the past years. New prod- want and are able to pay; but are ucts covering a variety of risks without access to microinsurance. have been piloted and distribut- In 2007, there were 78 million ed to poor households through people covered by microinsur- an increasing diversity of chan-8 Business Asia
  9. 9. POLITICAL ECONOMYA CASE FOR CHINA’S UNSTOPPABLESTRUCTURAL REFORM ECONOMIC GROWTHAdvai Pathak, Cornell University ‘15, School of Industrial and Labor RelationsA merican hysteria regard- lem China must confront is its facing neighbouring BRIC India), ing her seemingly irre- rapidly changing demography. China’s demographic changes are versible decline seems to Introduced in 1979 under now having widespread secondaryinevitably reach fever-pitch when Deng Xioaping after years of offi- effects.China is introduced into conver- cial policy waffling by the Chinese The population structuresation. China’s unstoppable eco- government, the One Child Poli- has drastically become extremelynomic growth over the past two cy has had significant and drastic top heavy as a result of the unnat-decades has led to almost univer- effects. It was instituted to steady ural and sudden changes in birthsal acceptance of its assured path China’s ballooning population in rates imposed by the One Childtowards hegemonic status. Yet, un- an age of concern over its ability to Policy. Whereas the Americanderlying China’s sparkling growth effectively feed itself and has been fertility rate remains around 2.1figures are significant structural estimated to have reduced China’s (considered an acceptable replace-issues that threaten its future suc- population by 300 million people ment rate to maintain a stablecess. Aside from its shocking level over its first two decades. Though population), China’s has droppedof state debt and the sheer number in general it has been considered to a national average of 1.56. Atof political demonstrations na- successful (bearing in mind the this level, China’s babies are failingtionwide, the most serious prob- enormous population challenges to replace their parents, leading to Fall 2012 9
  10. 10. POLITICAL ECONOMYa steady decline in population. By a comprehensive pension plan and2060, China’s population is pro- the incomplete program currentlyjected to drop below 1 billion. in place has an unfunded liability The most obvious issue worth about 150% of its GDP al- China’s growth overraised by these statistics is that ready. In keeping with traditionalChina’s population is ageing and Confucian values of filial piety, the past half century isit is doing so at an unprecedented China’s younger generations willrate. Its current median age is 34.5, be expected to save and provide certainly remarkable.close to America’s 37 and that of for their elders but this will place How it manages thatother wealthy countries in general. them under enormous pressure.However, because of their contrast- China’s youth is facing what has growth and whethering fertility rates, China is ageing become known as the “4-2-1 Phe-much more rapidly than America. nomenon” - 4 grandparents and it is able to sustainBy 2050, China’s median age will 2 parents being provided for by its growth will be thebe 49 compared to America’s 40, a just a single worker. The level oflevel of demographic change that support afforded by the state in story of the next 50is entirely unprecedented. An age- support of pensioners will rapid-ing population isn’t dangerous in ly become a very serious issue for years.and of itself. Many countries that young Chinese in years to come. es, currently appreciating betweenare currently in the post-industri- China’s second major con- 10-20%. Employers are findingal stage of demographic transition cern is that its workforce is pro- the labor market an increasinglyalso face the same issues. However, jected to shrink drastically over competitive arena and are beingChina’s issues arise from the fact the next half century. Having re- forced to respond to higher wagethat it hasn’t the resources to sup- lied on mass urbanization to pro- demands. In addition, the gov-port its ageing population in the vide for its enormous labor force ernment has increased minimumsame way that Germany and Japan over past decades, China will now wage restrictions but workers re-do. The biggest fear demographers have to deal with a decreasing re- main restless and discontented.have regarding China is that it will serve of able bodies to call upon. Labor strikes and violence haveage before it has the wealth to sup- One consequence of this decreas- increased over the past decade asport its old. China currently lacks ing labor supply is increasing wag- workers have sought higher-pay-10 Business Asia
  11. 11. ing and less monotonous work. costs of labor, fierce competition conductors, will require an ex-The Chinese youth have far high- amongst employers, and the threat tremely high level of precision ander aspirations than their parents of a discontented workforce, ro- intelligence. They will also needdid; jobs in the service industry botic production is an increas- to be flexible - the electronics in-are seen as far more desirable than ingly attractive option. Although dustry is constantly evolving andthose in manufacturing. These the upfront costs of robots are changing. Unlike in car manufac-calls for progression to better, daunting to many Chinese man- ture, robots used in the electronicsmore advanced jobs will only in- ufacturers, their performance has industry will need to be as highlycrease as social pressures to pro- been proven in Europe and the advanced as their creations. Chi-vide for ageing families continue Americas over the past decades na faces significant challenges if itto increase. and their initial capital outlaw is is to continue on its path towards With a future consisting of usually repaid within 3-5 years. economic hegemonic power. Im-fewer, better-paid workers, China Managers who have already ad- plementation of automated man-will need to provide an infrastruc- opted automated production are ufacturing across industries is oneture for greater productivity per now reaping the rewards. Auto- strategy that might prove fruitful.worker. This will come into con- mated plants need far fewer work- However, to effectively address itsflict with its current growth model ers whose work is mostly to su- demographic concerns the gov-driven by low-wage manufacture, pervise the machines. By driving ernment will need to implementinvestment, and exports. Due to down labor costs so dramatically, strong