Business Asia - Issue 2, Fall 2009

Business Asia

Issue No. 2, fall 2009

CHINA’S GREEN MARKET: A NEW OPPORTUNITY PLUS

LESSONS FROM SARS: HOW SWINE FLU WILL IMPACT ASIA’S BUSINESSES

INVESTING IN EMERGING ASIA: VIETNAM

Opportunities after crisis

STAFF LIST

Business Asia

Cover Photograph by: zoompict (away again) Source: http://www.flickr.com/photos/cheishichiyo/3517028649/sizes/o/

PRESIDENT EDITOR-IN-CHIEF

Jeremy Vasquez Ivan Au

FOR GENERAL INQUIRIES: cornell.asia.business.forum @gmail.com

CHIEF ADMINISTRATIVE OFFICER TREASURER EVENTS COORDINATOR COMMUNICATIONS

Pamela Hidajat Wesley Yiu Phoebe Yu Diya Li Cheryl Sim Cathy Meng Xue

ADVERTISE WITH US: [email protected]

DESIGN

Michael Hong

COPY EDITOR

Chelsea Dengel

BUSINESS CO-BUSINESS MANAGERS ASSOCIATES EDITORIAL COLUMNISTS

CONTRIBUTORS

WANT TO WRITE FOR US OR WORK FOR US? CONTACT: cornell.asia.business.forum @gmail.com Subject: “Recruiting” LET US KNOW WHAT YOU THINK at http://businessasia.weebly.com! SEE INSIDE BACK COVER FOR MORE INFORMATION.

Pamela Hidajat Hyun Jae Dhong Da Eun Seong Bethany Zhang Eugene Huang Seo Hyun Kim Nik Kumar Yun Qi Mok Lindsay Serene Alexandria Sun Sandy Tun Richard Wei Xin Cheng, Peking University Felix Lau, Hong Kong University of Science and Technology

Business Asia is an independent student publication produced by Cornell Asia Business Forum. We are an independent student organization located at Cornell University who produced and is responsible for the content of this publication. This publication was not reviewed or approved by, nor does it necessarily express or reflect the policies or opinions of, Cornell University or its designated representatives. We are funded by the Student Assembly Finance Commission, the Bartels Family, the Office of the Provost and the International Student Programming Board at Cornell University.

TABLE OF CONTENTS 4

|Editor’s Letter



5



7



9



GENERAL BUSINESS

| China’s Green Market: A New Opportunity

by Seo Hyun Kim Environment: the problems and the opportunities

| Lessons from SARS: Swine Flu and Asia’s Business World by Michael Hong How Swine Flu could impact Asia’s Businesses

| India’s Risky Business: A Look at the Emerging Economy at the Wake of Terrorism by Nik Kumar Terrorist attacks and their effects on businesses in India

11



17

INVESTING

| Investing in Emerging Asia:

15

Vietnam by Eugene Huang The hidden Asian tiger

on Asia by Sandy Tun An interview with Professor Azis, a professor in Economics

25

Stimulating Rural India

TECHNOLOGY

17 19

| The Impact of the Financial Crisis

21

The Facebook of China

Investing in Vietnam

13

| China’s Export Dependence

by Xin Zheng, Peking University Exports led to phenomenal growth, but is it sustainable?

13



Issue No.2, Fall 2009





| Facebook vs. Xiaonei by Richard Wei The Facebook battle in China

| The Great Firewall of China and

its Business Implications by Felix Lau, Hong Kong University of Science and Technology Internet censorship in China and its consequences

LIFESTYLE

| Eden Without a Forbidden Fruit

by Yun Qi Mok The wonders of Singaporean cuisine

29



ENTREPRENEURSHIP

27

21

23

by Lindsay Serene Entrepreneurship on a micro-level

| Entrepreneurship in

China, Part 1: The Importance of Guanxi by Sandy Tun An interview with Kevin Mc Govern, an entrepreneur in China

| A Close Look at China’s Rural Laborers by Cathy Meng Xue The other side of economic growth

CAREERS | Sales and Trading in Tokyo by Alexandria Sun

| Stimulating Rural India

A glimpse at a finance internship in Japan

EDITOR’S LETTER ASIA continues to prove itself as a promising market by maintaining its growth despite the challenges it has faced. In this issue, we discuss the impact of different obstacles on business in Asia, from terrorist attacks in India to internet censorship in China. Then, we provide alternate perspectives on these issues through interviews with professionals and academics and first-hand experiences from those who worked in Asia for readers interested in employment opportunities in the emerging market. Certainly, Asia is also a wonderful place to relax, so make sure you don’t miss the article about the wonders of Singaporean cuisine! As our magazine moves into its second issue, it also reflects the global consciousness of Asia’s emerging strength. We owe the success of this issue to our dedicated staff at Cornell University, our correspondents throughout London and Beijing and our partners at the University of British Columbia and the AIESEC chapter at the Hong Kong University of Science and Technology. This global collaboration marks our first international issue and allows us to successfully further our mission by promoting awareness of business issues in Asia to students on a global level. We look forward to continue our international expansion with our next issue, tentatively launching in April 2010. Finally, we value your opinion as a reader, which can help us better inform you about business issues in Asia in our upcoming issues. We will greatly appreciate it if you can take a minute to fill out our readership survey available at http://businessasia.weebly.com, where you can also learn more about our past issue and our organization. We are also actively looking for new contributors and partners, and we welcome anyone who is interested to email us at [email protected].

Ivan Au EDITOR-IN-CHIEF

QUESTIONS? FEEDBACK? Email us at [email protected]

General Business

China’s Green Market: A New Opportunity By Seo Hyun Kim, Cornell University

Photograph by: Steve Webel Source: http://www.flickr.com/photos/webel/2965836307/sizes/l/

C

hina’s current environmental situation is two-fold, as China struggles with maintaining its economic development while meeting global standards on environmental regulations. According to the New York Times, China emerged as the “yin and yang of global warming problem” for it is ironically becoming the main problem and answer to world environmental crisis. While China itself is struggling with domestic problem of environmental regulation, internationally it has been evaluated as successful in developing its green energy. Domestically, wasted energy is actually becoming an energy source in China, which will generate resources and profits for entrepreneurial businesses. According to Roger Ballentine from Green Strategies, China is learning how to reduce as much energy as possible in environmentally unfriendly industries such as the cement industry. In some of the high waste industries, 60% of wasted energies can be captured and turned into a reusable energy. China, a country that uses 45% of global output of cement, can then dramatically decrease the harmful impact through this process. By converting the heat spent during production into reusable energy, industries that inevitably expose harmful substances are actually building environmental credits while generating more profits. Internationally, green energy is becoming a lucrative market for foreign countries entering China. For instance, more US firms are investing in clean energy in China. According to the US government’s prediction, the clean technology market in China will grow rapidly, amounting to $555 billion by year 2020. The Chinese government also provided relevant incentives for foreign industries entering China. For instance, the circular economy law passed on August 29 requires industrial enterprises to adopt water-saving technologies, such as improving irrigation efficiency in water scarce areas like Northern

China. This may not only increase the legitimacy of Chinese businesses, but also increase business opportunities for foreign firms to invest in China both within and outside of green market’s domain. Although China’s investment in green energy has a positive outlook, the government’s silence on CO2 emission may bring forth complaints from other countries in the longer term. The numbers present the magnitude of China’s CO2 usage: China’s coal-fired power is predicted to increase from 350 gigawatts in 2006 to 950 gigawatts by the end of 2030. The delay of the Copenhagen treaty this year also points to possible obstacles that lies ahead after the Kyoto protocol expires in 2012. On the brighter side, recent reports from UNEP indicate that both China and Korea have the greenest plans out of all the G-20 nations regarding investments in green energy. The recent UN Clean Development Mechanism also granted China, the world’s greatest emitter of CO2, with carbon credits which it can use for its own benefits as well as for the environment. However, it remains uncertain whether these plans will be carried out within the proposed timeframe. China still faces a double-edged sword, as its green energy market should not merely be used for profit and maximization of energy efficiency, but also for decreasing greenhouse gas emissions in the long term. This can be resolved in three possible ways: businesses’ continued investment into green energy, government’s stronger regulations on both renewable energy and CO2 emissions and Chinese people’s increasing eco-friendly living style. China’s strategy for increasing energy efficiency and responding to greenhouse warnings will determine whether China can maintain its business growth both within and outside the green market in the future.

BUSINESS ASIA • Fall 2009 • 5

An Interview with David Diebold,

CEO of Diebold & Associates

BA: The US-China cooperation on clean energy and environment is becoming not only as a solution for sustainable development, but also possibly a creative solution for economic turndown. What do you think will be the biggest challenge for the cooperation between the two countries, both for the governments and the businesses? DD: Overcoming the mistrust on both sides: on the Chinese side, the fear that it’s a western conspiracy to contain China’s growth; on the US side, the fear that it’s another opportunity for China to rip-off Western technology. For businesses, it would be a lack of experience of both sides on working with each other.

To gather more insights on this issue, David Diebold, CEO of Diebold & Associates, was interviewed regarding China’s clean energy and US-China cooperation on this issue. As an expert on China’s business, he served as a senior officer in the US Foreign & Commercial Service. Also, having worked at the International Trade Administration, he covered various sectors of business, including recently on China’s clean energy market. BA: Business Asia || DD: David Diebold BA: Although the Chinese government is encouraging its firms to invest more in clean energy, it appears that policy incentives alone (subsidies and regulation) might not be enough to push the firms into participation. DD: China is a huge complex piece of machinery, so it will take some time for transformation. But the government is serious, the change is real, and the present basket of subsidies, tax policies and regulatory measures will get much bigger in the period ahead of us. The government also has to sort out its commitment to post-Kyoto arrangements. After it does, I see it gearing up on all fronts. Many firms wait for that further clarity, fearing possible disadvantages from moving too quickly. BA: What are some concrete economic incentives for Chinese firms to invest more in clean energy rather than sticking to traditional energy sources? DD: Various forms of grants, tax subsidies, and many new more supportive technical regulations already in place would be good examples. Public opinion and the internet are also significant drivers.

