Chinese Goods and US Prices

"The Chinese supply 78% of the footwear imported into the U.S.; 71% of the ties; 55% of the gloves; roughly 50% of the dresses and baby clothing; and 90% of house slippers, according to Commerce Department data."

The article in Wall Street Journal this morning here. The following chart highlights the trend:



The article ends with a quote from Bernard Leifer, chief executive of SG Footwear:

""There's been a shift in who is holding the cards," Mr. Leifer says. "It used to be that the retailers would demand lower prices. Vendors like us would demand lower prices from the factories. And the factories would generally acquiesce. The whole thing has now flipped. The bottom line is the American consumer is going to end up paying more.""

Natural gas as automotive fuel

This is fascinating! From the WSJ, details here.

US's competitive edge being lost

Paul Otellini, Intel CEO: "You see us investing in good times and in bad times when other people don't." Otellini, added NBC, "fears the country is losing its competitive edge to Asia. He blames high corporate taxes and an education system that's falling behind the rest of the world in math and science."

How green was my Valley!

As the president of TIE Carolinas, an entrepreneurial non-profit, I engage with business men and women from across the world. A trend is clear and omniscient - the world at large, specifically Asia and Africa, have a populace that is aspirationaly committed to improving their lot... from the mother living in the Mumbai ghetto whose girls are working as data entry clerks to the Asian billionaires building the 21st century multi-nationals. I do not find it true of business men and women in the USA, where I have found the entrepreneur unable to "dream" for the past three years... dreams, which are essential to risk taking. Are things improving... they will and can though in a new paradigm yet to emerge.

Thanks to Financial Times for an excellent analysis of the reality of technology driven leadership and entrepreneurism in the the USA... Mr. Richard Waters writes in "A dip in the valley" - "Early stage investors appear to be losing interest in the painstaking work needed to sustain America's lead in the advanced industries that can generate many future jobs."

An example showcasing a macro trend in full swing (though it impacts micro economics as well) is: "When Massachusetts came up with $58m of incentives in 2008 to encourage Evergreen Solar to build a plant, it looked like the US state had found a new lease of life for a disused military base. Until last week, that is. Evergreen is shutting the facility with the loss of 800 jobs. The future location of Evergreen’s wafer making: a plant in Wuhan, China."

[Click to enlarge the graphic in the right.]


Again I am reminded of Gordon Moore's (Intel co-founder) lament that chasing returns has left a gap in invention in the USA. More strongly worded though is: "The belief that American individuality and creativity somehow assure future leadership is “a clear exposition of the arrogance of empire”, warns Michael Moritz, one of the Valley’s leading start-up financiers. Freed of “the debilitating effects of affluence”, he adds, “the need to succeed is far greater in the emerging economies”."

The article discusses US's inability to turn out enough engineers, decreasing share of its world R&D spending, sense of decline in the US, some of the existing invention's business being lost to Asia (ex: LED), etc. The article documents Mr. Moritz statement,"A company that loses its ability to develop its own manufacturing is on the road to oblivion."

And of course, such a conversation cannot end without evaluating current and desired policy - One area being talent, growing it, acquiring it and maintaining it: "Sophie Vandebroek, a Belgian engineer who moved to the US in the mid-1980s to train, says that at the time it was “the place to be – this was where the hot research was happening”. Ms Vandebroek stayed and eventually became chief technology officer at Xerox – in spite of the low status accorded to engineers in the US: “It’s kind of at the bottom of the professions.” Now, she and others warn, US immigration rules that make it harder for foreign students to stay, along with the availability of good jobs at home, are causing the country to leach much-needed foreign workers."

The second, the conduction of business: "If it is not to become left behind in businesses such as [solar, energy storage, green tech], the industry’s leaders say, it is time for a policy rethink. “Simply put, the US needs to decide it is ‘open for business’ and willing to compete in the global marketplace for factories and jobs,” says Paul Otellini, chief executive of Intel. “Costs are higher here, not driven by labour rates but rather by lack of incentives or tax credits that are available to US corporations in most other countries.” Without education reform, there will be a “critical engineering skills gap [that] will ultimately translate into fewer jobs and inventions in this country”."

