Merry Christmas
This Christmas is like no other before, as people have never been so hesitant about celebrating the holiday.
In an airport in Seattle, the U.S., a Christmas tree was, at one point, removed after a person had alleged that the display of the 8-foot-tall decoration violates the law, the Constitution to be precise, that promotes equal footing of all religions. The setting of Christmas tree, he claimed, was clearly favoritism towards Christianity, and he demanded that other religious symbols be added to the scene as well.
See the loud, overdone, decorations in front of the HSBC tower in Central, and you will find yourself spending a much warmer Christmas in a subtropical city, not the U.S.
The conflicts get increasingly uneasy, as anti-Americanism has been fueled by criticism against U.S. policy in Iraq. To be politically correct, the U.S. government officials and political leaders have to be precautious about what they say and do to avoid hitting the nervous of sensitive followers of different religions. One of the solutions is to make things as secular as possible.
Christmas cards sent by the U.S. President have for decades dodged away from the mentioning of "Christmas". "Happy holidays" is carefully chosen as the greeting message of the cards, as if there were no holidays from January to November. The fact is there are so many holidays around the year. What makes some holidays so prestigious that the White House sends greeting cards for them but not the others? The answermust be the... holy God... that you know.
To avoid the embarrassment next year, scrap the whole word game altogether and try the Chinese phrase "Kung Hey Fat Choy" instead. Getting rich should be a wish welcomed by everyone. Secular it may be though, such greeting would probably turn Bush, in his last winter before retirement, into a common enemy of all religious groups that dismay soulless materialism.
i say "Good morning" more often than "Good afternoon", which tells nothing about my preference between morning and afternoon.
Dear readers, forgive me for saying, but Merry Christmas.
***********************
With great purchasing power comes great purchasing responsibility
You might have never thought that every time you purchase a Christmas gift you waste quite a big chunk of value in it. That's what Joel Waldfogel, a business professor with the University of Pennsylvania, said in Slate, a website. And the value wasted is estimated to be 20%, on average, of the purchase amount. Given a contribution of US$100 billion to the U.S. GDP by Christmas, he claims that a total of US$20 billion is wasted every year.
Put it in the context of the Hong Kong economy, being 1/50 of the U.S. counterpart, about HK$15 billion is wasted each Christmas. That even exceeds the annual profit of Cheung Kong Holding. i hope that my comparison between the two economies is relevant.
Waldfogel's argument is straightforward. Your friend, the receiver, might not like the gift. i give an example here. You buy a Kenny G music album for HK$100, but your friend might value it at less than HK$80. In this case, HK$20 would be wasted.
The discrepancy emerges because you never know what your friend actually likes. Sometimes, it is the obligation in Christmas that forces you to buy him something, even if you can find nothing attractive all at. From my experience, the discrepancy could widen in Christmas parties where gift exchanges take the form of a lottery game. You do not even know who will win your gift.
Generally speaking, a person buys what he thinks he likes and can afford. That's the basic assumption economists have made for centuries, an assumption they coined "rationality". Under this assumption, everyone is rational, or reasonable, in layman terms. However, economic thoughts have recently taken a twist.
Some economists have begun to question the rationality assumption, and doubt that people make the right choices for themselves. This question sounds plausible. In the developed countries, people often buy and eat more than they like. Put it the other way, consumption up to a certain level does not make people happier as it expands further. For instance, the purchase of a fancy sports car is just to upgrade the owner's social status. But such a prestigious go away when his peers catch up with the same sports car. Owning that car would not make the owner happy.
Truly, people do not always make the right decisions. Therefore, Christmas gifts or any kind of gifts could help. That is you who make the decision for your friend. You may give your friend a surprise. Even though he might have to superficially make up a smile when he receives your Kenny G album, he might gradually like the music when he plays it at home. He might eventually value this CD at HK$180. In that case, your purchase creates a value of HK$80.
More importantly, he might thank you for your understanding about something inside himself. "How do you know that?" he might ask. Such tacit understanding between friends is priceless. Whether the gift is a waste or not depends on how you do the shopping.
***********************
Santa Claus' blues
Santa Claus has ironically become a target of criticism. Some Christians have been fed up with the overplaying of the mythical icon by the commercial world, at the expense of Jesus Christ. That, they argue, distracts people from focusing on the "true meaning of Christmas". i am not a Christian and the "true meaning of Christmas" is outside my scope. But i am particularly fond of Santa.
Santa is an advocate for globalization. This round-bellied old man who brings gifts to children around the world knows no boundaries. From the prospects of trade diplomacy, however, the world seems to be turning against the Santa's way.
The World Trade Organization suspended the Doha round of trade negotiations after years of fruitless efforts to reach a multilateral agreement to open further. No one knows when the diplomats would go back to the negotiation table provided that the U.S. and the Europe governments are keen to protect their own political interests at the expense of the common interest of all peoples that trade promises. The taking over of the U.S. Congress by Democratic Party would do trade liberalization no favor, although it could not possibly do too much damage as the passage of legislation is still subject to the veto power of the President.
However, in the areas where it is feasible, trade has blossomed, which has helped lift millions of people above poverty.
Regarding the criticism against him, i think Santa, himself, is a victim. Shopping malls and retailers have endlessly abused his reputation. He is a victim of piracy of his white beard, red clothes and "Hohoho" laughter. He is also a victim of unauthorized cloning, which copies none of his hard work. There is a difference between Santa and his clones. The difference is that Santa gives, but his clones sell. Kids see Santa. It's only adults who see the clones.
Copyright Quam
2006/12/22
2006/12/16
2006/12/12
Decomposing Octopus Card
While you are playing with your new flashy credit cards, how long has it been since the last time you appreciate your dull, featureless, Octopus card?
The Octopus card, aging inside our wallets would soon become fossil although we must sense its existence everyday. While credit card companies try their best to please us with fancy cards in whatever variety and generously extend our credit limits, the Octopus card company does nothing. The card design looks the least possibly attractive, without the least flavor of personality or social status identity. It doesn't even have an expiry date for us to care.
Why is there a world of difference between a credit card and an Octopus card?
The answer is: we are the golden goose of credit card companies, but not that of the Octopus company. We are merely the baits for Octopus' bigger preys.
Hong Kong has 14 million Octopus cards under circulation, the issuer claims. i suspect the statistics was an overstatement as there are a lot of cards being damaged or lost without reporting. Widespread rumors that one can magically increase the credit balance of the cards by heating the cards inside microwave ovens certainly help contribute to the "death rate" of the cards, albeit to an unknown extent. Anyway, anyone must have at least one Octopus card.
The cards bring us convenience, saving time of changing coins. They are accepted in many places such as public transportation, convenience stores, vendor machines, supermarkets and parking lots. It is great to see more and more places accept the cards. Eventually, we do not need the weighty coins.
One more reason why we like Octopus so much is that it doesn't cost much. Each card requires HK$50 for an upfront deposit, for good. From then onward, we use every cent the cards have debited us. The card service is free of charge although, strictly speaking, we forego the interest income while we could otherwise save the money in our bank accounts. Suppose our average balance in Octopus is HK$100, and the total cash being locked up is HK$150 (including the deposit). Further suppose the saving interest rate is 5%. Over a year, we forego HK$7.5, a tiny fraction of the total transactions going through the card. The actual amount foregone could arguably be even small if Octopus cards reduce our cash balance in wallets only, but keep our bank balance unchanged, which could be true.
Those foregone interest incomes do go to the Octopus company, an unlisted subsidiary of MTR Crop (66). Following our assumptions, the Octopus company should be holding HK$2.1 billion in cash or liquid assets. An interest rate of the same 5% would yield an aggregate interest income of HK$105 million, which is as good as a stable source of income can be.
However, the exciting part of the Octopus business is on the corporate side, what i have meant by the bigger prey. The company said transactions processed through Octopus amount to HK$77 million a day. The shops and public transportations, which accept Octopus cards, have to pay the card company a service fee, being a percentage of Octopus transactions, in addition to an upfront installation fee and a monthly rental fee for the equipment.
The card company does not disclose the service fee percentage although it has been reported that the percentage for public transportation is 1%. The percentage varies from client to client. Suppose the Octopus company charges a flat 1% for all transactions. The company collects service fees of HK$770,000 per day and HK$280 million a year, let alone the installation fee and rental fee. Incomes from corporate clients at present have already vividly outweighed incomes from the consumer counterparts.
What is even more exciting is the potential of growth and scalability. Octopus' corporate client base is ever expanding, soon to include taxis and other shops. The service fees will increase with transaction amounts. After Octopus feels that it has expand its client base to a saturated level, which could happen a decade later, it can comfortably increase the percentage level of its service fees, the installation fees, the rental fees or all of them.
To learn to appreciate Octopus like its corporate clients do, let's switch back to the consumer side. Octopus is not interested in pleasing consumer clients because it knows that it won't succeed. So far, the company has been charging cardholders with the "opportunity cost", of $7.5 a year under our estimation. Should the company introduce an annual fee of whatever amount, many people would simply switch back to coins and banknotes. Octopus' close rival, coins and banknotes, will take charge again because the substitution is so easy.
However, from the viewpoint of corporate clients, the emergence of Octopus is of great value to their businesses.
We talk about the rush-hour problems in the previous article. Hong Kong is no Wisconsin where people buy all goods they need once a week. Hong Kong people grasp what they want along the way. Therefore, during rush hours, there are inevitably booms of consumers to visit convenience stores, fast food shops, etc. For those shops, that's an all-you-can-win situation in fixed, yet short, periods of time. The question is how quick you can grasp the prizes. The quicker you close each deal, the shorter queues you have, the more revenue you earn.
Octopus systems that save a few seconds for each transaction become essential in such an environment. And there is not any other electronic payment system around for substitution. From this point of view, Octopus is a monopoly, given its mighty army of cardholders, its baits.
Consumers play an important role in Octopus' pursue of its own business because there must be a pool of cardholders large enough to justify the installation and rental fees paid by the shops and transportations.
There is no platinum Octopus card. They do have plastic watches that work just like an Octopus. If you are interested, those watches should last as long.
Copyright Quam
The Octopus card, aging inside our wallets would soon become fossil although we must sense its existence everyday. While credit card companies try their best to please us with fancy cards in whatever variety and generously extend our credit limits, the Octopus card company does nothing. The card design looks the least possibly attractive, without the least flavor of personality or social status identity. It doesn't even have an expiry date for us to care.
Why is there a world of difference between a credit card and an Octopus card?
The answer is: we are the golden goose of credit card companies, but not that of the Octopus company. We are merely the baits for Octopus' bigger preys.
Hong Kong has 14 million Octopus cards under circulation, the issuer claims. i suspect the statistics was an overstatement as there are a lot of cards being damaged or lost without reporting. Widespread rumors that one can magically increase the credit balance of the cards by heating the cards inside microwave ovens certainly help contribute to the "death rate" of the cards, albeit to an unknown extent. Anyway, anyone must have at least one Octopus card.
The cards bring us convenience, saving time of changing coins. They are accepted in many places such as public transportation, convenience stores, vendor machines, supermarkets and parking lots. It is great to see more and more places accept the cards. Eventually, we do not need the weighty coins.
One more reason why we like Octopus so much is that it doesn't cost much. Each card requires HK$50 for an upfront deposit, for good. From then onward, we use every cent the cards have debited us. The card service is free of charge although, strictly speaking, we forego the interest income while we could otherwise save the money in our bank accounts. Suppose our average balance in Octopus is HK$100, and the total cash being locked up is HK$150 (including the deposit). Further suppose the saving interest rate is 5%. Over a year, we forego HK$7.5, a tiny fraction of the total transactions going through the card. The actual amount foregone could arguably be even small if Octopus cards reduce our cash balance in wallets only, but keep our bank balance unchanged, which could be true.
Those foregone interest incomes do go to the Octopus company, an unlisted subsidiary of MTR Crop (66). Following our assumptions, the Octopus company should be holding HK$2.1 billion in cash or liquid assets. An interest rate of the same 5% would yield an aggregate interest income of HK$105 million, which is as good as a stable source of income can be.
However, the exciting part of the Octopus business is on the corporate side, what i have meant by the bigger prey. The company said transactions processed through Octopus amount to HK$77 million a day. The shops and public transportations, which accept Octopus cards, have to pay the card company a service fee, being a percentage of Octopus transactions, in addition to an upfront installation fee and a monthly rental fee for the equipment.
The card company does not disclose the service fee percentage although it has been reported that the percentage for public transportation is 1%. The percentage varies from client to client. Suppose the Octopus company charges a flat 1% for all transactions. The company collects service fees of HK$770,000 per day and HK$280 million a year, let alone the installation fee and rental fee. Incomes from corporate clients at present have already vividly outweighed incomes from the consumer counterparts.
What is even more exciting is the potential of growth and scalability. Octopus' corporate client base is ever expanding, soon to include taxis and other shops. The service fees will increase with transaction amounts. After Octopus feels that it has expand its client base to a saturated level, which could happen a decade later, it can comfortably increase the percentage level of its service fees, the installation fees, the rental fees or all of them.
To learn to appreciate Octopus like its corporate clients do, let's switch back to the consumer side. Octopus is not interested in pleasing consumer clients because it knows that it won't succeed. So far, the company has been charging cardholders with the "opportunity cost", of $7.5 a year under our estimation. Should the company introduce an annual fee of whatever amount, many people would simply switch back to coins and banknotes. Octopus' close rival, coins and banknotes, will take charge again because the substitution is so easy.
However, from the viewpoint of corporate clients, the emergence of Octopus is of great value to their businesses.
We talk about the rush-hour problems in the previous article. Hong Kong is no Wisconsin where people buy all goods they need once a week. Hong Kong people grasp what they want along the way. Therefore, during rush hours, there are inevitably booms of consumers to visit convenience stores, fast food shops, etc. For those shops, that's an all-you-can-win situation in fixed, yet short, periods of time. The question is how quick you can grasp the prizes. The quicker you close each deal, the shorter queues you have, the more revenue you earn.
Octopus systems that save a few seconds for each transaction become essential in such an environment. And there is not any other electronic payment system around for substitution. From this point of view, Octopus is a monopoly, given its mighty army of cardholders, its baits.
Consumers play an important role in Octopus' pursue of its own business because there must be a pool of cardholders large enough to justify the installation and rental fees paid by the shops and transportations.
There is no platinum Octopus card. They do have plastic watches that work just like an Octopus. If you are interested, those watches should last as long.
Copyright Quam
2006/12/11
Minibus does not always run fast (or jump red lights)
i got to know Fat So when i rented an apartment flat through her, as a real estate agent. She was a stout, as her nickname suggests, yet energetic, woman in her early forties with a boy's haircut, a macho voice and a big easy smile. That day, she walked me through twelve apartments before we concluded a deal late in the evening. i expected to see her again around. However, what really took me by surprise was how i did. One morning i walked down the street for a newspaper, i found her sell newspapers at a newsstand.
So, Fat So sells million-dollar homes at night and five-dollar newspapers in the daytime. That's a good example for the high versatility of Hong Kong people. "How does that work?" i asked her. "I sleep less," she replied without hesitation. Fair enough. Fat So is one of the many part-time workers who sleep little. But why does Fat So sell home and newspapers, but other combination of goods like fruit and fish, dim sum and wanton, etc? The apparently unrelated combination of businesses of home and newspaper offers an important synergy Fat So cannot resist.
No one buys newspaper at night. In contrast, no one sees flats in the morning. A newsstand opens from dawn until 11 a.m. The busiest hours last about an hour when people grasp their newspapers on their way to office. It is meaningless, profitless, to leave the newsstand open for the rest of the day. On the other hand, home-seekers usually have to work, and are free to shop for flats at night only. On weekdays, the rush hours for a typical real-estate agency usually last two hours, from eight through ten in the evening although it opens all day long. Therefore, Fat So can capture the best moments of both businesses and earns her living efficiently.
Fat So is flexible enough to perform different tasks in a day. Unfortunately, many companies cannot.
All public transportations, from MTR to ferry, bus to taxi, were half-seated, at best, for the majority part of their working hours. See the empty well-air-conditioned buses wandering in the dark streets. See the long queue of taxis with their roof lights helplessly switched on. However, any transportation business has their once-and-for-all-day big shot during the rush hours. Besides, fast food chains, Cafe de Coral alike, convenience stores, such as 7-Eleven, especially for those located near business districts, are cold and quiet at night shifts. However,their lives all depend on business in the rush hours.
Rush hours are short, lasting about four hours a day, but they do pay. For public transportation along the right routes, stores at the right locations, working class voluntarily, or involuntarily, flood in from all directions, with no question asked. They enthusiastically squeeze into your trains and you don't even have to feel sorry about inadequate seats. At 8:30 a.m., they just love your trains. At 8:50 a.m., they chase your taxi. They hunt down breakfast with determination from your fast-food shop. They wipe out newspapers and snacks at your convenience store. No discount, fine.
That's an all-you-can-win situation in fixed, albeit short, period of time. To maximize revenue from the rush hours, businesses have to either speed up the customer turnover, that's to serve as many customers as possible, or increase the billing.
Minibus drivers go for the customer-turnover tactics. Riding in a minibus is a roller-coaster experience. Some minibus drivers commit speeding and ignore the speed-control alarms installed in their vans. i would rather the minibuses deactivate the alarms so that i can have a quieter environment, or the drivers should drive more slowly. Riding in a speedy van with the alarm persistently going off double the pain in the neck. Minibus drivers sometimes jump red lights. If you think that's their bad driving habits, you are wrong. i am sure, in the mid-afternoon, you have been long idled in an anchored minibus as the driver is expecting more customers to get aboard.
