biz.hk Dec 2011 Flipbook

Journal of The American Chamber of Commerce in Hong Kong

www.amcham.org.hk

December 2011

CHARTING AN UNCERTAIN 2012

COVER SPONSOR

December 2011

Contents

Vol 43 No 12 Richard R Vuylsteke

Editor-in-Chief Daniel Kwan

Assistant Editor Kenny Lau

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16

COVER STORY

OFFICE SPACE

INFRASTRUCTURE

HUMAN CAPITAL

Despite China’s robust economic momentum in 2011, a global slowdown seems inevitable in the coming year when prospects of the US and European economies are showing little sign of improvement. Three well-respected observers and economists predict what’s in store for China, Europe, and the US in 2012

Secretary for Development Carrie Lam Cheng Yuet-ngor describes on-going projects of the government conducive to the development of commercial and office space around the city in an effort to meet the growing demand

Secretary for Transport and Housing Eva Cheng speaks in a conversation about the key benefits of the HK-Zhuhai-Macao Bridge as construction of the mega project connecting Hong Kong to the Pearl River Delta starts

Business leaders discuss at AmCham’s Human Capital Conference on the issue of talent recruitment and retention in Asia as a key to drive economic growth in a region critical to the future of the global economy

Publisher

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Advertising Sales Manager Regina Leung

AMCHAM NEWS AND VIEWS

biz.hk is a monthly magazine of news and views for management executives and members of the American Chamber of Commerce in Hong Kong.

Its contents are independent and do not necessarily reflect the views of officers, governors or members of the Chamber.

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Advertising office 1904 Bank of America Tower, 12 Harcourt Rd, Central Hong Kong Tel: (852) 2530 6900 Fax: (852) 2537 1682 Email: amcham@amcham.org.hk Website: www.amcham.org.hk

07 New Business Contacts

Printed by Ease Max Ltd 2A Sum Lung Industrial Building, 11 Sun Yip St, Chai Wan, Hong Kong (Green Production Overseas Group) Designed by Overa Creative Co Rm A, 12/F, Sun Fai Comm Bldg, 576 Reclamation St, Mongkok ©The American Chamber of Commerce in Hong Kong, 2011 Library of Congress: LC 98-645652

13 A Slow but Steady Recovery

Chairman’s Memo Rob Chipman highlights AmCham’s message on the issue of international school places in Hong Kong, recaps the annual Golf Open Tournament at Discovery Bay Golf Club and Human Capital Conference

CNN chief business correspondent and co-author of How to Speak Money Ali Velshi talks about the US economy and some of the headwinds it is facing

GOVERNMENT RELATIONS

34 executives joined AmCham’s business network last month

45 Mark Your Calendar

16 Finding Space for City’s Growth Secretary for Development Carrie Lam Cheng Yuet-ngor describes on-going projects in the development of commercial and office space around the city

20 HK-Zhuhai-Macao Bridge

Construction Starts

COVER STORY

09 “Would You Want to Short China Today?”

Jing Ulrich, Managing Director and Chairman of Global Markets, China, at JP Morgan, presents a detailed analysis of China’s economy entwined in the slow-growing economies of the West

Secretary for Transport and Housing Eva Cheng speaks in a conversation about the key benefits of the bridge bound to tie Hong Kong closer to the Pearl River Delta

HUMAN CAPITAL

11 Taking the Pulse of Eurozone Simon Ogus, founder and CEO of Hong Kong-based independent consultancy DSGAsia, outlines the unfolding economic turmoil in the Eurozone as well as the impact on the global economy

24 Asia Powering Growth – A Human Capital Perspective More than a dozen speakers share their insights on talent recruitment and retention in Asia at the 20th annual Human Capital Conference organized by AmCham’s Human Capital Committee

TRADE & INVESTMENT 30 Exporting into China Now Former US Undersecretary of Commerce for International Trade Frank Lavin takes his years of experience in export promotion to a market with the largest population of Internet users on a new e-commerce platform

SPORTS & ENTERTAINMENT 34 AmCham Hosts 6th Golf Open Tournament Dozens of golf enthusiasts participate in the annual competition held at the Discovery Bay Golf Club for a day of fun and charitable causes

CHINA BUSINESS 36 Supply Chain, Football and Wealth Raymond Tan of garment giant Luen Thai talks about his personal experiences in the rapidly changing garment industry, succession planning, and giving back to society

HEALTHCARE 41 Is Health Protection Scheme for You? An analysis of Hong Kong government’s proposal on healthcare finance reform

For comments, please send to biz.hk@amcham.org.hk Single copy price HK$50 Annual subscription HK$600/US$90

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COVER SPONSOR

Board of Governors Chairman Robert Chipman Vice Chairman James Sun Treasurer John Sigalos Executive Committee Frank Lavin, Anita Leung Belinda Lui, Charles Wellins Governors Sara Yang Bosco, Brian Brenner, Tom Burns, Janet De Silva, Rob Glucksman, Peter Levesque, Charles Ma, Toby Marion, Ross Matthews, Andrea Richey, Catherine Scown, Leland Sun, Colin Tam, Elizabeth L Thomson, Richard Weisman, Frank Wong, Shengman Zhang Ex-Officio Governor President