national measures. Onerising labor costs, outsourcing these factories have boosted prof- would be the loosening of the Onemanufacturing has already begun it margins spectacularly. By tak- Child Policy’s strict enforcement.shifting to lower cost countries ing on some of the more tedious Creating exemptions like allowinglike Vietnam and Cambodia. Al- and unappealing tasks Chinese rural families a second child wouldthough China has acknowledged workers have been complaining increase the national fertility ratethat it seeks to shift towards an about, robots also certainly alle- by a reasonable margin. The gov-economy based on greater domes- viate some work-related pressure. ernment also needs to formulate atic consumption, it is still far from Greater productivity afforded by plan to care for pensioners withinattaining that goal. Average in- robotic manufacturing will also its budgetary means. To succeed,come per head remains far lower allow greater numbers of Chinese this plan will also have to take intothan in developed countries and, to seek jobs in other pressing sec- consideration the future strainshort of drastic wage increases, tors like nursing and healthcare. on a smaller workforce facing thethis seems set to remain the case The main area of concern dual pressure of having to pro-for some time. that leads most analysts to favor vide for ageing parents while also As a result of these fac- the irreplaceability of the Chinese being encouraged by the nationaltors, Chinese manufacturers are worker is in the electronics indus- government to increase domesticbeginning to seriously consider try, a key area of Chinese manu- consumption. China’s growth overautomated manufacturing plants. facturing. Unlike industrial robots the past half century is certainlyEmployers are struggling to re- used in say, Detroit for automobile remarkable. How it manages thatcruit workers and exports remain manufacture, those building and growth and whether it is able toslow in the current state of glob- assembling precise components of sustain its growth will be the storyal economy. In the midst of rising cell phones, computers, and semi- of the next 50 years. Fall 2012 11
  12. 12. Activists protest over a government decision to open up India’s retail market to foreign companies. India: Going Forw
  13. 13. By Mingming Koh, Cornell University ‘15, College of Arts and Sciences T he myth of India’s seemingly inexhaustible economic potential has begun to wane. As the Indian economy faces its most severe slowdown, fear and uncertainty has abounded amongst foreign investors in India as well as within Indian corporations. Accustomed to an annual growth rate of 10%, today’s rate of 5% seems meager in comparison – even though 5% already represents an extremely impressive achievement, especially in present circumstances – and those with vested interests in the Indian economy are beginning to fear for their future prospects. Such sentiments have reverberated all the way to the upper echelons of the Indian political machine, as the Indian Congress Party revealed its latest – and most drastic – series of economic reforms aimed at hauling the Indian economy back on track. This set of reforms touch on previously taboo regions such as opening up the multi-brand retail sector to foreign investment, slashing diesel subsidies by a huge margin, and finally permitting foreigners to hold a stake in key Indian corporations and industries. Experts widely agree that such reform measures are long overdue, but anyone familiar with the economic history of the Indian growth machine should be familiar with the process of achieving reform in the world’s largest democratic system: reform is never considered – let alone carried out – until a crisis arises and the situation begs it. The boom of the Indian economy has allowed its policy makers to remain in a voluntary state of oblivion with regards to the loopholes within the economy. However, the current slowdown Source: has forced India’s leaders out of their denial as the economy struggles to meet the huge expectations that have been thrust upon it. Unfortunately, not everyone agrees with the extent of the reform measures – some even question the fundamental need for reform. A key ally of the Indian Congress party, the Trinamool Congress headed by Sonia Gandhi, withdrew its support from the government in protest against the proposed reforms. Although this move does not threaten the power or stability of the Indian government, it highlightsward in Reform Fall 2012 13
  14. 14. POLITICAL ECONOMY that plague the economy from within, India has been and still is embroiled in deep societal conflicts that continuously threaten to disrupt her economy. Racial and religious conflicts are still an extremely potent fault line within the Indian society, as evidenced by an exodus of tens of thousands of northeastern immigrants working in major cities. This exodus was sparked by an ongoing conflict between Muslims and the indigenous Bobo tribe in the northeastern state of Assam. This incident of mass hysteria only begins to underline the complicated and sensitive issue of ethnic tensions in Indian society. Up to this point, theManmohan Singh, India’s Prime Minister and key advocate of reform Indian government has managed to suppress and quell – often only the existence of key forces within abruptly captured the full and temporarily and superficially – the Indian politics and society that panicked attention of the now such conflicts, but it has become oppose the much-needed reform. disillusioned government. increasingly difficult to forcefully Such opposition forces are far separate Indian society and from novel in the Indian political economy to avoid the negative arena. Previous attempts at Apart from structural spillover effects of an ethnically economic reforms have often been divided society. problems that plague compromised, and in some cases While the economic even completely derailed by forces the economy from reforms that have been proposed deeply interested in preserving within, India has been are certainly welcome, more the status quo. Manmohan Singh, and still is embroiled in needs to be done in order to India’s Prime Minister and key deep societal conflicts truly guarantee the continued advocate of economic reform, that continuously upsurge of the Indian economy. has often been criticized as weak- Fundamental and structural threaten to disrupt her willed and overly compromising. issues need to be resolved in As a result, his earlier attempts economy. order to clear the path for the at reform, though well-meaning, economy to reach its full potential. have had little success as he gave Fortunately, most of these larger way to said forces. This time, These reforms are certainly problems are concentrated however, it seems unlikely the promising and steer the Indian within the Indian society. Indian opposition forces are going to economy toward in a lauded politics have actually achieved get their way. Sonia Gandhi has direction. However, some are a remarkable level of modernity thrown the weight of the ruling doubtful of their effectiveness given its status as a developing party behind these economic in guaranteeing the continued country. As the world’s largest reforms as incontestable signs of growth of the Indian economy. democracy, the Indian political serious economic slowdown have Apart from structural problems system is believed by many to be 14 Business Asia