6 • BUSINESS ASIA • Fall 2009

BA: Could you talk about the major outcome of the China Energy & Environmental Technology Forum (CEETF) 2009, and what you think is the greatest challenge facing China’s clean energy initiative in the future? DD: The formation of this new association bringing together the Chinese companies active in energy or environmental technology was already notable. The Chinese government is supporting it and the companies are responding. This inaugural meeting in Beijing was highly encouraging, with companies focusing on all the important issues – new government policies, finance and networking. I thought it was also significant that in this first meeting, they reached out to the international community, with excellent presentations by the China Greentech Initiative; VantagePoint Partners, one of the leading US venture capital firms active in clean tech projects in China; and Climate Change Capital, one of the leading firms using carbon trading credits to fund the develop of clean tech projects throughout China. The association also announced the formation of a new Sino-US Energy & Environmental Development Center. The greatest challenge is, how do we build these bridges fast enough? The opportunity is to build them, as many as we can, as fast as we can. While there is a huge amount of work to be done, it was encouraging to see this group begin to build its bridges, to do its share. BA

Overcoming the mistrust on both sides: on the Chinese side, the fear that it’s a western conspiracy to contain China’s growth; on the US side, the fear that it’s another opportunity for China to rip-off Western technology. Interview conducted by Seo Hyun Kim, Cornell University

Lessons From SARS: Swine Flu and Asia’s Business World

By Michael Hong, Cornell University

A

s many people who lived in Asia in 2003 remember vividly, most of the region was in a panic. Images of pedestrians walking down busy streets in face masks and news of infections and death were the norm. Asia’s tourist trade was in ruins, local restaurants and retail outlets experienced big drops in revenue, airlines were nearly bankrupted, and many other businesses were severely affected. This describes, of course, the SARS outbreak. The SARS outbreak would go on to infect thousands and kill almost 800 people – 299 of these deaths in Hong Kong. According to the Asian Development Bank, SARS cost East and Southeast Asia approximately $18 billion in nominal terms or 0.6 percent of GDP in 2003. In the first half of 2003, major business hubs in Asia such as Hong Kong and Singapore saw their economies shrink by 2.6 percent and 2 percent respectively. But contrary to everybody’s intuition, overall growth was ironically helped by a decline in imports and investment. As the world approaches this flu season in 2009, many are asking questions: How dangerous really is Swine

General Business Flu? Is Asia prepared for a Swine Flu outbreak? Will Swine Flu cause Asian economies to decline? What should businesses be doing to prepare for an outbreak? What is Swine Flu and is it dangerous? The H1N1 virus is a new type of influenza virus that was first detected in Mexico on April 2009. The virus is more commonly referred to as “Swine Flu”. Although the World Health Organization (WHO) considers the H1N1 outbreak a phase 6 global pandemic from a range of phases 1 to 5, the WHO still considers the severity of the pandemic to be only “moderate”. In reality, most people with the H1N1 flu are able to recover from infection without the need for hospitalization. However, scientists don’t know for sure what the future severity of this influenza strain is going to be because it is a new strain that people have had no exposure to. In an alarming report to US President Obama on August 7, 2009, the President’s Council of Advisors on Science and Technology (PCAST) stated that this fall and winter 30-50% of the US population could be infected, 1.8 million US hospitalizations could occur, and 30,000 to 90,000 deaths could occur in the United States. In this “plausible scenario”, so called by the PCAST, such a severe pandemic could also spillover into other regions of the world, such as Asia (Note: This article was written in Mid-October. Whether or not PCAST’s “plausible scenario” will actually occur has yet to be experienced.) Macro Effects on the Asian Business World Should Asia – heaven forbid – experience another repeat of 2003, many of the same economic effects could occur in different industries. Obviously, industries in which customers have to congregate in public areas to obtain goods and services would suffer the most amidst a H1N1 pandemic. Airlines, the retail sector, and restaurants, for example, would be experience big drops in consumer demand. On the flip side, other industries would flourish during an H1N1 pandemic. For example, Cantronic Systems Inc. (TSX Venture: CTS), a company that utilizes thermal imaging technology, sold fever scanning systems to airports in Asia and the Caribbean during the 2003 SARS outbreak. And in preparation for the current H1N1 pandemic, the company has been fulfilling more orders for its FeverScan M3000D systems as more and more airports worldwide step up efforts to screen for infected passengers. However, looking at the cases of companies that BUSINESS ASIA • Fall 2009 • 7

Micro Effects on the Asian Business World The H1N1 pandemic also has strong implications for businesses at the micro level. For starters, it could have an immediate impact on the organizational culture within the workforce of companies. A lack of cohesiveness 8 • BUSINESS ASIA • Fall 2009

Photograph by: Aedes Source: http://www.flickr.com/photos/aedes/33092250/sizes/o/

manufacture and sell fever scanners, there is also the ques- among workers at the workplace could ensue due to fears tion of whether companies are using the public paranoia of contracting the virus from fellow workers. Some workto push products that are in fact not effective at halting the ers may not come to work because they don’t want to be in spread of the H1N1 flu. For example, a team of French an environment where they could come into contact with researchers recently conducted a study on the accuracy of potentially sick people. In addition, employees could actuthe fever scanners on 2,000 people. The scanners only de- ally become incapacitated due to the H1N1 flu. As such, tected one out of six people who had fevers and illnesses. labor productivity could decrease as it did in Asia during Dr. Richard Besser, acting director of the Centers for Dis- SARS. ease Control and Prevention, told the New York Times Businesses also need to take into account the posin an interview that when Hong Kong was hit by SARS, sibility of disruptions of supply chains and distribution “increased border screening on entry and exit was not an networks. Suppliers could be wiped out due to weak coneffective way of identifying cases or preventing transmis- sumer demand and low labor productivity due to H1N1. sion.” Increased border screenings may even be less ef- Other possible effects on businesses include a decrease in fective at curtailing the transbusiness travel, lower qualmission of H1N1 than that August 7, 2009 Report to US President Obama from ity of merchandise due to of SARS because symptoms weakened workforces of the President’s Council of Advisors on Science of the H1N1 flu usually suppliers and fluctuations in and Technology (PCAST): show up two to seven days supply and demand in variA “Plausible Scenario” that could occur this fall after the person becomes ous sectors. and winter with Swine Flu... contagious. Thus, it could • 30-50% of US population could be infected be argued that certain inConclusion • 1.8 million US hospitalizations could occur dustries will benefit from an Clearly, different aspects • 30,000 to 90,000 deaths could occur increase in demand derived of the Asian economy and • Infection can spillover into other regions of the business world could be afmerely from psychological world such as Asia appeal rather than perfect infected by the H1N1 panformation. demic. The large-scale as The question of whether or not overall growth in pects, such as the overall economic growth and different the Asian economies will be stymied because of the H1N1 industries, all the way down to the local level, such as orflu is too early to be answered. In 2003, SARS actually ganizational work culture and supply chain networks, are helped overall growth in the Asian economies because the subject to fluctuations and disruptions. We have yet to vast majority of SARS cases were restricted to Asia. This see how severe the Swine Flu pandemic will actually be led to a decline in imports and foreign investments in Asia. and how badly it would affect Asia. However, we can take Like SARS, there is the possibility that the H1N1 could comfort in the fact that the Asian population and econoonly severely affect a few regions. If, hypothetically, the my is best prepared for this “plausible scenario”. BA vast majority of future H1N1 cases were to be restricted to the United States and Mexico, the overall growth of Asian economies could be hurt. Big exporters to the US such as China would have to deal with lagging consumer demand from North America. Thus, the impact on overall economic growth of the Asian region could depend on whether H1N1 would be restricted to certain regions or be more evenly distributed worldwide.

General Business

India’s Risky Business: A Look at the Emerging Economy in the Wake of Terrorism By Nik Kumar, Cornell University

After the devastating attacks on India’s financial capital, foreign businesses must closely re-examine the benefits and risks associated with investing in the Asian Economic Tiger Photograph by: cell105 Source: http://www.flickr.com/photos/cell105/3071088824/sizes/o/

I

ndia’s dazzling financial prospects, rapid growth and investment opportunities have long lured foreign corporate executives to bring their businesses to the world’s largest English-speaking democracy. It seemed as if until November 26th, 2008, being part of the Indian economic dream was being part of a bastion of opportunity. Then the shots rang out in Mumbai. After three catastrophic days of blood, turmoil, and chaos, 173 people lay dead and another 308 wound-

ed. The terrorist attacks, watched by millions of people around the world, clearly displayed that the Indian government lacked efficiency, vigilance and was simply inadequately prepared to defend one of its major cities from ten armed gunmen. In addition, foreign investors and executives alike were reminded of India’s troubled past with Pakistan in the Kashmir region, the internal political strife and corruption that plagued the government, and prevalent sense of instability that brought about concern over whether the nation’s chaotic prob-

ten serve as barriers to entry. However, incidents in India that continue to arise are making companies hesitant to enter what they are starting to see as a unstable and lawless Indian society: foreign companies had had executives attacked, kidnapped, and killed. An example is Posco, the Korean steel company which recently had executives kidnapped from their plant in Orissa and weren’t released until a ransom was delivered. Thus, some are beginning to think that the risk is not worth the reward. According to Raghu Raman, CEO of Mahindra Special Services Group, “some multinationals have temporarily flown their top expat execs out of India”. Anxiety continues to increase as terrorists are beginning to target multinational corporations and areas with a large foreign presence with the intention of hurting India’s economic boom. What’s striking is that even Indian executives are beginning to become wary of their domestic market and home country. With the government continuing to fail to protect Indians from terrorism despite intelligence reports, predictions, and warnings, businessmen are beginning to lose confidence in their nation’s ability to prevent “old” problems from pulling the nation back from its economic potential. Undoubtedly, the Indian government is beginning to look incompetent and incapable of carrying India into its next stage of economic and financial development. With the government moving from strengthening fiscal policy to security policy, some question whether India’s bright economic future can be sustained and whether terrorism will heavily plague India in the years to come. However, the Indian government has promised action. Through various initiatives it plans to clamp down on terrorist cells, fight corruption and promote stability through which foreign investment can continue to come to India. The government has also partnered with the United States to learn more about terrorist tactics and ways in which attacks can be prevented. While India’s efforts are likely to eventually be successful, there is no doubt that there is still a long way to go. BA