David L Cunningham Jr Richard R Vuylsteke

Chamber Committees AmCham Ball Apparel & Footwear Business Briefing China Business Communications & Marketing Corporate Responsibility

Kay Kutt Andre Leroy Don Meyer Wendy De Cruz

Energy Entrepreneurs/SME Environment Financial Services

Sean Purdie Donald Austin Bradley Punu Kuresh Sarjan Catherine Simmons Peter Johnston Hanif Kanji Ross Matthews

Food & Beverage Health & Wellness Hospitality & Tourism Human Capital

Susan Reingold Ed Ahnert

Noble Coker Peter Liu

Information Technology & Telecom Rex Engelking Intellectual Property Gabriela Kennedy Amy Lee Law Eric Szweda Pharmaceutical Stephen Leung Real Estate Brian Brenner Senior Financial Forum Alvin Miyasato Senior HR Forum Brian Chitester Sports & Entertainment Ray Roessel Taxation Evan Blanco Trade & Investment Patrick Wu Transportation & Logistics Brian Miller Women of Influence Jennifer Van Dale Lee Georgs Young Professionals Roger Ngo

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Rob Chipman Chairman

Dear Members,

Chairman’s Memo

It is with decidedly mixed feelings that I write to you one last time as your 2011 chairman. I say “mixed” because it was been a pleasure and an honor for me to represent this singularly outstanding organization; and with some melancholy that my term has drawn to a close so soon. This past year has gone by way too quickly and there is so much unfinished business that needs to be attended to. It has been a wonderful and eye-opening experience, and I have had the privilege of working with some wonderful, dedicated people inside and outside of the Chamber. I hope to stay involved and help AmCham in any way I can. I know that our new chairman James Sun will lead us to even greater heights and I look forward to all that James and his team will bring to the table.

The past few weeks have seen the issue of international school places heat up and gain attention from the local and even international news media outlets. I have been interviewed by the SCMP, Bloomberg, CNN, RTHK, and I even had an appearance on The Pulse – a local television news show. The AmCham message has been clear and consistent: in order to attract and retain high level international business, there needs to be adequate places in appropriate schools. Right now, Hong Kong faces a critical shortage of primary school places, on Hong Kong Island, in English medium with American style curriculum. There is reason to believe that our message is getting through to the government but there are no easy solutions and no quick fixes.

In the past month, the Chamber has hosted separate luncheon meetings for government secretaries Carrie Lam (Development) and Eva Cheng (Transport and Housing).

These luncheons serve as wonderful channels for AmCham to exchange views with senior level policy makers. I also think this is a good example of the Hong Kong government reaching out to entities such as AmCham, and to discover what the main concerns of the business community are – and they should be recognized and commended for doing so. You can read more about the kind of issues discussed in this month’s biz.hk.

Also featured are interviews with three top economists as they peer into their crystal balls and share their views on what 2012 might have in store for all of us. In early December, AmCham hosted the annual Human Capital Conference which featured a panel of distinguished HR professionals. You can get a good idea of their views and the current business trends by reading their interviews and featured articles in this issue of biz.hk.

AmCham’s annual golf open took place last month at the Discovery Bay Golf Club.

By all accounts (including my own!) this year’s Open was a huge success. The weather was delightful and the course conditions were as good as I’ve ever seen. There was a full

complement of players and a good time was had by all. The winning team carded an impressive 88 Stableford points to win going-away. Congratulations to Nelson Tsai and his team.

Frank Lavin has kindly served on my Executive Committee this year, and I have come to have a great deal of respect for his wisdom and views. In that light, I’m glad to report that Frank has recently authored a new book – Export Now: Five Keys to Entering New Markets – and launched an online platform of the same name to help companies sell to China which is inarguably the fastest growing market in the world today. As President Barak Obama has committed to the NEI (National Export Initiative) which calls for doubling of US exports in five years, Frank’s book and Web site can serve as the solid foundations to the 99 percent of US companies that do not export. I encourage you to read the article, Frank’s book, and check out his Web site to find out how they can help you to expand into new markets.

So that is it! I close out my terms in just a few more days, and I step back and allow the next generation of AmCham leaders to take the reins. I have way too many people to thank, but I am grateful especially to the AmCham staff who work tirelessly for our wonderful organization.

Happy Holidays and I’ll see you soon at a Chamber event.

Rob Chipman Chairman

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New

Business Contacts

w w w. a m c h a m . o r g . h k

The following people are new AmCham members: AECOM Asia Company Limited

JPMorgan Chase Bank

Mabel Chan Associate Director

Judy Kang Vice President

Baker & McKenzie

KPMG

(Rico) Wai Kwok Chan Partner

Diana Tsui Director - Corporate Social Responsibility Alex Capri Partner & Regional Leader, Asia Pacific

Loron Orris Regional Director, EMBA Solveig Nicklos Regional Director, Executive Programs

Mayer Brown JSM

SDV Hong Kong Ltd

Banco Santander, SA - HK Branch Emilio Guevara Head of Business Development, Asia

Bank of America NA Hilani Kerr Managing Director

Charles Schwab HK Ltd

Over 500 pages in three major sections, including a complete guide to chamber services, corporate sponsors and AmCham Charitable Foundation. This directory lists nearly 1,900 members from over 700 companies and organizations.

