Transcript Khon Kaen University International College International

Khon Kaen University International College
Business in the Greater Mekong Sub-region
Course number 050 451 - Second semester 2013
Wednesdays at 9:00 in room 823
Lecturer: Michael Cooke
office room 817
E-mail: [email protected]
Web: KKU.AC.TH/Michco
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Find a successful industry in GMS, or one which shows potential to be
successful (13 Nov)
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Explore reasons the industry located in GMS
What is the nature of the business (capital or labor intensive, etc)
Any spillover effects?
What was the mode of entry for the businesses?
Study a GMS country in which the industry is successful (4 Dec)
 What are the strengths of that country from a business perspective?
 What are the weaknesses?
 Look for barriers to further business success in the country
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How do you see the business evolving (5 Feb)
 Effect of ASEAN or other alliances (trade, labor mobility, etc)
 Relevant demographic, economic, trade projections
 Infrastructure, education, and other changes as a result of government or
business initiatives
 Advice you would give to government units to encourage industry growth
What are the CLMV Countries?
 Enormous differences in economic development and history
between Thailand and Cambodia, Laos, Myanmar and
Vietnam
 Analysts group Thailand with more advanced economies
 Vietnam is the most developed of the CLMV countries
 Within Thailand, the Northeast now has the most rapid
economic growth, but still lags Central Thailand
 Some Bangkok based Thai firms, such as Central Group, owner
of Robinsons, Centara Hotels, and Central Malls, see growth
opportunity in Isaan
 In the Northeast, rising incomes, property prices and consumer
spending have generated economic growth of 8% annually, or
double the rate of Bangkok, according to Siam Commercial Bank
Plc *
 The wealthiest area is Rayong, where Ford exports ¾ of the
production of two factories *
http://www.bangkokpost.com/business/news/376967/thailand-s-rural-boom-yields-mercedes-and-us-6000-jacuzzis
Ford Leaves Australia
 After nine decades, Ford leaves in 2013 Australia, citing
high costs related to the strong Australian dollar
 The two remaining car producers (GM and Toyota)
could face a domino effect” as the industry becomes
too small to support its own supply chain
 Some of Ford’s Rayong production now goes to
Australia
 Thailand is now the 9th or 10th largest auto producer in
the world
http://www.bloomberg.com/news/2013-05-22/ford-to-close-australia-car-manufacturing-plants-afrreports.html
Mekong Watershed
36% of the River’s Volume is from Laos
Mekong River Commission
Secretariat
Resources
• JETRO (Japan External Trade Organization) established 1958 helps small to
medium size Japanese firms maximize their global export potential
• JETRO-Institute of Developing Economies (IDE) Bangkok Research Center links
– http://www.ide.go.jp/English/Links/southeast_asia.html
– Good for links to government and university sites for the GMS countries
• Institute of Developing Economies (IDE) Bangkok Research Center publications
– http://www.ide.go.jp/English/Publish/Download/Brc/
– Relevant and relatively recent research reports
– Examples:
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"Five Triangle Areas in the Greater Mekong Subregion" Edited by ISHIDA Masami / Published in 2013
"Economic Reforms in Myanmar: Pathways and Prospects" Edited by HANK LIM and YASUHIRO YAMADA / Published
2013
"Cause and Consequence of FIRMS' FTA Utilization in Asia" Edited by HAYAKAWA Kazunobu / Published in 2012
"Emerging Economic Corridors in the Mekong Region" Edited by ISHIDA Masami / Published in 2012
"Industrial Readjustment in the Mekong River Basin Countries: Toward the AEC" Edited by Yasushi UEKI AND TEERANA
BHONGMAKAPAT / Published in 2012
"Investment Climate of Major Cities in CLMV Countries" Edited by ISHIDA Masami / Published in 2010
"Economic Relations of China, Japan and Korea with the Mekong River Basin Countries (MRBCs)" Edited by KAGAMI
Mitsuhiro / Published in 2010
"Major Industries and Business Chance in CLMV Countries" Edited by UCHIKAWA Shuji / Published in 2009
"A China-Japan Comparison of Economic Relationships with the Mekong River Basin Countries" Edited by KAGAMI
MItsuhiro / Published in 2009
• Mekong Institute (on the KKU Campus) http://www.mekonginstitute.org/
Mekong Institute Focus on Labor
• http://www.mekonginstitute.org/images/abook_file/policy_bri
ef_labour_supply.pdf
• From a study of a Laos SEZ: “The breakdown in occupational skills indicate
mismatches in supply and demand for specific skills areas such as IT/computer
operators, maintenance mechanics, welders, sewers/dressmakers, gem
lapicides, and others. On the other hand, majority of students at TVET schools
enroll in accountancy and Business management courses.”
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From a study of a Cambodian SEZ: “The new SEZs that have been set up in the
border areas with Thailand and Vietnam have reduced the pull factor to
migrate to Phnom Penh for work. The preference of students for enrolling in
academic courses such as management and accounting due to the
perception that vocational training will lead to a career of hard labor and
low wages in factories. In Laos, many prefer to migrate to Thailand where
they can earn more even without the necessary educational credentials.”