...businessmen are beginning to lose confidence in their nation’s ability to prevent “old” problems from pulling the nation back from its economic potential. lems could prevent it from continuing down the path to economic greatness. While the November 2008 attacks on Mumbai gained international notoriety and condemnation, several other incidents of terrorism in India often go unnoticed. In fact, several foreign businesses and investors entering the Indian market often don’t understand the security issues and volatility of the country. According to a BusinessWeek analysis of data from the Indian Home Affairs Ministry, an astounding 29,000 people have been killed in terrorist attacks in India since 1993. This excludes the thousands that have died in anti-Muslim riots and Maoist rebellions that have plagued the mineral wealthy regions of Northwest India and Chattisgarh, areas where foreign companies plan to invest heavily. The violence seen across the nation is in stark contrast to India’s economic and social strengths that have attracted prodigious amounts of capital from foreign investors. Despite the global financial crisis and its negative effect on exports and foreign investment, India experienced an economic growth of 6.7%, which is still relatively strong in comparison to the Western nations. In essence, the Indian education system produces some of the best engineers, scientists and information technology professionals in the world. In addition, the low cost of labor is a huge attraction to outside companies. Businesses often find it more favorable to operate in India, a democracy, rather that in its primary economic competitor, China, where language issues and strict government regulations of10 • BUSINESS ASIA • Fall 2009

General Business

t r o p x E e c s ’ n a e n d i n h C epe D

By X in

Peki n

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his summer I studied in Berkeley, California for two months. It was interesting to find that products labeled with “Made in China” were everywhere I went. In the past years, China’s export rate has increased at a speed as unbelievable as its GDP growth rate. From 2004 to 2007, China’s GDP growth rate was over 10% annually, topping that of major countries in the world. The exports increased at an average of 28.9% annually from 2002 to 2007 and China became the second biggest export country in 2007. It is generally believed that the RMB is kept undervalued by the government, which allows exports to be sold at a very competitive price. The prosperous export industry created lots of job opportunities and improved the average welfare all over the country. As a result, it seems that China is a big winner as a net export country. However, this “triumph” is questionable. In the long term, China will have to take the risk of an unstable economic structure, possible foreign debt default and internal welfare decline. First, the export-dependent economic structure is unstable. International economic fluctuation can easily cause domestic chaos. The impact to China from the

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global financial crisis is a good example. The decreasing demand around the world led to the decline of the volume of Chinese exports, which greatly affected the general economy. Many clothing factories have closed and millions of workers have lost their jobs. The expected GDP growth rate decreased to 7.2%, according to World Bank’s quarterly report on China’s economy. This situation in China is almost the same with that in Japan, whose economy also greatly relies on exports. Japan used to be the fastest growing country in Asia, but now has suffered more than 10-year depression because of the appreciation of yen and the decline of global economy. Though economies in both Japan and China are much dependent on exports, China has to take a bigger risk than Japan due to the chance of foreign debt default. As opposed to Japan, China has a de-facto fixed exchange rate system, rather than a floating exchange rate. Under this system, any increase in Chinese export would cause a corresponding increase in foreign reserves. For the past years, China’s annual positive net export accumulated large amounts of foreign reserves. According to the Chinese state administration of foreign exchange, foreign reBUSINESS ASIA • Fall 2009 • 11

serves in June, 2009 have increased to $2.13 trillion, the largest in the world. Most of the reserves have been invested on foreign debts. The potential default on the debts and depreciation would then lead to the uncertainty of the foreign debt value and incur loss to China. Moreover, even assuming that the situation outside China remains status quo so that foreign export demand remains stable and foreign debts are riskless, China still faces structural risk from its domestic market. Most of Chinese exports focus on labor-intensive and resourceintensive industries, such as clothing and steel, instead of technology-intensive industries. Under this pattern, the profits from exports are earned at the cost of poor employee welfare, ecology damage and environment pollu-

in 2007 that the traditional methods of measuring exports were wrong and that the “true” export share was under 10% of GDP, instead of 40%. However, he overlooked the export’s contribution to other parts of GDP. GDP consists of investment, consumption, government expenditure and net export. Once the export declines, both the investment and consumption growth have to suffer. So far, most investments are dependent on facilities, real estate and exports. Also, decreasing exports would reduce the income of workers in export-related departments and lower their consumption level. The multiplier effect would further reduce the whole country’s consumption. Therefore, even if the export share in GDP is small, any changes in exports would cause GDP to vary at the same time,

In the long term, China will have to take the risk of an unstable economic structure, foreign debt default and internal welfare decline

tion. The past years have witnessed a large amount of pollution from the export industry, and China’s cheap labor cost is well-known globally. Many international conglomerates have moved their polluting factories to China to reduce their cost. The recent appreciation of RMB makes the condition even worse. To earn a certain profit, exporters use lower wages and cause more environment damages to make up the decreasing export proceedings from the currency movements. However, businesses are beginning to realize that it is getting harder to sustain profits in this manner. The deteriorating environment has already begun to impair the quality of some export products, and some countries have already placed strict limitations on products from China for fear of health issues. Some may argue that the worry over economic dependence on exports is unnecessary, because export hasn’t played a huge role in the Chinese economy as most people thought. Jonathan Anderson, an economist at UBS, said 12 • BUSINESS ASIA • Fall 2009

which would still significantly impact the economy. In sum, although the export industry creates many job opportunities and benefits the economy, the over-independence on exports will result in both international and domestic problems in the future. On one hand, the export-oriented economy structure is unstable and vulnerable, while also leading to the accumulation of large amounts of foreign debts which increases default risk. On the other hand, it lowers the employee welfare and pollutes the environment. Some doubt whether China depends too much on export industry, since the percentage of export on GDP is not very high. However, considering the influence of the volume of exports on other parts of the economy, the current export structure does matter a lot to China. While China enjoys the benefits obtained from exports, it should begin to realize the long term risks. BA

Investing

W

ith a total population of approximately 86 million individuals and a land area of 128 square miles, Vietnam is a densely populated developing country that lies within the heart of East Asia. Over the past 30 years, the country had to deal with the ravages of war, the loss of financial support from the old Soviet Bloc, and the stringency of a centrally planned economy. Inefficiency and corruption from its government and external setbacks from the trade embargo it had with United States and Europe after the Vietnam War resulted in the languishing of the Vietnamese economy as other surrounding Asian countries grew and prospered. Over the past two decades however, things have drastically changed for the better for the Vietnamese

consumer spending within the country. Private consumption in Vietnam has sustained an impressive growth rate of 7.5% over the past two years. This is supported by increasing affluence through rising disposable incomes and an emerging young middle class in the country. Multinational companies have been quick to capitalize on this; for example, Hewlett Packard and Unilever have respectively established branches in Vietnam. Going forward, the young demographics of Vietnam make it ever more exciting. With approximately half of its population under the age of 25 and 70% of its population under the age of 35, Vietnam has one of the youngest populations within Asia. In the same way that a young population had driven the early-stage economies of

Investing in Emerging Asia:

Vietnam

By Eugene Huang, Cornell University Economy. In light of significant economic reforms carried out by the 6th Party Congress in 1986, elements of a market economy were gradually introduced in Vietnam, resulting in what is termed to be a “Socialist-oriented market economy”. State-owned companies were consolidated and privatized, while the opening of a stock exchange in Vietnam led to the much-needed inflows of foreign investment. Additionally, the market reforms in Vietnam also paved way for increased trading activity with other countries around the world, such as the United States, China, Japan and Singapore. As a result, the Vietnamese real gross domestic product (GDP) experienced a robust annual growth rate of 7.1% from 1999 to 2008, second only to China’s 9.1% growth in the region. In addition to its exports of natural resources and basic consumer goods to other countries, another factor driving Vietnam’s rapid economic expansion is domestic

the United States, Western Europe and Japan, Vietnam’s young demographics are set to be the driving force behind its economic expansion in the years ahead. Judging from the country’s young and growing population, stellar economic performance over the past two decades and roots in Communism, it is not difficult to understand the excitement global investors have in drawing comparisons between the current state of the Vietnamese economy and that of China’s 10 years ago. These comparisons are not unjustified – Vietnam is currently repositioning itself as the next low-cost manufacturing center, replacing China in its niche as the latter gradually moves up the value chain in global supply. Having said this, it is still imperative for anyone interested in investing in the Vietnamese market to understand that the country’s economic development is still in its early stages, where uncertainty about future developBUSINESS ASIA • Fall 2009 • 13

ment remains high. Even while the central government has been trying to eradicate inefficiency and corruption within the country, there persists a lack of transparency in many aspects of the economy and corporate governance continues to be weak. As of 2008, the country is ranked 121st out of 180 countries in Transparency International’s Corruption Perceptions Index. In addition, excessive inflation is an ever-present concern of rapidly growing economies such as Vietnam’s, where inflation reached a rate of 23% in 2008. Investors should be aware of the heightened level of risk involved with investing in an emerging market such as Vietnam’s. On the flip side, the Chinese economy was in a similar state back in the late 1990s. Likewise investor un-

certainty over the sustainability of the country’s rapid growth was high even though its potential for growth was apparent. The risk was simply too great for most to stomach. Given the opportunity to go back in time and to be involved in the Chinese market, there is no doubt most investors would not think twice in placing their bets on the country’s growth. While that might not be possible, another opportunity may have presented itself in the form of Vietnam. Would choosing not to invest in Vietnam constitute another boat missed, as in the case of China? Or would one be better off not getting on board at all? Caveat Emptor. Let the buyer beware. BA

Accessing the vietnamese market Investing in Vietnam isn’t easy for the average investor. Here are three ways in which interested investors may gain access to the Vietnamese market: 1. To directly access the Ho Chi Minh City Stock Exchange (HOSE) in Vietnam, one would have to open a custodian account at a Vietnamese bank. This can only be done in person in Vietnam. Even then, the investor should also note that there is a limit on the proportion of the stock of a listed company that can be owned by foreigners (30% for banks and 49% for most other securities). 2. Major investment banks such as Deutsche Bank, HSBC and BNP Paribas also offer participatory notes (P-notes) to investors. These are certificates reflecting the banks’ holdings in Vietnamese Shares. 3. The easiest ways for most average investors to access the Vietnamese market is to purchase an Exchange Traded Fund (ETF) that tracks the performance of the country’s stock market. These ETFs are typically managed by a group of fund managers who seek to replicate as closely as possible the performance of the Vietnamese stock index. Most international stock markets exchanges have listings for these product offerings. An example would be the Market Vectors Vietnam ETF (NYSE:VNM) listed on the New York Stock Exchange. The ETF, which is run by Van EckTM Global, predominantly provides exposure to publicly traded companies which generate at least 50% of their revenues in Vietnam.