Pierra Ho Compliance Officer

ISBN 978-962-7422-03-7

Samson Ng ECO Colin Tam Executive Chairman

LC 98-645651

Crystal Vision Energy Ltd

ExxonMobil Energy Ltd Jim Muschalik Chairman & Managing Director

FloraTech Kelley Dwyer Senior Vice President

Informa Performance Improvement Hong Kong Pte Ltd Roy Magee Regional Vice President, Greater China/Singapore

Richard Nurmi Jr Partner

Richard Ivey School of Business (Asia)

Tom Keenan Registered Foreign Lawyer

Claude Mascolo Managing Director

Meiya Power Company Limited

Time Warner Inc

Albert Wong Director - Technical Services

Rajiv Dalal Executive Director, Public Policy, Asia Pacific

New Connections Press Ltd

TNT Express Worldwide (HK) Ltd

Gregory Kaplan First Director

Jocelyn Yip Director of HR

Norton Rose Hong Kong

TriVita

Andrew Bleau Partner

Sandy Dobronte ITBO - Director

Now Health International (Asia Pacific) Limited

University of Hong Kong, The

Crisanta Lau Head of Corporate Communication

Ochre House Asia Pacific (HK) Limited Doris Cheng Talent Attraction Specialist

Honeywell Ltd Kelvin Poon General Manager

PricewaterhouseCoopers

Panasonic Avionics Charles Ogilvie Executive Director of China

Staci Ford Associate Professor Flora Lau Post-doctoral fellow

Venetian Macau Limited Edward Tracy President David Sylvester Senior Vice President, Retail Asia Jacqueline Wu Vice President of Public Relations

PepsiCo Inc Su-sin Chiam Senior Legal Counsel, Asia Pacific Region

View our other members at:

http://www.amcham.org.hk/index.php/AmChamMembers.html

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COVER STORY

“Would You Want to Short China Today?”

At a recent AmCham luncheon, Jing Ulrich, Managing Director and Chairman of Global Markets, China, at J.P. Morgan, presented a detailed analysis of China’s economy. She predicted China would steer vigorously ahead despite the turbulence and uncertainty of the world economy today.

By Daniel Kwan

U

PREDICTING

2012

lrich has good reasons to be optimistic.

The veteran China watcher tells the AmCham audience: “By 2025, 60 percent of the population in China will reach middle class earning US$20,000

per person.”

“In the next 15 years, this emerging middle class in China will replace America’s baby boom generation as the most important driving force for the global consumption market,” she says. “Looking at the projection between now and 2025, would you want to short China today?”

Going through extensive data, Ulrich painstakingly explains why she believes China will remain the bright spot of world economy in 2012. She argues that some commentators might have overlooked two facts in predicting a hard landing for China. First, the central government’s financial prowess, and second, its ability to change policies should the economy deteriorates.

Hard landing?

The “hard landing” scenario typically begins with the collapse of the property market, which then leads to capital drain of real estate developers. This in turn causes falls in fixed asset investment and sharp rises of non-performing loans of Chinese banks.

More importantly, China’s “hard landing” is contagious and it will impact on economies that have blossomed in recent years partly due to the mainland’s insatiable demands of natural resources.

“The negative commentators say that this potential hard landing in China will cause a collapse in the demand for commodities, and therefore this is going to threaten resource rich countries such as Latin America, Australia or even Canada if China’s fixed asset investment cycle takes a severe downturn,” Ulrich says.

“But they have failed to recognize the strong fiscal resources that the central government has and China’s ability to act swiftly to boost the economy should growth rate slow down sharply,” she points out.

Although she expresses confidence in China’s economy, Ulrich recognizes China faces problems in

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boosting domestic consumption, improving the allocation of capital, and a possible slowdown of manufacturing activities.

Financial repression Ulrich says that one of the consequences of 4-trillionyuan stimulus program in 2008 – China’s remedies against the global financial crisis – is sharp growth of liquidity mostly to state-owned enterprises and soaring of fixed assets investment. Easy money causes inflation.

Meanwhile, runaway loan growth, spurred on by low interest rates offered to state-owned businesses, leads to massive construction booms across the country.

However, a lot of these infrastructure projects are unproductive and under-utilized.

“Big enterprises can borrow at low interest rates and basically have money thrown at them. What did they do? They built a lot of projects – showcase projects,” Ulrich says.

“That’s the reason why growth in China has been predominantly driven by Jing Ulrich investment and not by private consumption,” she adds. “The interest rate structure in China is one of the key reasons why we have this rather peculiar situation today. This needs to be changed.”