  15. 15. capable of supporting a muchmore advanced and sophisticatedeconomy. The giant head start ofIndian politics on her economy isan important factor in the analysisof India’s economic potential, butIndia’s social problems constantlyimpede this gap from beingbridged. Solving India’s socialproblems is a Herculean taskand nobody expects a simple setof reform measures to becomea panacea. Manmohan Singhand Sonia Gandhi are definitely Solving India’s social problems is a Herculean task and nobody expects a simple set of reform measures to become a panacea.moving in the correct direction,with the correct understanding ofthe necessary chronological chainof policy events for improvingIndia’s situation in general:reforming the economy first,then tackling wider social issueslater with the enhanced resources A Walmart Retail store in Indiafrom stable economic growth. Thevalidity and effectiveness of this At this point in time, economic reforms is the correctpath has similarly been recognized we applaud Manmohan Singh thing to do. Whilst we undertakeby the Chinese leadership, who for taking on a tougher attitude that task, it is important not toare funneling the majority of the in pushing through economic conveniently forget that successfulnation’s resources into economic reforms. It is certainly not easy, economic reform is by no meansgrowth for the ultimate goal of especially with a population the ultimate goal – there is muchimproving the Chinese society. of 1.2 billion and the very real more to be done to push India intoThis step-by-step approach to worry of severe stagflation. But the class of developed nations.national advancement requires, going forward, adopting genuineabove all, time and patience. Fall 2012 15
  16. 16. POLITICAL ECONOMYSino-Japan Islands Dispute: A Potential Threat to EconomiesJiting Wang, Cornell University ‘16, College of EngineeringT he recent territorial dispute between China and Japanover the Senkaku/Diaoyu Is- tween China and Japan is hurt- ing the Japanese economy. Last month, large scaled anti-Japanese affected by the recent anti-Jap- anese sentiment. Japanese auto brands have long taken a consid-lands in the East China Sea has protests broke out in several ma- erable share of the Chinese autodrawn the world’s attention to jor Chinese cities, causing prop- market because of their low pricesEast Asia. Since the 1970s, both erty damage and closure of many in comparison to their Europeancountries have made bold sov- Japanese-owned businesses. Ac- and American competitors. How-ereignty claims over the islands, cording to Bloomberg, Fast Re- ever, Toyota, Honda and Nissanlocated equidistant from Taiwan tailing has closed 42 of its Uniqlo have recently reported decreasingand Ryukyus. With Japan’s most stores in China, and Aeon shut numbers of dealerships in somerecent attempt to “buy over the 30 of its 35 outlets in Guangdong provinces and have consequent-islands”, it was no surprise that a and Shandong. Electronic man- ly closed their plants in these re-huge uproar was triggered across ufacturers Panasonic and Sony gions.China. While most agree that an shut down several of their pro- Scholars and expertsimminent war is unlikely to break duction plants in China as the around the world are now voic-out between the two Asian giants, recent strikes have damaged their ing concerns regarding the pos-there have been concerns that the facilities. The auto manufacturing sible economic consequences ofSino-Japan tension, if aggravated, industry is another sector of the the dispute between China andcould cause irrevocable damage Japanese economy that is hugely Japan. One widely debated ques-to the already fragile global econ-omy. Meanwhile, top Japaneseautomakers including Toyota,Honda and Mazda have alreadyseen a 2% drop in their car salesin China because of the recentboycott against Japanese prod-ucts by the Chinese. As China’sVice Minister of Commerce Jiangputs it, “the battle over the own-ership of the island chain willinevitably have a negative im-pact on the Sino-Japan economicties,” it seems that the possibilityof a potential damage on the twocountries’ economies is real. In the mean time, signs Two Japanese activists landed on an island at the centre of a bitter dispute withare showing that the conflict be- China on September 18.16 Business Asia
  17. 17. tion is that whether the impact on put themselves at a disadvantage the implication on their econo-two of the world’s largest econo- on the global stage as their close mies will be short-lived. Despitemies will be destructive and long rivals in Europe will take the drawing wide international atten-lasting. Assessing the current sit- chance to catch up very soon. As tion, the recent boycott that hap-uation, I think the answer is no. the Japanese car sales decreased pened in China is more a reflec- in the past few months, Europe- tion of public anger rather thanSevering Trade Hurts Both Na- an automakers have quickly tak- an attitude adopted by the state.tions en up larger shares of the Chinese The impact of such movement First of all, as China and auto market. Based on market driven by public sentiment is sel-Japan are both obtaining mutu- research conducted by the China dom long lasting. Similar boy-al benefits from their economic Association of Automobile Man- cotts have previously taken placerelationship, it is unlikely that ufacturers, sales of car brands in China in 2005, when disputeseither party will choose to hurt from other foreign countries such over the content in a Japanese his-its opponent at its own expense. as Germany, US, South Korea and tory textbook led to a nationwideWith