Japanese Yen; Up And Away

Exactly what Japan needs to kickstart

Further to my previous post, it seems like the Japanese Yen is continuing its upward trend against the US Dollar. Many see this as a reaction to the financial volatility in the EU and US, opting to use or conduct transactions in Japanese Yen as they're considered to be safer (although in reality, Japan has a much higher Debt-to-GDP Ratio compared to any country in the world) - and many analysts has describe the sudden rise to be abnormal as the actual exchange rate does not reflect the market price. Further to BOJ's efforts by increasing credit easing scheme by a further 5 million yen, the government hopes to stabilize the price and prevent it from going up further, hurting the south heading export-dependant economy. As seen in the picture below ( taken from http://www.xe.com/ ), the Japanese Yen was stable for much of the year until fears on the American Debt ceiling broke out by July / August 2011.

Despite the additional monetary easing planned by Bank of Japan, I doubt that it would carry much effect since the Yen is the 3rd Largest Traded currency in the world, and adding another 5 Trillion yen to the initial 50 Trillion Yen would not be enough to hold the exchange rate still. As much as the government promotes purchasing overseas companies in US Dollars, the exchange rate remains at a still. I think the major issue would be for the massive panic and loss of confidence with the Dollar and Euro - rather than focusing on credit easing, they should be more focused on buying the Dollar or Euro; but the American government is keen on keeping their currency low in order to promote exports (something they should've done before China's rise).

As much as this has turned out to be a disaster for the Japanese, it could bear some fruit in other ways - particularly in terms of overseas investments and cheap prices of imports (domestic consumption). Personally I've always thought that despite the high standards of living, their level of domestic consumption has not been on par with other advanced countries in the West. The Japanese should also learn to stop being such an export dependant country and view other countries as potential markets (much like how Korea has focused on ASEAN and China focusing in Africa). Their failure to change and adopt to new times (particularly in business) was reflected perfectly in a Korean-based newspaper I found the other day.

So where do we go from here?

Export-led Investments; Beneficial?

On the contrary; he's running because of knobheads like you

I found this interesting piece on my new favorite website on how Export-led Investments not only seems to raise living standards in any developing country but also upgrades export quality. Another outcome found by the paper was that there was a positive correlation between FDI and higher unit value of exports. Based on what I read from the paper, Export-led Investments carries the following plus points;

1. Boost exports of mediums killed sectors in developing countries. Apparently the bulk of investments done by companies are more than just low skilled manunfacturing, but more skewed towards medium skilled products (automotive parts, electronics and electricals etc). These form of investments are 14 times higher than low skilled manufacturing.
2. Results in upgrading within the sectors. Done through MNC's superiority - resulting in higher unit values of exports, where local companies can also learn from their operations. Productivity spillovers results in the abundance of higher quality inputs therefore benefiting indigenous producers of final goods.

However, export complexity / structure remains unchanged, and there are tendencies where FDI brought into more advanced / developed countries carries minimal impact on export quality. Now my problem is not that I don't believe this - I just still dont think that export-led investments are the way to go for any developing country wishing to catapult itself into a high-income nation, for instance, Malaysia.

Electrical & Electronics components plays a significant role in the country's exports - and although the foreign companies in Malaysia only amounts to half of the total players, they control over 90% of the exports. As a result, local indigenous players are being squeezed out. They can learn from the MNCs but they will never be as good as them as the MNCs will keep some of the secrets to themselves too. What Malaysia fails to see is in the long term - is that it doesnt help elevating Malaysia to high income status. To me, the matter of repatriation of profit done by these foreign MNCs would also result in a loss from Malaysia; we're pretty much being 'used' by these capitalistic people.

Now I can understand the nature; actually its beneficial to both sides but we could do better by actually learning from them rather than letting them use Malaysia as a temporary base for their operations. Without a strong global domestic company like we see in Korea and Japan, we will never be able to advance to a more developed economy. The key is specialization, protectionism and differentiation from our other Asian counterparts, not by blindly attracting FDI for short to mid term gains and attempting to go all rounder when developing our industrial base; there are no "jack of all trade" millionaires.

So its about damn time we wake up.

Antidumping Measures During Financial Crisis

I dont think its THAT free

Here we have an article from this new website I found on how South Korea uses antidumping measures when protecting its domestic market during financial crisises. I don't really feel like writing anything in depth until later on this week since I was too pre-occupied doing other things, hopefully I can catch up on my readings within the coming days.