The absence of a level playing field in financing between state-owned enterprises and private businesses forces small private firms to seek funds from institutions at much higher cost. She cites examples of moneylenders in places like Wenzhou who have reportedly driven enterprises to bankruptcy by charging them exorbitant interest on loans.

Since the government has adopted a low interest policy to curb inflation, depositors are effectively earning negative return on their savings. Chinese savers who want to make up for their losses in saving either have to save more – reducing their disposable income and hence

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spending – or invest in high-risk tools and hence provide a cheap source of funds to the moneylenders.

“What China faces today is not a shortage of liquidity but an inefficient and unfair allocation of the liquidity and capital, meaning that smaller companies have a great deal of difficulty accessing funding at a cheap cost, but large companies have preferential rates while depositors are suffering what we called financial repression,” Ulrich sums up.

Free money In order to curb inflation, the central government began to rein in liquidity last year. One of the measures taken was to increase banks’ Reserve Requirement Ratio (RRR) which has gone up from 7 percent to 21.5 percent. On November 31, a turn-around came when the People’s Bank of China announced a 50 basis-point cut of RRR effective from December 5 – the first reduction in three years – freeing up as much as 396 billion yuan (US$62.45 billion) of liquidity.

Ulrich says the fact that inflation has shown signs of abating has given the central government room to maneuver and ease lending. In fact, repeated increases of RRR in the past years have frozen as much as 18 trillion yuan of funds that banks only earn meager interest from the central bank.

But the easing will be selective and the central government would unlikely lift funding constraints to real estate developers and industries which face over-capacity problems.

“In the coming few quarters, we will see further cuts in the Reserve Requirement Ratios because capital – funds locked up in the form of reserve – is not being used productively and banks only get 1.6 percent interest on the reserve from the central bank,” she says.

Selective easing According to her, areas which will likely benefit from the reversal would be small businesses, service sectors, affordable housing (residential projects built by governments for low income families), infrastructure projects under the 12th Five-Year Plan, and strategic industries which receive government backing.

“This is why we call this selective easing to the favored sectors rather than a wholesale loosening of monetary policy,” she adds.

A key factor behind the latest cut in RRR is a weakening of the manufacturing sector, according to Ulrich. A day after the announcement by the PBOC, China published the November Purchasing Managers’ Index (PMI) which has fallen to 49 from 50.4 in October. The dip of the index – a broad measure of the economic health of the manufacturing sector – signals the economy may be slowing faster than expected. Normally, a PMI reading below 50 signals a contraction of manufac-

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turing activities.

“The PMI number indicates a softening in manufacturing sector,” Ulrich cautions. “There is no question that there will be further cuts in the RRR in the coming few quarters.”

In addition to selective easing, Ulrich suggests that the central government is prepared to provide relief to businesses through tax reduction such as reforming the Value-added Tax. Despite concerns over local governments’ debts, she believes China does not face a public debt problem and the government is in good fiscal health.

For example, she predicts that the central government’s revenue would hit 11 trillion yuan this year giving the authorities ample ammunition to bolster the economy should the country faces a slowdown.

“The central government’s position remains extremely strong,” she says. “If local governments get into financial difficulties, or if some of the developers and the banking sector get into trouble, the central government certainly has the wherewithal to support these entities.”

The future In the medium to long term, Ulrich is unreservedly bullish. With the rise of the middle class, she is confident that China can sustain its economic momentum and become the engine of growth of the world economy.

“China’s GDP today is about US$6.5 trillion and the US’s GDP is US$14 trillion,” she says. “By 2025, China’s GDP has a chance of surpassing that of the US.” “Also, by 2025, we’ll see China’s consumption becoming the most important driver for GDP replacing investment, and what this means is that in the next 15 years we will see a substantial increase in income level among Chinese households.”

There is one caveat though – China’s ageing population.

Ulrich admits a rapidly ageing population means fall in productivity and hence consumption. China’s demographic changes in the next two decades would be “negative headwinds” to the country’s economic rise.

However, she believes that investment in automation and relaxation of the one-child policy would help make up some of losses due to the demographic changes. “Some of the negative demographic headwind can be offset by increase in productivity as well as increase in technological capabilities of the Chinese manufacturing industry,” she says.

Ulrich is confident that China can weather the global economic storm given its strong financial health and agility in adopting policy changes, and Hong Kong should be able to benefit from that too. The SAR, she stresses, has been a major beneficiary of China’s prosperity in the past three decades.

“If the US and European economies experience a prolonged period of slow growth, Hong Kong would be affected,” she says. “But in general, I am very bullish on the outlook for Hong Kong because the Hong Kong economy has been able to reinvent itself for the past couple of decades.”

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Taking the Pulse of Eurozone

R

ecognized as one of the few analysts who accurately predicted both the Asian and the more recent global economic and financial crisis, Simon Ogus, founder and CEO of Hong Kong-based independent consultancy DSGAsia and former chief economist for Asia at UBS, outlines in an interview with biz.hk in late November the unfolding economic turmoil in the Eurozone and the impact on the global economy

biz.hk: How did the current Euro crisis get started? What does it all mean?