the global economy still in France are up 25%, 19%, 12%, 4% demonstration in China. Never-gloom, China and Japan now rely respectively in the same period. It theless, China’s imports from Ja-on each other for their economic is logical to deduce that the same pan surged over 15%, almost tri- One widely debated question is thatgrowths more than ever before. whether the impact on two of the world’sCurrently, China is Japan’s largest largest economies will be destructive and longexport market while Japan is Chi-na’s largest importer. The value lasting.of the bilateral trade between thetwo countries amounts to $350billion, accounting for almost 5%of each country’s annual GDP.Jeopardizing their economic ties,especially given the current eco- situation is likely to happen in pling the previous growth rates.nomic situation, is unsound for other sectors of exports if China Public sentiment will eventuallyboth countries. As demand in and Japan decide to restrict trade calm down and commercial ac-Europe drops due to the present with each other. tivities between countries will ul-debt crisis, China and Japan need timately return to normal in theeach other to sustain their devel- Limited Effect on the Economy end.opment. As China and Japan are Although the current Furthermore, by sever- not likely to really play out “the territorial dispute between Chi-ing trades China and Japan will economic card” on each other, na and Japan may not cause any serious threat on the countries’ economies, the world is still wait- ing for leaders from both sides to come up with an agreement as soon as possible. With the Euro- pean debt crisis and the downfall of the global economy as a whole, the world needs the Asian pow- ers to help us out of the econom- ic quagmire the world is stuck in right now. Fall 2012 17
  18. 18. POLITICAL ECONOMYHu’s out, Xi’s In:Tough Times Aheadfor Xi JinpingBy Zhi-Yen Low,Cornell University ‘14, College of Agriculture and Life Sciences18 Business Asia
  19. 19. T o echoing applause and ac- clamation in the Great Hall of the People, the world’ssecond-largest economy washanded over to seven dark-suit-ed men upon a red carpet beforea 2200-strong crowd of delegates.Now at the helm of China’s rulingCommunist Party and economicreforms is Mr Xi Jinping, who willhead the new Politburo StandingCommittee, the nation’s peak deci-sion-making body, for the next fiveyears. The moment inked a mile-stone in the party’s history, beingonly the second peaceful transi-tion to take place since it came topower more than fifty years ago. The November 15th de-cision announced that on top ofstepping down as the CommunistParty’s general secretary, Mr Hu reform are pressing him to reduce down to them, despite a decadeJintao would also be relinquish- the privileges of state-owned en- long spurt of economic his role as the head of China’s terprises, which include meager China has prospered greatly underarmy in favor of Mr Xi. Despite interest rates on loans from state Hu Jintao and Wen Jiabao’s pursuitholding China’s two most signifi- banks and government-directed of prosperity, but the disparity be-cant positions of power, ironically, investments. With the capital fire- tween the rich and the poor hasit seems likely that Mr Xi may not power of government safes behind dramatically widened under whatwield much in the way of control them, state-owned enterprises some see as a paternalistic leader-at all. His two predecessors, Mr dominate China’s economic land- ship approach. Ordinary ChineseHu and Mr Jiang, still maintain a scape by taking over private com- watch frustrated as the authori-significant clout over the remain- panies that can no longer put up a tarian governance fill the pocketsing six members of the Politburo fight. As a result, the hard-earned of the country’s party members,committee. The selection process savings of citizens are being fun- 2.7 million millionaires, and 251of China’s incoming leaders still nelled into a massively inefficient billionaires, while 13 percent ofremains shrouded in mystery, but public sector. Extensive financial China’s 1.3 billion population stillultimately, it is Mr Xi that faces the reforms will be needed to cor- lives on below $1.25 USD a day.uprising of angry voices calling for rect these social inefficiencies for Land should be given out to farm-change from below. a more competitive playing field ers in order to empower to boost among public and private sector productivity.Calls for Reform firms. The issues surrounding Deng Xiaoping first led Land grabs by local offi- wealth are especially sensitiveChina on the path to prosperi- cials are also fuelling discontent now, due to the scandal and po-ty when he ascended to power in among throngs of farmers and an litical purge of former Chongqing1978 with his vision for economic expanding middle class, who feel party head and Politburo member,reform. Today, Mr Xi’s term begins that too little of the country’s new- Bo Xilai, who has been accusedin tumultuous times- advocates of found wealth has been trickling of corruption, abuse of power, Fall 2012 19
  20. 20. and abetment in the cover-up of a of microblogs, blocking search tainable growth, Mr Xi needs tomurder. More recently, media re- terms, and monitoring users’ ac- cope with these challenges he in-ports put together by foreign and counts to bottle up public dissent. herited from his predecessors.Chinese journalists from public Today, dissatisfaction and com- China is no longer the same blaz-sources suggest that the families plaints proliferate across the coun- ing economic powerhouse it wasof Xi and Wen have amassed vast try via China’s relatively new social in the past- its stellar growth isamounts of wealth, sparking a na- media pipelines. Reports and im- starting to lose steam. Implement-tional uproar. In his speech afterages are shared instantly. To cope ing any broad changes to the po-being appointed, Mr Xi only al- with these public protests, party litical system will require a veryluded very briefly to corruption as leaders have taken to respond- bold leadership and strong back-one of challenges that the countrying to public discourse without ing from his Politburo Commit-faces, apart from becoming “di- the connotations that come with tee members. For starters, Mr Xivorced from the people”. The latter traditional propaganda, in or- should start loosening the Com-challenge is certainly true, as mi- der to steer online conversations munist Party’s vise-like grip oncroblogs, such as Sina Weibo, haveand opinions to safer waters. Zhu the economy. Its state capitalismbeen mushrooming across the na- Huaxin, the managing editor of model, at the heart of the Chinesetion, spouting cynicism about the Online Public Sentiment journal, economy, may have propelled thegovernment’s concerted propa- asserts that each member of the country to unprecedented growthganda surrounding the leadership Communist Party understands under Deng Xiaoping’s rule. How-transition. the magnitude of consequences ever, for China to continue thriv- that result from social change, yet ing, Mr Xi needs to gain the sup-“The Emperor Wears on official occasions, media only reports good news. “Ordinary port of his people, and to do that, he has to begin his own reformsNo Clothes” people like us all know the emper- from the ground up. In the past, Chinese gov- or is not wearing any clothes”.ernment officials used censorship Given the current unsus-20 Business Asia