Those minibus "pilots", as if they fly aircraft, are not evil or bad kids. They take risks of their lives too. They do the stunts during rush hours only, like a hungry man having starved for a whole day. The reason is that they got only a short period of time to earn as much as they can. Their routes are typical long, for instance, from Kwun Tong to Tsuen Wan. Should they drive slowly, they cannot do many trips before the rush hours of that day are over.
Tea restaurant and fast food shops cannot increase the customer turnover as customers stay as long as they please. The lunch hours are from 12:30 p.m. to 2:00 p.m. It takes about half an hour for each customer to finish his or her meal. Therefore, the restaurant could possibly have a customer turnover of three times. Their strategy is to boost the sales per customer, by offering super-sized meal set. A big entree comes with a soup and tea or coffee, and sometimes butter bread. The restaurants deliberately boost the meal sizes so that higher meal prices can be justified. They do not do that all day, but only in the rush hours. They have slim and inexpensive tea sets when the shops are quiet.
Most restaurants in Central do not even open for dinner because the business district becomes a ghost town after sunset, except for the pub and fancy restaurants in Lan Kwai Fong and SOHO area. The lunch-hour battles for those restaurants are even tenser.
Yet another solution for the rush-hour problems is to do something productive during the quiet hours, like Fat So does. But not many fixed assets, whether they are motor vehicles or restaurants, can be converted to cater different services day in and day out.
Banks are becoming more flexible to a certain extent. Recently, banks are bolstering their improving services by extending their business hours. In fact, basic banking services are performed during normal office hours. The extra hours during weekends are for their promotion of investment and insurance plans, and nothing else because they understand that people are free to deal with their personal finance at leisure timeonly.
Unlike Fat So, most of us stick to a single job. A survey shows that Hong Kong people works 51 hours long a week. Among jobs taking the longer hours are retail and catering services. i believe the really busy hours for most of those jobs last last than 25 hours a week. Why do people work overtime? 40% of respondents say they stay late to be seen. If only all the bosses in Hong Kong know Fat So and how well she works.
Next time, i will revisit the topic about Octopus cards and how they are helping solve the rush-hour problems.
Nov 21, 2006
Copyright Quamnet
So, Fat So sells million-dollar homes at night and five-dollar newspapers in the daytime. That's a good example for the high versatility of Hong Kong people. "How does that work?" i asked her. "I sleep less," she replied without hesitation. Fair enough. Fat So is one of the many part-time workers who sleep little. But why does Fat So sell home and newspapers, but other combination of goods like fruit and fish, dim sum and wanton, etc? The apparently unrelated combination of businesses of home and newspaper offers an important synergy Fat So cannot resist.
No one buys newspaper at night. In contrast, no one sees flats in the morning. A newsstand opens from dawn until 11 a.m. The busiest hours last about an hour when people grasp their newspapers on their way to office. It is meaningless, profitless, to leave the newsstand open for the rest of the day. On the other hand, home-seekers usually have to work, and are free to shop for flats at night only. On weekdays, the rush hours for a typical real-estate agency usually last two hours, from eight through ten in the evening although it opens all day long. Therefore, Fat So can capture the best moments of both businesses and earns her living efficiently.
Fat So is flexible enough to perform different tasks in a day. Unfortunately, many companies cannot.
All public transportations, from MTR to ferry, bus to taxi, were half-seated, at best, for the majority part of their working hours. See the empty well-air-conditioned buses wandering in the dark streets. See the long queue of taxis with their roof lights helplessly switched on. However, any transportation business has their once-and-for-all-day big shot during the rush hours. Besides, fast food chains, Cafe de Coral alike, convenience stores, such as 7-Eleven, especially for those located near business districts, are cold and quiet at night shifts. However,their lives all depend on business in the rush hours.
Rush hours are short, lasting about four hours a day, but they do pay. For public transportation along the right routes, stores at the right locations, working class voluntarily, or involuntarily, flood in from all directions, with no question asked. They enthusiastically squeeze into your trains and you don't even have to feel sorry about inadequate seats. At 8:30 a.m., they just love your trains. At 8:50 a.m., they chase your taxi. They hunt down breakfast with determination from your fast-food shop. They wipe out newspapers and snacks at your convenience store. No discount, fine.
That's an all-you-can-win situation in fixed, albeit short, period of time. To maximize revenue from the rush hours, businesses have to either speed up the customer turnover, that's to serve as many customers as possible, or increase the billing.
Minibus drivers go for the customer-turnover tactics. Riding in a minibus is a roller-coaster experience. Some minibus drivers commit speeding and ignore the speed-control alarms installed in their vans. i would rather the minibuses deactivate the alarms so that i can have a quieter environment, or the drivers should drive more slowly. Riding in a speedy van with the alarm persistently going off double the pain in the neck. Minibus drivers sometimes jump red lights. If you think that's their bad driving habits, you are wrong. i am sure, in the mid-afternoon, you have been long idled in an anchored minibus as the driver is expecting more customers to get aboard.
Those minibus "pilots", as if they fly aircraft, are not evil or bad kids. They take risks of their lives too. They do the stunts during rush hours only, like a hungry man having starved for a whole day. The reason is that they got only a short period of time to earn as much as they can. Their routes are typical long, for instance, from Kwun Tong to Tsuen Wan. Should they drive slowly, they cannot do many trips before the rush hours of that day are over.
Tea restaurant and fast food shops cannot increase the customer turnover as customers stay as long as they please. The lunch hours are from 12:30 p.m. to 2:00 p.m. It takes about half an hour for each customer to finish his or her meal. Therefore, the restaurant could possibly have a customer turnover of three times. Their strategy is to boost the sales per customer, by offering super-sized meal set. A big entree comes with a soup and tea or coffee, and sometimes butter bread. The restaurants deliberately boost the meal sizes so that higher meal prices can be justified. They do not do that all day, but only in the rush hours. They have slim and inexpensive tea sets when the shops are quiet.
Most restaurants in Central do not even open for dinner because the business district becomes a ghost town after sunset, except for the pub and fancy restaurants in Lan Kwai Fong and SOHO area. The lunch-hour battles for those restaurants are even tenser.
Yet another solution for the rush-hour problems is to do something productive during the quiet hours, like Fat So does. But not many fixed assets, whether they are motor vehicles or restaurants, can be converted to cater different services day in and day out.
Banks are becoming more flexible to a certain extent. Recently, banks are bolstering their improving services by extending their business hours. In fact, basic banking services are performed during normal office hours. The extra hours during weekends are for their promotion of investment and insurance plans, and nothing else because they understand that people are free to deal with their personal finance at leisure timeonly.
Unlike Fat So, most of us stick to a single job. A survey shows that Hong Kong people works 51 hours long a week. Among jobs taking the longer hours are retail and catering services. i believe the really busy hours for most of those jobs last last than 25 hours a week. Why do people work overtime? 40% of respondents say they stay late to be seen. If only all the bosses in Hong Kong know Fat So and how well she works.
Next time, i will revisit the topic about Octopus cards and how they are helping solve the rush-hour problems.
Nov 21, 2006
Copyright Quamnet
Please stand back from the door
Recently, i bought an interesting tourist guide titled <<台北吃喝玩樂捷運遊>> (English translation: The Metro Ride for Food, Drinks and Entertainment in Taipei), which recommends places to go along the metro route in the capital city of Taiwan. The book is full of informative description and illustrative pictures about tourist attractions and exciting restaurants, but what most distinguishing this book from a dozen similar books in the shelves of bookstore is its theme, which is playing around along the metro line. What a great idea for touring.
The metro, put it in Hong Kong's prospective, the MTR (Mass Transit Railway), has integrated into everyone's daily life so naturally that a day without MTR has become unthinkable. It has become the center of our "universe" where we eat, shop, meet and sleep.
How does MTR benefit us apart from saving us from the frustration of traffic congestion and spare us half an hour in the bed on the working days? What does MTR actually bring us? To answer this question, different people would have different answers.
Fellow columnist Henry Chan, with his eagle eye for investment opportunities, would say the investment return of the MTR share (66), now trading historical highs of around $20. Shih Wing Ching, chairman of real estate agency Centaline who used to contribute to a Quam column, would say the appreciation of the value of residential properties.
Mr. Shih's second answer would probably be that MTR gave the birth of free newspapers, as he owns one of them. The MTR trains happen to be a perfect place to force people to read when they, once getting aboard, are not allow to eat or drink, not able to talk with one another as most being strangers, not able to listen to radio, having nothing to see outside the windows and, worst, not getting comfortable enough to take a nap. See my earlier entries in this column.
My answer is: Admiralty and Octopus.
Admiralty was born from the opening of an MTR station. i myself haven't known of the name of the district between Central and Wan Chai until the opening of an MTR. To myself, Admiralty means nothing but merely the shopping district built around the Admiralty station. i think i am not the only one who has such an illusion.
In fact, Admiralty was where British Navy anchored in the 19th Century. That's how the district got its name. However, Admiralty has become the busy district, with up-market shopping malls, five-star hotels and premiere movie theaters, it is today, only after the opening of the MTR in 1980. Before that, there weren't any economic activities going on there.
i am not talking about Tseung Kwan O and Tseung Wan, the satellite residential areas. These areas already existed with many estates and residents before MTR reached them. MTR brought transport service to these areas, but it did not cause the birth of these areas, unlike what MTR did to Admiralty.
Admiralty is like a miracle that only MTR made possible. If Central belongs to tie-and-suit bankers, Admiralty would belong to elegantly dressed shoppers. Walking a mile further east to Wan Chai and you can easily spot the difference made by the power of MTR and the absence of it.
Wan Chai was developed after the World War II, and it had not enjoyed an MTR access until 1985. Wan Chai is also a prosperous district with shopping malls, movie theaters and hotels, but these operations are all in a much smaller scale. To be more accurate, there are no shopping malls, but shopping arcades. There used to be many cinemas, but most of them cease to exist lacking the economies of scale. Stripping out the more recently developed north Wan Chai, where the Hong Kong Convention and Exhibition Centre is located, there is no world-class hotel.
Generally speaking, the businesses in Wan Chai, to a great extent, serve the local residential community only. The absence of a mass transit system during its development warrants a lack of power to draw demand from outside the district. In contrast, there wasn't, and isn't, a residential community in Admiralty which the businesses in Admiralty can rely on. Fortunately, MTR brings in shoppers, moviegoers and travelers.
MTR is like a campaign runner, inducing people to act together and hence achieving something otherwise impossible. Apart from building Admiralty, it created a new currency in Hong Kong, the Octopus.
Octopus has become so popular in the city nowadays as if a second currency after the Hong Kong dollar. The debit card was used to pay MTR and bus fares only when it was launched in the 1990's. Today, it is acceptable in vendor machines, fast food shops, convenience stores and supermarkets, and will soon be acceptable in taxis. The payment system is ever expanding.
Hong Kong people like Octopus so much that each of them carries, on average, more than one card. The outstanding Octopus in circulation amounts to 12.4 million, outnumbering Hong Kong Identity Cards. i don't know why a person has to carry more than one Octopus, anyway.
Octopus is so great because it saves people time for exchanging coins. In Hong Kong, it seems anything that saves time is great. A survey said China and Hong Kong combined has become the biggest instant noodle consumer in the world, leaving Japan, the product origin, in the dust.
Should there be no MTR, there would not be such a successful debit card system like Octopus. Think about credit card. The adaptation and popularization of credit cards took several decades, if not almost a century.
The initial promotion of a payment system, whether it is for credit card or debit card, runs into the "chicken or egg" dilemma. No consumer cares to use it unless there are enough shops accepting it. In reverse, no shop dares to accept it unless there are enough consumers using it. In the end, neither the consumers nor the shops take the first step to adopt it. That largely explains the slow adaptation of credit cards.
In the case of Octopus, MTR broke this "chicken or egg" dilemma.
MTR was able to do so because it, being a prominent means of transport, captured a vast number of people. It took the first important step to adopt Octopus. People started to use it, without much hesitation, because they knew Octopus was accepted at the gates of any MTR stations, wherever they go.
Having broken the dilemma, Octopus is quickly adopted in other places outside MTR stations because the likes of McDonald's, 7-Eleven, Park'N Shop knew there are enough Octopus users in the street.
"Please stand back from the door", every time i hear this message, i know the train is about to bring me to the next station. Every time i hear "dud" at cashier, i know i can go without the hassle of exchanging coins. MTR reaches far beyond its stations.
Disclosure of interest: i am not holding any MTR shares. But i am looking forward to the initial public offering of Octopus shares.
Sep 6, 2006
Copyright Quamnet
The metro, put it in Hong Kong's prospective, the MTR (Mass Transit Railway), has integrated into everyone's daily life so naturally that a day without MTR has become unthinkable. It has become the center of our "universe" where we eat, shop, meet and sleep.
How does MTR benefit us apart from saving us from the frustration of traffic congestion and spare us half an hour in the bed on the working days? What does MTR actually bring us? To answer this question, different people would have different answers.
Fellow columnist Henry Chan, with his eagle eye for investment opportunities, would say the investment return of the MTR share (66), now trading historical highs of around $20. Shih Wing Ching, chairman of real estate agency Centaline who used to contribute to a Quam column, would say the appreciation of the value of residential properties.
Mr. Shih's second answer would probably be that MTR gave the birth of free newspapers, as he owns one of them. The MTR trains happen to be a perfect place to force people to read when they, once getting aboard, are not allow to eat or drink, not able to talk with one another as most being strangers, not able to listen to radio, having nothing to see outside the windows and, worst, not getting comfortable enough to take a nap. See my earlier entries in this column.
My answer is: Admiralty and Octopus.
Admiralty was born from the opening of an MTR station. i myself haven't known of the name of the district between Central and Wan Chai until the opening of an MTR. To myself, Admiralty means nothing but merely the shopping district built around the Admiralty station. i think i am not the only one who has such an illusion.
In fact, Admiralty was where British Navy anchored in the 19th Century. That's how the district got its name. However, Admiralty has become the busy district, with up-market shopping malls, five-star hotels and premiere movie theaters, it is today, only after the opening of the MTR in 1980. Before that, there weren't any economic activities going on there.
i am not talking about Tseung Kwan O and Tseung Wan, the satellite residential areas. These areas already existed with many estates and residents before MTR reached them. MTR brought transport service to these areas, but it did not cause the birth of these areas, unlike what MTR did to Admiralty.
Admiralty is like a miracle that only MTR made possible. If Central belongs to tie-and-suit bankers, Admiralty would belong to elegantly dressed shoppers. Walking a mile further east to Wan Chai and you can easily spot the difference made by the power of MTR and the absence of it.
Wan Chai was developed after the World War II, and it had not enjoyed an MTR access until 1985. Wan Chai is also a prosperous district with shopping malls, movie theaters and hotels, but these operations are all in a much smaller scale. To be more accurate, there are no shopping malls, but shopping arcades. There used to be many cinemas, but most of them cease to exist lacking the economies of scale. Stripping out the more recently developed north Wan Chai, where the Hong Kong Convention and Exhibition Centre is located, there is no world-class hotel.
Generally speaking, the businesses in Wan Chai, to a great extent, serve the local residential community only. The absence of a mass transit system during its development warrants a lack of power to draw demand from outside the district. In contrast, there wasn't, and isn't, a residential community in Admiralty which the businesses in Admiralty can rely on. Fortunately, MTR brings in shoppers, moviegoers and travelers.
MTR is like a campaign runner, inducing people to act together and hence achieving something otherwise impossible. Apart from building Admiralty, it created a new currency in Hong Kong, the Octopus.
Octopus has become so popular in the city nowadays as if a second currency after the Hong Kong dollar. The debit card was used to pay MTR and bus fares only when it was launched in the 1990's. Today, it is acceptable in vendor machines, fast food shops, convenience stores and supermarkets, and will soon be acceptable in taxis. The payment system is ever expanding.
Hong Kong people like Octopus so much that each of them carries, on average, more than one card. The outstanding Octopus in circulation amounts to 12.4 million, outnumbering Hong Kong Identity Cards. i don't know why a person has to carry more than one Octopus, anyway.
Octopus is so great because it saves people time for exchanging coins. In Hong Kong, it seems anything that saves time is great. A survey said China and Hong Kong combined has become the biggest instant noodle consumer in the world, leaving Japan, the product origin, in the dust.
Should there be no MTR, there would not be such a successful debit card system like Octopus. Think about credit card. The adaptation and popularization of credit cards took several decades, if not almost a century.
The initial promotion of a payment system, whether it is for credit card or debit card, runs into the "chicken or egg" dilemma. No consumer cares to use it unless there are enough shops accepting it. In reverse, no shop dares to accept it unless there are enough consumers using it. In the end, neither the consumers nor the shops take the first step to adopt it. That largely explains the slow adaptation of credit cards.
In the case of Octopus, MTR broke this "chicken or egg" dilemma.
MTR was able to do so because it, being a prominent means of transport, captured a vast number of people. It took the first important step to adopt Octopus. People started to use it, without much hesitation, because they knew Octopus was accepted at the gates of any MTR stations, wherever they go.
Having broken the dilemma, Octopus is quickly adopted in other places outside MTR stations because the likes of McDonald's, 7-Eleven, Park'N Shop knew there are enough Octopus users in the street.
"Please stand back from the door", every time i hear this message, i know the train is about to bring me to the next station. Every time i hear "dud" at cashier, i know i can go without the hassle of exchanging coins. MTR reaches far beyond its stations.
Disclosure of interest: i am not holding any MTR shares. But i am looking forward to the initial public offering of Octopus shares.
