Tuesday, September 16, 2014

The Rise of Big Mac in Vietnam



For those who are craving for McDonald’s Big Mac and French Fries in Vietnam, those cravings can now be satisfied with the franchise’s inaugural opening in Ho Chi Minh City, also affectionately known as Saigon by the locals. 

The man behind the brand’s introduction into the Vietnamese market is none other than Henry Nguyen. To watchers of Vietnamese politics, he is instantly recognizable as the son-in-law of Vietnam’s powerful Prime Minister Nguyen Tan Dung.

The new entrant joins the likes of other Western and Asian fast food conglomerates, namely, KFC, Burger King, Pizza Hut, Lotteria and Jollibean jostling for a share of the fast-growing Vietnamese consumer market. This is a reflection of the country’s rapidly changing landscape - there was no access to American products 4 decades ago when the US-backed government fell to the communist troop. Due to the liberalisation of its economy in the 1990s, Vietnam saw an influx of western brands in its food fast industry that was once limited to low cost traditional fast food. 

The international chain has already served over 400,000 customers and 61,980 Big Macs in its first month of operations. A stellar performance by any measure, in a sector which is projected to grow at an average 15% this year. With such promising statistics in the midst of fierce competition, it is no wonder that McDonald has plans to open 100 branches across the nation. Some also see this wave as a sign of Vietnam’s rising affluence which is demonstrated by an average economic growth rate of 7% over the last 10 years – one of the fastest in Asia.

The American fast food company reported in July 2014 that profits fell more than expected in the wake of weak U.S and Europe sales while Asia-Pacific, Middle East and Africa increased by 1.1%. In our opinion, expanding its foothold in rapidly developing consumer markets with a growing middle class, is perhaps the best way forward for well-established and mature brands such as McDonald to increase its margins. Vietnam, so far, seems poised to be a big success story.

Monday, February 3, 2014

Indonesians and the rise of Indonesia

Your correspondent went to Yogyakarta a couple of weeks ago for a short getaway weekend. The purpose of the trip was to visit the city and its famous Batik workshops as well as the two Unesco-listed temples of Borobudur and Prambanan. What actually happened is that besides adding two more sites to my list of Places To See in 2014, I got a true insight into the Indonesian economy and potential for development.

Let me explain. Yogyakarta is a city of over 630,000 inhabitants (as of 2012) in Indonesia’s largest and most populated island of Java. It was the capital of the Mataram Sultanate between 1575 and 1640, and was briefly the political capital of Indonesia during 1945 to 1949 before the title returned to Jakarta. Today, the city remains the island’s centre of classical Javanese fine art and culture such as batik, ballet, drama, music, poetry and puppet shows. Geographically, Yogyakarta rests in a plain surrounded by high volcanoes and is centred around the Kraton, or Sultan’s palace.

A stroll on the main street of Jalan Malioboro (which for a number of years was overlooked by a giant commercial poster by Marlboro, who decided to play on the similarity of the names to advertise its cigarettes) brings out a number of resemblances to other cities in Indonesia and Java. One is that the country is developing rapidly and that rural populations are moving to cities in mass while large numbers are coming out of poverty and entering the middle class segment. While newly arrived populations cluster in hastily built slums made of corrugated metal sheets and wood, in Yogyakarta thousands of others are little by little building sustainable homes with concrete bricks and glass windows, creating neatly organised neighbourhoods and establishing deep-tied communities. Sweeper, ojek (motorcycle taxi) or cycle tuk tuk driver, shop owner, street food cook – all are hard at work and contributing to the development of Southeast Asia’s largest economy. Another impression is that in Java, Batik remains a highly worn design and that most Javanese still wear it daily; men can be seen with short-sleeved brown or maroon patterns while a lot of women still wear the traditional kemben or torso wrap. In Yogyakarta, the strong presence of Batik workshops and the city’s historical attachment to Batik means that the Batik designs have evolved to appeal to a younger, more trend-oriented customer segment, with Batik-covered baseball caps, backpacks and purses covering stalls along main streets.