As for today, its time to relax!

Ease of Doing Business 2011



Thats what I call ease of doing business.

I was really impressed when Malaysian Insider reported that Malaysia has risen ranks to number 18th on World Bank's Ease of Doing Business Report for 2011. But this was somehow shattered when I saw 113th for the "Dealing with Construction Permits" category, and took another level when they ranked 1st for "Getting Credit" category, along with countries such as United Kingdom, and ironically, South Afirica. Recalling my previous post on rising household debt, I don't know whether I should see our position in being number one in getting credit as a positive thing.

Korea & Japan ranked 8th and 20th respectively; I was rather dumbfounded to see Japan being ranked below Malaysia. It seems that South Korea had a major advantage in ranking when it comes to Enforcing Contracts, whereas Japan was ranked well below in terms of Paying Taxes. Also surprisingly, Malaysia was seen as a better place compared to both of the countries in terms of protecting investors - something which a country still short of high income status really needs (capital investments in particular). All in all, aside from the Getting Credit category, I think there is still much room for improvement in Malaysia's rankings.

Looking forward to next year's rankings.

China; Inflating Asia Pacific

Its because the west wants it!

Here we have an article explaining the effects of China's rate of inflation; for every 1% increase in rate of inflation in China, this would gradually lead to an increase in inflation of 25 to 50 basis points in the Asia Pacific Region - worse could even drive global commodity prices by 5%. Referring to my previous post (see Assumption 3), I expected for such a thing to happen. See? I told you!

Damn I'm good!

Shared Growth; Enhancing Economic Development

Now thats what I call true teamwork.

Further to my previous article on shared-growth, here we have an article addressing the issue of the declining middle income group in South Korea. Let's give this a thought for a moment; the decline could be caused by;

1) The growth of either class outpacing each other or;

2) The substantial decline in the population growth of the middle class group.

But logically, I find reason 1) to make more sense in this case as we have large conglomerates moving their operations overseas - depriving the middle income group of growth. Can we blame them for doing so for the sake of higher profitability and productivity? The public might throw a fit; why dont they explain it to the shareholders of the companies then.

But one thing I really liked about the article was how it mentioned that Korea has developed this perception that "money would bring happiness"; prevalent in its society due to long working hours and high suicide rates, disregarding any other values which would contribute to an overall better and higher quality of living. I couldn't agree more on this. Their substantial economic growth has indeed resulted in them becoming money grubbing people; a philosophy they have picked up from the Yanks.

Coming back to shared growth, it seems that there are a number of companies who have started to adopt this policy, as can be seen in this article. The importance of SMEs or Trading Companies in the economy of Japan can be seen through their stringent regulations in protecting them from larger corporations, resulting the birth of the term Sogo Shosha - relfecting how the people and government view these small players as an integral part of the econonmy, unlike South Korea.

So in essence, developing pro-shared growth policies without a doubt would foster the economic growth of a country, creating a symbiotic win-win relationship between the smaller companies and their larger counterparts. But as I mentioned in my earlier article; would it be possible to implement? Implementing is one thing, changing people's mind is another.

Bottom line, we'll just have to wait and see.

Household Debts; A Major Concern?

So how long will it take until it goes boom?

There seems to be some concerns by economists after the Budget anouncement; that the government seems to be spending their coffers without taking into account the global conditions - in other words, they're being too optimistic. Economists are concerned about the rising household debt in Malaysia, apparently walking on a trend similiar to the 2008 financial crisis. Apparently the rising debt is attributed to repayment of loans (housing and car) as well as private consumption. Let me just touch on the two; repayment of housing and car loans.

For housing loans, I think its quite evident that the majority of the snowballing rise is attributed to owners purchasing their 2nd or even 3rd house ; leaving to the younger first house buyers outside of the loop. The reasoning? Pure investment. But many people fail to realize that once the market moves into a purchasing frenzy through, driven by pure investment rather than consumption, this could flow into a housing bubble. The result? Those with vision (too much vision) and considerable income have no liquidity; whereas the young ones end up homeless and fighting for a good space. As for car loans, its simply pure manipulation; the government actually wants people to get car loans - to help Proton, much like how they subsidize fuel to keep it cheap, to help Petronas. These two factors inarguably results in citizens not pressuring the government enough to develop a world class effecient public transportation system.