Market Vectors Vietnam ETF (NYSE: VNM) from Yahoo! Finance Fund Family: Market Vectors ETF Trust Net Assets: 44.2M Fund Inception Data: 11 August 2009 52 Week Range (as of 12 October 2009): 25.20-30.45

14 • BUSINESS ASIA • Fall 2009

The Impact of the Financial Crisis on Asia

Investing

By Sandy Tun, Cornell University

Professor Iwan Azis is the director of graduate study in regional science in the City and Regional Planning department of Cornell University. Professor Azis is also an Economics professor at Cornell’s Johnson Graduate School of Mangement. Throughout his professional life, he has conducted economics and financial research on Asia. He has done consulting work for the World Bank, the Asian Development Bank, the UN, USAID and the ADB Institute (Tokyo) in addition to other government agencies. In early 1998, he was invited to speak before the Joint Economic Committee (JEC) of the U.S. Congress on the Asian Financial Crisis along with the deputy prime ministers of Thailand and Korea. He received a recent award for “Distinguished Scholar in Regional Science, Financial Economics, and Economic Modeling,” from the Instituto Superior de Ciencias do Trabalho e da Empresa (ISCTE) Business School in Lisbon, Portugal, July 2006. In addition, he has held a visiting professorship at the MITI Institute in Japan and is currently teaching in Japan.

BA: Business Asia || IA: Professor Iwan Azis BA: I learned that you are currently working on two books. One of them is on the elements of the financial crisis. Can you talk a bit about the impact of the recession on the financial markets in Asia? IA: Basically, you can look at the two main variables that are affected by the current global financial crisis. Number one is export. And the reason is pretty straightforward. This crisis really hit the major export market for Asian countries such as U.S. and Europe - most of the Asian countries’ exports are going through these two countries. So when the U.S. and Europe are in trouble, naturally, Asia is also in trouble and that is why the export-oriented countries in Asia are the hardest-hit by the current crisis. Take Japan and Korea for example. These two countries depend heavily on their exports. When their export-destinations are in trouble, their exports are in trouble as well. As a result, the economy is in trouble. So that’s one variable. The second variable is capital flow. The story about the current crisis is the story of the financial-sector crisis. In the 1980s, many Asian Countries liberalized their financial sectors, which implies that many foreign operating financial firms are in the region. So when their headquarters in Europe and US are in trouble, they naturally have to pull out their money from wherever their operations are abroad and most of them are in Asia. As a result, there are a lot of capital outflows from Asia which leads to the weakening of the currency in Asian regions. For example, in Korea, the Korean won has depreciated by as much as 35 percent. And the same thing is true in other regions in Asia. So basically, there are two variables. Number one is the export and number two is the capital outflow. Those are the two most affected variables by the current financial crisis. BA: Since China is also a large exporter, do you think they have been affected as much by the decrease in demand? IA: Now, China’s story is a little different. If we look at the GDP,

gross domestic product, there are several components. There is consumption, investment, export and import. As I said earlier, in countries like Korea, their GDP relies so much on exports. In China, that’s not the case. Even though exports from China are very high, the size of the Chinese economy is so huge. If you look at the share of export component in China GDP, it’s only less than 30 percent, so it’s not that big. So what does it mean? That means the domestic demand in China really saved the Chinese economy from the current crisis. As a matter of fact, your readers may also be interested to know, only three countries survived in terms of GDP growth, while most of the GDP growth of Asian countries has been negative. Now what are those three countries? China, India, and Indonesia. Now, what are the similarities of these 3 countries that helped them survive? These three countries are similar in terms of their size. These are huge countries. Now what does it imply in terms of economics? Well, it suggests that those countries with huge domestic demand can survive the current crisis. Remember, the current crisis is a hit through the export market. But if you have a huge domestic market---like China, India, and Indonesia---then you are able to get through the crisis. BA: So you have spoken about the Korean currency depreciating, but it has improved slowly during the summer. Do you see it improving and what would you say are the causes behind it? IA: See, Korea relied so much on export markets and those export markets happen to be in crisis. But what made the Korean won depreciate during this summer was more than exports. And that is the capital outflow—the second reason I mentioned to you earlier. Apparently, if you look at the amount of US dollar outflow (when we are talking about capital outflow, it can be local or foreign currencies), it is very high. If you don’t study in great detail about what happened in Korea, then you may come to the conclusion that they didn’t learn their mistake from the Asian financial crisis ten years ago. If you recall, the main explanation of the crisis was the huge amount of foreigncurrency denominated debt. That means that when the debt matures,

BUSINESS ASIA • Fall 2009 • 15

all these Asian countries had to repay and they had to repay in foreign currency. But because they don’t have enough foreign currencies at the time, there was heavy pressure on their currency. That’s why the depreciation of Asian currencies was so huge ten years ago. So people tend to think similarly with Korea now because that explained why Korean won depreciated - because there is a huge foreign currency denominated debt. What I learned last month is that the explanation is not as simple as that. What happened is that Korea has the world’s second largest shipbuilding industry. A couple of years ago, they issued short-term debt. And that short-term debt has to be repaid in foreign currency and that repayment was not really the amount of capital that was leaving Korea. That money stayed in Korea. So when it was announced in public that huge amounts of foreign currencies were paid in relation to the shipbuilding industry, the market was shocked. The market thought this was the repeat of the Asian Financial Crisis ten years ago. And you know very well that in the financial markets, confidence is everything. So when that happened, the confidence in the markets collapsed. And that put heavy pressure on the Korean won. Ten years ago, there was indeed a physical foreign currency denominated capital flowing out of Korea. Now, actually, there is not much foreign currency denominated capital flowing out of Korea. But the announcement of the repayment of the short-term debt by these shipbuilding companies really shook the market. It’s really a crisis of confidence. Fortunately, the Korean authorities immediately conducted a good public relations effort. They spread out the counter news saying this is not really capital outflows. This is why the currency slowly recovered. BA: What role do you see Japan playing in the financial markets over the next couple of years? IA: Well, Japan right now is like a sick old man. For many years, Japan has been the center or the dominating economy in the region. Now with the emergence of China and Korea, Japan is no longer the shining star in the region. Financially, however, Japan’s financial sector was not heavily involved in subprime credits and that’s why their financial sector was doing fine during the crisis. But what is not fine is my first point earlier. Even though the financial sector is doing fine, the Japanese economy is relying too much on exports and those export markets are in trouble, so the Japanese economy is also in trouble. So the impact of the financial crisis on the Japanese economy is not so much in the financial sector but in their export sector. BA: Where do you see Asia heading in the next 5-10 years? And in your opinion, which country do you think will emerge as a leader? IA: Okay, now, that’s a good question. If you look at the world at this moment, whether you like it or not, the center of world economic gravity for the next ten, twenty years will be in Asia. So that statement itself already put heavy significance on Asia. Now, the question here is that since Asia is so huge and diverse, you cannot put everything in one basket. Now that comes to your second question, which country is going to emerge as the leader? Now, of course, everybody knows that China will be the coming leader here, right? But it’s not that easy because life is not all about economics. There’s politics, and there’s security issues. Now, here is my personal opinion. I think there will be a balance of power in the region. And from that standpoint, it’s good. What I meant by balance of power is this. I think that the US influence in the region will decline and China will be receiving a bigger role. Again, I am not talking about economic roles only, I am also

16 • BUSINESS ASIA • Fall 2009

talking about security issues. And Korea also, plus the 10 ASEAN countries. Now if you add this with India as part of another emerging Asian country, then you can see that there will be a number of superpowers in the region. To me, I think this is good and healthy. In my opinion, I think it’s better to have a number of superpowers rather than just one superpower. There is a balance of power, so that’s the general trend I see. In the economic area, no doubt, China will dominate. Depending on how you measure it, China is the second largest economy in the world. Now the problem is that all Asian countries have some degree of suspicion against China---suspicions in the sense that China will dominate everything, not just in economics, but also in security issues and so forth. Honestly, none of the Asian countries would like to see that. What about Japan? The same thing. Japan also has suspicion against China. And vice versa. China also has suspicion against Japan. So what I am saying here is that any economic ideas coming out from either of these two countries will not go through. If it is coming from Tokyo, it will be rejected by Beijing. If it is coming from Beijing, it will be rejected by Tokyo. But also the ASEAN countries become very important. Because of this hidden conflict between China and Japan, any ideas either coming from China or Japan will have to go through ASEAN. In other words, the original ideas may not come from ASEAN, but the official ideas will come from ASEAN. This is also good and also bad. Why is this good? Because ASEAN has some leverage, right? Because these two giant countries need ASEAN. The bad part is that ASEAN doesn’t have its own ideas or opinions. For example, during this crisis, it turned out the Chiang Mai Initiative (CMI). Basically, in 2000, all the ASEAN countries plus China, Korea, and Japan agreed for a foreign currency swap. In other words, if one of the countries in the region is in crisis, they don’t have to go through the IMF to get the loan. They can go to one of the organizations of the region and it’s called CMI because it took place Chiang Mai, Thailand. So during the last crisis, it turns out that CMI didn’t work because there wasn’t a strong set of voice from countries that are in need. So who are the countries that are in need? ASEAN countries. Because China doesn’t need that. China has more than 2 trillion dollars. Japan doesn’t need that either. So who needs it? ASEAN countries. So why was the CMI not activated while many ASEAN countries need the help? Well, to me, that is a reflection of a lack of leadership in ASEAN. That is the negative thing. So the positive thing is that China and Japan needs ASEAN. That means we have more leverage. But the negative thing is that ASEAN doesn’t have leadership at this point. So the biggest challenge for ASEAN is to come up with a leader. BA: If you have any advice to give to students or anyone who is interested in entering the markets in Asia, what would you tell them? IA: I don’t know if this is advice, but more as encouragement. As I said earlier, the next 10, 20 years, the world economic gravity will be centered in Asia. I hope this invites more students to get more interested with the Asian economic and financial matters here. And it doesn’t matter whether you are in business school, whether you are in economics, or political science, or other fields. At the end, you have to think in a comprehensive way meaning that you cannot just isolate your discipline. In political science, for example, no political issues in Asia that is unrelated to economic issues. And vice versa. Even if economically, the concept is good, things are not working because of non-economic factors. So this disciplinary approach is getting more and more important. BA