While visiting Borobudur and Prambanan, two other elements stand out. As a foreigner from Europe strolling around two of Indonesia’s most visited sights on a Sunday morning, your correspondent was arrested no less than a few dozen times by local school children and students looking to speak and improve their English, exchange impressions on Indonesia and pose for a picture. Two things are to be noticed here. First, it is impressive to witness the level of education millions of young people are accessing across Indonesia today. Most youngsters I spoke to had learnt English for a number of years already and knew how to have a simple conversation with a foreigner, asking name, country of origin, things liked about Indonesia. Most also fully understood the benefits of speaking English in building a career in the future. All across Indonesia, students are graduating from high school with a level of English which even some developed countries could envy. Second, all the school children I posed for a photo with took the photo... with a smartphone. What was once considered a unaffordable electronic item is slowly becoming mainstream, used to whatsapp, Facebook (with 64m active users, Indonesia is Facebook’s largest market in Asia-Pacific), email as well as make money payments and transfers.

Witnessing the economic emergence of a country happens in many ways, but sometimes, as in Indonesia, a close look at the locals, their work activities, hobbies and attire is quite sufficient.


Monday, December 2, 2013

Let's get water to Myanmar

After decades of neglect, the water resource management system is coming under the spotlight in Myanmar. The second-largest country in Southeast Asia, home to about 62 million people and with a land surface of over 676,000 square kilometre, is finally seeing its leaders turn their interest to the provision and protection of potable water – opening up an array of opportunities for companies operating in the sector.
Forty-nine years of military rule have left Myanmar’s water management system in a dire state. The current water supply system in Yangon, the country’s economic capital, is over 50 years old; 40 percent of the water passing through its pipelines is estimated to be lost due to leakages and unreliable meter systems.
Despite the local government adding pipelines at a rate of 290 miles a year, only 60 percent of the city has access to tap water. With too few sewerage plans, water which does make it to the tap is not safe to drink and needs to be boiled or filtered. The situation outside of Yangon is not any better: throughout the country, septic tanks can be seen emptied into open drains, polluting rivers and groundwater reserves and causing long-term detrimental effects to the environment.
The water infrastructure outside of cities is almost inexistent, forcing rural populations to rely on unregulated boreholes and wells which dry up in the summer. Nationwide, an antiquated and inadequate water supply infrastructure means that only 6 percent of the potential water supply available in the country is being utilised, and demand far exceeds supply.
Things finally appear to be changing – Thein Sein’s government has made the supply of potable water a top priority to Myanmar’s initiatives in opening up its economy. Public-private partnerships are springing up throughout the country to speed up infrastructure renewal in the areas of flood protection, water quality and water supply.
In Yangon, Japan’s International Cooperation Agency (JICA) is working on building a masterplan for water supply and sewer works in the city’s metropolitan region; water and wastewater company VCS Denmark is completing a feasibility study to build a high-tech pipeline system to provide clean water to the capital’s residents. Countrywide, the Dutch institute Deltares has started collecting the knowledge and data required to develop an integrated water management system for Myanmar.
Local initiatives are also contributing to a changing water management landscape. The disappearance of the junta’s authoritarian rule has facilitated NGOs’ access to populations and rendered easier the collaboration with local governments in expanding connection to the water grid. Now rural villages are setting up pumping stations, digging artesian wells as well as laying pipelines, coordinating neighbourhood mapping and focus groups to identify shortfalls, design solutions, set budgets communicate progress reports to authorities. The government also plans to pass stricter environmental laws to regulate fresh water provision and protect the country’s biodiversity.
This trend provides a major incentive for water management companies to turn their attention to the “Golden Land.” The country is in dire need of pipelines, pumping stations and sewerage plants, demand for which is expected to rise significantly in the next few years. What’s more, besides the need to build the physical water infrastructure, the necessity is to establish water management techniques and know-how throughout the water resource management system.
For example, sector employees need to learn how to locate seepages using equipment, as well as determine whether meters are operating correctly or if water is being illicitly siphoned off. Specialised engineers need to be involved in the rehabilitation and extension of the distribution network, taking into account varying geographies and the differing water levels between seasons. And overall, water education needs to be provided – populations require information and advice regarding hygiene, water economies as well as agricultural irrigation.
Entry in Myanmar’s embryonic water market presents a number of challenges – frequently changing legislation, uncertainty regarding environmental regulations, under-developed supporting infrastructure, as well as rampant corruption throughout the country.
For companies which can harness and overcome these challenges early on, the water industry in Myanmar offers plenty of opportunities to capitalise on the country’s economic liberalisation. A solid strategy, healthy finances, trustworthy contacts and a strong set of nerves will be essential – but once the potential is unlocked the benefits are certain to be rewarding.
Note: This article was originally published on Myanmar Business Today on 18 November 2013

Tuesday, October 8, 2013

The Phantom Driver

Following the steps of Google –whose self driving car is currently being tested on public roads in California –, it was German luxury car-maker Daimler AG’s turn to reveal a Mercedes S-Class Sedan capable of driving itself at this year’s Frankfurt Motor Show. The latest unveiling of driverless technology is part of a recent trend wherein major automotive players, including General Motors, Ford, Volkswagen, Audi, Toyota, BMW, Volvo and Nissan, are turning their interest to driverless car systems in a bid to claim a slice of the potentially lucrative market.