Taxes and Corruption
 The Mexican government expects to get $1BB from a new tax on
sugary beverages in part of a war against obesity. Mexican water is
famously unsafe to drink, so Mexicans drink a lot of sodas.
 “So here’s an idea: now that we’ve taxed soda, let’s tax corruption. According
to the Mexican employers’ association, the cost of corruption is 9 percent of
our economic output ($1.2 trillion). If you apply the standard value-added
tax of 16 percent, you’ll collect $17 billion. If you think a tax on soft drinks
will make us healthier, just imagine what a tax on corruption could do. “
New York Times By DAVID TOSCANA Published: November 3, 2013
Who Owns the Land?
 A little known legacy of the Khmer Rouge (Cambodian
Marxists) was the systematic destruction of nearly all
land records in Cambodia. Land ownership is ambiguous
 The Khmer Rouge have been out of power since 1998
 Cambodian law authorizes a land title of sorts for people
who have been certified by local authorities as having
occupied the land for at least five years.
 However, land occupiers say that obtaining the necessary
certification from local authorities is nearly impossible
when political forces seek control of land
 Very often land title is unclear. What effect does this have
on the investment climate?
http://www.nytimes.com/2013/10/01/business/international/in-cambodias-cane-fields.html
Gabon seeks to reclaim Chinese oil assets*
 Gabon is planning to take assets back from three international oil companies including
a subsidiary of China’s Sinopec
 The move will increase tensions over a lack of clarity in the terms and conditions of
investment as Gabon prepares to launch a licensing round for the deep waters off its
coast.
 African countries attempt to get better terms from foreign multinationals and control
transfer pricing (slide 26) and tax evasion.
 Gabon plans to reclaim assets due to alleged breaches of contract by China’s Addax
Petroleum, when their contract renews in 2015.
 Assets reclaimed last year assets are now managed by the recently-created national
Gabon Oil Company.
 There are also suspicions that Gabon’s tougher approach is motivated by a desire to
reallocate producing assets to GOC, which wants to take stakes in existing and new
fields.
 According to the New York Times**:
 Niger’s oil minister said “This is all we’ve got. If our natural resources are given away,
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we’ll never get out of this.” He was commenting on a deal in which the previous ruling
party got a $300MM bonus for signing a contract with China National Petroleum.
 Ricardo Soares de Oliveira, a politics professor at Oxford and an expert on African oil
said “Even a weak state in Africa can have serious leverage. African-Chinese relations
are not as unbalanced as is sometimes argued.”
*Financial Times June 5, 2013 **NYT September 17, 2013
Rent Seeking
 Rent seeking generates increasing returns – with strength in numbers among the reasons
 In a farm economy with three activities, cash crop for market, subsistence farming, rent seeking:
 Rent seekers will expropriate cash crops until the returns fall to the level of subsistence
 In a system of very poorly protected property rights, returns to farming tend to fall to the level of
subsistence, where nothing is left to expropriate
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Rent seeking drives farmers out of cash crop production and into subsistence farming
Overall productivity and standards of living decline, as happens in Africa
 Countries with a good rent seeking equilibrium as a result of property rights protection can slide
into bad equilibrium due to war or social unrest
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These reduce both productivity and property protection
Getting out of bad equilibrium may require major government or civil service reform
 Private rent seeking is forms of transfer between private parties
 Lawsuits, theft, attack the productive sector of an economy
 Private rent seekers go after existing wealth, such as land and capital
 Public rent seeking is redistribution from the private sector to the state or to government
bureaucrats
 Lobbying and corruption are two forms of redistribution to bureaucrats
 Public rent seeking attacks (reduces) innovation
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Innovators demand for government goods such as permits is high and inelastic
Innovators have no established lobbies and usually lack the cash to pay bribes
In developing countries with weak property rights protection capital is usually not committed to long term
investment, to avoid expropriation
If an innovation fails the innovator bears the cost. If it succeeds, returns are expropriated
 Some harmful effects of public rent seeking can be reduced if rulers or bureaucrats have an equity
stake in innovative activities and long time horizons
Adapted from Murphy, Shleifer, Vishnay AEA Papers and Proceedings May,1993
Apple’s iPhone
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Why does Apple choose to assemble iPhones in China?
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Scale of operations
Supply chains
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Skilled technical workforce, including engineers
Clusters of excellence
Response times
Think of how 2011 floods in Thailand affected other manufacturers
Labor is not a big component of the total cost
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Apple employs 43,000 in the USA (and about 33,000 of those are low-wage retail or call-center)
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Apple’s contractors employ 700,000 outside of the USA
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Apple’s profits accrue to shareholders across the world
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Apple is a true global company
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Sales span the globe
Software created in USA
Marketing created and managed in USA
Supply chains span the globe
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iPhones assembled in China by a subsidiary of a Taiwanese company
Some components made in USA by S. Korean company (Samsung)
Glass made in Japanese factories by an American company (Corning)