  21. 21. GENERAL BUSINESSLOOKING BEYONDCHINESE BORDERS KEN-JI LOW ‘14, COLLEGE OF ARTS A G.E.M. WITHIN SOUTHEAST ASIA & SCIENCES, CORNELL UNIVERSITYAn Overview of the Southeast Asian Looking beyond China and into ItsEconomy ‘Backyard’S outheast Asia, with a population of 610 mil- Slowing economic growth and inflationary pressures lion, makes up one of the fastest growing Global in China have created difficulties for its policymakers. Emerging Markets (G.E.M.) today. The region is Inflationary pressures in China’s real estate marketa collection of 10 countries - Malaysia, Singapore, In- have resulted in the implementation of governmentdonesia, Vietnam, Philippines, Cambodia, Thailand, restraints. While there has been some success in re-Laos, Myanmar and Brunei, 4 of which are among ducing the rise in housing prices, China’s economythe only 13 countries that have sustained economic has begun to lose momentum. Its GDP growth hadgrowth of over 7% over the last 25 years (including already slowed to 9.2% at the end of last year fromChina and Brazil). This sustained economic growth its double-digit growth of 10.1% in 2011, as exportshas raised countries like Malaysia from an agricul- continued to slump amid weaker demand from bothtural and commodity-based low-income economy to Europe and the US.a successful middle-income economy. Rising local wages have also made it harder Like many emerging economies, strong eco- for Chinese exporters to compete with cheap labornomic performances have helped support advances in other emerging economies. China’s continued fix-in education, healthcare, infrastructure etc. Some ations on control over some of its largest enterprisescountries have been very successful in translating have received much criticism as strikes among work-rapid economic growth into meaningful reductions ers become increasingly common. It is a well knownin poverty. For example, in countries like Malay- fact in economic theory that a state capitalist systemsia, economic growth has been accompanied by a does little to encourage innovation. While govern-near-eradication of hardcore poverty, which fell from ment directed investments can be vital for research6.9% in 1984 to 0.9% in 2010. In human development and development, it is very difficult for state officialsterms, there are no countries in Southeast Asia where to value assets and allocate resources efficiently. Con-the development picture is as poor as that found in stant support from the government will inevitablySub-Saharan Africa. All these collectively are strong debilitate firms’ innovation.indicators of growing political and economic stability China’s current growth figures fell to 7.4%within the region. in the third quarter and are now at its lowest levels since the beginning of 2009. Analysts have forecast- ed slowing growth in China down to 7.7% this year Fall 2012 21
  22. 22. GENERAL BUSINESS(from 8.2% in May). Furthermore, the risks to China ture are already taking measures to strengthen do-from Europe are large. Given China’s exposure to Eu- mestic demand.rope, its growth rate could experience an abrupt drop The overall outlook for the region remainsif the Euro area experiences a sharp recession. The largely positive. Economies like Indonesia are like-channels of contagion would be felt mainly through ly to lead the region’s growth to maintain its strongtrade with knock-on effects to domestic demand. It is momentum owing to Indonesia’s high domestic de-estimated that China’s growth would fall by 4%. mand. Malaysia is also set to face robust growth pros- China’s signs of economic slowdown and in- pects in the medium term due to its positive start andflationary pressure may work well in Southeast Asia’s its government’s persistence of its Economic Trans-favor. Investors have been turning towards the re- formation Program (ETP).gion, once dubbed as ‘China’s backyard’. Growth ofthe 6 major Southeast Asian economies, Indonesia, S.E.A. FOCUS: MALAYSIA’S ETPMalaysia, Philippines, Singapore, Thailand and VietNam is projected to be about 5.6% through 2016, AND INDONESIA’S MP3EIwhich is a solid growth performance in comparison Malaysia has achieved significant econom-to other sluggish economies. ic progress since its independence in 1957. Amid a Traditionally, the region has been heavily constantly changing global economy, the Malaysianreliant on external demand. However, we are likely government has realized the need for a fundamental-to see a change as the regional economy moves to- ly new economic model in order to achieve its goal towards more balanced growth. The regional economy become a high income nation by World Bank stan-will rely more on domestic demand which should in- dards. It founded the Economic Transformation Pro-crease economic resilience to external shocks. Coun- gram as an initiative to turn its economy into a hightries like Indonesia and Philippines that are making income economy by the year 2020. Consistent withsignificant investments in transport and infrastruc- the regions’ need to move towards balanced growth and greater reliance on domestic demand, the ETP is22 Business Asia