Technology

VS. By Richard Wei, Cornell University “1 friend request!” Where have you seen this before? Yes, you’ve seen this on your Facebook account. Despite its modest roots, Facebook has moved far beyond a trend to become a vast mainstream social network. Born out of a dorm room of Harvard University, Facebook started as an online social platform exclusive to Harvard students in 2004. No one, not even Mark Zuckerberg, the founder of the popular site, would have foreseen Facebook as the global phenomenon that it is today. The site now offers itself in 65 translations to support the fact that of the 300 million active users worldwide, 70% reside outside of the United States. While Facebook continues to amass success and profit, across the Pacific Ocean, the rise of a very similar online networking site in China, Renren is imminent. Renren (Chinese: 人人), formerly known as the Xiaonei network (Chinese: 校内网), is a leading social network website that primarily targets high school and college students. Literally translated, Xiaonei means “on-campus” and Renren means “everybody”. With conspicuous similarities in design layout to Facebook, it is no surprise that Xia-

Figure 1: Facebook Login Page (Top); Xiaonei Login Page (Bottom)

onei evokes some skepticism about its originality. Like Facebook (Figure 1 top), Xiaonei’s main page (Figure 1 bottom) uses a dark blue color scheme and a nearly identical to Facebook’s sign-in page. However, visual similarities are not the only reason that Xiaonei has obtained the nickname, “the Facebook of China.”

INTERNET IN CHINA: A MARKET IN THE MAKING Since its birth in 2005, Xiaonei has accumulated approximately 40 million users, ranking fourth in Chinese social network services (SNS). Xiaonei still has barely 10% of the number of users of Facebook, and for this reason one might consider Xiaonei to be less impressive. However, one must keep in mind that the IT influence in China is still in a stage of growth- rapid growth, to be more precise. In merely 9 years, the Chinese internet community has grown from 22 million to a whopping 338 million, which now represents 25.3% of China’s population (Figure 2). The growing trend continues at a relentless pace, and this growth is likely to increase as the Chinese population’s literacy rate increases and as the Internet becomes more readily available. This skyrocketing growth in internet usage has even surpassed China’s crown jewel, the gross domestic product (GDP) growth rate. RACE TO STARDOM AND THE FACEBOOK BAN As Xiaonei accumulates users within the Chinese market, Facebook will lose some influence. The clash between these two social networking giants is inevitable, and it looks like China may BUSINESS ASIA • Fall 2009 • 17

be the battlefield. Despite Facebook’s immense influence, it has not assembled a dominant user pool in China. While Xiaonei retains some 40 million users, Facebook only holds a meager 1.4 million. Clearly Xiaonei is the more prevalent force in China, and Facebook may not have the means to surpass it. A simple illustration of the number of searches of Facebook and Xiaonei shows that the difference in popularity between the two SNS is very significant (Figure 3). As Facebook made its trip to the Far East, it was met with another substantial obstacle when it knocked on China’s doors. Its first difficulty occurred when Facebook users in China tried to access their profiles this past summer. Later, the seemingly minor technical difficulty turned into a full-fledged inability to open the Facebook homepage. Any Facebook user who has spent time this past summer in mainland China would have realized that it was virtually impossible to access Facebook. That is rightFacebook now finds itself resident in the list of censored foreign websites compiled by the Chinese government. For those who frequent foreign websites in China, this might not have come as a surprise. The Chinese government is notorious for blocking access to websites on which anti-government discussions or protests can originate. YouTube was one of the first well-known website to be blocked in China, and just recently Twitter joins their ranks in what has been dubbed “the Great Firewall of China.” Following the riots in the Xinjiang province of China, Facebook users in China have been denied access, and the ban looks to be long-term. There has not been any official statement from the government clarifying the ban, but users are well aware, as they now need to use proxy services. If the Chinese government does not lift the sanction, this may prove to be a fatal blow to Facebook’s ambitions in China.

Internet Penetration in China from Internet World Statistics 2009 Year 2000

Users 22,500,000

Population 1,288,307,100

% Pen. 1.70%

Usage ITU

2001

33,700,000

1,288,307,100

2.60%

ITU

2002

59,100,000

1,288,307,100

4.60%

ITU

2003

69,000,000

1,288,307,100

5.40%

CNNC

2004

94,000,000

1,288,307,100

7.30%

CNNC

2005

103,000,000

1,289,664,808

7.90%

CNNC

2006

137,000,000

1,317,431,495

10.40%

CNNC

2007

162,000,000

1,317,431,495

12.30%

CNNC

2008

253,000,000

1,330,044,605

19.00%

CNNC

2009

338,000,000

1,338,612,968

25.30%

CNNC




THE OVERALL ASIAN MARKET: FUTURE FOR FACEBOOK? Along with the rapid social development that permeates almost the entirety of Asia, the Internet has seen an equal increase in its usability. Social network services like Facebook are not alien to some of the technologically advanced countries. Cyworld is the primary networking service in Korea and Mixi in Japan. Just like Xiaonei, these SNS have built up sturdy user bases and are strong competitors for Facebook. So is there any hope for Facebook in this tightly knit Asian market? What Facebook holds as an advantage is its enormous and expanding worldwide influence, which will likely eventually get through to countries like China. In terms of technology, Facebook also has the upper hand. As Xiaonei has occasional glitches and bugs in its services, Facebook’s level of technological maturity is far superior. Of course, the last player in this game is the Chinese government, which should relax its media control policy to allow Facebook the chance to flourish in China. Only if these criterias are satisfied can Facebook then make its great march into the Chinese market. Who is to say that Facebook cannot overtake Xiaonei and other Chinese SNS to become the leading social networking tool for the Chinese? BA

Search Volume: Facebook vs. Xiaonei from Pieter-Paul’s Masters Thesis

Figure 2: Internet Penetration in China (top) Figure 3: Search Volume: Facebook vs. Xiaonei (bottom)

18 • BUSINESS ASIA • Fall 2009

Technology

The Great Firewall of China and its Business Implications By Felix Lau, Hong Kong University of Science and Technology

THE GREAT FIREWALL OF CHINA “The Great Firewall of China” is not a newly discovered world heritage, but deemed as a “modern engineering achievement” by the People Republic of China (PRC) Government. The Great Firewall, officially called the Golden Shield Project, is a billion-project to monitor and ensure the safety of the internet in Mainland China through censorship and surveillance. The project’s nickname (Great Firewall) is a word play of the firewall technologies behind the project and the famous historical heritage, the Great Wall of China. While the project sounds like it is for the common good of Chinese citi-

zens, censorship of websites is often driven by political reasons. Blogs and websites of foreign media companies are amongst those most commonly filtered since they include content of taboo topics such as democracy, “Falun Gong”, Dalai Lama etc. Although the Golden Shield Project is seemingly a political plot, it actually originated from the e-government project, The Golden Project. “Golden Shield” is only one of the products of government efforts to utilize the internet more in administrative tasks. Other Golden Projects include the Golden Custom Project, which promotes paperless trade using an electronic system, and the Golden BUSINESS ASIA • Fall 2009 • 19

Card Project, which helps to build a national credit card network. Although the benefit of these projects are unknown, they indeed helped businesses and the government to improved their services using information and communication technologies to some extent. The PRC Government climbed up 10 places in the global United Nations e-government readiness ranking in 2007.

bypass the Great Firewall using a technology. Proxy is a way to connect to the internet indirectly through other servers or computers securely. Since the data transferred through the proxy can be encrypted, the censorship system cannot filter the information transferred. However, as using the “proxy” technique uses the network bandwidth of other servers, the Great Firewall indirectly increases the load of these servers. FOREIGN INVESTMENT AND When Wikipedia was being blocked in ChiTHE GREAT FIREWALL na, many companies in mainland China employed the When Google decided to enter the Chinese search “proxy” technique and accessed Wikipedia and other engine market, the presence of the censorship system is blacklisted websites through servers from their partners the major concern of Google since it has to self-censored in Hong Kong. Many small and medium enterprises did its search results and keywords. With the mission of mak- not have good enough IT infrastructure to handle the exing information universally accessible, self-censorship tra load from Mainland China and their servers’ collapse definitely compromised its core value. In face of the op- induced collateral cost. positions from many shareholders, the management team still decided to enter the China market because of its huge FUTURE OF THE GREAT FIREWALL market size. The PRC Government has not stop investing Even though Google made its decision to enter in the Internet censorship system. The recent software this market, the business benefit from the expansion is “Green Dam – Youth Escort” is yet another effort to proved to be not strong enough to justify its initial deci- ban access to “inappropriate content” by employing keysion. The market share of Baidu, the biggest search engine word filtering and image recognition. Although the PRC service provider Government in China, is double The PRC government’s description of “The Great tried to force that of Google afall the PC venFirewall of China”: a ter two years since dors to install the introduction “Green Dam of Google.cn. – Youth Es W hile cort” in all the Google China PCs shipped has a long way to in Mainland catch up with its China, it faced local competitors, a huge opposithese local comtion from local panies has benand foreign efited quite a lot PC vendors. from the Golden In the end, the Shield Project because it discourages foreign technol- Government compromised to the PC vendors and limogy firms to invest into the Chinese market. Tudou and ited the installation of the new censorship software to Youku, the largest and the second largest video sharing educational institutions and other organizations. websites in China, also benefits from the project because It can be seen that even the Golden Shield Projits main competitor, Youtube, is blacklisted. ect will become more technologically advanced and the scope that it censors will only expand. At this moment, IMPACT OF THE GREAT FIREWALL ON CHINA’S when foreign investors, especially in the field of IT, are NEIGHBORING REGIONS entering the Chinese market, what they can only do is to Unable to access information freely in China, be aware of the censorship system and also the strong people have started to employ the “proxy” techniques to competition from local companies. BA