Sep 6, 2006
Copyright Quamnet
A confession before taking the road to $100m
"Investing is difficult," i heard myself repeating such complacency during a brief conversation with a young accountant who was interested in making money in the stock market. Having been working as a research analyst and gotten the professional qualification. i don't show the minimum confidence that i should have on investing. And i often keep going back to the basic question: "How can i make more money in the market?" Inevitably, i share the same frustration of that lady.
Her accounting knowledge did not give her any confidence toward investing either, as she said: "It seems share price movements does not follow the financial performance of the companies, sometimes quite the opposite." "Even the accounts of a company itself go up and down. This year, a company scores strong numbers. The next, all things could turn 180 degrees."
i tried to lighten her a bit, saying accounting knowledge helps us, to certain extent, find a starting point. We have to take into consideration the company's underlying strengths, as well as such broader aspects as general market environment, the economy, psychology and even history. "It is difficult." i ended the conversation by recommending some periodicals, the likes of the daily Hong Kong Economic Journal, weekly The Economist magazine and amusingly the monthly National Geographic magazine. Although the last one appears to be unrelated, it offers the widest possible scope of human affairs.
i remember the first time i bought stock. In 2000, i bought China Mobile #941 at about $60 a share. A few days later, i sold the share at about $63. The reason i chose China Mobile is that i regarded China Mobile, the second largest blue chip, as the gauge of the overall market. Somehow, i had a "feeling" the market would go up. Then i made the bet on China Mobile. Together with the market, China Mobile did go up by more than a few dollars, before it came a few dollars down again. i "felt" that institutional investors, dubbed "big accounts", were doing something nasty. Then, i jumped out at $63.
It was a very lucky exit. Just after i sold the shares, the share price started its now infamous long deterioration from $60 to below $20. What was the lesson i learnt from this exciting ride?
Nothing.
Yes, i banked a thousand dollars but this profit was out of 100% pure luck. Should i buy China Mobile again or other stocks, i knew i could either win or lose. It was a 50/50, before brokerage fees.
Nothing, but the awareness of inadequacy.
Here, i share this apparently trivial incident because i believe most readers have had similar experience and taken similar "approach" to stock trading -- the sixth sense, or strictly speaking a combination of greed and fear.
i got on board driven by greed and got off out of fear.
A few years later, i bought China Mobile again, at around $17. Nowadays, everyone knows $17 a China Mobile share is cheap. But back in those hasty days, few people thought so. Today, most people regret buying China Mobile at its $20 something. If we rode the time machine and went back to 2003, i bet few people would dare to hold the stock, not to mention buying it.
Almost all analyses about China Mobile were unfavorable, as far as i knew. Anyone can dictate the gloomy factors about China Mobile, including the widely blamed intense competition, the decline of average revenue per user (ARPU) and the impact of Xiaolingtong, and the potential foreign competition once China opens the market.
i thought they were all irrelevant factors. First, China Mobile has a duopoly status in the market of 1.3 billion customers and potential customers. The only real rival in the mobile telecom service was China Unicom #762. In contrast, Hong Kong with its mere seven million people had six mobile telecommunications operators, what over-competition should mean to be.
Second, the pessimism about the declining ARPU won a lot of followers. ARPU was a popular tool used by analysts on measuring the performance of telecommunication providers in Europe, a fairly mature market. However, the same ARPU analysis fell apart in China.
Being a brief observer of Chinese businesses, i understood that the decline in selling price is not a nightmare, but simply part of the game in China. Chinese business was a volume business. And China Mobile was on the right track. Its subscriber base grew by the count of millions month after month.
Xiaolingtong is a technology like an extended household wireless telephone system. Similar technology had been available in Japan, but faded out quickly. Xiaolingtong was a fringe technology like Hutchison's Tian Di Xian in the mid-90's. As regarding foreign competition, China Mobile must have already established the valuable wireless network before foreigners knock the door.
It is always easy to be wise after the event. The point is that all the pessimistic arguments, which were so prevailing in the market, would become clearly invalid, in retrospect, when you have a cool head.
Unlike the first time when i bought the shares at $60 each and dumped them at $63 like a hot potato, i was confident enough to hold the shares until it hit $48.
i rethought about my vague comments on investing for that young accountant. i should have told her that the first thing an investor could do is being cool, defying greed and fear. Don't follow shepherd.
i should have recommended her read Sifu Vincent Lam's new book, "Setting Out The Journey Towards $100 Million Of Wealth" (Chinese Translation:《步上一億元財富之道》). Vincent offers many insights about investing in his trademark lively writing style. i was particularly absorbed into the chapters regarding market timing, how to avoid being trapped and how to control emotions.
Vincent gave me a copy of his book although i had already gotten one from the bookstore the other day. Gratefully, i accepted his gift and promise to pass my spare copy to a friend of mine. Here, i wish to give out that spare book, the one without Vincent's autography, sorry, to one of you. The first person who sends me an email requesting the book will get it. i am looking forward to your quick response.
Disclosure of interest: Currently, i am not holding any interest in China Mobile.
Aug 16, 2006
Copyright Quamnet
Her accounting knowledge did not give her any confidence toward investing either, as she said: "It seems share price movements does not follow the financial performance of the companies, sometimes quite the opposite." "Even the accounts of a company itself go up and down. This year, a company scores strong numbers. The next, all things could turn 180 degrees."
i tried to lighten her a bit, saying accounting knowledge helps us, to certain extent, find a starting point. We have to take into consideration the company's underlying strengths, as well as such broader aspects as general market environment, the economy, psychology and even history. "It is difficult." i ended the conversation by recommending some periodicals, the likes of the daily Hong Kong Economic Journal, weekly The Economist magazine and amusingly the monthly National Geographic magazine. Although the last one appears to be unrelated, it offers the widest possible scope of human affairs.
i remember the first time i bought stock. In 2000, i bought China Mobile #941 at about $60 a share. A few days later, i sold the share at about $63. The reason i chose China Mobile is that i regarded China Mobile, the second largest blue chip, as the gauge of the overall market. Somehow, i had a "feeling" the market would go up. Then i made the bet on China Mobile. Together with the market, China Mobile did go up by more than a few dollars, before it came a few dollars down again. i "felt" that institutional investors, dubbed "big accounts", were doing something nasty. Then, i jumped out at $63.
It was a very lucky exit. Just after i sold the shares, the share price started its now infamous long deterioration from $60 to below $20. What was the lesson i learnt from this exciting ride?
Nothing.
Yes, i banked a thousand dollars but this profit was out of 100% pure luck. Should i buy China Mobile again or other stocks, i knew i could either win or lose. It was a 50/50, before brokerage fees.
Nothing, but the awareness of inadequacy.
Here, i share this apparently trivial incident because i believe most readers have had similar experience and taken similar "approach" to stock trading -- the sixth sense, or strictly speaking a combination of greed and fear.
i got on board driven by greed and got off out of fear.
A few years later, i bought China Mobile again, at around $17. Nowadays, everyone knows $17 a China Mobile share is cheap. But back in those hasty days, few people thought so. Today, most people regret buying China Mobile at its $20 something. If we rode the time machine and went back to 2003, i bet few people would dare to hold the stock, not to mention buying it.
Almost all analyses about China Mobile were unfavorable, as far as i knew. Anyone can dictate the gloomy factors about China Mobile, including the widely blamed intense competition, the decline of average revenue per user (ARPU) and the impact of Xiaolingtong, and the potential foreign competition once China opens the market.
i thought they were all irrelevant factors. First, China Mobile has a duopoly status in the market of 1.3 billion customers and potential customers. The only real rival in the mobile telecom service was China Unicom #762. In contrast, Hong Kong with its mere seven million people had six mobile telecommunications operators, what over-competition should mean to be.
Second, the pessimism about the declining ARPU won a lot of followers. ARPU was a popular tool used by analysts on measuring the performance of telecommunication providers in Europe, a fairly mature market. However, the same ARPU analysis fell apart in China.
Being a brief observer of Chinese businesses, i understood that the decline in selling price is not a nightmare, but simply part of the game in China. Chinese business was a volume business. And China Mobile was on the right track. Its subscriber base grew by the count of millions month after month.
Xiaolingtong is a technology like an extended household wireless telephone system. Similar technology had been available in Japan, but faded out quickly. Xiaolingtong was a fringe technology like Hutchison's Tian Di Xian in the mid-90's. As regarding foreign competition, China Mobile must have already established the valuable wireless network before foreigners knock the door.
It is always easy to be wise after the event. The point is that all the pessimistic arguments, which were so prevailing in the market, would become clearly invalid, in retrospect, when you have a cool head.
Unlike the first time when i bought the shares at $60 each and dumped them at $63 like a hot potato, i was confident enough to hold the shares until it hit $48.
i rethought about my vague comments on investing for that young accountant. i should have told her that the first thing an investor could do is being cool, defying greed and fear. Don't follow shepherd.
i should have recommended her read Sifu Vincent Lam's new book, "Setting Out The Journey Towards $100 Million Of Wealth" (Chinese Translation:《步上一億元財富之道》). Vincent offers many insights about investing in his trademark lively writing style. i was particularly absorbed into the chapters regarding market timing, how to avoid being trapped and how to control emotions.
Vincent gave me a copy of his book although i had already gotten one from the bookstore the other day. Gratefully, i accepted his gift and promise to pass my spare copy to a friend of mine. Here, i wish to give out that spare book, the one without Vincent's autography, sorry, to one of you. The first person who sends me an email requesting the book will get it. i am looking forward to your quick response.
Disclosure of interest: Currently, i am not holding any interest in China Mobile.
Aug 16, 2006
Copyright Quamnet
Do you trust newspapers?
When a real estate sales agent pursues you to buy a flat, you won't take his words as fact. So do you regard comments from car sales, cosmetic sales and stockbrokers? You treat their words as advices or opinions, if not mere selling efforts, because you know how they earn their living -- from pursuing you to open your wallets. Do you trust the contents of newspapers?
Unfortunately, most people treat what the newspaper said as factual reporting. But if you follow my previous two articles and believe in what i said, you know the newspaper publishers made their business by selling advertising, rather than selling newspapers. In other words, you, as a reader, are not their customers. Their customers are advertisers. Your purchases of the newspapers merely help them serve advertisers better. Then you won't be surprised to learn that newspaper publishers behave more like salespeople than judges. Will you still take their words as fact anymore?
Most newspapers do not tell lies. Neither do most salespeople for apartments, cars and stocks. Newspaper publishers sell your attention. To source as much quality attention as possible, newspapers must arouse your curiosity. The aim is to arouse curiosity, whether by telling the truth or lies. If the truth can arouse attention, that's perfect for readers. Unfortunately, it is always easier to find a curious lie than the curious truth although, in that case, accurate and objective reporting would be compromised.
Drawing attention is the old trick, which include photos of celebrities taken by paparazzi, bloody and violent photos of scenes of traffic accidents and suicides, and the outing of privacy of celebrities or even ordinary people.
It serves advertisers up to the moment that you decide to buy the newspaper. The more dangerous trend is that newspapers try to blur the line between editorial contents and advertising contents.
Once you buy a newspaper, you have the very own right to read the editorial contents only and disregard the ads. i think most readers have unconsciously developed the habit of skipping the ads. Obviously, even though news reports and ads share the same page, there must be straight black lines separating reports from ads. Advertisers hate those black lines.
There have been headline stories about how fat Hongkong people are. Another report said how much fatter we have become since we started waking up for the World Cup games a few weeks ago. Pages of ads from fitness and weight-losing centers followed.
Besides, there are dozens of feature stories about fashion, retirement planning, test drives, dining, travel, etc. All of these speak well for their advertisers.
The business section should be the second-most lucrative section for generating advertising revenue, after the front page.
i always suspect, without any proof, that newspapers turns bullish about the stock market when there are big initial public offerings. i also wonder how seldom newspaper cites negative comments from analysts and fund managers about the stock market. i also get the similar feeling whenever property developers launch apartment flats. The market opinions cited by newspapers are often predictably tilted toward the positive side.
Just look at the full pages of ads placed by property developers and IPO companies and you might have the same suspect as my own.
Worst, there are routine advertisers who place pages of ads everyday and could turn angry about negative reports about their corporate images. Theoretically, the editorial department and the sales department of a newspaper publisher are separate. However, the editorial department often feels the pressure from the other side of the company.
Journalism ethics mandate accurate and objective reporting. However, reporters and editors have the freedom to choose whom to interview. Experienced reporters can easily tell in advance what the stance a particular person has and what he or she will comment.
If i want to write a bullish report about certain IPO, i could call up any brokers who are offering margin financing for the subscription. If i want to trumpet the property market, i could interview any sales of property developers and agencies.
Even more dangerous are the citing of anonymous sources of information. Journalists have the duty to protect identities of their confidential sources, as it is in the public interest of sharing information. However, this rule can be easily abused, for people to distribute some information, true or fake, in favor of their own interest.
Furthermore, reporters and editors also have the freedom to choose what comments to cite from the interviewee, and what angle to present the story, after the interview. Editors choose the headlines, after the report is written.
Unnoticeably, the newspaper of your own choice would be full of advertising contents. If you are an Adam Smith, free market, advocate, and you understand that the newspaper publishers are profit-maximizing bodies, you won't have any complaint about any biased reports.
When you make decision on investment, homebuying, car buying, shopping, you are inevitably influenced by the media. The business tie between advertisers and the media would probably make you spend more money than otherwise.
An ideal newspaper business is one that has high creditability, which attracts many serious readers. The high circulation lures much advertising revenue and hence generates high profits. But the reality is that the newspapers with highest creditability are not necessarily the most profitable ones.
Nevertheless, under such a business restructure of newspaper business, the journalism ethic standards and editorial independency become very important safeguards for the dissemination of unbiased, accurate information, which makes journalists who uphold these ethical values highly respectable.
Jul 12, 2006
Copyright Quamnet
Unfortunately, most people treat what the newspaper said as factual reporting. But if you follow my previous two articles and believe in what i said, you know the newspaper publishers made their business by selling advertising, rather than selling newspapers. In other words, you, as a reader, are not their customers. Their customers are advertisers. Your purchases of the newspapers merely help them serve advertisers better. Then you won't be surprised to learn that newspaper publishers behave more like salespeople than judges. Will you still take their words as fact anymore?
Most newspapers do not tell lies. Neither do most salespeople for apartments, cars and stocks. Newspaper publishers sell your attention. To source as much quality attention as possible, newspapers must arouse your curiosity. The aim is to arouse curiosity, whether by telling the truth or lies. If the truth can arouse attention, that's perfect for readers. Unfortunately, it is always easier to find a curious lie than the curious truth although, in that case, accurate and objective reporting would be compromised.
Drawing attention is the old trick, which include photos of celebrities taken by paparazzi, bloody and violent photos of scenes of traffic accidents and suicides, and the outing of privacy of celebrities or even ordinary people.
It serves advertisers up to the moment that you decide to buy the newspaper. The more dangerous trend is that newspapers try to blur the line between editorial contents and advertising contents.
Once you buy a newspaper, you have the very own right to read the editorial contents only and disregard the ads. i think most readers have unconsciously developed the habit of skipping the ads. Obviously, even though news reports and ads share the same page, there must be straight black lines separating reports from ads. Advertisers hate those black lines.
There have been headline stories about how fat Hongkong people are. Another report said how much fatter we have become since we started waking up for the World Cup games a few weeks ago. Pages of ads from fitness and weight-losing centers followed.
Besides, there are dozens of feature stories about fashion, retirement planning, test drives, dining, travel, etc. All of these speak well for their advertisers.
The business section should be the second-most lucrative section for generating advertising revenue, after the front page.
i always suspect, without any proof, that newspapers turns bullish about the stock market when there are big initial public offerings. i also wonder how seldom newspaper cites negative comments from analysts and fund managers about the stock market. i also get the similar feeling whenever property developers launch apartment flats. The market opinions cited by newspapers are often predictably tilted toward the positive side.
Just look at the full pages of ads placed by property developers and IPO companies and you might have the same suspect as my own.
Worst, there are routine advertisers who place pages of ads everyday and could turn angry about negative reports about their corporate images. Theoretically, the editorial department and the sales department of a newspaper publisher are separate. However, the editorial department often feels the pressure from the other side of the company.
Journalism ethics mandate accurate and objective reporting. However, reporters and editors have the freedom to choose whom to interview. Experienced reporters can easily tell in advance what the stance a particular person has and what he or she will comment.
If i want to write a bullish report about certain IPO, i could call up any brokers who are offering margin financing for the subscription. If i want to trumpet the property market, i could interview any sales of property developers and agencies.
Even more dangerous are the citing of anonymous sources of information. Journalists have the duty to protect identities of their confidential sources, as it is in the public interest of sharing information. However, this rule can be easily abused, for people to distribute some information, true or fake, in favor of their own interest.
Furthermore, reporters and editors also have the freedom to choose what comments to cite from the interviewee, and what angle to present the story, after the interview. Editors choose the headlines, after the report is written.
Unnoticeably, the newspaper of your own choice would be full of advertising contents. If you are an Adam Smith, free market, advocate, and you understand that the newspaper publishers are profit-maximizing bodies, you won't have any complaint about any biased reports.
When you make decision on investment, homebuying, car buying, shopping, you are inevitably influenced by the media. The business tie between advertisers and the media would probably make you spend more money than otherwise.
An ideal newspaper business is one that has high creditability, which attracts many serious readers. The high circulation lures much advertising revenue and hence generates high profits. But the reality is that the newspapers with highest creditability are not necessarily the most profitable ones.
Nevertheless, under such a business restructure of newspaper business, the journalism ethic standards and editorial independency become very important safeguards for the dissemination of unbiased, accurate information, which makes journalists who uphold these ethical values highly respectable.