The article concludes with the Valley still has a spark, "But for the country at large, it would not pay to take that much for granted."

See the complete article here.

China Requesting US Technology Export Deregulation

Via Mr. Tony Tsai, CEO – BHG Retail Innovation Institute and EVP Operations – The BJ Hualian Hypermarket Co.:

"Ministry of Commerce urges US to recognize China's market economy status as soon as possible
Dec. 15, Yao Jian, spokesman for the Ministry of Commerce, says that the 21st Sino-US Joint Commission on Commerce and Trade (JCCT) is a good opportunity to promote cooperation between China and the US. China is urging the US to recognize China's market economy status as soon as possible. The US should deregulate the export of new and advanced technologies and products to China."

Culture and Consumer Choices

The article "Cultural research tour reveals who likes what" in the Financial Times discusses the disparities in consumer behavior when it comes to jewelery here.  For the astute, this also provides insights in luxury and aspirational consumer goods and services as well.  In emerging markets of China and South Asia (India, Pakistan, Bangladesh), jewelery provides the deepest insights as it represents social standing as well as continuation to brand loyalty as it can be a significant both monetarily and as an emotive purchase.

"In the US today, the average price of a piece of diamond jewellery is $199, while in China it is $1,000 - David Rudlin, Japan-based global marketing director for De Beers’ Forevermark"

The article did not highlight though whether the jewelery industry is a follower or a predecessor to overall consumer markets trend?  Or does it stay constant?  That would be valuable information.

Few more interesting trends, for example, the difference in American and Japanese consumers overall are highlighted simply:

"In the US, 80 per cent of diamonds sold are for the bridal market. The American market is more ready than the Japanese to sacrifice quality for size... “The Japanese reject anything with even invisible flaws,” says Mr Rudlin."

"The biggest jewellery chain in the world, Chow Tai Fook, has 1,000 stores in China and will have 2000 by 2020. In China, 70 per cent of the market is made up of solitaire wedding rings, which are relatively easy to design and manufacture."

"“India, with its jewellery culture inspired by maharajas, is unlike anywhere else in the world,” says Mr Rudlin. “The demand is skewed to elaborate multi-stone pieces, with a focus on necklaces, earrings, bracelets and bindis and hair jewels.”"

US High Tech Areas and Rankings

This is couple of years old but worth having a look at again to see how ll these places have fared in the past two years - see Milken Institute's interactive 2007 rankings here.

Startup Visa to USA?

USA's innovation comes from the outside or the "outside" mind (~50% of top tier patents filed are by immigrants to USA or naturalized citizens)... details regarding legislation being requested here. Similarly, I wrote about Dubai's startup visa here.

If passed, this will be an interesting way to attract "creative" minds to the USA. The cost of entry is pretty minimal if one considers - "The bill requires each entrepreneur to have a sponsoring US venture capital or angel investor who will invest at least $100,000 in their startup, and total funds raised must be at least $250,000 per company."

The question that remains for me is if the equity of USA is still strong enough among the innovators of the world for them come over? Also, why wouldn't the Silicon Valley VC give, let's take for example a robotics company in Thailand (the reader can easily find the company I refer to) $100,000 which will go ten times farther in both attracting top talent and run operations?

Perhaps the policy being suggested is more reactionary as most things government are... that is after the fact! Has the ship sailed?

The East Rising

The Economist states: "The East is undoubtedly rising but its new day has barely begun." Excellent graphical representation of regional growth comparisons.

Governments and Innovation

I heard Jim Greenwood (bio here), President & CEO, Biotechnology Industry Organization state on CNBC:

"Government can spur innovation, it can incentivize innovation... but the government cannot innovate."

US Gov.'s Consumer - The Citizen - Insight

The Economist discusses "Americans have grown slightly more receptive to the idea of an activist government."  Read complete article here.

The US citizen is the consumer of the US government.  From the consumer insight perspective, I found this graph of value.

Health Care Consumers Winning in India

"America's spending on health care is soaring, yet its medical outcomes remain mediocre."