“modern engineering achievement”

20 • BUSINESS ASIA • Fall 2009

Entrepreneurship

Stimulating Rural India By Lindsay Serene, Cornell University

Photograph by: mckaysavage Source: http://www.flickr.com/photos/mckaysavage/sets/72157603822434767/

T

he bolts of fabric scrape the gritty floor as she runs her hand over each one. Not only is she testing the feel of the fabric, but also the way it looks at a glance, how it might look through the eyes of a passerby. She takes her time deciding which fabric to purchase and have tailored, finally deciding on buying enough yards of the saffron and burnt orange khadi, a simple homespun weave, to make a sari. It is to be cut so that the hem falls slightly above the ankle, not as a fashion statement, but rather as a show of practicality. She can move much better and keep the sari cleaner longer with it trimmed so as to be above the ground. Across the street, women and men labor knee high in dirt. Soil lobs up out of the ground as workers prepare to plant thousands of trees. No hem is safe in this type of work. Whatever colors the fabrics were at the time of purchase: turmeric yellow, lime green, or orchid blue; they are all threadbare and brown now. From the outside, the woman shopping and laborers planting saplings seem somewhat unrelated, but both are a part of a system that is working to bring sustainable employment to India’s impoverished rural population. At first glance, India’s unemployment rate looks moderate at 7%. This is misleading. India’s agriculture industry is a prime example. Workers in this sector tend to be underemployed: there are too many people for too little work. This spreads the profits thin, leaving millions under or

near the poverty line, yet those in this “underemployed’ category are still counted among those of the employed. This disparity between population and job demand in rural areas has prompted the Indian government into action. Their efforts have not been without success. In 1973, 55% of the Indian population was under the poverty line, a stark contrast with the 25% of Indians who fell below that same line in 2007. While India has made leaps and bounds to reduce poverty, the remaining 200 million impoverished people indicates further room for development. In ascension, the Indian government implemented the National Rural Employment Guarantee Act (NREGA) in 2006, which has been the forerunner of this movement. Committed to providing employment, the NREGA guarantees 100 days of minimum waged labor (about $2 a day) a year to the 700 million people in rural areas. Although, they knew that for the system to work fairly and efficiently, they would have to take some preventive measures against the middleman. Middlemen are responsible for bringing the problems of the everyday citizen to the attention of officials and law enforcers, following the payment of a bribe. After pocketing their cut, they then pass along the majority of the profit to the higher-ranking official. This finally enables the exploited citizen to have something that was, most probably, already rightfully theirs. In order prevent this type of profiteering; workers under the NREGA attend mandatory “social audits.” During these audits, workers review work orders, payment records, worksheets, and other official documents, thereby giving the villager the authority to hold employers and the government accountable for their time and money. Sound too good to be true? The NREGA system, perhaps not so surprisingly, is somewhat corrupt. Many complaints have been made by the elderly and handicapped, as consideration has not been given to their limitations. Too often they are assigned construction jobs, the most prevalent type of work, and one in which they cannot participate . In response, the NREGA insists that jobs BUSINESS ASIA • Fall 2009 • 21

are based on demand. the community bank for future development. This demand hasn’t been able to facilitate their Mr. Sabyassachi has already brought khadi to a 100-day guarantee either. Millions of people participated star-studded level, dressing the likes of Bollywood superin the first year of the acts inception; only 10% obtained star Aishwarya Rai. By bringing khadi into the internathe full 100-days. Those who obtained work have found tional spotlight, he believes he can increase sales, resulting that these new jobs do not necessarily guarantee a bet- in a trickle-down-effect that, ultimately, enables laborers ter life.. Touting, intimidation, and bribes made by mid- to receive the money they deserve. Mr. Sabyassachi’s dlemen and higher-ranking officials have stripped many personal taste and conscious effort to support the local workers of their hard-earned profits. Part of this prob- economy has helped to stimulate India’s rural economy. lem arises from low literacy rates. About 60% of the rural Another man who has also worked to bring about population is literate, but are still unaware of their rights stable employment in impoverished areas is Mr. S. M. as citizens. . For those few who do know, the risks in- Raju. Along with the NREGA, he has promoted treevolved with fighting corruption is often far too high. In planting and job-renovating programs, through which he May 2008, on the day before an audit, the body of a social aspired to plant one billion saplings in a single day. Aware advocate was found, beaten, and left in a shallow grave, of the NREGA’s weaknesses, SM Raju used this initiative illustrating the dangers of speaking out. to provide work for elderly and handicapped in addition to On paper, the NREGA works well, but in real- the able-bodied. The able-bodied led the proposal when ity there are many underlying issues to work out. Unlike on the designated day, these villagers planted the approxithe middlemen and officers who will try to make a profit mately 1 billion saplings. That was only the first day. The at any expense, there are some altruistic men trying to rest of the work is more considerate of people’s limitamake the system work. Through the power of purchas- tions: labor in the form of caring for the new trees. As an ing and direct contact with NREGA, men like Sabyasachi added incentive for the quality of work done, the villager’s Mukherjee and SM Raju are creating profits are dependent upon the trees jobs in rural India. survival. The program is broken into The NREGA guarantees Mr. Sabyasachi Mukherjee has groups consisting of four families each, 100 days of minimum called out to Bollywood, India’s most each group being responsible for the influential, and the general public, askwaged labor (about $2 care of 200 trees. Their livelihood deing them to discard their western-style a day) a year to the 900 pends directly upon the survival of the clothing, promoting instead, a return to trees: to receive full payment a group million people in rural khadi, which is a very simple homespun must keep 90%, or 180 of their trees areas weave. It is most notable as the fabalive. Tree survival rates between 75ric worn by Mohandas Gandhi in the 80% warrant a profit of only half the 1930’s that he used it to illicit national wage, and below that the groups are repride and stimulate the rural economy. Mr. Mukherjee’s placed with other unemployed families. The goal of this motives are very similar. project aimed to both increase the public’s environmental Although, recently khadi has been labeled as a awareness and also create sustainable jobs for villagers in ‘poor man’s fabric,’ and for this reason Indian designers India’s poorest state, Bihar. tend to avoid the simple, durable fabric. Mr. Sabyasachi From dressing India’s one billion plus population disagrees with this trend, instead arguing, “Khadi is re- to planting a billion trees, Sabyasachi Mukherjee, SM Raju, fined, sophisticated, eco-friendly and comfortable, and and the NREGA are all working toward bringing a better has too long been regarded as the poor man’s fabric…To standard of living to India’s rural communities by stimuwear it is a sign of being well-dressed and cultured.” More lating the job market. Each source supplements the othimportantly, it provides work for India’s rural craftspeople. ers so that jobs are being creating in industries as diverse In 2008, Mr. Sabyassachi set up cooperatives in Rajasthan, and wide ranging as weaving, forestry, and construction. Gujarat, and the West Bengal state of Barasat. These co- They are thus enabling every member of the community operatives, like the NREGA, have been set up intention- willing to work, the opportunity to do so. Thereby proally to cut out the middleman, providing laborers their full viding not only the hope of a better life to 700 million 50% share of the profits. The other 50% is returned to people, but the reality. BA 22 • BUSINESS ASIA • Fall 2009

Entrepreneurship

Interviewee’s Biography

Entrepreneurship in China, Part 1: The Importance of Guanxi By Sandy Tun, Cornell University A graduate of Cornell University, Kevin McGovern ’70 is currently the chairman and CEO of McGovern Capital, a private investment firm and global intellectual property rights strategist. He is the key shareholder in more than 15 companies and has engaged in multiple ventures in Asia. In 2007, he was honored the Cornell Entrepreneur of the Year award, which is given to those who exemplify entrepreneurial achievement, community service, and high ethical standards. An active member of the Cornell Board of Trustees, McGovern also founded the Cornell Club in New York City. McGovern earned a law degree from St. John’s University School of law (1975) and also studied at the London School of Economics. McGovern is also the countrieschairman of Angstrom Publishing, which works with Forbes, and of the Silver Shield Foundation, providing scholarships and benefits to children of firefighters and police killed on duty in New York, New Jersey, and Connecticut. McGovern is currently working on The Water Initiative, a system aimed at providing which will be active in Asia very soon.

BA: Business Asia || KM: Professor Kevin McGovern BA: You’ve had many ventures in China- can you describe a little about your experiences? KM: I first went to China in late 1993 and started meeting with some Chinese businessmen in Shanghai. In the beginning, I didn’t try to do business with them. I made sure I went back three or four times and I went to build a relationship with them. So we got to know each other as friends and started talking business in general. I find that Americans often plunge into business too quickly and don’t realize relationship is much more important. Don’t worry about doing the business first. As you know, the Chinese call it “guan xi.” Once you build a relationship like a friendship, then you can build trust and then you can build a business relationship on that. Really, if you don’t have trust in the people that you’re dealing with, you have little else because legally, you’re not going to be enforcing contracts in foreign countries to any great extent. The court systems in Asia are not useful. If you have good relationships, you work out your issues yourself. Don’t try to go to third parties; the world is build upon people who work it out amongst themselves. I was also taught that the law in China is to make sure that they need you more than you need them. It’s more of a necessity game, so even when I was closing deals, I talk about BUSINESS ASIA • Fall 2009 • 23

the next deals that are coming. Thereby, everybody can see that the long-term relationships with my company were worth it in the long run. That’s sort of the cement that seals that relationship.