Jul 12, 2006
Copyright Quamnet
The Reading Camp in MTR
You cannot beat a rivalry company who sell goods for free, can you? Who's gonna buy from you if they could get elsewhere for free? The answers should be straightforward enough: No and no. Put it into the prospective of the newspaper industry, however, the answers would be a little tricky.
Skeptics said pay newspaper would face the fate of pay-TV Rediffusion back in the late 1960's, when free-to-air TVB started. TVB established its broadcasting business in 1967 by offering free access and beat the British-controlled, once incumbent, Rediffusion while Rediffusion charged subscription fees. The overwhelming success of TVB's "pricing strategy" forced Rediffusion to give in billing in 1973, merely six years after TVB was established. Still, its initial success on viewership, combined with its later efforts on primetime dramas, which were just as appealing, TVB has for the past few decades, sustained its prominent position in Hong Kong's TV broadcasting industry.
The history of TV broadcasting history appears to support an obvious point: Cutting price wins more customers. Cutting price to zero wins all. This hypothesis holds true to almost all business. Newspaper business is an exception. Both TV and newspaper are media business. As TVB beat its rivals by offering free viewing, why free newspapers cannot kill pay-newspapers?
The reason is obviously on the hardware. TVB does not deliver television sets into your homes. It only sends airwaves and you have to buy whatever television sets you like in order to receive the airwaves. However, newspaper publishers buy the paper materials.
The cost of setting up broadcasting stations, hiring scriptwriters and actors/actresses and producing dramas are relatively fixed, no matter how many viewers there are. The more viewers the broadcaster has, the higher advertising rates it can charge. As the additional cost for serving a new viewer is zero, it is best for the broadcaster to have as many viewers as possible.
Newspaper business is different. As it involves paper materials, by giving away newspapers for free, it fully subsidizes the readers for the paper costs. Certainly, the advertising rates rise with the readership. But it also depends very much on the quality of the readership, which would directly affect the benefit of the advertisers.
Although they often bolster circulation statistics, free newspapers do not want to waste papers. They want the papers to reach the most valuable readers for their advertisers.
Please refer to my previous article "Before you read a newspaper". It is wrong, however convenient, to think that supply chain of newspaper business, those of either free or pay-newspapers, is like this: raw information --> reporting --> editing --> printing --> wholesale --> retailing. No, it doesn't work like that.
In fact, information is plentiful. What is scarce is your attention. When i think of new cars, i immediately recall the image of the Audi A4 i saw in an ad on today's newspaper. If you ask me what today's headline news is, the first thing i recall from today's newspapers is Grand Promenade with pretty ladies and blue sky. i can't get it wrong, can i? The ad of this Shau Kei Wan property estate appeared on the entire first page of today's the Hong Kong Economic Times as well as the Hong Kong Economic Journal.
Advertisers of properties, cars, luxury watches, beauty services want your attention so much that they are willing to pay for the paper materials for you if only you glance the newspaper next morning.
However, the advertisers do not entirely trust the circulation statistics when they consider placing an ad. The advertisers also concern about the quality of the attention -- whether readers just throw away the newspaper in two minutes or they spend a considerable time and effort on it.
It is easier to identify the more serious readers for pay-newspapers. If you need to pay for it, you would probably read it. Otherwise, you won't buy it in the first place. The $6 charged for the newspaper indeed serves the purpose for the publishers to identify the more serious readers.
It is a bit tricky for free newspaper publishers to identify serious readers. But for free newspapers, everyone gets them for zero cost. Some spend a few minutes on them. The others put them on the table and forget them. A few desperately take them for the use of wrapping up their dog's wastes during nightwalk. In the meantime, free newspaper publishers waste their paper costs and advertisers waste their marketing budgets.
How about a fair deal? Free newspapers are as usual, but those who take them would have an obligation to stay in a designated area, a "reading camp", for a considerable period of time without doing anything else. Strangers are all around you, and you are unlikely to find a friend to chat and kill time. You are virtually "invited" to read in this "reading camp".
This "reading camp" idea sounds very odd, something could possibly happen only in the former Soviet Union or Nazi Germany. No, it didn't happen then. Instead, it happens to you every morning during the ride to work by the mass transit railway.
MTR train is an ideal "reading camp". i noticed that there are more people sleeping in bus than in MTR trains. The seats in MTR trains are not comfortable enough. The light is bright in MTR trains, keeping you from asleep and facilitating you to read. The train runs steady enough. There is no beautiful landscape scene but black tunnel walls outside the windows, sparing your eyes. It is just impossible to listen to radio as radio frequencies are blocked under the ground. Food and beverages are not allowed in the train.
Under such an environment, you are all set to get your head down on a newspaper. And you get trapped there until arriving at the destination.
It would be too creepy to open a board-sheet-sized newspaper inside these crowded moving capsules. Therefore, publishers tailor their newspapers into tabloid sizes to fit the tiny space among commuters.
Therefore, those people who grasp free newspapers and rush toward the platforms are very likely to be more serious newspaper readers. They immediately get their certification ISL 9000, ("I Shall Look"), as qualified suppliers of attention, each eligible for the waiver of the $6 payment.
Free newspaper publishers seem to have discovered these "reading camps" much earlier than i did. Metro has run a successful business by signing a contract with the MTR Corporate for the rights to distribute their newspapers inside each of the subway stations. am730 and Headline Daily send their distribution workers near many entrances of subway stations.
Will free newspaper kill all the pay-newspapers just because of their zero pricing? My answer is no because free newspapers will waste a lot of paper if they target readers who do not travel by MTR. The few coins quite affordable by many readers will continue to work as an old trick to find the right readers.
Next time, i will touch on the role the newspaper contents play.
Jun 6, 2006
Copyright Quamnet
Skeptics said pay newspaper would face the fate of pay-TV Rediffusion back in the late 1960's, when free-to-air TVB started. TVB established its broadcasting business in 1967 by offering free access and beat the British-controlled, once incumbent, Rediffusion while Rediffusion charged subscription fees. The overwhelming success of TVB's "pricing strategy" forced Rediffusion to give in billing in 1973, merely six years after TVB was established. Still, its initial success on viewership, combined with its later efforts on primetime dramas, which were just as appealing, TVB has for the past few decades, sustained its prominent position in Hong Kong's TV broadcasting industry.
The history of TV broadcasting history appears to support an obvious point: Cutting price wins more customers. Cutting price to zero wins all. This hypothesis holds true to almost all business. Newspaper business is an exception. Both TV and newspaper are media business. As TVB beat its rivals by offering free viewing, why free newspapers cannot kill pay-newspapers?
The reason is obviously on the hardware. TVB does not deliver television sets into your homes. It only sends airwaves and you have to buy whatever television sets you like in order to receive the airwaves. However, newspaper publishers buy the paper materials.
The cost of setting up broadcasting stations, hiring scriptwriters and actors/actresses and producing dramas are relatively fixed, no matter how many viewers there are. The more viewers the broadcaster has, the higher advertising rates it can charge. As the additional cost for serving a new viewer is zero, it is best for the broadcaster to have as many viewers as possible.
Newspaper business is different. As it involves paper materials, by giving away newspapers for free, it fully subsidizes the readers for the paper costs. Certainly, the advertising rates rise with the readership. But it also depends very much on the quality of the readership, which would directly affect the benefit of the advertisers.
Although they often bolster circulation statistics, free newspapers do not want to waste papers. They want the papers to reach the most valuable readers for their advertisers.
Please refer to my previous article "Before you read a newspaper". It is wrong, however convenient, to think that supply chain of newspaper business, those of either free or pay-newspapers, is like this: raw information --> reporting --> editing --> printing --> wholesale --> retailing. No, it doesn't work like that.
In fact, information is plentiful. What is scarce is your attention. When i think of new cars, i immediately recall the image of the Audi A4 i saw in an ad on today's newspaper. If you ask me what today's headline news is, the first thing i recall from today's newspapers is Grand Promenade with pretty ladies and blue sky. i can't get it wrong, can i? The ad of this Shau Kei Wan property estate appeared on the entire first page of today's the Hong Kong Economic Times as well as the Hong Kong Economic Journal.
Advertisers of properties, cars, luxury watches, beauty services want your attention so much that they are willing to pay for the paper materials for you if only you glance the newspaper next morning.
However, the advertisers do not entirely trust the circulation statistics when they consider placing an ad. The advertisers also concern about the quality of the attention -- whether readers just throw away the newspaper in two minutes or they spend a considerable time and effort on it.
It is easier to identify the more serious readers for pay-newspapers. If you need to pay for it, you would probably read it. Otherwise, you won't buy it in the first place. The $6 charged for the newspaper indeed serves the purpose for the publishers to identify the more serious readers.
It is a bit tricky for free newspaper publishers to identify serious readers. But for free newspapers, everyone gets them for zero cost. Some spend a few minutes on them. The others put them on the table and forget them. A few desperately take them for the use of wrapping up their dog's wastes during nightwalk. In the meantime, free newspaper publishers waste their paper costs and advertisers waste their marketing budgets.
How about a fair deal? Free newspapers are as usual, but those who take them would have an obligation to stay in a designated area, a "reading camp", for a considerable period of time without doing anything else. Strangers are all around you, and you are unlikely to find a friend to chat and kill time. You are virtually "invited" to read in this "reading camp".
This "reading camp" idea sounds very odd, something could possibly happen only in the former Soviet Union or Nazi Germany. No, it didn't happen then. Instead, it happens to you every morning during the ride to work by the mass transit railway.
MTR train is an ideal "reading camp". i noticed that there are more people sleeping in bus than in MTR trains. The seats in MTR trains are not comfortable enough. The light is bright in MTR trains, keeping you from asleep and facilitating you to read. The train runs steady enough. There is no beautiful landscape scene but black tunnel walls outside the windows, sparing your eyes. It is just impossible to listen to radio as radio frequencies are blocked under the ground. Food and beverages are not allowed in the train.
Under such an environment, you are all set to get your head down on a newspaper. And you get trapped there until arriving at the destination.
It would be too creepy to open a board-sheet-sized newspaper inside these crowded moving capsules. Therefore, publishers tailor their newspapers into tabloid sizes to fit the tiny space among commuters.
Therefore, those people who grasp free newspapers and rush toward the platforms are very likely to be more serious newspaper readers. They immediately get their certification ISL 9000, ("I Shall Look"), as qualified suppliers of attention, each eligible for the waiver of the $6 payment.
Free newspaper publishers seem to have discovered these "reading camps" much earlier than i did. Metro has run a successful business by signing a contract with the MTR Corporate for the rights to distribute their newspapers inside each of the subway stations. am730 and Headline Daily send their distribution workers near many entrances of subway stations.
Will free newspaper kill all the pay-newspapers just because of their zero pricing? My answer is no because free newspapers will waste a lot of paper if they target readers who do not travel by MTR. The few coins quite affordable by many readers will continue to work as an old trick to find the right readers.
Next time, i will touch on the role the newspaper contents play.
Jun 6, 2006
Copyright Quamnet
Before you read a newspaper
i heard a relative bought 10 copies of the same newspaper one day, bringing down a dozen of trees, and never read a single news headline of those papers. You might have recently noticed, in any usual morning without any exciting breaking news happening in town, people tightly queue up in front of newsstands. They grasp the bulking papers and cut up pieces with scissors they have brought, and in the next minute, they throw the papers into trashes.
What they really go for are shopping coupons. The face value of those coupons far exceeds the price of the newspaper. For instance, one day, Sun Daily which is sold for HK$4 gave out coupons worth HK$20. You earn HK$16 for each copy purchased. If you bought 10 copies, you would sweep a profit of HK$160. That's why people are so desperate to buy newspapers that they go down the street at six o'clock in the morning.
On the surface, the phenomenon contrasts with the economic wisdom that "there isn't such a thing as free lunch".
Some newspapers, such as Metro and am730, are free of charge. Moreover, those attached with valuable coupons, such as Sun Daily, are actually cheaper than free. What went wrong?
Meanwhile, the free newspapers have generated a new kind of jobs-- the front-end newspaper collectors. i am not talking about those workers responsible for distributing free newspapers in the street. It is the reverse. There are some people asking you to pass the newspapers to them, if you have already finished reading them. One day, i was wondering why a middle-aged woman stood in the middle of the pedestrian and said good morning to everyone passing by. Later, i figured out that she is collecting finished newspapers. There used to be newspaper collectors only who collect large bulks of newspapers left in the recycle bins. But this new type of jobs is different in the way that the workers actively remind, or pursue to a certain degree, people to give away their papers.
These workers are not wearing uniforms. They are not hired by the newspaper publishers. They are not offering value-added services to help you conveniently unload your unwanted stuffs. They want your papers because the papers can be sold for money.
Papers are costly. Readers of free newspapers get papers free of charge. Even for paid newspapers, the wholesale price of newspaper cannot fully cover the cost of paper materials used, let alone the heavy overhead of the editorial departments. What a favorable deal for readers, as a consumer?
You get it all wrong if you believe what you are doing every morning is what it appears to be. You buy a breakfast and have it. Fine, you are a consumer of a meal. By handing the coins to the newsstands, you are not buying newspapers. You and all the other newspaper readers are not consumers at all.
The supply chain appears to be: raw information -> reporting -> editing -> printing -> wholesale -> retailing. No, the supply chain is actually the reverse of what it appears to be. You are the supplier -- the supplier of attention, eye-balls; the supplier of brain-space, memories, perceptions. Newspaper publishers actually work as the collectors, the aggregators of attentions and all the stuff. Their business is to sell these "goods" to advertisers including property developers, supermarkets, warrant issuers, watch companies, apparel retailers, etc.
In fact, attention is valuable goods for advertisers, and it sells. This is the real part of the whole business. Forget about the few coins you hand out. Property developers budget millions of dollars in marketing campaigns, including placing ads in the front pages of newspapers. They are buying your attention.
People are most alert in the morning, best time for advertisers to get their notices. For instance, you hear a song from the radio early in the morning, and the melody will echoe in mind for the whole day. Every morning you grasp your favorite newspaper, you sell your valuable attention to it.
Advertising is the vital income source for newspaper publishing businesses. For profitable publishers, the adversiting revenue more than covers the paper costs and the salary expenses for reporters and editors. That's why some publishers do not care giving out newspapers for free, and some others publish them "cheaper than free".
Well, the next question is: "If my attention is so valuable, why do i still have to pay for some newspapers? The cash flow ought to be the other way around. The newspaper publishers should pay me for reading the newspapers, instead."
The easy answer it: "You pay for the contents, the breaking news, the investigative feature stories, the tips for jockey racing, soccer games and stock punting, as well as your favorite columns and the editorial."
i pay my respect to journalists who produce great contents. Good articles are invaluable. Sometimes, i come across wonderful articles which help me understand what is happening around me and guide my thoughts. How do you value this kind of articles? A pint of beer is sold for HK$40 in pubs. A good article should be worth as much as a happy hour with a buddy. Therefore, i am willing to buy a newspaper which carries a good article for HK$40.
But the reality is there is not any newspaper publisher making sustainable profits without advertising income. Even those newspapers with the best quality cannot depend solely on selling contents.
Therefore, you do not pay for the content. Back to the question why i have to pay for newspapers if i am indeed the supplier, i imagine a newspaper publisher would say: "Thank you for your $6, dear reader. Well, the advertising fees have taken care of our production expenses for the contents. The $6 you paid is for us to identify you as one of the serious suppliers of attention."
To boost advertising income, a publisher must boost the circulation of its newspaper. The easy way to boost circulation is to reduce the newsstand price. But that won't serve the advertising the best because it won't help them access to the best quality of attention. In an extreme scenario, if a publisher attached a HK$100 banknote to each copy of its newspaper, it must be able to sell as many newspapers as it wishes. Everyone, including me, will run to the nearest newsstand by dawn and sweep away as many copies as they can.
Yes, the circulation must be spectacular. But will the advertisers be happy to see that? No, they will not because they won't get more attention to their ads than before. Most probably, they would get less because, by the time the serious readers walk down to the newsstands, the $100-giving newspaper would have already been sold out.
Therefore, by handing out $6, you are acquiring a certification -- ISL 9000 required as an approved supplier of attention. While ISO 9000 is an industry standard for quality control, ISL 9000, which, out of my imagination, stands for "I Shall Look", would be a qualitystandard for the "attention" industry.
Still, there are unanswered questions: "Why don't free newspapers require ISL 9000?" "How does contents play their roles in this attention industry?" i will continue next time.
May 16, 2006
Copyright Quamnet
What they really go for are shopping coupons. The face value of those coupons far exceeds the price of the newspaper. For instance, one day, Sun Daily which is sold for HK$4 gave out coupons worth HK$20. You earn HK$16 for each copy purchased. If you bought 10 copies, you would sweep a profit of HK$160. That's why people are so desperate to buy newspapers that they go down the street at six o'clock in the morning.
On the surface, the phenomenon contrasts with the economic wisdom that "there isn't such a thing as free lunch".
Some newspapers, such as Metro and am730, are free of charge. Moreover, those attached with valuable coupons, such as Sun Daily, are actually cheaper than free. What went wrong?
Meanwhile, the free newspapers have generated a new kind of jobs-- the front-end newspaper collectors. i am not talking about those workers responsible for distributing free newspapers in the street. It is the reverse. There are some people asking you to pass the newspapers to them, if you have already finished reading them. One day, i was wondering why a middle-aged woman stood in the middle of the pedestrian and said good morning to everyone passing by. Later, i figured out that she is collecting finished newspapers. There used to be newspaper collectors only who collect large bulks of newspapers left in the recycle bins. But this new type of jobs is different in the way that the workers actively remind, or pursue to a certain degree, people to give away their papers.