So states "Lessons from a frugal innovator" in the Economist here. The article begins with the description of a complex heart bypass surgery, while the patient is having a chat. This approach has been pioneered by Dr. Vivek Jawali at Wockhardt, an Indian hospital chain. According to the article this is just one of the many innovation in health care in India. The article goes on to share other innovation-in-practice examples like the one above.

The article highlights how the Western prowess in the medicine perhaps may be detrimental to itself:

"Dr. Jawali is feted today as a pioneer, but he remembers how Western colleagues ridiculed him for years for advocating his inventive “awake surgery”. He thinks that snub reflects an innate cultural advantage enjoyed by India.

Unlike the hidebound health systems of the rich world, he says, “in our country’s patient-centric health system you must innovate.” This does not mean adopting every fancy new piece of equipment. Over the years he has rejected surgical robots and “keyhole surgery” kit because the costs did not justify the benefits. Instead, he has looked for tools and techniques that spare resources and improve outcomes."

Interestingly, I experienced this first hand at a seminar discussing changes in health care in the USA. An Indian student tried to highlight some of the advantages stated in the article and the presenter proceeded to slight him that this may not be the case on this particular planet.

Yet, as the article shows, the Western organizations themselves are tired of their own system.

"Columbia Asia, a privately held American firm with over a dozen hospitals across Asia, is also making a big push into India. Rick Evans, its boss, says his investors left America to escape over-regulation and the political power of the medical lobby."

India is offering another advantage to the breakthrough innovators, faster improvements at speeds unparalleled in any other part of the world.

"[Aravind, the world’s biggest eye-hospital chain] staff screen over 2.7m patients a year via clinics in remote areas, referring 285,000 of them for surgery at its hospitals. International experts vouch that the care is good, not least because Aravind’s doctors perform so many more operations than they would in the West that they become expert."

Perhaps, this is an approach to perfection through practice, as the old adage goes! The article closes with:

"[Tim Brown, head of Ideo] says, "In health care, as in life, there is need for both Ferraris and Tata Nanos."

China Update

Few selected reports from China:

"China's shopping team to sign over 30 deals in the US - a delegation sent by the Ministry of Commerce arrives in the US to explore trade and investment opportunities. The delegation will visit Washington, Chicago and San Francisco on a 10-day trip. The delegation is expected to sign more than 30 deals with American companies."

"China still struggling with over-capacity in some regions - the Ministry of Industry and Information Technology holds a press conference. According to the press conference, China's industrial output grew 5.1% year-on-year in the first quarter of the year. March alone saw a rise of 8.3%. Zhu Hongren, director of the Performance Inspection and Coordination Bureau under the Ministry of Industry and Information Technology (MIIT), says China is still struggling with over-capacity in some regions. In the first quarter, 15 provinces and municipalities posted industrial growth of over 10%. Industrial growth in Central and West China is faster than in East China."

"China bans import of poultry from Kentucky, US - the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) says on its official website that China has suspended all imports of poultry and poultry products from Kentucky, the US after an outbreak of the bird flu was reported at a chicken farm in Kentucky. "

Consumer Spending Vs. Savings in the USA

In The McKinsey Quarterly, "The economic impact of increased US savings" here. Here are a few quantitative insights based on the fact that household incomes have not been growing and in some cased globally have been decreased, a recent example being renegotiation of contracts at automakers in Germany.

"...holding incomes constant, each percentage point increase in the savings rate translates into roughly $100 billion less in consumer spending¬. A 5 percent savings rate would mean $530 billion less in spending each year if US incomes fail to rise; if they rose by 2 percent a year, a 2.3 percent savings rate would mean $250 billion less spending, all else being equal."

The conclusion:

"But without significant income gains, deleveraging could undermine consumption and the global economy for years to come."

Robert Shiller on the Current Economics

Excellent conversation with Robert Shiller at The McKinsey Quarterly "Surveying the economic horizon: A conversation with Robert Shiller" here. The quarterly's email states, "Robert Shiller, a professor at Yale University and cocreator of the Case–Shiller Home Price Index, discusses four aspects of the current crisis: regulating for financial innovation, reducing trust in models, redesigning institutions, and the time line for turnaround. His perspectives are informed in part through his research that psychology—particularly an understanding of human irrationality—can play a key role in explaining economic breakdowns and exploring effective solutions."