Ogus: It got started even before the Euro was founded. That is because the Euro was built on a lie that you can have a monetary union without fiscal unity. The problem is that people think of themselves as citizens of individual European countries but not as citizens of Europe. Citizens of European countries always said no when asked whether they wanted to be part of a federal state.

So, the entire project has been entirely undemocratic and pushed by an elite group.

The reason we got into what some call the greatest global credit “ponzi” scheme of all time was because people said that there was no credit risk within Europe. As soon as the problem of the Euro started to hit, all of the older problems between different countries came out. That’s why we hear politicians of European countries standing up and arguing with other European countries over each other’s past and present national policies as reasons to the current problem. We’re seeing this in houses of parliaments in Europe.

It becomes quite clear that Europe’s unity, at least when it comes to paying for somebody else who is not from the same country, is quite weak. I should stress that I am not anti-EU. The idea of free trade or capital zone, similar to NAFTA (North American Free Trade Agreement), is very positive. And bringing in countries from the former communist bloc was entirely the right thing to do because you lock them into a more liberal, democratic mechanism. In some way, you would hope that maybe Asia could move towards these free trade or free investment zones. biz.hk: How bad is the situation in the Eurozone?

Ogus: Right now, the European Central Bank (ECB) is at the center stage and it has become the structured investment vehicle (SIV) of the world. In America, many say how US Federal Reserve chairman Ben Bernanke has been trashing the Fed’s

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balance sheet, but at least the assets that Bernanke has put on the balance sheet are going to pay back.

They may be some of the distressed assets bought at the time of the collapse of Lehman Brothers and won’t pay back 100 percent on the dollar, but they are real assets and there will be some recovery value. The recovery value of assets on ECB’s balance sheet is certainly not going to be 100 cents on the dollar. It might be 20 cents on the dollar. Fundamentally, the underlying assets that support this debt creation are not worth the paper. biz.hk: What will likely happen to the Euro?

Ogus: In one year from now, the Euro will not Simon Ogus exist in its current form.

It will not have all the same members. Some members will fall out. The question is whether they fall out because the weaker guys are pushed out or they simply decide to leave, or does it break up because the stronger ones are so fed up that they leave. That is a very difficult thing to forecast with any accuracy. Ultimately, despite the fact that it was a very undemocratic process, the decisions will be taken up through direct democracy. We will see more people on the streets in many countries in Europe and less consensual parties being voted into positions of power.

I will give you an example. Hungary had an IMF bailout in 2008 and is about to get another bailout. A much more radical populist nationalist government was voted in, and they recently announced a policy that Hungarian consumers can basically swap their mortgage in Swiss Franc or Euro for a foreign mortgage at a different exchange rate and not at the current exchange rate. They are

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basically saying to the banks that they will have to take a 25 to 30 percent loss on the loans they have made.

Another example is Iceland, which defaulted and devalued a couple of years ago. It came back to the bond market in the middle of this year and borrowed at less than five percent in dollars. These two countries are not even in the Eurozone but only at the edge.

People can argue whether the stress tests on the US banking system were accurate or not, but they were reasonably close enough to establish some credibility in the market. Europe had three rounds of stress tests that have been jokes. They announced in the latest stress test that the total capital build for Europe would be 106 billion Euros, but one bank that went bust a few weeks earlier cost 90 billion Euros alone. biz.hk: What is the political or economic implication?

Ogus: There will be people coming to power in European countries on a mandate to change things. We cannot expect to ask people to pay more taxes and have their welfare benefits cut while banks get 100 percent back on everything they lend. Asking people to pay their money back in a democracy doesn’t work. There has to be debt forgiveness at the sovereign level and at the bank level. The problem is that the banks are themselves bankrupt. In effect, the entire European banking system and their equities are not worth much.

The bankers have essentially captured the political process and have been so far very successful in getting the taxpayers to pay for them. That’s why you have “Occupy Wall Street” at the moment and riots in the UK. The rise of extremist parties is going

to lead to somebody coming and saying ‘I am changing the rules.’ And it will not just be in a country or two. If you remember what happened in Asia in 1997, when Thailand devalued, it did not stop in Thailand. Everyone else devalued.

European politicians will need to get together and deal with this problem once and for all. They either turn the ECB into a money-printing machine, which bails out the banks, or do a restructuring of all the debts across Europe in one-go where everyone takes some losses. In the latter, equity holders will get wiped out and bondholders will be forced to swap into equity at a discount. But, unless they do that, the contagion will continue.

For Asia as well America, the worst thing about the crisis is the uncertainty it creates, because it means nobody in Asia or America is able to make any sensible planning decision. So investment will be weak. Trade growth will slow down. We will all be victims if Europe is unable to solve the problem. biz.hk: What should we expect to see in 2012?

Ogus: I think a severe European recession is likely. We are likely to see Europe contracting 2 to 3 percent. Because the implications for Europe, Asia and America are not looking good, we may even see a global recession next year. The question is whether it will be a quick one if Europe takes its medicine or will it be something that drags on and on. We need to remember that Europe is as big as America in combination. You are dealing equally with the biggest economy in the world.