These workers are not wearing uniforms. They are not hired by the newspaper publishers. They are not offering value-added services to help you conveniently unload your unwanted stuffs. They want your papers because the papers can be sold for money.
Papers are costly. Readers of free newspapers get papers free of charge. Even for paid newspapers, the wholesale price of newspaper cannot fully cover the cost of paper materials used, let alone the heavy overhead of the editorial departments. What a favorable deal for readers, as a consumer?
You get it all wrong if you believe what you are doing every morning is what it appears to be. You buy a breakfast and have it. Fine, you are a consumer of a meal. By handing the coins to the newsstands, you are not buying newspapers. You and all the other newspaper readers are not consumers at all.
The supply chain appears to be: raw information -> reporting -> editing -> printing -> wholesale -> retailing. No, the supply chain is actually the reverse of what it appears to be. You are the supplier -- the supplier of attention, eye-balls; the supplier of brain-space, memories, perceptions. Newspaper publishers actually work as the collectors, the aggregators of attentions and all the stuff. Their business is to sell these "goods" to advertisers including property developers, supermarkets, warrant issuers, watch companies, apparel retailers, etc.
In fact, attention is valuable goods for advertisers, and it sells. This is the real part of the whole business. Forget about the few coins you hand out. Property developers budget millions of dollars in marketing campaigns, including placing ads in the front pages of newspapers. They are buying your attention.
People are most alert in the morning, best time for advertisers to get their notices. For instance, you hear a song from the radio early in the morning, and the melody will echoe in mind for the whole day. Every morning you grasp your favorite newspaper, you sell your valuable attention to it.
Advertising is the vital income source for newspaper publishing businesses. For profitable publishers, the adversiting revenue more than covers the paper costs and the salary expenses for reporters and editors. That's why some publishers do not care giving out newspapers for free, and some others publish them "cheaper than free".
Well, the next question is: "If my attention is so valuable, why do i still have to pay for some newspapers? The cash flow ought to be the other way around. The newspaper publishers should pay me for reading the newspapers, instead."
The easy answer it: "You pay for the contents, the breaking news, the investigative feature stories, the tips for jockey racing, soccer games and stock punting, as well as your favorite columns and the editorial."
i pay my respect to journalists who produce great contents. Good articles are invaluable. Sometimes, i come across wonderful articles which help me understand what is happening around me and guide my thoughts. How do you value this kind of articles? A pint of beer is sold for HK$40 in pubs. A good article should be worth as much as a happy hour with a buddy. Therefore, i am willing to buy a newspaper which carries a good article for HK$40.
But the reality is there is not any newspaper publisher making sustainable profits without advertising income. Even those newspapers with the best quality cannot depend solely on selling contents.
Therefore, you do not pay for the content. Back to the question why i have to pay for newspapers if i am indeed the supplier, i imagine a newspaper publisher would say: "Thank you for your $6, dear reader. Well, the advertising fees have taken care of our production expenses for the contents. The $6 you paid is for us to identify you as one of the serious suppliers of attention."
To boost advertising income, a publisher must boost the circulation of its newspaper. The easy way to boost circulation is to reduce the newsstand price. But that won't serve the advertising the best because it won't help them access to the best quality of attention. In an extreme scenario, if a publisher attached a HK$100 banknote to each copy of its newspaper, it must be able to sell as many newspapers as it wishes. Everyone, including me, will run to the nearest newsstand by dawn and sweep away as many copies as they can.
Yes, the circulation must be spectacular. But will the advertisers be happy to see that? No, they will not because they won't get more attention to their ads than before. Most probably, they would get less because, by the time the serious readers walk down to the newsstands, the $100-giving newspaper would have already been sold out.
Therefore, by handing out $6, you are acquiring a certification -- ISL 9000 required as an approved supplier of attention. While ISO 9000 is an industry standard for quality control, ISL 9000, which, out of my imagination, stands for "I Shall Look", would be a qualitystandard for the "attention" industry.
Still, there are unanswered questions: "Why don't free newspapers require ISL 9000?" "How does contents play their roles in this attention industry?" i will continue next time.
May 16, 2006
Copyright Quamnet
Make Perfect Conversation
Many people including myself found it hard to break the ice and start a conversation. It is more difficult when you are not too familiar with the person, but such a situation often happens at work. And you never know who is the next one you will come across in the street, at the lift lobby, on the way to office, or at a business lunch. A "Hi" is followed by dead air for quite a few second. You might pretend to be busy checking your mobile phone, or stare dumbly into space. But the atmosphere wouldn't be quite comfortable. Worse, the person might be led to suspect if there is any bad feeling between you and that person.
i am no expert of communications or social skills. But somehow, i have worked out a step-by-step approach to develop a conversation, which could hopefully last for half an hour, however mundane it is. Here, i would like to share it with you. Of course, the approach is not made out of thin air. Instead, it is based on repeated observations on other people and tireless testing by myself.
British people like starting with weather, and have mastered the practice. Weather influences farmers' earnings. How British greet says a lot about the agriculture history. Whatever the opener is, the key is how to follow up with simple questions and answers and elaborate them into a pleasant conversation. Hong Kong people do not care weather as much as they care about food.
No matter what time it is, just take the first move to ask: "Have you eaten yet?" This greeting is more common for the older generations. Although it might sound dull, old-fashioned or even phony nowadays, this particular greeting works well for a start because it is handy to carry the conversation forward.
The dialogue would naturally continue: "What did you have?" It would go on into how the restaurant's service and environment, my favorite dishes and the pricing. One of us might go into a detailed discussion about their most recent wonderful dining experience. The topic could come to a fruitful end if one of us could recommend a nice place with the right pricing.
This should take care of the elevator encounter. But there are often cases, such as riding the mass transit, when i got to stay a little longer with that nice person. i would probably hesitate to go into propaganda of celebrities. The rich knowledge of that would not be too respectful and it would make me look too nosy. i don't want to touch politics because the fact that i know too little about it was just as embarrassing. Movies and TV shows are good talking point in colleges, but no longer so when we get to know people with more diversified backgrounds. In practice, how many people in a group of 12 have seen Brokeback Mountain? i guess three at most.
Fine, "How's the market doing?" It sounds familiar, right? It is a Hong Kong-version of the British-styled "weather" talks. i have asked this question not only to market professionals but also to all other people. And it takes me by surprise that many people are curious about this topic, regardless their ages, wealth and jobs. The topic has recently become a phenomenon in the street, as the market is so bullish. People dare not miss out the latest state-owned IPO. The truth is even in the low seasons people like talking about the market, which provide them with an emotional outlet to mourn.
All in all, in any given day, anyone has his or her own theories about making money in the market, proven or not. The chartists confront the fundamentalists. Two faithful contrarians meet and disagree, "contrast", with each other, regarding each other's position as the mainstream.
If this conversation piece ended up with a couple of "numbers", stock recommendations, it should not appear to be too boring. The market talks should do away with most part of the commute.
When the food opinions and market talks run their courses, you will find yourself suddenly stuck in the middle of a lunch with someone you barely know. What about that? You pick up the cup and sip some tea. To be sincere, i decide to open something more personal, but not too intimate for its own sake. "How do you spend your weekend?" That is like throwing a dice, or drawing a random card. i would be lucky if the answer is watching soccer games. Then, we can share our opinions on the last watches, different clubs and players. As time past, i got more answers that the weekend is spent on kids. i am getting better and better on this topic.
The difficult answers would be diving, skiing or golfing. The most difficult ones are the least expected. Who knows. "Oh, you are building a collection of butterfly specimens. You are an expert of butterflies. Ha, that's interesting." While i cannot remember the last time i saw a butterfly, i involuntarily reach for the cup and have another sip of tea.
So, say something that makes sense. "You look fitter than before." That spontaneously lit up a lot of talking points, hopes and frustrations. Discussions about Atkins diets, Physical Fitness, OSIM machines, Fancl syrups, etc, pop up. They resemble the earlier market briefing in the sense that anyone has his or her own theories on keeping fit.
In case there is still time, the easiest way is to go back to square one and start the flow all over again.
In the end, it seems i throw out as many bad topics as good ones. Good or bad, they could be all classified as bullshit. In his highly rated book, On Bullshit, which was ranked one of the ten favorite books in 2005 by Amazon customers, Princeton philosopher Harry Frankfurt makes points about why people bullshit. He said we bullshit because we are often trapped into circumstances requiring us to keep talking. We often encounter such topics as weather, dining, the market, hobbies, fitness, etc, which we are to some degree ignorant. Without knowing what the truth is, we are forced to bullshit our way through.
However, making conversation, or even empty talks or bullshitting whatever you name it, is the second worst thing to do, after to keep quiet.
May 9, 2006
Copyright Quamnet
i am no expert of communications or social skills. But somehow, i have worked out a step-by-step approach to develop a conversation, which could hopefully last for half an hour, however mundane it is. Here, i would like to share it with you. Of course, the approach is not made out of thin air. Instead, it is based on repeated observations on other people and tireless testing by myself.
British people like starting with weather, and have mastered the practice. Weather influences farmers' earnings. How British greet says a lot about the agriculture history. Whatever the opener is, the key is how to follow up with simple questions and answers and elaborate them into a pleasant conversation. Hong Kong people do not care weather as much as they care about food.
No matter what time it is, just take the first move to ask: "Have you eaten yet?" This greeting is more common for the older generations. Although it might sound dull, old-fashioned or even phony nowadays, this particular greeting works well for a start because it is handy to carry the conversation forward.
The dialogue would naturally continue: "What did you have?" It would go on into how the restaurant's service and environment, my favorite dishes and the pricing. One of us might go into a detailed discussion about their most recent wonderful dining experience. The topic could come to a fruitful end if one of us could recommend a nice place with the right pricing.
This should take care of the elevator encounter. But there are often cases, such as riding the mass transit, when i got to stay a little longer with that nice person. i would probably hesitate to go into propaganda of celebrities. The rich knowledge of that would not be too respectful and it would make me look too nosy. i don't want to touch politics because the fact that i know too little about it was just as embarrassing. Movies and TV shows are good talking point in colleges, but no longer so when we get to know people with more diversified backgrounds. In practice, how many people in a group of 12 have seen Brokeback Mountain? i guess three at most.
Fine, "How's the market doing?" It sounds familiar, right? It is a Hong Kong-version of the British-styled "weather" talks. i have asked this question not only to market professionals but also to all other people. And it takes me by surprise that many people are curious about this topic, regardless their ages, wealth and jobs. The topic has recently become a phenomenon in the street, as the market is so bullish. People dare not miss out the latest state-owned IPO. The truth is even in the low seasons people like talking about the market, which provide them with an emotional outlet to mourn.
All in all, in any given day, anyone has his or her own theories about making money in the market, proven or not. The chartists confront the fundamentalists. Two faithful contrarians meet and disagree, "contrast", with each other, regarding each other's position as the mainstream.
If this conversation piece ended up with a couple of "numbers", stock recommendations, it should not appear to be too boring. The market talks should do away with most part of the commute.
When the food opinions and market talks run their courses, you will find yourself suddenly stuck in the middle of a lunch with someone you barely know. What about that? You pick up the cup and sip some tea. To be sincere, i decide to open something more personal, but not too intimate for its own sake. "How do you spend your weekend?" That is like throwing a dice, or drawing a random card. i would be lucky if the answer is watching soccer games. Then, we can share our opinions on the last watches, different clubs and players. As time past, i got more answers that the weekend is spent on kids. i am getting better and better on this topic.
The difficult answers would be diving, skiing or golfing. The most difficult ones are the least expected. Who knows. "Oh, you are building a collection of butterfly specimens. You are an expert of butterflies. Ha, that's interesting." While i cannot remember the last time i saw a butterfly, i involuntarily reach for the cup and have another sip of tea.
So, say something that makes sense. "You look fitter than before." That spontaneously lit up a lot of talking points, hopes and frustrations. Discussions about Atkins diets, Physical Fitness, OSIM machines, Fancl syrups, etc, pop up. They resemble the earlier market briefing in the sense that anyone has his or her own theories on keeping fit.
In case there is still time, the easiest way is to go back to square one and start the flow all over again.
In the end, it seems i throw out as many bad topics as good ones. Good or bad, they could be all classified as bullshit. In his highly rated book, On Bullshit, which was ranked one of the ten favorite books in 2005 by Amazon customers, Princeton philosopher Harry Frankfurt makes points about why people bullshit. He said we bullshit because we are often trapped into circumstances requiring us to keep talking. We often encounter such topics as weather, dining, the market, hobbies, fitness, etc, which we are to some degree ignorant. Without knowing what the truth is, we are forced to bullshit our way through.
However, making conversation, or even empty talks or bullshitting whatever you name it, is the second worst thing to do, after to keep quiet.
May 9, 2006
Copyright Quamnet
Buy Aeon Stores (984)
i follow the investment principal that one should invest in stocks as if he owns the underlying business. i look for businesses that pay out increasing amount of dividends and generate increasing amount of cash from operating activities. i feel more comfortable of investing in businesses that i am familiar with than otherwise. That makes it easier for me to assess the competitiveness of the businesses in question. Usually, i hold stocks for at least one year.
Recently, i have been reconsidering Aeon Stores #984, although i covered it for some time when i worked for Quam. And i found that this retail chain has been doing better and better since then. Therefore, i would like to share my view regarding the company here.
If i am going to own a retail business, the first thing that concern me is the inventory risk. No matter how great the goods i sell and how hot they are in the market. The market taste must be changing faster than i can anticipate. If one day the demand for those goods hit the wall and the unsold goods are left sitting in the warehouse with little market value, i will be snookered.
Since i would have already paid my suppliers in cash by then, and to keep the business running, i would have to sell those out-of-fashion goods at deep discounts. Those losses would probably wipe out all the hard-earned profits i have previously made, for what i earn is nothing but a small fraction of the previous sales revenue after deducting the purchasing costs, rents and labor expenses. Therefore, my business must have a very low inventory risk.
Secondly, i fear that i need to put a large amount of cash in terms of inventories. Even though those inventories do not depreciate over time, they sit on the warehouse and shelves and prevent me from converting them to cash for other better use. These so-called working capital will be a form of idled cash forever, until i close down the business. Worse, if the business goes well and i need to open another shop, i need to double the amount of the idled cash.
i image my shops are located in second-tier shopping districts, instead of the hottest corners in Causeway Bay and Mongkok. i hope my goods and services are so good that people do not mind walking a few more blocks to visit us. If the business is only to offer convenience, it would end up being exploited by landlords because it is the landlords who own the value of convenience, the locations.
Ideally, i wish to have a return on equity exceeding 15% which means for every dollar i invest in the business i earn 15 cents per year. And i wish i do not have to inject new capital, as the internally generated cash will take care of the on-going business expansion.
The wish list could be longer if i do not stop here, but the key points have been stretched.
Let's look at Aeon Stores. During 2005, Aeon bought HK$4.1 billion worth of goods. At the end of the year, it was keeping HK$383 million, less than 10% of the goods purchased for the whole year. The average period for its goods sitting in the warehouse and shelves is 34 days.
At last New Year Eve, Aeon owed its suppliers HK$796 million, twice as much as the value of the inventories. On average, Aeon repays its suppliers 70 days after it makes the purchase. That means that Aeon is able to sell the goods and collect the sales proceeds way before it needs to repay its suppliers. Therefore, it doesn't need to idle any cash for working capital. Instead, it practically locks up suppliers' cash at its own disposal. As at the end of last year, Aeon locked up about HK$400 million of suppliers' cash. The bigger the business, the more cash it locks up.
For 2005, Aeon recorded a net profit of HK$125 million while it added HK$266 million cash into bank balances.
That Aeon can sell goods so quickly is a result of many good things in operations, from merchandising, sales and marketing, logistics and services.
Aeon generated about three quarters of sales in Hong Kong and the rest quarter in the PRC. In Hong Kong, its major "general merchandise" shops are located in Tseung Kwan O, Kornhill, Whampoa, etc, far from central shopping districts. Most of its major shops work as department stores except that they offer foods as well. Aeon has recently opened a new supermarket in Kwun Tong, focusing on food, which is another sensible move.
Aeon shops are those shops that you don't mind walking a few more blocks to visit. It paid HK$314 million in rents in the nine-month period ended December 2004, presenting about 8% of the HK$4 billion sales for the same period. 2005 figures are not yet available.
With the strong cash flow, Aeon borrowed little from banks. Also, it does not need to raise funds from shareholders. Since its IPO in 1994, Aeon has never raised any funds. In 2005, it had HK$644 million in shareholders' equity. Return on equity was 19%.
2005 total dividend will be 19.5 cents per share, compared with 12.5 HK cents per share for the 10 months ended December 2004 and 14 HK cents per share for the year ended February 2004. It changed the ending date of financial year from end-February to end-December.
Looking forward, i expect Aeon to strengthen its market presence in the local middle-end general merchandise market. Additional growth would come from mainland China when it enjoys the economies of scale as sales goes up.
Based on the market price of HK$9.4 per share and 260 million shares outstanding, Aeon is capitalized at $2.44 billion, or 20 times its 2005 net profit. Excluding the net cash of HK$1.03 billion, Aeon's enterprise value was HK$1.41 billion, or 13 times its 2005 net profit adjusted for investment income. i recommend a buy.
Disclosure of interest: i am not holding shares in Aeon, but i intend to buy the shares at least 24 hours after the publication of this article.
Apr 19, 2006
Copyright Quamnet
Recently, i have been reconsidering Aeon Stores #984, although i covered it for some time when i worked for Quam. And i found that this retail chain has been doing better and better since then. Therefore, i would like to share my view regarding the company here.