Expectations for the market are high. A recent Navigant Research report estimates the sales of autonomous vehicles to reach 95.4 million annually by 2035, a whole 75% share of all light-duty vehicle sales. According to Google co-founder and special projects director Sergey Brin, the opportunity for ordinary people to have a self-driving car will be a reality in less than five years. With Nissan announcing it would have a street-ready driverless car in 2020, the race is now on among car manufacturers.

In the United States, statistics show an increase in the number of older age citizens who are active drivers. By 2020, 26% of the country’s population will be over 66 years of age. The industry’s spotlight is now on the potentially cash-rich “silver tsunami” that is sweeping across the globe, with automakers turning to the potential of driverless technology to engineer safer cars for an ageing population with decreased abilities.

Car makers have designed a customized “ageing suit” to obtain insights on the challenges faced by elderly drivers. The suit mimics the constricted movements of an elderly while specialized goggles distort colours and simulate poor eye vision, thus helping car makers design features promoting a safer driving experience. Features include blind spot monitoring and lane departure prevention systems, as well as seatbelt-mounted rear airbags given elderly motorists appear more prone to thoracic injuries.


Moving to the local front and riding on the driverless technology wave is Singapore’s first electric autonomous vehicle. As part of a two-year collaboration between Nanyang Technological University, JTC Corporation and Induct TEchnologies, the vehicle will be on trial soon. This is a timely breakthrough as a similar demographic shift awaits Singapore – by 2030, one in five Singaporean residents will be age 65 and above. Though owning a Singapore-made driverless vehicle remains a distant dream, the reality of being able to be hands-free while driving on the roads is not a far-fetched one.

Tuesday, September 17, 2013

Abenomics

For a student of Keynesian economics, it is fascinating to see how his policies are applied, almost textbook-style, by Japan's Shinzo Abe - arguably the most dynamic - and divisive - Prime Minister Japan has had in a while. The media has been quick to christen his raft of economic policies Abenomics, after Abe, with his sheer force of personality and political charisma, rammed the policies through, even bending the Bank of Japan to his will.

Abenomics is spearheaded by the so-called 'Three Arrows' - massive fiscal stimulus, aggressive monetary easing, and structural reforms to bolster Japan's competitiveness going forward.
The first two arrows are textbook Keynesian plays, which led a falling yen and a sharp rally in the Nikkei. The effects, as one would expect from pumping money into a system, are rather direct - a falling yen made Japanese exports more competitive, boosting the cash pile and stock prices of Japanese giants like Toyota, and generating inflation and more housing market activity in Japan. Good news considering that Japan has been dubbed the 'miraculous zero-growth economy' for the past  two decades.
The third arrow, focusing on the creation of sustainable growth, however, has been widely panned by critics and observers as falling way short of its mark - this critical third arrow, they allege, consists of the same tired set of ideas that have been toyed around with during Japan's 'lost decade'. Abe, despite all the hype, was not doing anything more radical than Keynesian pump priming to bring a flagging economy back to capacity, or, in economic terms, to its production possibility frontier.

What is critical, however, is pushing this economic frontier forward and outward, to ensure that growth is long-term and sustainable - this is why the Third Arrow is perhaps the most crucial, and where Abe has fallen short of his self-declared mark. The markets reacted with a sigh and sputter since June when the third arrow was notched and fired.

The lesson here, perhaps, is that there are no quick, textbook fixes for the economy. It is only in taking deep structural reforms - in essence, taking a calculated risk, a bold plunge into the unknown (the future), that genuine gains will be made. In Japan's case, this means having to revisit almost 'taboo' topics such as immigration to make up for a rapidly-ageing population, and agricultural and labour reforms in preparation for the Trans-Pacific Partnership - issues no politician would be willing to raise.


It is about swallowing the bitter pill now, rather than dither and hope the illness will go away on its own. Put flatly, it will not, but one cannot expect mere politicians, fixated in staying in office and commanding the popular vote, to make these difficult but ultimately necessary decisions. It takes a truly visionary statesman to do so - it remains to be seen if Mr. Abe is ready to step into those big shoes and take Japan out of its lost decades.