The Asian financial crisis in 1997 was a local crisis when the rest of the global economy was still growing.

The recovery wasn’t quick but we were able to get out

“The problem of the current European crisis is that they don’t have any easy options. In America, they could introduce a national sales tax scheme or higher tax on gasoline as levers to plug a lot of the deficit quickly.”

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of the problems. The crisis in 2008 was a very scary position at the beginning because the payment/credit system dried up. The Fed was right to come in and stabilize the system.

The problem of the current European crisis is that they don’t have any easy options. In America, they could introduce a national sales tax scheme or higher tax on gasoline as levers to plug a lot of the deficit quickly. I don’t think these will happen because nobody wants to raise taxes, but these are levers that can be pulled. Europe is already a very high tax society, and the only way to get the deficit down is through massive spending cuts. But it will drive away growth, which means you get into a dead spot, unless you write off the debt at the first instance. biz.hk: What role can China play?

Ogus: China is also slowing down because of a decline in exports. The Chinese economy is slower but the leadership is reluctant to ease aggressively because of concerns about inflation and property prices. If the global growth environment deteriorates much further, China will clearly accelerate its easing policy. However, I don’t think they have the ability as they did three years ago to put that much of a stimulus into the system. I would say China, and Asia in general, could save itself but not the world.

Because Asia is the most trade- and international investment-dependent part of the world, there is no decoupling. China has also been talking about domestic demand re-orientation in the past decade or so, but the reality is that they maintain the same exchange rate policy. If Asia really wanted to decouple in the last few years, it would allow currencies to float more freely and interest rates to be set at an appropriate level for Asian economies. Instead, what happened was we continued to largely fix our exchange rates and inherited levels of interest rate that are completely inappropriate for our economies. That’s why we are seeing property bubbles.

China’s wish-list of what it wants to do to rebound the economy is very sensible. That includes low cost housing and reform of the medical and healthcare system. The reality is that rhetoric has been better than the delivery in many cases. The rebalancing is in a very early stage because China has not been willing to accept what is inevitably a period of lower growth as part of the transition. It still wants to grow at eight or nine percent a year. If China is willing to go for 6-7 percent yearly growth for the next five years – and the latest five-year plan calls for 7 percent – and grows in a more balanced way, that is very positive.

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A Slow but Steady Recovery

C

NN chief business correspondent Ali Velshi is a household name in the US. He has extensively reported on the global financial meltdown since 2008 and as recently as the G20 Summit in Cannes. He is also an author of two books. His second book, How to Speak Money (co-authored with his CNN partner Christine Romans), talks about making, investing, saving, and spending money in the new age of a global economy. In the following interview, he offers his insights about the US economy in the coming year.

biz.hk: How would you describe the current state of the US economy?

Velshi: The projection for the US economy is that it will do better than it’s done in 2011. It shows that it is improving to a respectable level. The issue is that there are so many headwinds and so many potential problems that it may slow down again. At the moment, the US economy is on a slow but steady trajectory to recovery. biz.hk: You have interviewed many business leaders and economists; what’s the consensus about the global economy in 2012?

Velshi: As we speak, the great unknown is Europe.

Will they be able to get their bond yield or borrowing rates lower? If Europe gets control of it, then the outlook for 2012 is substantially better. The GDP forecasts for 2012 as of right now are better than they are for 2011. The issue is that if something goes wrong enough in Europe, it could send Europe into a tailspin. Europe’s growth is flat right now. If it starts to get negative, it will have an impact because both China and the US depend on Europe as buyers.

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biz.hk: Do you foresee a recession in Europe next year?

Velshi: The term recession used to mean something. Now it doesn’t. What we need not to have in Europe is a disaster. I am less concerned with a recession. We can handle recessions. We can handle what we call garden variety recessions.

What we had in 2008 was a jungle variety recession, a very serious, steep recession. And we were having very big ups and downs. We thought we had narrowed it so recessions were shallower and shorter. And 2008 proved that that was wrong. I am not worried that Europe has negative 3 percent growth but I am worried that it has negative 6 percent growth or the Euro zone comes apart. It is a catastrophe I am worried about, not a recession. biz.hk: What seems to be preventing the US unemployment rate to go down?

Velshi: The US is in this loop of insecurity. It needs a catalyst to break it, and the catalyst can be a new Congress, a new president or re-elected president and some sense of stability in the world.

We just came out of Black Friday, which is a big shopping day, and what we saw was that Americans did seem to go out and shop, which indicated that they felt they are going to have their jobs in a few months. You need some sense of longevity of feeling that you are going to have your job.

This is all very slow while anything that is negative will have a negative impact. And that is the problem. We are getting too many negative blows.

We need a period of sustained okay news before we get confidence. It won’t prompt major hiring in the US right away. And every recession makes us more efficient because you only hire back a percentage of those you lay off. biz.hk: Is the US losing its competitiveness in the age of globalization?

Ali Velshi

Velshi: I am worried that it is beyond that. It is not only that we are losing our edge but also the things that you need to achieve this edge in this new global economy we are not equipped to do. You need science and technology; you need language skills and global skills. We are not growing enough of that. I am not worried that we’ve lost the edge yet.