If i am going to own a retail business, the first thing that concern me is the inventory risk. No matter how great the goods i sell and how hot they are in the market. The market taste must be changing faster than i can anticipate. If one day the demand for those goods hit the wall and the unsold goods are left sitting in the warehouse with little market value, i will be snookered.
Since i would have already paid my suppliers in cash by then, and to keep the business running, i would have to sell those out-of-fashion goods at deep discounts. Those losses would probably wipe out all the hard-earned profits i have previously made, for what i earn is nothing but a small fraction of the previous sales revenue after deducting the purchasing costs, rents and labor expenses. Therefore, my business must have a very low inventory risk.
Secondly, i fear that i need to put a large amount of cash in terms of inventories. Even though those inventories do not depreciate over time, they sit on the warehouse and shelves and prevent me from converting them to cash for other better use. These so-called working capital will be a form of idled cash forever, until i close down the business. Worse, if the business goes well and i need to open another shop, i need to double the amount of the idled cash.
i image my shops are located in second-tier shopping districts, instead of the hottest corners in Causeway Bay and Mongkok. i hope my goods and services are so good that people do not mind walking a few more blocks to visit us. If the business is only to offer convenience, it would end up being exploited by landlords because it is the landlords who own the value of convenience, the locations.
Ideally, i wish to have a return on equity exceeding 15% which means for every dollar i invest in the business i earn 15 cents per year. And i wish i do not have to inject new capital, as the internally generated cash will take care of the on-going business expansion.
The wish list could be longer if i do not stop here, but the key points have been stretched.
Let's look at Aeon Stores. During 2005, Aeon bought HK$4.1 billion worth of goods. At the end of the year, it was keeping HK$383 million, less than 10% of the goods purchased for the whole year. The average period for its goods sitting in the warehouse and shelves is 34 days.
At last New Year Eve, Aeon owed its suppliers HK$796 million, twice as much as the value of the inventories. On average, Aeon repays its suppliers 70 days after it makes the purchase. That means that Aeon is able to sell the goods and collect the sales proceeds way before it needs to repay its suppliers. Therefore, it doesn't need to idle any cash for working capital. Instead, it practically locks up suppliers' cash at its own disposal. As at the end of last year, Aeon locked up about HK$400 million of suppliers' cash. The bigger the business, the more cash it locks up.
For 2005, Aeon recorded a net profit of HK$125 million while it added HK$266 million cash into bank balances.
That Aeon can sell goods so quickly is a result of many good things in operations, from merchandising, sales and marketing, logistics and services.
Aeon generated about three quarters of sales in Hong Kong and the rest quarter in the PRC. In Hong Kong, its major "general merchandise" shops are located in Tseung Kwan O, Kornhill, Whampoa, etc, far from central shopping districts. Most of its major shops work as department stores except that they offer foods as well. Aeon has recently opened a new supermarket in Kwun Tong, focusing on food, which is another sensible move.
Aeon shops are those shops that you don't mind walking a few more blocks to visit. It paid HK$314 million in rents in the nine-month period ended December 2004, presenting about 8% of the HK$4 billion sales for the same period. 2005 figures are not yet available.
With the strong cash flow, Aeon borrowed little from banks. Also, it does not need to raise funds from shareholders. Since its IPO in 1994, Aeon has never raised any funds. In 2005, it had HK$644 million in shareholders' equity. Return on equity was 19%.
2005 total dividend will be 19.5 cents per share, compared with 12.5 HK cents per share for the 10 months ended December 2004 and 14 HK cents per share for the year ended February 2004. It changed the ending date of financial year from end-February to end-December.
Looking forward, i expect Aeon to strengthen its market presence in the local middle-end general merchandise market. Additional growth would come from mainland China when it enjoys the economies of scale as sales goes up.
Based on the market price of HK$9.4 per share and 260 million shares outstanding, Aeon is capitalized at $2.44 billion, or 20 times its 2005 net profit. Excluding the net cash of HK$1.03 billion, Aeon's enterprise value was HK$1.41 billion, or 13 times its 2005 net profit adjusted for investment income. i recommend a buy.
Disclosure of interest: i am not holding shares in Aeon, but i intend to buy the shares at least 24 hours after the publication of this article.
Apr 19, 2006
Copyright Quamnet
How to read an IPO prospectus
Several initial public offerings have become a big hit with its shares enthusiastically received. Many people subscribe for IPO shares in the hope for short-term profit to be taken in a few days after listing. For this kind of short term trading, investors need not worry too much about the fundamentals of the company in question. More important are the news flow and the general market environment then prevailing. i regard IPO punting as casino dice gaming, of which the outcomes pretty much depend on luck. Those who are lucky enough could earn a meal of dim sum and tea.
i am skeptical about IPO punting, and prefer to invest in companies with well established track record. Still, i am interested in reading IPO prospectuses for my future reference of those companies of concern. An investment decision might be made years after the listing.
Prospectus usually contains the detailed information about the company and its business that annual reports skip.
It is hard for people to digest a prospectus as heavy and thick as a "Yellow Page" phone directory. Here, i offer a few easy, yet effective, steps to help you go through a prospectus.
You may search the prospectus by company in the HKEx website.
You will see the following section in a typical prospectus:
Important
Expected Timetable
Contents
Summary
Definitions
Glossary
Risk Factors
Information about this prospectus
Directors and parties involved in the offering
Corporate information
Industry overview
Business
Directors, senior management and employees
Substantial shareholders
Share capital
Financial information
Future plans and use of proceeds
Underwriting
Structure of the share offer
How to apply for the public offer shares
Appendix I -- Accountants' report
Appendix II -- Unaudited pro forma financial information
Appendix III -- Profit forecast
Appendix IV -- Property valuation
Step 1: Start with the "Important" section.
Who are the sponsors?
Check if the sponsors have previously involved in any problematic listing. Be aware of those sponsors. Big investment banks, such as the reputed American, Swiss and French ones, is a plus. But please don't blindly follow the fame, which will weaken your judgment on the full picture.
Find the number of old, or "existing" shares to be sold. Old shares accounting for a high proportion, say 40%, of the total offering is a negative sign. The high proportion probably indicates the original shareholders are no longer interested in the business, and hence look for an exit.
Step 2: Go to "Summary".
What is the business?
Companies with simple and easy-to-understand businesses are preferable. Those serving big customers and have strong market positions are even better. Be cautious if the business doesn't make any sense to you.
Step 3: Go to "Appendix I -- Accountants' Report"
Take nice-looking results for granted. Try to stand in the shoes of the management, and you would ensure the results for the three years prior to listing look good. More important is to check the income sources, which are stated in the turnover breakdown down the explanatory notes (presented in a tabular format). See if the income sources are the same as described in the "Summary" section.
Follow the cash flow statement through the periods under review. Get a sense how cash flew into and out of the company during the years. In particular, note the cash inflows from operating activities and cash outflows for purchases of property, plant and equipment (PPE). If operating cash inflows fell short of investment (PPE) outflows, the company would probably need to make up the difference by borrowing from banks. Also, mind the advances due to and from directors and related companies, and dividend payouts. High lending to directors and related companies and high dividend payouts are negative signs.
Then, roll down the pages to the very end of this section. There is a subsection called "Subsequent events". Since there is a time lag between the closing of the balance sheet period and the IPO, the company can "hide" some of the less appealing activities inside this time gap. i have seen companies pay fat dividends to shareholders during this period. In worse cases, the dividend can exceed the earnings over the past three years.
Roll back a few pages upward, and you will see "Related party transactions". Most likely, it is hard to figure out the complicated relationship between the parties. If there are lots of these transaction and these transactions accounted for substantial proportion of the business, you should suspect such business arrangements.
Step 4: Go to "Risk Factors"
You will find something like: "In case of natural disasters such as earthquakes and volcano eruptions, the group's business will be adversely affected." Don't give up and read this section carefully, line by line. This is the most important session of all.
This session would warn you if the business is heavily reliant on a few large customers or suppliers. It would also raise concerns about the sustainability of the company's competitive advantages. Worse, the group is undergoing legal disputes.
Step 5: Go to "Directors, senior management and employees".
Directors representing a wide variety of educational, experience and even ethical background is a plus. Family business is not desirable for two reasons. First, a group of related parties will control the board. Second, and more importantly, lower-ranked management staff sense the glass ceiling for job promotion, affecting the working morale.
Note that those who are non-executive directors without the "independent" prefix are most likely family relatives. They cannot perform the function of surveillance like independent non-executive directors, do, nor do they work on a day-to-day basis like executive directors do. So, what are they for? i don't know.
Step 6: Go to Appendix IV -- Property valuation
Check what kind of properties the company owns. i have seen some companies own residential properties in Mid-Levels and Ho Man Tin as "staff quarters" for their chairmen, including parking space.
Step 7: Go to "Future plans and use of proceeds"
See what the company plans to do with the listing proceeds. In most cases, those proceeds will be earmarked for the expansion of production capacities, acquisitions and working capital. The media like criticizing companies for their use of the proceeds for repaying debts. i am not so irritated by the debt repayment if the financial situation justify such an act. At least you will see the results where the money is spent.
i am more concerned by uses of the proceeds for research and development, especially for obscure high-tech projects. Money can go easy in these cases.
Step 8: Go back to "Summary" and look for the subheading "Offer Statistics".
Here, you will see the valuation of the shares. Use the "pro forma diluted", or "fully diluted" price-earnings multiple (PE). The IPO valuation is of less reference value than the market valuation that emerges only after the shares are floated in the market. Still, i would suspect valuations too high (higher than 16x) or too low (lower than 7x).
If you are satisfied with what you see in a prospectus, the next step is to watch how the company performs in terms of earnings in the next two to three years before you decide to buy the shares for long-term investment. i hope i these advices will help you read a prospectus.
Mar 8, 2006
Copyright Quamnet
i am skeptical about IPO punting, and prefer to invest in companies with well established track record. Still, i am interested in reading IPO prospectuses for my future reference of those companies of concern. An investment decision might be made years after the listing.
Prospectus usually contains the detailed information about the company and its business that annual reports skip.
It is hard for people to digest a prospectus as heavy and thick as a "Yellow Page" phone directory. Here, i offer a few easy, yet effective, steps to help you go through a prospectus.
You may search the prospectus by company in the HKEx website.
You will see the following section in a typical prospectus:
Important
Expected Timetable
Contents
Summary
Definitions
Glossary
Risk Factors
Information about this prospectus
Directors and parties involved in the offering
Corporate information
Industry overview
Business
Directors, senior management and employees
Substantial shareholders
Share capital
Financial information
Future plans and use of proceeds
Underwriting
Structure of the share offer
How to apply for the public offer shares
Appendix I -- Accountants' report
Appendix II -- Unaudited pro forma financial information
Appendix III -- Profit forecast
Appendix IV -- Property valuation
Step 1: Start with the "Important" section.
Who are the sponsors?
Check if the sponsors have previously involved in any problematic listing. Be aware of those sponsors. Big investment banks, such as the reputed American, Swiss and French ones, is a plus. But please don't blindly follow the fame, which will weaken your judgment on the full picture.
Find the number of old, or "existing" shares to be sold. Old shares accounting for a high proportion, say 40%, of the total offering is a negative sign. The high proportion probably indicates the original shareholders are no longer interested in the business, and hence look for an exit.
Step 2: Go to "Summary".
What is the business?
Companies with simple and easy-to-understand businesses are preferable. Those serving big customers and have strong market positions are even better. Be cautious if the business doesn't make any sense to you.
Step 3: Go to "Appendix I -- Accountants' Report"
Take nice-looking results for granted. Try to stand in the shoes of the management, and you would ensure the results for the three years prior to listing look good. More important is to check the income sources, which are stated in the turnover breakdown down the explanatory notes (presented in a tabular format). See if the income sources are the same as described in the "Summary" section.
Follow the cash flow statement through the periods under review. Get a sense how cash flew into and out of the company during the years. In particular, note the cash inflows from operating activities and cash outflows for purchases of property, plant and equipment (PPE). If operating cash inflows fell short of investment (PPE) outflows, the company would probably need to make up the difference by borrowing from banks. Also, mind the advances due to and from directors and related companies, and dividend payouts. High lending to directors and related companies and high dividend payouts are negative signs.
Then, roll down the pages to the very end of this section. There is a subsection called "Subsequent events". Since there is a time lag between the closing of the balance sheet period and the IPO, the company can "hide" some of the less appealing activities inside this time gap. i have seen companies pay fat dividends to shareholders during this period. In worse cases, the dividend can exceed the earnings over the past three years.
Roll back a few pages upward, and you will see "Related party transactions". Most likely, it is hard to figure out the complicated relationship between the parties. If there are lots of these transaction and these transactions accounted for substantial proportion of the business, you should suspect such business arrangements.
Step 4: Go to "Risk Factors"
You will find something like: "In case of natural disasters such as earthquakes and volcano eruptions, the group's business will be adversely affected." Don't give up and read this section carefully, line by line. This is the most important session of all.
This session would warn you if the business is heavily reliant on a few large customers or suppliers. It would also raise concerns about the sustainability of the company's competitive advantages. Worse, the group is undergoing legal disputes.
Step 5: Go to "Directors, senior management and employees".
Directors representing a wide variety of educational, experience and even ethical background is a plus. Family business is not desirable for two reasons. First, a group of related parties will control the board. Second, and more importantly, lower-ranked management staff sense the glass ceiling for job promotion, affecting the working morale.
Note that those who are non-executive directors without the "independent" prefix are most likely family relatives. They cannot perform the function of surveillance like independent non-executive directors, do, nor do they work on a day-to-day basis like executive directors do. So, what are they for? i don't know.
Step 6: Go to Appendix IV -- Property valuation
Check what kind of properties the company owns. i have seen some companies own residential properties in Mid-Levels and Ho Man Tin as "staff quarters" for their chairmen, including parking space.
Step 7: Go to "Future plans and use of proceeds"
See what the company plans to do with the listing proceeds. In most cases, those proceeds will be earmarked for the expansion of production capacities, acquisitions and working capital. The media like criticizing companies for their use of the proceeds for repaying debts. i am not so irritated by the debt repayment if the financial situation justify such an act. At least you will see the results where the money is spent.
i am more concerned by uses of the proceeds for research and development, especially for obscure high-tech projects. Money can go easy in these cases.
Step 8: Go back to "Summary" and look for the subheading "Offer Statistics".
Here, you will see the valuation of the shares. Use the "pro forma diluted", or "fully diluted" price-earnings multiple (PE). The IPO valuation is of less reference value than the market valuation that emerges only after the shares are floated in the market. Still, i would suspect valuations too high (higher than 16x) or too low (lower than 7x).
If you are satisfied with what you see in a prospectus, the next step is to watch how the company performs in terms of earnings in the next two to three years before you decide to buy the shares for long-term investment. i hope i these advices will help you read a prospectus.
Mar 8, 2006
Copyright Quamnet
Dogonomics
Mind your steps as in the Year of Dog as always. Fengshui master tells you that stepping onto dog dirt brings bad luck. There shouldn't be any exception during the coming year.
In their column in The New York Times Magazine, Steven Levitt and Stephen Dubner, discussed how to deal with the problem of dog doop. After horses' manure in the 19th century, dogs' wastes have brought another threats to the hygienic environment in the urban streets. The authors guess the dog population in New York is one million, making the dog-to-human ratio to be 1-to-20. If 99% of all the dog owners pick up after their dogs. That still leaves poop produced by 10,000 dogs uncleared in the street everyday. The fine for inconsiderate dogkeepers is US$50 for the first offense, which is clearly not threatening enough. The law enforcement appeared to be very relaxed. Only 471 dog-waste violations were ticketed.
The majority of dogkeepers pick up after their dogs. How can we stop the inconsiderate dogkeepers? One of the new ideas is to license the dogs and keeping their DNA records. Once the dirts are found in the street, the government officers will trace the DNA records and mail the offending owner a ticket. It would cost US$30 million to establish a DNA databank for all dogs in New York, let alone the administrative expenses to be incurred case-by-case, which makes such a practice nonsense.
i wonder if we can invent a kind of diaper customized for dogs. The government could make a rule requiring all dogkeepers to have their dogs wearing diapers in the street. Any violation will be fined. i am not sure such a rule will breach animal's rights, or petkeeper's rights. If this law is established, a whole new income stream will be generated for the industry of pet supplies and diaper manufacturers, such as Pampers.
When people enjoy convenience that brings soical costs, i think, "privatizing" the social costs, by mandating the use of diapers or fining, could be a remedy, but never a complete solution. After all, everyone being considerate is a key to eliminating negative externalities. Keeping the street clean very much relies on doglovers' disciplines. Standing in the dog's shoes, you don't want to walk in dirty streets especially in your bare feet.
******
Dogs, well-known to be loyal and honest, know who owns what more clearly than many people, according to Peruvian economist Hernando de Soto.
After the fall of the Berlin Wall in 1989 and the disolvation of the Soviet Union in 1991, the Communist world joined China, which started the reform in 1979, to follow the market economy. Today, proverty is prevailing in large part of these countries. Capitalism has failed to bring prosperity, some people criticize. Hernando points out that macroeconomic reforms cannot be built on sand. The rule of law, beginning with the property law, forms the bedrock of capitalism.
Without a private property system, infrastructure and building development, and businesses cannot draw financing. The problem is a majority of the population of developing and former communist countries do not have legal property rights over their assets. These assets include land, businesses and intellectual know how. The property rights should also be well documented in a formal legal system, which is a further obstacle in the developing countries.