  23. 23. designed to focus on key growth engines which cap- formation at every stage from the agriculture indus-italize on some of Malaysia’s competitive advantages. try to knowledge based and science based sectors.The model will rely heavily on the private sector-led Acceleration of economic growth will be driven bygrowth. Successful implementation of the ETP will all the nation’s components i.e. State Owned Enter-see Malaysia’s economy undergo significant changes prises, local, and foreign resemble other developed nations. The ETP has been regarded as a bold approach EVALUATIONto grow the economy. The model will essentially be While the outlook for the region appears to beled by the private sector with the government pri- very positive, investors should still be mindful of sev-marily playing the role of facilitator. Approximately eral factors. The economic disparities between each92% of the funding will come from the private sector country within Southeast Asia remain very wide,with the public sector serving as a catalyst to spark each with vastly different political structures, makingprivate sector participation. Progress of the ETP is it difficult to integrate as a trading bloc. At this stage,closely monitored by the Performance Management it is still questionable whether the region can trulyDelivery Unit (PEMANDU), an agency under the rival an economic powerhouse like China in termsPrime Minister Department of Malaysia. of size and importance. However, government initia- The Indonesian government is not far behind tives like Malaysia’s ETP and Indonesia’s MP3EI sug-with its MP3EI program. The central idea behind the gest that potential growth within the Southeast AsianMP3EI is to accelerate economic transformation and region is imminent. With China’s stellar growth start-expand growth to all regions as well as to ensure that ing to dwindle, perhaps investors should begin to setIndonesia is locally integrated and globally connect- their sights further southeast of familiar Chinese ter-ed. Additionally, innovation and technology are set be developed in an effort to push economic trans- Fall 2012 23
  24. 24. GENERAL BUSINESS Ajay Kailas, Cornell University ‘13, College of Agriculture and Life Sciences CyberabadI ndia has been primarily recog- nized as a third world countryby various development indexes. ly, since it is located at the inter- section of North and South India, it has a host of different cultures Even the formerly qui- et Gachibowli district has been transformed entirely-GachibowliHowever, for the past few decades and food, with Hyderabadi Biry- is now a central business districtIndia has been trying to change ani being one of the most famous as it is home to ICICI’s headquar-this label and has been developing dishes in the city. Hyderabad has ters (the country’s largest officeat an alarming rate. Greater focus many places of interest such as building), UBS, Bank of Ameri-on infrastructure and proper uti- Chowmahalla Palace, Charminar, ca, and Wells Fargo. Rent in thelization of the country’s educated museums, gorgeous malls, and area used to be 25-30 rupees perlabor force has helped steer the multiples galleries. square foot. Now, current residen-country in the right direction. No- It was during the 2000s tial prices have reached as high asticing this drive, many large infor- when Hyderabad underwent a 3000-4000 rupees per square foot.mation technology firms such as drastic change: the Informationhave made their way to heart of a Technology revolution. Countless Above: the Buddha Monolith stands infew Indian cities. companies streamed in to set up the center of Hussain Sagar, the city lake. One example of such a their operations in the city. Namescity is Hyderabad--the capital of such as Microsoft, Oracle, Yahoo!, Below: Hyderabad Information Tech-the state of Andhra Pradesh. Hy- Dell, and IBM have established nology Engineering Consultancy City inderabad is a sprawling area which call centers, business processing Hyderabad, Andhra Pradesh, India.houses 6.8 million people, making outsourcing firms, and centralit India’s 4th most populous city. corporations. By providing stableHyderabad is a major hub for ed- jobs for the highly educated pop-ucation as it is home to thirteen ulation, the economy received auniversities and business schools. large amount of revenue whichFurthermore, it is home to the helped turn Hyderabad into aTelugu film industry, colloquially major bustling service sector thatknown as Tollywood. Additional- packs quite an economic punch.24 Business Asia
  25. 25. This change has been one of the panies operating out of this area. abad one of the best cities to workquickest the region has ever seen The IT/ITES corporates combined with, proving that Indians havebefore. with better infrastructure, excel- what it takes to meet the demands Hyderabad has undergone lent connectivity to the remaining of the Western world. During thea 48% increase in the price for of- parts of the city, express access to 2008-2009 year, the IT exportsfice space rental. There is a large the airport, reputed schools in the surmounted to 4.7 billion dollars.increase and demand because vicinity, network of hospitals, en- These numbers have been project-businesses are booming and try- tertainment zones has made this ed by statistical experts to increaseing to get as much space as they location a hot spot for investment,” each and every year by as much ascan. In Gachibowli, prices range chimes Pochendar Shenigarapu a 3-5%. The development of a town-around 3500 rupees per square CEO of a business in the area. ship called HITEC has helpedfoot per month. This is an incred- It is evident that the IT build new relationships that haveible increase from the 35 rupees it transformation has shocked all of brought even more companies tocost a few years ago. Hyderabad and revolutionized the the area, like Facebook. It is no “Gachibowli, in turn, Hy- city by catapulting it into a strong wonder Hyderabad is referred toderabad has been put on the global place in the world economy. The as the Silicon Valley of because of the IT/ ITES com- World Bank Group rated Hyder- “The World Bank Group rated Hyderabad one of the best cities to work with, proving that Indians have what it takes to meet the demands of the Western world.” Fall 2012 25
  26. 26. 1961 JAGUAR E-TYPEBY: ADVAI PATHAKCORNELL UNIVERSITY ‘15, INDUSTRIAL AND LABOR RELATIONS REVIVAL OF THE BIG CAT “Tata’s purchase of Jag- uar is just one example D escribed at its launch by Enzo Ferrari as “the most beautiful car ever made”, the 1961 Jaguar E-type is widely acknowledged to this day as Jaguar’s greatest creation. 51 years later, the iconic British of a growing number brand has finally released a successor, the 2013 F-type. The release of of cross-border M&A this long anticipated follow up epitomizes Jaguar’s current revival and deals involving com- serves as a major coup for Tata Motors who were chastised globally fol- panies from the devel- lowing their acquisition of Jaguar Land Rover in 2008. Tata’s purchase oping world acquiring of Jaguar is just one example of a growing number of cross-border M&A deals involving companies from the developing world acquir- established western ing established western brands. Despite the initial fears of knowledge brands. “ and technology drain (which ultimately proved entirely unfounded),26 Business Asia