I am more worried that unless some major decisions are made about public education in the US, we will not be able to compete with countries that are devoting a great deal of resources to making sure their students are competitive in math, science and engineering.

The manufacturing problem and education problem have been in the works for a long time, but this recession opened up those scars. We can’t escape the fact that we need to have long-term solutions. We are in a world where short-term solutions are what people desire but we’ve got to have long-term solutions. So we’ve got to have a government that comes in and says here is our short-term plan, here is our five-year plan, and here is our 15-year plan.

China does have five-year plans. That is a lesson the world can learn from China, but China doesn’t have the political problem in implementing these plans that the West has.

“This is very dangerous because of a dragged-on effect.

People will lose their jobs probably by the tens of thousands because of political bickering in Washington.

And it looks like there may be no choice.”

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biz.hk: How will the failure of the Super Committee affect the economy?

Velshi: We are now subject to across-the-board cuts that are very dangerous. They are dangerous because some of them come from defense. They are dangerous because when you are cutting back in a slow-growth economy, you have to be surgical and precise. This is not precise. This is across the board. This is a problem where politics has trumped common sense, where we have somehow deemed it acceptable to let things like this happen.

In fact, it should have been only acceptable for a solution to come out.

This is very dangerous because of a dragged-on effect. People will lose their jobs probably by the tens of thousands because of political bickering in Washington. And it looks like there may be no choice.

They designed an entire system where they have these 12 people sitting there and they just didn’t do it. There needs to be a reaction from the American people. We are not talking about the reaction we are getting from Occupy Wall Street or about the reaction of the one-percent-versus-therest-of-us. We need a reaction that says politicians take up their responsibilities and do what they are supposed to do.

The Republicans are prepared not to give in, and there is no momentum. So the decision will be made in the election. I don’t know which way Americans will go, whether they will say they didn’t like the obstructionism or we don’t like any of you or they will really weed out the best of the best.

They won’t vote on a national level about Republicans or Democrats, but they will vote for a person who they think is going to compromise and get a deal done. We are still too far away to talk about candidates, and it is still in general more about right vs left. As we get closer to the election, it will become about candidates. biz.hk: What does the Occupy Wall Street movement tell us?

Velshi: They seem to have been resistant toward centralized leadership as a key message. Unfortunately, the confluence of them being out there, the police being less tolerant, and the public not latching onto it all sort of weakened the movement.

It’s moved without a consolidated message. People get the message of frustration; but there has to be more: a message of what we’d like done about it.

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I don’t know whether they will reconstitute in the spring, but at the moment it was a short-lived phenomenon. There was a collective understanding of the frustration. Everybody acknowledged that. In fact, very few politicians came out and said negative things about them. What they can also do is to try to get some people elected and to campaign for people who represent their perspective. They can use the power of the people. If they are the 99-percent, they should be able to get somebody elected to office. biz.hk: Why should America look to Asia?

Velshi: Because it is the only growth market left at the moment. We need Asia. We have failed ourselves in America in ignoring Asia and seeing it as a threat. It means the average American is not informed of what the potential opportunities are.

You may know there is a mutual fund invested in this part of the world, but that is not enough. I am talking about transferring that into a discussion about opportunities in education, opportunities in employment, and opportunities in investment. I want my viewers to understand where the opportunities and threats are on all of those fronts. biz.hk: What is the key message of your book?

Velshi: I don’t think the level of sophistication around economic trends in some countries is as strong as it is in Asia. People understand finance but we are talking about economic trends in education, in globalization, and in international trade. I get to talk to global leaders and company CEOs. I want my viewers to have the kind of access I have. I have taken all these lessons that I have learned from major corporations and leaders and we’ve put it in this distilled fashion that relates to people in conversations they have at their dinner table. Mostly, it is about understanding why people close to you don’t feel the same way.

We’ve got to think about re-inventing ourselves in America; we’ve got to look around the world and see where it is working for other people. And Asia is where it is working. If my kid wants to take chorus instead of Mandarin in school, it is his choice. But I am going to make sure that he understands the consequences. Not that the entire world needs to learn Mandarin, but we should understand these are where the power centers are going to be. It doesn’t mean that I have to learn everything about China; it just means more opportunities in the future.

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GOVERNMENT RELATIONS

Kowloon East

Secretary for Development Carrie Lam (right) greets visitors after the opening of the Hung Hom Promenade.

Photo courtesy: Development Bureau

The Secretary is referring to an ambitious redevelopment unveiled in October that aims to turn Kowloon East – an area that includes Kwun Tong, Kowloon Bay and the old Kai Tak airport site – into Hong Kong’s second CBD. The area can provide over 5.8 million square meters of total floor space, double that of Central.

Lam says since Grade A office is in short supply in Central, it has become paramount to look elsewhere for new stocks. “Basically firms and companies that don’t have to stay in Central can all go to Kowloon East,” she says. “We now see major insurance companies going there because Central is really reaching a saturation stage.”