Now apparently, the same problem is happening in Korea, but it is slightly different in the case of Koreans. Based on my readings and observations, the rise in debt is mostly attributed to Jeonse Loans, and unlike Malaysia, they have limited land and twice the number of people. What is similiar to Malaysia is the rising debt is attributed to rising living expenses however there is no market distortion in Korea; no subsidies, no manipulation of preferences - creating a competitive and effecient market driven system. The Korean government was even forced to take measures such as increasing interest rates, with a more extreme method of blocking personal loans. To the least, the government recognizes this issue and is actually formulating a plan to combat and reduce the household debt in the country. What about Malaysia's Government?

Now I hate banks even more.

The Second Plaza Accord

Be smart; Why not have both?

Recently, America has been developing a bill called the Currency Exchange Control Act to penalize China for undervaluing its yuan - and the Chinese are not happy with it. Although a number of Senators agree on imposing the act, others on the other hand, are much more skeptical if not oppposed to it. The funny thing I find about this whole drama is that America claims that the undervalued Yuan (see how Chinese & Indian government undervalues their currency) has resulted in the loss of jobs, in addition to the widening trade deficit between US and China. Some are claiming that America is indirectly trying to push China into the same position it did to Japan through the signing of the Plaza Accord; resulting in a devastating deflationary spiral in which Japan has been suffering over the past 20 - 30 years.

Now to be frank, I couldn't agree more on how America is playing the dirty game again. They did it to Japan under the banner that it would reduce trade deficit but it is nothing more than just a political ploy. What I think the American government is trying to do is push the attention away from them by using external distractions. Despite all the calls on how Chinese yuan is undervalued, the new Big Mac Index suggested that the Chinese Yuan is not severely undervalued as it is claimed to be (although this itself has its own limitations). Another key point which was mentioned is that the passing of the bill may have more harm on America's exports to China than imports; fits the bill - neither benefiting  both parties.

Its funny how despite strong indications that the global economy is heading towards a double dip recession, we have countries like America (as well as Argentina and Brazil) trying to enforce trade protectionism policies, claiming that it would help put their economy back on tack where in fact, the risks of it backfiring is apparent. But like all of the things the American Government has been doing for the past 10 years; its nothing more than a political ploy. It seems that they're much more encapsulated in trying to find an external explanation to the public rather than taking the blame themselves, and rather than thinking about the American public they have been selfish; affecting the entire world at the same time.

I hope they're happy with what they're doing.

Why Would Anyone Agree With You?

Winning! Tiger blood!

Where identifying challenges is the first step to creating a solid corporate strategy, the next definite step would be to question yourselves why did you set that strategy. I know this sounds ridiculous when you put both of those two back to back; to put it simply, once you've identified the challenges and developed a strategy - you need to ask yourself why would anyone agree with me on this?

Is what the article is trying to say, at first I thought.

But upon reading deeper into it, it turns out that the article is more focused on "looking outside the box". So once you have a strategy in place; think about how outsiders would see it. Would they agree with you? Is there something amiss? It's relatively easy to identify challenges and plot a strategic roadmap on your own but it is much tougher to convince your colleagues (particularly outsiders) that what you've developed is actually realistic and relevant.

Oh, time for my morning coffee!

Miracle of The Han River; South Korea

I dont think that'll be enough for him

This is mainly a compilation article about some of the interesting articles I've found about South Korea. We'll start with the latest one I found off of a Korean Newspaper. This was relating to the current level of debt being taken out by individuals, corporations and the government. To be frank though, I don't think its nowhere alarming yet, but for some reason they're starting to freak out over it. Logically, for any export oriented country who wishes to turn its economy into more of a domestic consumption based structure, then obviously you'll need to debt to rise to generate retail sales. However, for some reason, I think Korea's rising debt is more related to its rising living expenses rather than a showcase of increase in domestic consumption. Now if that was the case, it could be something noteworthy.

The second article I read was actually a compilation of McKinsey; featuring a 6 articles each with its distinctive topic of focus. The first one elaborates on how South Korea spends more on Research & Development Per GDP compared to other advanced nations. The second article touches on Korea's resilient economy with the third talking about its national brand. The fifth details on how Korea should start shifting its economy to a service-based economy, and finally, a four step guide on how Korea can propser further in the future. Rather interesting, but I still think they still lack China's manpower, and Japan's technological superiority over them, not to mention how I think that the people in the region lack English proficiency; an essential component in becoming a globalized economy. But then again, English is without a doubt over-rated.

Annyeong!