  27. 27. Ratan Tata’s plan was ludicrously simple and remains so.”the immense success of Jaguar ny record. This represents a major from British Business Secretary,under Tata’s ownership suggests turnaround for a company that Lord Mandelson, and in spite ofthis trend is mutually beneficial to never once earned an operating widespread criticism that he hadboth foreign and domestic brands profit in its 19 years under Ford overcommitted to a dying brand,and that, certain variables permit- ownership. Tata should, and has Tata raised half a million poundsting, it is one that is set to contin- been, lauded as the main driver of commercial finance to maintainue. of this success. Calamity struck production facilities and poured Lumped with another directly after the deal for JLR was £1 billion of Tata’s cash into JLR’smarquee British brand, Land Rov- concluded in the wake of the 2008 R&D. In the wake of a drastic ander, and packed together for a rel- financial crisis. Ratan Tata, chair- global drop in demand for luxuryatively paltry $2.8 billion, Jaguar man of the Tata Group, was forced vehicles, it seemed a suicidal gam-is estimated today to be worth to seek financial assistance from ble.around $14 billion. Its last annu- the British government to keep Yet Ratan Tata’s plan wasal report stated Jaguar Land Rov- the brand afloat and maintain its ludicrously simple and remainser earned £1.51 billion profit on three British factories. After re- so. He is much admired for build-£13.5 billion of revenue, a compa- jecting a condition-laden proposal ing and exploiting brands as val-
  28. 28. GENERAL BUSINESS ue. Aware of the brand value of automaker Chery Intl will open JLR, a factor he described as “ir- JLR’s first production plant in resistible”, and of the quality of the Chinese mainland, helping to employees he would gain, from cope with the excessive domestic high-value factory workers in Chinese market. its British plants to senior work- That the new Jaguar ers like famed Head of Design F-type will be the first model re- Ian McCallum, Tata has made leased by Jaguar to be conceived few changes in JLR’s corporate and designed entirely under Tata structure. His only major ap- ownership makes it extremely pointments have been Carl-Peter significant. In 2011, Tata Motors Forster, the former boss of GM pledged £5 billion over the course Europe, as Tata Motors’ CEO, and of 5 years to Jaguar for R&D in an Ralf Speth, formerly of BMW, as attempt to bridge the chasm be- JLR’s chief executive. Tata Motors tween itself and the German lux- has therefore successfully trod a ury trio of BMW, Mercedes-Benz, thin line between publicizing its and Audi. Up till now Tata Motors’ association with JLR for prestige share prices have risen 80%, mak- purposes and avoiding encroach- ing it the top-performing stock of ing upon Jaguar or Land Rover’s any global automaker. Now, as the established brand image. excitement of major investment Maintaining the quintes- and well-received new mod- sential “Britishness” of the two els settles, investors are waiting brands has been of primary im- for clear indicators of long-term portance - all three production growth and stable development. centers in England have contin- Showcased in September 2011 as ued to run and Jaguar has actually the prototype CX-16, the F-type managed to increase its workforce, represents the first of what Tata in spite of the current economic hopes will be a number of excit- malaise, to a total of 23,000. This ing and ground-breaking new is a statistic that is likely to please products. Jaguar will position the F-type in the British government. Projects The augmentation of Jag- competition with currently pop- that were indefinitely postponed uar’s fleet of vehicles will be the ular and powerful brands like under Ford due to cash restric- most crucial step in attempting Porsche, Maserati, and Aston tions have finally seen the light to seize market share from their Martin. Given that Jaguar already of day. Both the Jaguar XF and XJ German rivals. As speculatorsNam saloons as well as the Land Rov- press for a lower-market car to has a well-performing sports GT in the XK, it does not represent aut er Evoque have been met with an compete with the popular BMW diversification in its range either. enormously positive reception 3-series, Jaguar seems, initially, However, Ratan Tata has made nomassa from both critics and consumers to have taken a step in the wrong secret of his desire for Jaguar to alike. Most importantly, Tata has direction. The release of theturp- sought to project the JLR brand F-type, an expensive two-seat- recreate its sporty image in keep- ing with the era of the E-type. Thisis, ac into growing markets like China er sports coupe, is not going to release is widely acknowledged and Russia and this more than boost Jaguar’s bottom line fig- to be an attempt to embellishblan- anything has explained the enor- ures. The market for sports cars Jaguar’s range as a whole with a mous growth in sales. A recently is about 0.1% of global car salesdit concluded tie-up with Chinese and it is enormously competitive. sportier feel, overturning current beliefs that it is geared towardsjusto. 28 Business Asia
  29. 29. eign direct investment in the de- in workforce cuts at all levels. veloped west by the third world. Public perception of these The reasons for this are varied. deals is mixed. Most westerners For one, most developed coun- fear losing their biggest assets tries are running current account to foreigners that might seek to deficits, whereas many develop- move production away from the ing economies have surpluses. home country, draining knowl- Cross border investment is just edge and technology while allow- one method of utilizing these vast ing the purchaser to add jobs in sums of money. The fact that the its own domestic economy. There three nations with the most M&A is almost certainly also an un- activity in the developed world derlying fear of anti-colonialism are China, United Arab Emirates, that the emerging market media and Singapore correlates with this has gleefully exploited. Ratan logic. Just like firms from the rich Tata himself has acknowledged world, foreign MNC’s like Tata the value