BA: What advice would you give to anyone who’s potentially interested in going to China. What qualities do you think is important in an entrepreneur and any suggestions you have?

BA: As you said, connections and guanxi are very important. How would someone who is in the US without backgrounds in Asia go about establishing these connections?

KM: The number one thing I advise people is to learn in school. Don’t disregard things because you don’t think it’s exactly on the path to business. The human side of things is exceedingly important, not just the business side. So learning about culture, learning about history, learning not just about economics and learning the things that you have in a liberal arts education are very important in you becoming an individual who can lead other people. After all, at the end of the day, the entrepreneur is a leader. He’s leading his own company. If he doesn’t understand people, if he doesn’t have sympathy for people, if he doesn’t have a historical perspective of people, he’s not going to be a successful leader. So I always say to people, even if you’re having a job that you don’t feel is a stepping-stone in your career, learn something from it. Pick out the most talented person in that office, even if it’s not necessarily your boss, and learn from them. Constantly learn. We become a library of knowledge and the more general knowledge that you have, the more you can pick and choose from things you’ve learned and adapt to situations. I find that the best inventors are generalists. It’s not people who understand one area, it’s that they can pick out from one area and can think outside the box. You can’t think outside the box if you don’t have knowledge of what is outside the box. So general knowledge is exceedingly important. So learn whatever it is. Learn! BA

KM: Well, we all meet and start talking about things. What I like to talk about is family and I like to talk about what interests them, such as their hobbies and families. When I first met the chairman of the investment association of Shanghai, he told me his grandson was a Yankee fan. So when he invited me to his house for dinner during my next trip and his grandson happened to be there, I had a plastic bag with a Yankee cap and we’ve been friends ever since. Whenever one of my friends came from Asia, I made sure to entertain them on the same level if not greater than they were kind enough to entertain me there. I would invite them to my home in Connecticut, meet my neighbors, and show them that they were truly my friends. It’s much more than words- it’s truly actions. Much more than intelligence, much more than knowledge of taxes or trade, the number one trait you need to do international trade is sincerity and in building relationships with each other. Despite linguistic differences, people can feel if a person’s sincere and follows through with promises.

❝

Much more than intelligence, much more than knowledge of taxes or trade, the number one trait you need to do international trade is sincerity and in building relationships with each other.❞

24 • BUSINESS ASIA • Fall 2009

Lifestyle

Eden without a Forbidden Fruit: An Introduction to Singaporean Food By Yun Qi Mok, Cornell University

W

hen Sir Thomas Stamford Raffles of the British East India Trading Company landed on a little island in highly contested waters in 1819, the Malay fishing village’s destiny was altered forever. The petite island grew into a bustling trading port and a modern city with an estimated 9th highest GDP per capita in the world, and also blossomed into a paradise for food. Singapore, while famous (or perhaps infamous) for being clean in everything from its streets to its politics, is also a place for the indulgence of the senses, especially that of taste and smell. As a Singaporean who has lived overseas most of my life, I know well that craving for Singaporean cuisine. Its charm comes not only from the rich variety of food from different cultures, but also from the fact that Singaporeans invent extremely homely and cute variations of typical foods. Food aside, the true eating experience that can be enjoyed at hawker centers or outdoor food courts, is something that cannot be replicated elsewhere. Most of all, however, is the fact that Singaporean food is something that is part of the Singaporean soul.

A Brief Introduction A most common analogy made of Singaporean food is to rojak - a light and refreshing salad of fruits and vegetables such as pineapples, guava, green mango, and sweet turnip tossed in a sugared prawn paste and lemon sauce - which in Malay literally means “wild mix.” Singaporean food is a wild mix of many different foods from the different ethnic races in Singapore. Historically, Singapore is a migrant society, so when the Chinese, Malays, Indians and other peoples migrated to Singapore, they brought over their traditional dishes. While most cultures pride themselves on their most elaborate and sophisticated dishes such as sharksfin soup in China, fugu (pufferfish) in Japan, or foie gras in France, Singaporean food seeks to be humble, reflecting its simple origins. It is truly the food of the people, a thread that can weaves throughout and bind the races, the classes and the people.

Laksa An absolute must-eat dish is laksa, the brain child of the Peranakan culture, a culture born

from a combination of Chinese and Malay cultures. Thick, white laksa rice noodles swirl in an infusion of coconut and sambal-chillied prawn paste soup, and the dish is finished with a light sprinkling of coriander herbs. Common additional ingredients include prawns, crispy beancurd and fried fish cakes. The aroma of laksa can entice and waken any dulled appetite, and the slight burning of the tongue from the chili only beckons you back for more.

Sources, from top to bottom: coffeeshopexample.wordpress.com, nsshotel.com, baltimorecrabs.wordpress.com

Satay Originally a Malay dish, it has garnered the love of people from all cultures. Pieces of chicken,

mutton or beef are skewered and grilled over a charcoal fire, then served with spicy peanut sauce, cucumbers, onions and ketupat, a type of cold rice cake. Since satay is usually sold at night in outdoor hawker centers because the midday heat makes it far too hot for daytime grilling, lines outside satay stalls can stretch on endlessly. But don’t be deterred; the perfection of the slightly singed meat sweetly blending with the delicious seasoning will please immensely. Interestingly enough, I have found that one of the best places to eat satay cannot be found on earth itself, but rather in our troposphere. Singapore Airlines serves fabulous satay as an appetizer to its first and business class passengers.

Chili Crab Because it is an island, Singapore has a wide variety of readily available seafood. Seafood

restaurants line the beaches of Singapore, and their menus are filled with delights such as crispy squid in a dark sweet sauce, steamed fresh prawns, curry fish head, but most famous of all, chili crab. Cooked in a tomato and chili sauce, chill crab is incredibly addictive. People usually order a side dish of either steamed or fried mantou, or white buns, which they can dip into the sauce and enjoy. It can get quite messy, but it is a dish you can really enjoy with family and friends.

BUSINESS ASIA • Fall 2009 • 25

Hainanese Chicken Rice Smooth and soft, the glistening chicken slides down your throat, while the rice, oily and

cooked in the chicken broth mixed with a scent of coconut, brings out the flavor of the dish. Originally a dish from Hainan, China, Hainanese chicken rice has become a typical staple of the Singaporean diet. Simple, though slightly unhealthy, Hainanese chicken rice is a dish you will never get sick of because of the subtle blending of its tastes. * * * * * * The list, of course, goes on and on, but readers might by now be thinking that Singaporean food is simply borrowed from other cultures, and that nothing is truly Singaporean, invented by Singaporeans, on Singaporean soil. Now, be prepared to be awed by our innovations.

The Milo Godzilla Invented by Al-Azhar off Upper Bukit Timah road in Singapore, the Milo Godzilla is a calorie

laden drink consisting of a glass of iced Milo, covered with scoops of pure Milo powder, completed with whipped cream and sometimes ice-cream on top. Like its name, the Milo Godzilla is an epic drink that fully indulges your taste buds.

Roti Prata (and its derivatives)

Originally an Indian dish known as paratha, Singapore has taken the concept of the flat dough pancake and transformed it into countless different forms of prata. A popular type of roti prata known as tissue prata emerged recently, and Singaporean Rachel Lam, a freshman at Cornell, describes it as “tissue-like in its thinness, crisp, [and] melts in your mouth with a lingering sugary and syrupy taste.” Other ingredients such as cheese, egg, banana, chocolate, and even durian are being integrated into the roti prata, thus creating various pratabombs.

Durians and durians and durians… Something has to be said for a fruit which has a smell that most people unfamiliar with it would find rather repulsive, when Singapore builds its beautiful Esplanade – a center for performing arts - in the shape of it. While durian, a spiky fruit with yellow flesh inside, is popular throughout Southeast Asia, it has definitely made its mark in Singapore. Despite it being banned on trains, buses, taxis, elevators, and other enclosed public spaces due to its pungent smell, people still go to great lengths to procure durians and bring them home. In fact, some people even drive out to the outskirts of Singapore during durian season at night, and wait with torch-lights for the sound of durians dropping to the ground from the durian trees, and rush over to beat other durian hunters to collect those fresh, ripe, and free durians. Besides the durian fruit itself, Singaporeans enjoy many durian products such as durian puffs, durian ice-cream, durian paste, durian candy, and even durian mooncakes. Durian is certainly an acquired taste, but it’s sweet, golden tang is truly addictive and satisfying.

The Hawker Center

BA

Fun Facts!

•Singaporeans usually eat with forks in their right hands and spoons in their left hands •Singaporeans place a pack of tissues on chairs and tables to “chope” or reserve their spots 26 • BUSINESS ASIA • Fall 2009

Sources, from top to bottom: newasiancuisine.worporess.com, hungrygowhere.com

The open air food courts complete the Singaporean food experience. True, it can get hot and sticky in Singapore’s tropical weather, and granted, it may not have white table clothes or crystal glasses, but apparently that’s where all the authentic, delicious local foods are found. Glorified Singaporean food served in hotels or restaurants are, no doubt, extremely satisfying, but if you ask the old folks, a fifteen dollar laksa can never compare to a three dollar laksa down at a hawker center. Something about the heat, the noise, and the multitudinous people crowding around the place adds to the excitement and feeling of connection between people. In hawker centers, businessmen in suits loosen their ties to combat the heat, aunties wearing sandals fan themselves with bamboo fans, little children run around the tables, and old men sit and play Chinese chess. In that one place, drawn together by the same food, everyone belongs - everyone simply becomes a lover of food.