During a trip to Bali, Indonesia, Hernando wandered in the fields of rice, with no idea where the property boundaries were. But the dogs knew, as he recalled. "Every time I crossed from one farm to another, a different dog barked. Those Indonesian dogs may have been ignorant of formal law, but they were positive about which assets their masters controlled." When Indonesian ministers consulted Hernando about the establishment of a property system in rural Indonesia, this economist told them thatIndonesian dogs had the basic information they needed to set up a formal property system. He asked them to start from the sketches by listening to the barking dogs. "Ah, reponded one of the ministers, "jukum adat" (the people's law)!"
******
Dogs have an economic mind.
In "Cafe Hayek", a blog named after economist Friedrich Hayek, Don Boudreaux explains his dog's behavior by economics. He just bought a 10-week-old soft-coated wheaten terrier, Molly, while he has a 14-year-old beagle, Priscilla. The two dogs get along well, except when Molly approaches Priscilla's food bowl. Priscilla becomes fierce and growls whenever Molly comes close to her food bowl. Molly is scared away.
However, both dogs peacefully share the same water bowl. Priscilla has no complaint about it. They often drink from the same bowl together.
How comes the difference? Water is an essence of life as food. A dog can live longer without food than it can live without water. In that sense, water is more important than food. Why does Priscilla care more about her food than her water?
To answer this question, Boudreaux borrows the concept of marginal analysis. By the survival of fittest hypothesis, dog's ancestors in the wild learnt that water is more easily accessible than food. Put differently, an additional unit of food is more costly to gain than an additional unit of water, which makes the protection of food more worth fighting for.
What a nice homey place to learn economics if only you keep at least two dogs!
Jan 25, 2006
Copyright Quamnet
In their column in The New York Times Magazine, Steven Levitt and Stephen Dubner, discussed how to deal with the problem of dog doop. After horses' manure in the 19th century, dogs' wastes have brought another threats to the hygienic environment in the urban streets. The authors guess the dog population in New York is one million, making the dog-to-human ratio to be 1-to-20. If 99% of all the dog owners pick up after their dogs. That still leaves poop produced by 10,000 dogs uncleared in the street everyday. The fine for inconsiderate dogkeepers is US$50 for the first offense, which is clearly not threatening enough. The law enforcement appeared to be very relaxed. Only 471 dog-waste violations were ticketed.
The majority of dogkeepers pick up after their dogs. How can we stop the inconsiderate dogkeepers? One of the new ideas is to license the dogs and keeping their DNA records. Once the dirts are found in the street, the government officers will trace the DNA records and mail the offending owner a ticket. It would cost US$30 million to establish a DNA databank for all dogs in New York, let alone the administrative expenses to be incurred case-by-case, which makes such a practice nonsense.
i wonder if we can invent a kind of diaper customized for dogs. The government could make a rule requiring all dogkeepers to have their dogs wearing diapers in the street. Any violation will be fined. i am not sure such a rule will breach animal's rights, or petkeeper's rights. If this law is established, a whole new income stream will be generated for the industry of pet supplies and diaper manufacturers, such as Pampers.
When people enjoy convenience that brings soical costs, i think, "privatizing" the social costs, by mandating the use of diapers or fining, could be a remedy, but never a complete solution. After all, everyone being considerate is a key to eliminating negative externalities. Keeping the street clean very much relies on doglovers' disciplines. Standing in the dog's shoes, you don't want to walk in dirty streets especially in your bare feet.
******
Dogs, well-known to be loyal and honest, know who owns what more clearly than many people, according to Peruvian economist Hernando de Soto.
After the fall of the Berlin Wall in 1989 and the disolvation of the Soviet Union in 1991, the Communist world joined China, which started the reform in 1979, to follow the market economy. Today, proverty is prevailing in large part of these countries. Capitalism has failed to bring prosperity, some people criticize. Hernando points out that macroeconomic reforms cannot be built on sand. The rule of law, beginning with the property law, forms the bedrock of capitalism.
Without a private property system, infrastructure and building development, and businesses cannot draw financing. The problem is a majority of the population of developing and former communist countries do not have legal property rights over their assets. These assets include land, businesses and intellectual know how. The property rights should also be well documented in a formal legal system, which is a further obstacle in the developing countries.
During a trip to Bali, Indonesia, Hernando wandered in the fields of rice, with no idea where the property boundaries were. But the dogs knew, as he recalled. "Every time I crossed from one farm to another, a different dog barked. Those Indonesian dogs may have been ignorant of formal law, but they were positive about which assets their masters controlled." When Indonesian ministers consulted Hernando about the establishment of a property system in rural Indonesia, this economist told them thatIndonesian dogs had the basic information they needed to set up a formal property system. He asked them to start from the sketches by listening to the barking dogs. "Ah, reponded one of the ministers, "jukum adat" (the people's law)!"
******
Dogs have an economic mind.
In "Cafe Hayek", a blog named after economist Friedrich Hayek, Don Boudreaux explains his dog's behavior by economics. He just bought a 10-week-old soft-coated wheaten terrier, Molly, while he has a 14-year-old beagle, Priscilla. The two dogs get along well, except when Molly approaches Priscilla's food bowl. Priscilla becomes fierce and growls whenever Molly comes close to her food bowl. Molly is scared away.
However, both dogs peacefully share the same water bowl. Priscilla has no complaint about it. They often drink from the same bowl together.
How comes the difference? Water is an essence of life as food. A dog can live longer without food than it can live without water. In that sense, water is more important than food. Why does Priscilla care more about her food than her water?
To answer this question, Boudreaux borrows the concept of marginal analysis. By the survival of fittest hypothesis, dog's ancestors in the wild learnt that water is more easily accessible than food. Put differently, an additional unit of food is more costly to gain than an additional unit of water, which makes the protection of food more worth fighting for.
What a nice homey place to learn economics if only you keep at least two dogs!
Jan 25, 2006
Copyright Quamnet
The Story of Man
Every year, The Economist magazine publishes a "special issue" carrying alternative themes to celebrate the New Year. You won't see any survey on "Ten Headlines of the Year" or "Man of the Year". Neither would you learn any stock pick for the coming year. All you get is a dozen of curious updates on recent thoughts about culture, religion, economics, politics and technology advancement, equipping yourself well to kill the excessive leisure time during the holidays. This year, the magazine triumphs the human evolution, with the cover story titled "The Story of Man". Here i will have my own elaboration on this reading, particularly on the migration of people. Thousands of years ago, early humans migrated from Africa to other continents of the Earth. What the magazine didn't tell us is: Where is our next destination?
Although scientists traced genetic history of human beings back to a single African woman who lived some 150,000 years ago, they are divided as to how and when people emigrated out of Africa. The Oxford school believes they did some 85,000 years ago and rapidly spread along the coast of southern Arabia and along the south coast of Asia to Australia. The Cambridge school thinks their journey started only 60,000 years ago and brought them to central Asia, instead. Anyway, people do move from one place to another, and spread their off-springs all over the planets.
In recent history, Europeans massively moved to America and eventually founded the United States in the late eighteenth century. The Industrial Revolution drove a large population from farmland to urban cities. People migrate for better natural resources or better living.
Today, the Earth is highly populated, and the atmosphere has confined people's geographically inhabitation. It seems we are going nowhere. However, with the technological advancement, we are, gradually and unconsciously, moving to the imaginary world created by ourselves.
This new wave of migration started as early as the first fan fell in love with fictions and comic books, fantasy worlds where things are all but ever happen in the real world. Once you are absorbed into a novel, you don't want to eat, sleep or be disturbed by anyone until you finish the whole story. For very attractive stories, you might even want to read it all over again. So far, anthropologists cannot reach any consensus of the reason why early humans painted on cave walls. Maybe, i suppose, those were the early signs for what's embedded in our genes -- the desire to break away.
Storybooks have their limitations for opening the door of the new world for they are simply not real enough. Movies have a bigger impact as, through visual and audio effects, they deliver quite a lively experience. The scripts are obviously artificially written. But no doubt, movies have helped shape people's attitude toward triad society (Godfather and A Better Tomorrow), heroism (Superman and Batman, etc.), love (Titanic), the existent of extraterritorial beings (E.T.), nationalism (Bruce Lee's movies), and more recently environmentalism (The Day After Tomorrow). Intriguingly, the imaginary world based on the real world has turned around to change the real world.
Most movies end in 90 minutes, and the imaginary world is over once the theater staff turns on the light. You are forced to parachute to the real world again and think of where to eat. Many people chose to go back to the Titanic world and see Jack's face more than twice though. But there is a clear line between the two worlds, light off and light on.
Television dramas blur the border between the two worlds. The shows are broadcast when you are having dinner at home. The triangle love and power wrestling affairs last at least two months. The popular programs become talking points among friends and colleagues. Actors of the good-guy characters are known to be good guys in person. Lee Young-ae, the leading actress in the Korean hit Jewel in the Palace, was elected Hong Kong's Woman of the Year by Hong Kong in an election held by a radio program. It should be Dae Jang Geum who won the award as most people, i believe, voted for the character more than Ms. Lee. People mixed up the real world with the imaginary one.
Television broadcast has its wide influence, but computer games make the killing impact and their influence may pass that of television sooner or later. People follow through the stories in storybooks, comic books, movies and television and cannot make any decision to alter the endings. Whether it is a happy ending or a sad one, you like it or not, it is scripted. But when you live in a world where your fortune is largely based on your techniques, knowledge and decision-making, you are really into it. Games in computer are such a love-hate situation. The pride and fear factors kick in, and now you are on your own, as if you are in the real world. A Korean died in August after playing an online game for 50 hours with few breaks.
Game is a booming industry in which Microsoft, Sony and Nintendo are wrestling. Once, i saw in a newspaper a viewing device which resembles a blind fold enable users to play virtual games completely shut out of the real world. After playing for a few hours, the player, i think, would forget where he is, and even wouldn't realize he is in a game.
In some online games, people build their own house, keep their own livestock, and earn their own living as carpenters for instance. Virtually, they are living there and the games never end. They chat with the people (other players) passing by, and occasionally kill some monsters. They keep their money and do trades of weapons and daily necessaries. This world has its own currencies, economics and politics. Living there are traders, social leaders and not surprisingly columnists, my virtual counterparts.
i am not talking science fiction. The migration is happening. People are playing football games more often by finger than by foot. In Mid-Autumn festivals, kids are no longer able to light a candle, like i did when i was a kid. But, in the new world, these same kids fire shotguns and blow a tower at their ease, which open my eyes.
Once i sat next to a group of teenagers in a fast food shop, i overheard their conversation but could not understand even a single sentence, as if they are speaking a foreign language. Yes, they are talking about things happening in the new world. When they finished their meals and departed, i am sure the old world doesn't interest them any more.
Bon voyage to our marvelous adventurers!
Jan 12, 2006
Copyright Quamnet
Although scientists traced genetic history of human beings back to a single African woman who lived some 150,000 years ago, they are divided as to how and when people emigrated out of Africa. The Oxford school believes they did some 85,000 years ago and rapidly spread along the coast of southern Arabia and along the south coast of Asia to Australia. The Cambridge school thinks their journey started only 60,000 years ago and brought them to central Asia, instead. Anyway, people do move from one place to another, and spread their off-springs all over the planets.
In recent history, Europeans massively moved to America and eventually founded the United States in the late eighteenth century. The Industrial Revolution drove a large population from farmland to urban cities. People migrate for better natural resources or better living.
Today, the Earth is highly populated, and the atmosphere has confined people's geographically inhabitation. It seems we are going nowhere. However, with the technological advancement, we are, gradually and unconsciously, moving to the imaginary world created by ourselves.
This new wave of migration started as early as the first fan fell in love with fictions and comic books, fantasy worlds where things are all but ever happen in the real world. Once you are absorbed into a novel, you don't want to eat, sleep or be disturbed by anyone until you finish the whole story. For very attractive stories, you might even want to read it all over again. So far, anthropologists cannot reach any consensus of the reason why early humans painted on cave walls. Maybe, i suppose, those were the early signs for what's embedded in our genes -- the desire to break away.
Storybooks have their limitations for opening the door of the new world for they are simply not real enough. Movies have a bigger impact as, through visual and audio effects, they deliver quite a lively experience. The scripts are obviously artificially written. But no doubt, movies have helped shape people's attitude toward triad society (Godfather and A Better Tomorrow), heroism (Superman and Batman, etc.), love (Titanic), the existent of extraterritorial beings (E.T.), nationalism (Bruce Lee's movies), and more recently environmentalism (The Day After Tomorrow). Intriguingly, the imaginary world based on the real world has turned around to change the real world.
Most movies end in 90 minutes, and the imaginary world is over once the theater staff turns on the light. You are forced to parachute to the real world again and think of where to eat. Many people chose to go back to the Titanic world and see Jack's face more than twice though. But there is a clear line between the two worlds, light off and light on.
Television dramas blur the border between the two worlds. The shows are broadcast when you are having dinner at home. The triangle love and power wrestling affairs last at least two months. The popular programs become talking points among friends and colleagues. Actors of the good-guy characters are known to be good guys in person. Lee Young-ae, the leading actress in the Korean hit Jewel in the Palace, was elected Hong Kong's Woman of the Year by Hong Kong in an election held by a radio program. It should be Dae Jang Geum who won the award as most people, i believe, voted for the character more than Ms. Lee. People mixed up the real world with the imaginary one.
Television broadcast has its wide influence, but computer games make the killing impact and their influence may pass that of television sooner or later. People follow through the stories in storybooks, comic books, movies and television and cannot make any decision to alter the endings. Whether it is a happy ending or a sad one, you like it or not, it is scripted. But when you live in a world where your fortune is largely based on your techniques, knowledge and decision-making, you are really into it. Games in computer are such a love-hate situation. The pride and fear factors kick in, and now you are on your own, as if you are in the real world. A Korean died in August after playing an online game for 50 hours with few breaks.
Game is a booming industry in which Microsoft, Sony and Nintendo are wrestling. Once, i saw in a newspaper a viewing device which resembles a blind fold enable users to play virtual games completely shut out of the real world. After playing for a few hours, the player, i think, would forget where he is, and even wouldn't realize he is in a game.
In some online games, people build their own house, keep their own livestock, and earn their own living as carpenters for instance. Virtually, they are living there and the games never end. They chat with the people (other players) passing by, and occasionally kill some monsters. They keep their money and do trades of weapons and daily necessaries. This world has its own currencies, economics and politics. Living there are traders, social leaders and not surprisingly columnists, my virtual counterparts.
i am not talking science fiction. The migration is happening. People are playing football games more often by finger than by foot. In Mid-Autumn festivals, kids are no longer able to light a candle, like i did when i was a kid. But, in the new world, these same kids fire shotguns and blow a tower at their ease, which open my eyes.
Once i sat next to a group of teenagers in a fast food shop, i overheard their conversation but could not understand even a single sentence, as if they are speaking a foreign language. Yes, they are talking about things happening in the new world. When they finished their meals and departed, i am sure the old world doesn't interest them any more.
Bon voyage to our marvelous adventurers!
Jan 12, 2006
Copyright Quamnet
Anti-Globalization & Us
John Lennon's Imagine is one of my favorite songs. It goes: "Imagine there is no countries," calling for a union for all people in the world. That is really something. At least, that should require all trade barriers that divide markets in different places to be torn down. As he sang: "It isn't hard to do." i would say he was a dreamer, but certainly he was not the only one. The World Trade Organization met in Hong Kong this week to discuss how to open markets. Economist David Ricardo showed that trade will make all countries better off. But if Ricardo was right, and it isn't hard to do, how come we haven't done it?
The Hong Kong meeting is unlikely to reach any conclusion, as disputes over agricultural subsidies remained unsolved. In the street outside the venues are protestors including farmers, human rights activists, anti-Americanists, environmentalists, etc. They raised their concerns over world trade. Hong Kong people find the topics quite obscure. But in fact, globalization is affecting each of us, our jobs, as well as the way we do business and consume.
While we are busy learning English and Mandarin and doing homework for our "Continuing Education", we have to take care of clients and customers overseas. We better do these well, as China is chasing us from behind in the field of services and finance.
Last time, i tried to demonstrate that jobs are moving northward while even more are created here, as long as we keep inventing new things, ideas and services. In an ideal world, we are all happy. But the world is far from perfect, if i lose my job and can't find another one, my unemployment rate is 100%, not the official citywide 5.3%.
"Tom, finish your dinner -- people in China and India are starving." Thomas Friedman, in his book "The World Is Flat -- A Brief History of the Twenty-First Century", recalled what his mother told him, and his advice for his own kids are: "Girls, finish your homework -- people in China and India are starving for your jobs."
Manufacturing jobs have long outsourced to mainland China, while software programming find its way to India. Some fears that, as the trend goes, the big magnets will attract even the urban jobs.
Friedman classified workers who keep their jobs into four categories: "special", "specialized", "anchored" and "really adaptable".
By "special", Friedman really means it. Michael Jordan, Bill Gates, Barbara Streisand are in this category. i would add John Lennon, Bruce Lee, Diego Maradona and Ronnie O'Sullivan, the Rocket. You name it. Their jobs cannot be substituted. They actually benefit from globalization as it introduces them to more people.
Specialized people include lawyers, accountants, brain surgeons, computer architects and software engineers, according to Friedman. But i cannot agree. All of their jobs, but brain surgeons', can all be outsourced, or partly outsourced to low-cost locations once those locations foster enough specialists. Software programming in India is a prime example. China is nurturing accounting talents. The fact that brain surgeons cannot be outsourced is not because of the level of specialization but because of the "anchoring" nature of the job. That brings us to the next category.