On innovation, Robert Schiller states:

"I don’t want to see us killing off innovation, and this is what may get lost—and I hope it doesn’t get lost—in the current crisis. Ultimately, let’s not forget that we’ve learned lessons that a capitalist economy is an economy that promotes entrepreneurship, and entrepreneurship is not the province for government bureaucrats."

On the possibility of an economic turn around:

"I don’t want to say that I don’t think there will be a turnaround soon, but I think that many of us are too much expecting that it might come tomorrow or the day after. And this volatility is evidence of that. So I think it is quite possible that the stock market and the housing market, five years from now, will be close to where they are now."

Coca-Cola Loses China Huiyuan

Tit-for-tat or the Chinese anti-monopoly law is in affect - read the article "Hard to Swallow" from The Economist here.  The article states:

"On March 18th an answer emerged with the rejection of the largest outright acquisition by a foreign firm, a $2.4 billion offer by Coca-Cola for China Huiyuan, China’s largest juice company."

According to The Economist:

"The most benign interpretation of the rejection being bandied about by lawyers and bankers is that it reflects a political response to critical comments by America’s new administration. The more worrying interpretation is that, even as China publicly urges other countries to commit to opening their markets to Chinese investment and trade, it is imposing yet another barrier to outsiders. Worse still, the barriers are in its domestic consumer sector, one of the few global economic bright spots."

Does the consumer lose out in the end?  I believe they do.

China Declared as an Equal to USA on the World Stage

An email from The Economist:

"Dear Reader,
 
There is a sense in Beijing that this is China's moment. Its leaders nolonger stick to the script that China is a humble player in worldaffairs that wants to focus on its own economic development. InsteadChina is a "great power", which can chide America for its profligatespending, harass its spyships and treat a visiting Hillary Clinton asan equal. As for Europe, that distant, elderly speck on the horizon,it can be safely ignored: France is still blacklisted for daring totalk to the Dalai Lama. Geopolitics is now a bipolar affair, withAmerica and China the only two that matter. Thus in London next monththe real business will not be the G20 meeting but the "G2" summitbetween Presidents Barack Obama and Hu Jintao. This week we look atChina's new role in the world. Even if its new assertiveness reflectsweakness as well as strength, its relative power is growing--and boththe West and China itself need to adjust to this.

And how the world should see China - Click here."

USA - 25% Market Losses in 2 months?

Friend Mr. Brian Wade forwards an article fromt the Wall Street Journal discussing why the market has dropped 25% in the last two months here. The article asks the question below and answers it:

"So what has happened in the last two months? The economy has received no great new outside shock. Exchange rates and other prices have been stable, and there are no security crises of note. The reality of a sharp recession has been known and built into stock prices since last year's fourth quarter."

Update on American university campuses in the Gulf

George Mason University has a campus in the Emirate of Ras Al Khaimah in UAE that will be closing. See details here. Please note the comments to this article that provide good insights.

In comparison, the campus of Texas A&M setup in Qatar under the requirements of Qatar Foundation (see details here) continues to thrive. The Qatar Foundation loosely requires that the educational institutions setup should show direct value to Qatar and to its future growth.

Please see details on the other university campuses in Qatar here that include Virginia Commonwealth University, Carnegie Mellon University, Georgetown Uniersity and Northwestern University.

If this interests you, then you may want to look at the Qatar Science and Technology Park here.

USA returning to focus on Science and Technology

"Most scientists consider the last eight years a tough era in Washington. But President-elect Barack Obama's reported picks for Secretary of Energy and EPA administrator and the creation of an "energy czar" signal a return to scientific principles in the decision-making process at the federal level."

States the Wired article "Science Born Again in the White House, and Not a Moment Too Soon" here. The new administration coming to the White House has selected a good and balanced set of individuals given their resumes.

Yet one thing should not be over looked that the current administration has pumped (or dumped based on your preference) funding into R&D via the intelligence services. As always the results of these inventions will spring new businesses in years to come when the successful or failed innovations are not a national security concern and can be made public.