of increasing national are seeking to continue growth prestige with these cross-border through access to new markets acquisitions. Despite his enor- and production techniques. Un- mous outlay and the subsequent like American corporations that disappointment of Corus, he pos- seek a more ‘organic’ method its that losing that bid would have of accessing local market share left India disappointed as a whole. through establishment of lo- Despite these undercurrents of cal factories and offices, MNC’s distrust, the British Government from abroad prefer acquiring too has been very grateful and well-known western companies. supportive of Tata’s involvement. This offers the quickest method Jaguar has added over 8,000 jobs of gaining a foothold in a foreign to its British workforce and is market, exploitation of the ac- considering opening a new en- quired brand, and other benefits gine factory at a time when most like technology sharing. Western other industries are older generation. The Tata firms also usually benefit from The harmony between IndianGroup is renowned as a company increased investment that they finance and British engineer-for taking a long-term view of its might otherwise have lacked un- ing that Ratan Tata has been soinvestments. With deep pockets der a frugal western boardroom, careful to create and nurture hasand one of the best management as Jaguar did. The biggest issue proved bountiful and could wellteams in the world, it is prepared for emerging market companies prove a successful model for fu-to help Jaguar surpass its 1960’s is that they often pay excessive ture cross-border M&A’s. zenith and establish itself as a sums for western firms (a premi-major global automaker. To this um for market entry) - Tata Steel’send, a smaller saloon car and a purchase of Anglo-Dutch giant,crossover are currently in design Corus, is an example in whichto widen Jaguar’s appeal and are emerging market FDI has thusexpected to be unveiled later this far proved unsuccessful. Corus,decade. now known as Tata Steel Europe, In attaining Jaguar, Tata has seen profits drop substantiallyhas continued a recently bur- and it has been forced to engagegeoning trend of strategic for- Fall 2012 29
  30. 30. Super-SizedChina: T he modern fast food industry in China began to take off in the 1990s, some twenty years after theBurgeoning Chinese country’s reforms and opening up in 1978. The cur- rent lifestyles of white and blue collar workers de-Fast Food Industry mand not only cost effective and on-the-go foods, but also the luxury of choosing from a wide variety of cuisines. Although China’s food service indus- try is roughly half the size of the U.S. market, it hasKevin Hua experienced tremendous growth over the new mil- lennium. The industry is estimated to be about $300Cornell University ‘15, billion in 2009 by economist estimates and is expect-College of Engineering ed to grow 12% a year to over $500 billion by 2014. Although two fast food giants, KFC and Mc- Donald’s, dominate the western fast food market in China, 70% of the overall fast food market share is still occupied by Chinese fast food enterprises. KFC and McDonald’s at- tempt to assimilate to the local culture and cater to Chinese taste buds with traditional dishes; KFC includes thou- sand year egg with pork congee in its morning menu and McDonald’s has a dim sum menu. On the other hand, the local fast food chain scene usually has a repertoire of dim sum, steamed buns, Cantonese barbecued food, and various meat dishes with rice. According to a KFC Consumer survey, up to 44% of Chi- nese consumers plan to spend more on fast food rather than traditional restau- rants due to their added convenience, taste, and cost. C onsumers’ steady move towards higher calorie diets and excess consumption of sugar, salt, and fats cor-
  31. 31. LIFESTYLErelate with increasing risks of obe-sity and other health conditions.A study led by researcher JanetCurrie in 2009 found correla-tion between a fast food restau-rant within 0.1 miles of a schooland the probability of obesity in-creasing by 5%. Interestingly, thenumber of restaurants within 0.1miles of a school does not affectthe probability of obesity. The re-sults of the study are significantenough to suggest that fast foodestablishments such as KFC andMcDonald’s as well as new ur-banization where people migratefrom the countryside to the city,together contribute to the China’sgrowing obesity rate. The massindustrialization efforts in Chi-na after 1978 spurred a need foryoung workers and brought manypeople from the rural countrysidecloser to the city. In only two de-cades, the urban population of thetotal population rose from 25% to50% in 2011. In Beijing, whichhas one of the highest fast foodchain densities per capita, 27.8% cuisine that is familiar to Ameri- major contribution to the obesityof children are heavier than stan- can taste buds, such as hamburg- rate in metropolitan cities in Chi-dard weight guidelines set by the ers, fries, fried chicken, and ice na.Chinese Health Ministry. Official cream. Furthermore, the U.S. has How is this different fromChinese government statistics es- had a fairly long history of using the lifestyle and diet choices intimate that more than 100 million automobiles and mass transport the U.S? China’s booming econo-people were obese in 2011, a five systems which both reduce the my and never-before experiencedfold increase from 2005. necessary daily exercise from massive spending power allows walking. Not long ago in Chi- consumers to buy fried foods, na, the streets of big cities were western hamburgers, snacks,Catching Up with the Unit- streaming with cyclists and pe- take outs, and many other cal-ed States? destrians. However, more people orie-dense foods. Major metro- Although it is tempting to now have access to the luxury of politan areas in China have alsocompare the trend between fast taxis, cars, and motorbikes. Only recently adopted mass transitfood and obesity in China to that in the past recent decades has systems with increased automo-of the U.S, PBS journalist Ray Su- work in China has shifted from a bile sales, completion of subwayarez asserts that obesity problems manual labor economy to a ser- and train systems, and mass busand their solutions are unique vice and institution-based one. A transit systems. All of these newto both countries. The fast food majority of people are employed changes contribute to a terrify-menus in the United States offer in sedentary work in the office—a ing reality: an increasing obesity Fall 2012 31