Barbers, waitresses, chefs, plumbers, nurses and cleaning ladies are what Friedman means by anchored people. They must be at the same location as their customers to offer the face-to-face or physical-touch services. Friedman said these jobs cannot be outsourced. i think he would have a different view if he lived in Hong Kong. Over the past years, Hong Kong consumers travel to Shenzhen and Macau to enjoy big meals, massage and even dental care. In other words, even though some of these "anchored" jobs cannot travel, consumers can. Cleaning ladies and plumbers must stay. But their wages are declining as immigrants provide plenty of labor supply.
In my view, the only, realistic, category that cannot be outsourced is "decathletes", or what Friedman calls "really adaptable". People who are really adaptable have gained diverse experience and adopted different skills. They are versatile and learn fast, be open minded and ready to say: "Yes, I can." As i tried to demonstrate in the previous article, the world didn't end when jobs are outsourced. It will keep inventing new jobs. The question is whether you are able to take the new challenges. People in countries with advanced education, such as the U.S. and the U.K. have the advantages to this end.
Therefore, the U.S. should be the most supportive country for globalization, despite its growing protectionism. In China, in contrast, low-paid jobs are moving from Shenzhen and Dongguan to more remote areas inward the mainland. Some manufacturers have already moved to Vietnam where labors are even cheaper.
If you can't be Michael Jordan and a "decathlete", you got a problem. Countries that do not have enough Michael Jordan's and decathletes would be worrisome.
Unfortunately, most people in the world, especially in the poorer places, are neither Michael Jordan nor decathletes. Korean farmers cannot turn into Hyundai engineers, probably for their whole lifetime, let alone the unfairness arisen from agricultural subsidies in the rich countries. The governments should take care of their people and let them not starve.
Outsourcing is good to a selfish consumer that i am. How about outsourcing to the future? That sounds convenient. Globalization enables production to boom so fast that the damage to nature is getting out of control. Our next generations would be forced to pay the bill and clean up the mess. Law and regulations are catching up, but far too slowly. In many cases, scientists are unable to evaluate the consequences of the radical changes. The sky is turning gray, sometimes yellowish brown, and the summer is hotter. Outside my office in the Tseung Kwan O Industrial Estates, the mountains of rubbish grows up day by day. A free-trade world is a big dream, but reality check is badly needed to avoid a nightmare.
Nov 14, 2005
Copyright Quamnet
The Hong Kong meeting is unlikely to reach any conclusion, as disputes over agricultural subsidies remained unsolved. In the street outside the venues are protestors including farmers, human rights activists, anti-Americanists, environmentalists, etc. They raised their concerns over world trade. Hong Kong people find the topics quite obscure. But in fact, globalization is affecting each of us, our jobs, as well as the way we do business and consume.
While we are busy learning English and Mandarin and doing homework for our "Continuing Education", we have to take care of clients and customers overseas. We better do these well, as China is chasing us from behind in the field of services and finance.
Last time, i tried to demonstrate that jobs are moving northward while even more are created here, as long as we keep inventing new things, ideas and services. In an ideal world, we are all happy. But the world is far from perfect, if i lose my job and can't find another one, my unemployment rate is 100%, not the official citywide 5.3%.
"Tom, finish your dinner -- people in China and India are starving." Thomas Friedman, in his book "The World Is Flat -- A Brief History of the Twenty-First Century", recalled what his mother told him, and his advice for his own kids are: "Girls, finish your homework -- people in China and India are starving for your jobs."
Manufacturing jobs have long outsourced to mainland China, while software programming find its way to India. Some fears that, as the trend goes, the big magnets will attract even the urban jobs.
Friedman classified workers who keep their jobs into four categories: "special", "specialized", "anchored" and "really adaptable".
By "special", Friedman really means it. Michael Jordan, Bill Gates, Barbara Streisand are in this category. i would add John Lennon, Bruce Lee, Diego Maradona and Ronnie O'Sullivan, the Rocket. You name it. Their jobs cannot be substituted. They actually benefit from globalization as it introduces them to more people.
Specialized people include lawyers, accountants, brain surgeons, computer architects and software engineers, according to Friedman. But i cannot agree. All of their jobs, but brain surgeons', can all be outsourced, or partly outsourced to low-cost locations once those locations foster enough specialists. Software programming in India is a prime example. China is nurturing accounting talents. The fact that brain surgeons cannot be outsourced is not because of the level of specialization but because of the "anchoring" nature of the job. That brings us to the next category.
Barbers, waitresses, chefs, plumbers, nurses and cleaning ladies are what Friedman means by anchored people. They must be at the same location as their customers to offer the face-to-face or physical-touch services. Friedman said these jobs cannot be outsourced. i think he would have a different view if he lived in Hong Kong. Over the past years, Hong Kong consumers travel to Shenzhen and Macau to enjoy big meals, massage and even dental care. In other words, even though some of these "anchored" jobs cannot travel, consumers can. Cleaning ladies and plumbers must stay. But their wages are declining as immigrants provide plenty of labor supply.
In my view, the only, realistic, category that cannot be outsourced is "decathletes", or what Friedman calls "really adaptable". People who are really adaptable have gained diverse experience and adopted different skills. They are versatile and learn fast, be open minded and ready to say: "Yes, I can." As i tried to demonstrate in the previous article, the world didn't end when jobs are outsourced. It will keep inventing new jobs. The question is whether you are able to take the new challenges. People in countries with advanced education, such as the U.S. and the U.K. have the advantages to this end.
Therefore, the U.S. should be the most supportive country for globalization, despite its growing protectionism. In China, in contrast, low-paid jobs are moving from Shenzhen and Dongguan to more remote areas inward the mainland. Some manufacturers have already moved to Vietnam where labors are even cheaper.
If you can't be Michael Jordan and a "decathlete", you got a problem. Countries that do not have enough Michael Jordan's and decathletes would be worrisome.
Unfortunately, most people in the world, especially in the poorer places, are neither Michael Jordan nor decathletes. Korean farmers cannot turn into Hyundai engineers, probably for their whole lifetime, let alone the unfairness arisen from agricultural subsidies in the rich countries. The governments should take care of their people and let them not starve.
Outsourcing is good to a selfish consumer that i am. How about outsourcing to the future? That sounds convenient. Globalization enables production to boom so fast that the damage to nature is getting out of control. Our next generations would be forced to pay the bill and clean up the mess. Law and regulations are catching up, but far too slowly. In many cases, scientists are unable to evaluate the consequences of the radical changes. The sky is turning gray, sometimes yellowish brown, and the summer is hotter. Outside my office in the Tseung Kwan O Industrial Estates, the mountains of rubbish grows up day by day. A free-trade world is a big dream, but reality check is badly needed to avoid a nightmare.
Nov 14, 2005
Copyright Quamnet
Globalization & Us
When i talked with my friends about the future of Hong Kong economy, they usually have the same worry that Shanghai and other Chinese cities would outshine Hong Kong and replace the city's economic role it has enjoyed as a window of the country. Some of them shared their personal experience of working in the mainland as engineers, financiers and accountants. They said, once they helped establish the systems and teach the mainlanders how to work like Hong Kong people did, the mainlanders can do the jobs on their own. Hong Kong would lose its edges as it cannot compete with the costs in the mainland, and my friends would be laid off. None of them are protesters against globalization. They just accepted that the opening of China was irreversible since it started in the late 1970's.
i agreed with them that China's market economy will go forward as the country has been a big beneficiary of free trade, which is vivid with the rapid economic growth and the rise of its middle class. But wait a minute. Will the opening China steal our jobs and break our rice bowls? Hong Kong's success has based on free trade from the very beginning. China has gotten the ticket for the wild ride. Will free trade turn its back on us?
We are born with free trade and we breathe it. In the early 19th century, Hong Kong became a successful harbor city exporting tea and silk. Hong Kong did the job so well that British has to colonize it and sell us opium to stop losing silver. As a British colony, we developed our legal system, infrastructure and education system, which contributed to greater success. In the 1960's, we developed into a manufacturing city with the influx of labor and capital inflow from the mainland. Manufacture of watches, electronics, garments and toys employed a large proportion of the population.
After the opening of China, factories moved north across the Lo Wu border in the 1980's. Manufacturing jobs followed the pave northward. You know what, we were not finished. Hong Kong had its golden years in the 1990's, with the upsurge of the financial sector. Industrialists raised funds here, poured capital in the mainland to build factories, and brought back the unprecedented profits to spend here. That contributed to the property boom until 1997.
Some people blamed the emigration of factories for the soft labor market that has been prevailing since the property downturn. In fact, the manufacturing jobs have gone for a long time. Many of the unemployed people are in the construction sector, victims of the burst of the property bubble. Some others are new immigrants from the mainland. They haven't adopted the skills demanded in their new home, which is a universal phenomenon happening in other cities populated with immigrants.
Even if the mainland did steal jobs from us, they stole the low-paid ones, which allows us to work out the high-paid ones. Netting out, we have more jobs.
Americans have the same worry that China is stealing jobs from them. In his best-selling book The World Is Flat: A Brief History of the Twenty-First Century, Pulitzer Prize-winning writer Thomas Friedman dismissed this worry. His argument may shed some light on the Hong Kong situation.
The major assumption for Americans losing jobs to China, India and other developing countries is a zero-sum game or "lump of labor theory" -- there are a fixed number of jobs in the world and the question is whether "we" or "they" get them.
Mr. Friedman argues that the lump of labor theory is wrong. If it were right, the U.S. jobless rate would not be at 5% as it is. Even though millions of jobs there have been outsourced to China and India, new jobs are created in the States. "The main reason the lump of labor theory is wrong is that it is based on the assumption that everything that is going to be invented has been invented, and that therefore economic competition is a zero-sum game, a fight over a fixed lump."
"I like going to coffee shops occasionally, but now that Starbucks is here, I need my coffee, and that new need has spawned a whole new industry. I always wanted to be able to search for things, but once Google was created, I must have my search engine. So a whole new industry has been built up around search, and Google is hiring math Ph.D.'s by the bushel -- before Yahoo! or Microsoft hires them. People are always assuming that everything that is going to be invented must have been invented already. But it hasn't."
And globalization will be a catalyst for that process. With globalization, countries that used to have their door shut now open to the world economy, and become part of it. The world economy has become larger and more complex, which generate more demand and some of them cannot even be imagined at present. What's more, Chinese and Indians will turn around to become stylish consumers.
Of course, Hong Kong needs to be as innovative as the States to come up with Starbucks and Googles. But please don't be discouraged. Similar evolutions, albeit in a smaller scale, have just happened here.
Remember the "Big Brother" phones in the 1980's. Holding a mobile phone was really something to show off, which was best depicted by John Woo's classic "A Better Tomorrow". Then, i asked why we needed a mobile phone when we have a pager and can borrow a phone in every local pharmacy stores in the street, free of charge. By the turn of the millennium, mobile phones had already become a necessity. Local pharmacy stores have been losing grounds to Watson's and Manning. Even if you can find one, it no longer does you such a favor.
Now Hong Kong is one of the most connected cities in the world. The telecom sector blossomed and generated a lot of jobs for technicians, salespeople, advertising talents and management.
Free trade plays many roles in these chemical reactions. More obviously, free trade enables the mobility of technologies and manufactured products. What's more. China has entered into the World Trade Organization and is obligated to open its telecom sector to foreign competitors. That pushes mainland telecom operators to improve their management and operation know-how. Recently, they invested in Hong Kong operators. Netcom (906) bought shares in PCCW (8) while China Mobile (941) acquired CR PeoplesPhone (331). i expect these alliances will create value, apart from funds.
Today people worry about the adoption of 3G. You might ask: "Why do I have to subscribe the 3G service, at a premium rate, when most of what I do with the phones are "talking and texting?" Quam cited a survey in Britain saying that 41% of 3G subscribers using their phones for "talking and texting" only. Of the respondents, 14% mistakenly thought that their 3G phones were 2G ones. The survey findings concerned Quam about the ARPU pressure facing Hutchison "3". i think the statistics actually shows that people just use 3G anyway, unnecessarily or even unconsciously.
When the economy advances, people demand better living standards, which "invents" more jobs. The question is how to make the economy advance. Globalization is the key. However, as the worldly trend takes place, things cannot go perfectly smoothly. Some people or countries will enjoy less benefit than the others. Some will even worse off. We have to make sure that we all sit in the same boat. Otherwise, these opponent forces may halt globalization. We will talk about it next time.
Disclosure of interest: i am holding shares in China Mobile.
Nov 30, 2005
i agreed with them that China's market economy will go forward as the country has been a big beneficiary of free trade, which is vivid with the rapid economic growth and the rise of its middle class. But wait a minute. Will the opening China steal our jobs and break our rice bowls? Hong Kong's success has based on free trade from the very beginning. China has gotten the ticket for the wild ride. Will free trade turn its back on us?
We are born with free trade and we breathe it. In the early 19th century, Hong Kong became a successful harbor city exporting tea and silk. Hong Kong did the job so well that British has to colonize it and sell us opium to stop losing silver. As a British colony, we developed our legal system, infrastructure and education system, which contributed to greater success. In the 1960's, we developed into a manufacturing city with the influx of labor and capital inflow from the mainland. Manufacture of watches, electronics, garments and toys employed a large proportion of the population.
After the opening of China, factories moved north across the Lo Wu border in the 1980's. Manufacturing jobs followed the pave northward. You know what, we were not finished. Hong Kong had its golden years in the 1990's, with the upsurge of the financial sector. Industrialists raised funds here, poured capital in the mainland to build factories, and brought back the unprecedented profits to spend here. That contributed to the property boom until 1997.
Some people blamed the emigration of factories for the soft labor market that has been prevailing since the property downturn. In fact, the manufacturing jobs have gone for a long time. Many of the unemployed people are in the construction sector, victims of the burst of the property bubble. Some others are new immigrants from the mainland. They haven't adopted the skills demanded in their new home, which is a universal phenomenon happening in other cities populated with immigrants.
Even if the mainland did steal jobs from us, they stole the low-paid ones, which allows us to work out the high-paid ones. Netting out, we have more jobs.
Americans have the same worry that China is stealing jobs from them. In his best-selling book The World Is Flat: A Brief History of the Twenty-First Century, Pulitzer Prize-winning writer Thomas Friedman dismissed this worry. His argument may shed some light on the Hong Kong situation.
The major assumption for Americans losing jobs to China, India and other developing countries is a zero-sum game or "lump of labor theory" -- there are a fixed number of jobs in the world and the question is whether "we" or "they" get them.
Mr. Friedman argues that the lump of labor theory is wrong. If it were right, the U.S. jobless rate would not be at 5% as it is. Even though millions of jobs there have been outsourced to China and India, new jobs are created in the States. "The main reason the lump of labor theory is wrong is that it is based on the assumption that everything that is going to be invented has been invented, and that therefore economic competition is a zero-sum game, a fight over a fixed lump."
"I like going to coffee shops occasionally, but now that Starbucks is here, I need my coffee, and that new need has spawned a whole new industry. I always wanted to be able to search for things, but once Google was created, I must have my search engine. So a whole new industry has been built up around search, and Google is hiring math Ph.D.'s by the bushel -- before Yahoo! or Microsoft hires them. People are always assuming that everything that is going to be invented must have been invented already. But it hasn't."
And globalization will be a catalyst for that process. With globalization, countries that used to have their door shut now open to the world economy, and become part of it. The world economy has become larger and more complex, which generate more demand and some of them cannot even be imagined at present. What's more, Chinese and Indians will turn around to become stylish consumers.
Of course, Hong Kong needs to be as innovative as the States to come up with Starbucks and Googles. But please don't be discouraged. Similar evolutions, albeit in a smaller scale, have just happened here.
Remember the "Big Brother" phones in the 1980's. Holding a mobile phone was really something to show off, which was best depicted by John Woo's classic "A Better Tomorrow". Then, i asked why we needed a mobile phone when we have a pager and can borrow a phone in every local pharmacy stores in the street, free of charge. By the turn of the millennium, mobile phones had already become a necessity. Local pharmacy stores have been losing grounds to Watson's and Manning. Even if you can find one, it no longer does you such a favor.
Now Hong Kong is one of the most connected cities in the world. The telecom sector blossomed and generated a lot of jobs for technicians, salespeople, advertising talents and management.
Free trade plays many roles in these chemical reactions. More obviously, free trade enables the mobility of technologies and manufactured products. What's more. China has entered into the World Trade Organization and is obligated to open its telecom sector to foreign competitors. That pushes mainland telecom operators to improve their management and operation know-how. Recently, they invested in Hong Kong operators. Netcom (906) bought shares in PCCW (8) while China Mobile (941) acquired CR PeoplesPhone (331). i expect these alliances will create value, apart from funds.
Today people worry about the adoption of 3G. You might ask: "Why do I have to subscribe the 3G service, at a premium rate, when most of what I do with the phones are "talking and texting?" Quam cited a survey in Britain saying that 41% of 3G subscribers using their phones for "talking and texting" only. Of the respondents, 14% mistakenly thought that their 3G phones were 2G ones. The survey findings concerned Quam about the ARPU pressure facing Hutchison "3". i think the statistics actually shows that people just use 3G anyway, unnecessarily or even unconsciously.
When the economy advances, people demand better living standards, which "invents" more jobs. The question is how to make the economy advance. Globalization is the key. However, as the worldly trend takes place, things cannot go perfectly smoothly. Some people or countries will enjoy less benefit than the others. Some will even worse off. We have to make sure that we all sit in the same boat. Otherwise, these opponent forces may halt globalization. We will talk about it next time.
Disclosure of interest: i am holding shares in China Mobile.
Nov 30, 2005
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