Friday, August 30, 2013

Towards ‘Green’ flow – Beijing’s strategies

Beijing – A city filled with historical tales and architecture, is also known for being one of the world’s most congested urban agglomerations. A supposedly forty minutes drive between the airport and downtown on a Sunday evening  lasted in reality ninety minutes – one cannot imagine what rush hour traffic is like. Beijing city recorded a car population of 4.2 million at the start of 2013, a number expected to hit 5 million by the end of the year.  Daily, this means an additional 2,214 vehicles on the capital’s roads. That certainly raises an alarm!

Striking the same chord with the government, easing traffic congestion tops Beijing’s work agenda. According to a news report, one of the goals of the local Transport Commission is to ensure the traffic congestion index within 5th Ring Road, Beijing’s main urban area, does not rise beyond level 5. The index measures the severity of congestion on the road and ranges from 0 (no congestion) to 10 (heavily congested). To do so, firm measures have been introduced to curb the traffic increase: an odd-even license plate system where driving your car within the 5th Ring Road is prohibited on certain days if the tail number of your license plate ends with a certain number, and a license quota system that requires those who want to purchase a car to register by the first eight days of every month (only 17,600 quotas are issued monthly).

Another strategy to alleviate the number of cars on roads is an affordable public transport system. Besides the existing bus and metro services, the municipal government is also launching a customised bus service at the end of August 2013. The new offering seeks to replace an estimated number of 30 private cars on a single bus. The service aims to connect dense residential areas such the CBD and the Financial Street.

Individuals have taken it up to themselves to make the government and population act on the traffic.  Wang Yong started to give strangers free rides thirteen years ago and has helped over ten thousand people – he has become Beijing’s campaigner of carpooling. His main objective is to convince the government to run carpooling campaigns across the city, and in June 2013, he helped launch a new campaign on the outskirts of Beijing where nearly 2,000 people joined.


The severity of the situation is growing on a daily basis – a recent headline in June read ‘Beijing Zombie Apocalypse Traffic Jam: Commuters leave behind vehicles in rush hour traffic’. Having government intervention is insufficient; the battle to ease congestion in Beijing is a long one which requires the concerted effort of every citizen in Beijing.

Tuesday, August 6, 2013

Expecto PETRONAS!

Expecto PETRONAS!

A few months ago, in one of our posts, we highlighted that Malaysia could be facing a credit downgrade due to poor fiscal discipline on the part of the government, which still does not have the political gumption to cut back on a raft of populist policies that helped it win the last general elections (held in May 2013) with an unconvincing margin.

Ratings agency Fitch did not mince its words when it stated flatly that 'Malaysia's public finances are its key rating weakness', while revising the outlook for Malaysia to Negative from Stable a few days ago.
Is this the beginning of the slippery slide down to a credit downgrade?

While we certainly do not have a crystal ball, we can try to make a few predictions and informed guesses based on current global trends and directions.

Malaysia's over-reliance on oil-and-gas (O&G) revenues to finance expansionary budgets will most certainly come under pressure from the new developments in shale extraction techniques, which will have a profound impact on global energy dynamics. It certainly will not be business as usual for the OPEC and other petroleum-producing countries - even Saudi Arabia is feeling the heat; what more for Malaysia?

From this perspective, it is worrying to note that Malaysia still sees conventional oil-and-gas and vast PETRONAS (Malaysia's state-owned O&G company; incidentally also its only Fortune 500 firm) capital expenditure as the key driver of the economy and supplier of government funds, under the ambitious Economic Transformation Programme which aims to break the country out of the middle-income trap. To this point, there is a joke that goes - Malaysia is like a Harry Potter tale - when the going gets tough, there is always the PETRONAS (Patronus for Harry) spell. However, with the shale revolution, there may come a day when even the all powerful PETRONAS may not be able to save the day for Malaysia.

A lot, thus, will have to hinge on the government having the political will to cut subsidies and widen its tax base through implementing the long-delayed Goods and Services Tax, besides charting new growth trajectories for the economy beyond a reliance on natural resources, and spending prudently to build capacity and competitiveness for the future instead of on ever-ballooning operational expenditures. As it is, the Malaysian economy is facing significant headwinds from increased competition, falling exports, low crude palm oil prices, and a massive brain drain.


The PETRONAS spell won't be able to fix this mess in an instant - only a return to good and accountable governance, and a focus on building long-term competitiveness will. It is also not wise to rely on one spell alone, as any Harry Potter fan will tell you.