Lifestyle

Photograph by: dayangchi Source: http://www.flickr.com/photos/dayangchi/1765215453/sizes/o/in/set-72157601922326253/

I

ncrease in productivity led to the emergence of surplus rural laborers in China, resulting in a large-scale labor transfer from the rural areas to the cities in search of employment and higher income. Currently, China has over 130 million rural laborers - about 1/10 of its population. Rural laborers normally engage in work which offers little pay or prestige. Their employment opportunities are limited by their poor skill sets and low education levels. There have been concerns over the working and living conditions of the rural laborers. According to China’s National Bureau of Statistics, rural laborers work on average for 6.29 days per week and 8.93 hours a day. 20% of rural laborers live in residences without cooking devices and 12.5% have no accommodation in the cities. Many laborers who work at construction sites live on the site in temporary housings, which are overcrowded and of poor sanitary standards. Most rural laborers work in such difficult conditions in the hope of improving the lives of their family. The National Bureau of Statistics indicate that as of 2006, an average rural laborer sends RMB 375 as remittance to his rural home per month. This remittance is undoubtedly a significant amount given that rural laborers’ wages averaged about RMB 966 per month in 2006, a figure substantially lower than the national average of RMB 1750 per month. In fact, over 50% of rural laborers have monthly income lower than RMB 800, and 20% of that actually have an monthly income below RMB 500. Furthermore, less than 10% are paid over RMB 1500 per month. To protect the welfare of low-skilled laborers, most Chinese cities have set minimum wages based on their general income levels. For example, Shenzhen, one of the most developed cities in China established a minimum wage of RMB 1000 inside its Special Economic Zone in 2008. Less developed regions such as Kunming, capital of the southwest province of Yunnan, has established a minimum wage of RMB 680. However, implementation of such regulations has been challenging for a densely-populated China. Many employers have found ways to evade government supervision and a large group of rural laborers remain underpaid, even according to their already low standards. In addition to their economic problems, the rural laborers are experiencing social difficulties. China’s current household registration system does not allow rural laborers to be registered in the cities they are working in. Without being legally recognized as residents, rural laborers continue to be viewed as outsiders and are afforded limited insurance and social security. Many experience identity crises as they do not feel a sense of belonging to the cities nor their rural homes.

A Close Look at China’s Rural Laborers By Cathy Meng Xue, Cornell University

BUSINESS ASIA • Fall 2009 • 27

10%

of the Chinese population are rural laborers

6.29

8.93

average work hours per day

20%

live in residences without cooking devices

12.5%

have no accomodation in the cities

17.2%

of rural laborers bring their children with them and send them to schools in the cities

30%

of rural laborers are getting proper treatment at hospitals when ill

28 • BUSINESS ASIA • Fall 2009

gle for employment. When they fail at such attempts, they create social uncertainty which threatens public security and creates an even greater burden for the public service system. In the end, the large-scale unemployment of rural laborers due to the global financial crisis is partly attributed to the Chinese economy’s heavy reliance on exports. When numerous export contracts are lost, export-oriented industries such as manufacturing experience a heavy blow, resulting in mass unemployment. Moreover, China’s export-oriented industries are precisely those that rely on cheap labor, as low labor cost has been the foundation of China’s comparative advantage. Ultimately, the Chinese government plays a pivotal role in improving the welfare of the huge group of rural laborers and handling the associated problems. The long-term hope lies in the structural adjustment of China’s workforce, where average educational levels improve and more lower-skilled workers update their skill sets. The urbanization of China’s rural areas is also underway; some of these rural regions are accommodating more and more surplus labor as their economies expand. In the short run, the Chinese government has made huge amounts of investments in the market to alleviate the throes of the global financial crisis. As consumption and demand improve with government investment, factories are once again employing new workers. In fact, currently the Pearl River Delta region is actually experiencing a labor shortage. In the end, the future of China’s 130 million+ rural laborers may have had a gloomy outlook but will most likely begin to enjoy consistent improvement over time. BA

Photographs by: bbcworldservice Source: http://www.flickr.com/photos/dayangchi/1448160221/sizes/o/in/set-72157601922326253/

FROM THE NATIONAL BUREAU OF STATISTICS

average work days per week

Furthermore, China’s largescale worker migration has caused social problems. Many families left behind in the rural areas by the laborers become dysfunctional due to incomplete familial structures. Children in such families are prone to be neglected in terms of parental care and education. The National Bureau of Statistics discovered that only 17.2% of rural laborers bring their children with them and send them to schools in the cities. Health of rural laborers is another concern. Though public health care for common illness is not seen as expensive by China’s general public, most laborers wish to save as much money as possible and thus refrain from proper health care. According to the National Bureau of Statistics, only 30% of rural laborers are getting proper treatment from hospitals when they are sick. The global financial crisis has, without a doubt, aggravated the difficulties experienced by the rural laborers. According to Mr. Chen Xiwen, the Vice Minister of the Office of the Central Leading Group on Financial and Economic Affairs, as of February 2009, over 20 million rural laborers have lost their jobs or failed to find employment before returning to their rural homes. Mr. Chen’s statement is based on a random sampling survey of some of the major labor exporting areas among 150 counties in 15 provinces. Most unemployed rural laborers face a dilemma between returning to their rural homes and staying in the cities. After experiencing the modern and vibrant environment of the cities, many have problems re-adapting to their previous lifestyle – one that involves repetitive farming in a monotonous environment. Others choose to stay in the cities and continue to strug-

Careers

Sales and Trading in Tokyo

John Vilina is a senior in the College of Arts and Sciences at Cornell University with a major in Economics. He spent this past summer doing a Sales & Trading internship at UBS in Tokyo. BA: Business Asia || JV: John Vilina

By Alexandria Sun, Cornell University

BA: John, how did you land the opportunity to work on the trading floor for UBS in Japan this past summer?

a chance to demonstrate your ability more- it was more hands-on. Unlike many companies on Wall Street, there was no two-week training session at the beginning to get JV: I got hired in the Boston Career Forum by Disco. familiarized with the job. They expect you to take initiaThere is one in LA and one in Boston. Many international tives and learn fast. corporations that have branch offices in Japan recruit people who have an international background and speak Japa- BA: What exactly did you do on a day-to-day basis? What nese. It was an intensive interview process. Unlike other are the hours like? interview processes, the interviews for me were spread out for two days straight. JV: I was a sales trader, or I traded on the seller’s side. The sales traders would talk to clients and execute orders. I BA: What was the interview process like? didn’t work directly with a client, but I did provide insights on what will go on. On a typical day, I would wake up at JV: Every bank had a booth set up for initial screening. 4:45am, leave home at 5am, get to my desk at 6am, and If you pass the screening, you will then get an offer to by 6:30am look over research data and compile and highthe first round of interviews. You typically need to pass light news that traders might find useful. At 7:30am, there 6 rounds of interviews to get an internship offer. I had would be a group meeting with the sales team. The market 6 rounds of interviews with UBS in one day. At the end, starts at 9am and the interns generally help the sales tradthey took me to wine and dine in a social setting. ers. At 11 am, we have our lunch break. Someone from the office would usually take a team of interns out. The BA: What’s the internship program like? associates are very personal and usually tell us about how they got into that line of work. We would go back at 12:30 JV: It’s an 8-week program from early June to mid August. pm. As a rule of thumb, you can’t talk to traders 15 minI worked in equity sales and trading. The company paid utes before the market opens or closes. Afternoon session for my flights to Tokyo. I earned about the same salary is more relaxed. The interns need to anticipate the traders’ as the interns on Wall Street. The firm also got me a nice needs at any moment. After the market closes at 3pm, the hotel apartment 20 minutes from the office. It’s just like a traders would call up the people they dealt with throughnormal trading job on Wall Street; however, the key dif- out the day. During this time, I would practice trading in a ference is that there are fewer interns. As a result, you get terminal. Sometimes, I compare what I would have traded BUSINESS ASIA • Fall 2009 • 29

at the end of the day with that of other interns. I usually would go home around 6 or 7pm. Trading is not that bad in terms of hours: 12 hours per day, 5 days a week. The hours are definitely earlier than investment banking hours. BA: What’s the corporate culture like in Japan and in UBS? JV: English is the primary language in the office. It’s very international. You have people from England, US, and Australia. In UBS Tokyo, you can only ask a question once and never twice. It is a very fast-paced environment. You need to be always on your feet. The after-work drinking culture is very prevalent in Japan; I could have gone out with my colleagues every other day. The people I work with would joke around.and are fun to be around. You truly feel like you’re part of the UBS family and people tend to have a lot of loyalty to them. We even have a soccer match every other week.

You have to be able to handle the stress. The probable way to prepare is to trade on your own because there’s no way you’ll understand unless you’ve lost some of your own money. time they are 30-35 years old. On Wall Street, probably around 40, but you do need diverse experience to become a managing director. BA: As a foreigner, what did you find challenging to work in Japan?

JV: I grew up in Japan, so adjusting to Japanese culture wasn’t tough for me. But for a lot of people, it is difficult to learn the cultural subtleties. There are certain JV: I did four stock pitches on a few weekends. I was giv- rules such as different degrees of bowing. When you get en the task of explaining a stock pitch in one minute and a business card, you should look at it and keep it out for had to be convincing enough to make the sales traders a while before sticking it into your pocket. The core of buy it. We would take the initiative to call the sales traders Japanese culture is mutual respect. to practice both paper and call pitches. BA: What mentorship did you get?

BA: What would you need to succeed in sales & trading? JV: You need to pitch stocks, have a good understanding of the market, and be able to define what kind of flow people are seeing. For traders, good relationships are the key to get buyers to buy from you. You have to love to be around people, enjoy talking and cultivate relationships. You have to be able to handle the stress. The probable way to prepare is to trade on your own because there’s no way you’ll understand unless you’ve lost some of your own money. They want people who are willing to learn. Average age on the floor was in the high 20s. Also, it is good to be emotionally detached from money from time to time.

BA: Where do you think the Japanese economy is going? JV: The Japanese economy has never recovered from the housing crisis in the 90s. Until we see physical recovery, there is no real reason for the bank headquarters to allocate tons of resources to Japan. From a strategic point of view, Hong Kong might be better. BA: Any advice for students looking for a foreign internship? JV: The key is networking. We have a great Cornell alumni network. It is important to go through some kind of connection. It is also helpful to call up the human resources in the region that you want to work at.

BA: Is there more room for professional advancement in BA: What’s your dream career path? Do you think this Asia? internship would help you get there? JV: Sales and trading is very performance-based. In Asia, JV: I would like to get a trading role in a couple of years, you can probably move up a bit quicker than in other then eventually move into venture capital. BA regions. Some people make to managing director by the 30 • BUSINESS ASIA • Fall 2009

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