“In the future, businesses who do not really have to be in Central but require some quality and large floor space should seriously consider moving to Kowloon East. Of course, businesses like to cluster so they want the same to be around. The difficult part is really who want to be the first movers.”

business interest, then it is very difficult for the government to step in,” she adds.

In order to improve efficiency, Lam says a Kowloon East Development Office has been set up under the Development Bureau to provide better coordination and support.

“It’s really a core Carrie Lam team, multi-disciplinary and some people coming from within the government with experience, and some outside the government who are able to take forward this vision of Kowloon East.” Lam explains.

“More importantly, the office needs to embrace this mission and try to do as much as possible rather than asking whether this particular assignment falls within my portfolio or not.”

FINDING SPACE FOR CITY’S GROWTH In late November, Secretary for Development Carrie Lam Cheng Yuet-ngor met with AmCham leadership to exchange views on issues from office space to Kowloon East development. After the meeting, biz.hk had the opportunity to interview the Secretary to learn more about the government’s position and policies on these issues.

By Daniel Kwan

S

ecretary for Development Carrie Lam Cheng Yuet-ngor’s portfolio covers a wide range of issues and many of them have direct impact on businesses. Several issues are of particular interest to AmCham members namely office space, redevelopment of Central, and the conversion of old industrial buildings for commercial use.

According to Lam, the government is fully aware of the shortage of premium office space especially in areas like Central. However, the government sees

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market forces as the primary solution.

“Maybe decentralization is the solution,” Lam tells biz.hk in the interview. “I am seeing major companies which are now relocating because of the rental differentials.”

“Of course, apart from Kowloon East, we are not giving up on making office land available,” she adds.

“In the traditional Central Business District (CBD), we have a few projects to make land available but still it will be several years down the road because we can’t build overnight.”

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The Development Secretary points out that there will be challenges to redevelop the area namely the diverse ownership of old industrial buildings.

Although a relevant law was amended a year ago to allow faster redevelopment of old industrial buildings, there can still be resistance from owners who do not want to sell their properties.

“The biggest challenge in Kowloon East is the old industrial buildings which are not in single ownership – those of strata titles – which is an issue not easy to tackle,” she says. “[The Compulsory Sale for Redevelopment Ordinance] is at the moment the only legal means to unify titles for redevelopment and we’ll have to see how it works,” she says. “Otherwise for the government to rezone, it’s very sensitive especially we can only rezone premises on land based on a public purpose.”

“If what we are looking for is really redevelopment [and the property] continues to serve a private

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Industrial buildings On the conversion of industrial buildings, Lam reports that the government has approved 37 buildings for conversion and redevelopment since the scheme was announced by Chief Executive Donald Tsang two years ago. The three-year scheme aims to provide readily available premises for redevelopment and use by industries such as tourism, creative, and technology and innovation.

According to Lam, a mid-term review of the scheme was carried out earlier this year. Based on feedbacks from the industry and chambers of commerce, the government announced changes to the scheme in October. These changes include extending the scheme for another three years to March 2016, relaxing the restriction on gross floor area for conversion applications, and encouraging building owners to

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Exclusive VIP Tables

go through green building assessment in retro-fitting their buildings.

In addition to providing more office space, the government hopes that conversion and redevelopment of old industrial buildings will also help improve energy efficiency and green standards. To encourage uptake, the Environment and Conservation Fund and Buildings Department offer subsidies and loans to building owners who take the green approach in refurnishing their buildings.

VIP Tables

West Wing Another key mission under Lam’s purview is the redevelopment of Central and one of the high-profile projects is the redevelopment of the old government headquarters in Central.

The Secretary stresses that the government has listened carefully to public views on the project and carried out detailed studies on the heritage values of the buildings in making its decisions.

But she maintains that the government is not convinced that buildings should be preserved for preservation sake and a balance must be maintained between development and heritage conservation.

“We cannot go in just one direction that we just don’t touch anything because of conservation. Hong Kong needs to move forward and in a place like Central, there is demand for offices,” she says.

After several months of collecting public feedbacks, the government announced in late November to modify its original proposal for the redevelopment project. It has now scrapped a proposed shopping mall and increased public open space by 10 percent to 7,600 square meters.

Moreover, the government will invite the Hong Kong Exchanges and Clearing and the Securities and Futures Commission to take occupancy although they will pay market rents to become anchor tenants of the 32-storey office tower.

More importantly, the government decided to take a “design-cum-premium” approach in inviting public tenders meaning the winning bid will not be chosen based on premium consideration alone. Lam explains that this is because the government wants to ensure the design of this new office block will be in harmony with its surrounding which includes heritage sites such as the Court of Final Appeal and the Main Wing and East Wing of the old Central Government Offices.

“Our redevelopment has a theme called ‘Restoring Green Central’,” the Secretary says. “At the moment, nobody can go into that government compound … We

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Artist drawing of Kwun Tong, Kai Tak (above) and the proposed monorail system

are actually capitalizing on this redevelopment opportunity to open up the ground for more people to enjoy.”

“In the future, imagine you can go up to the fore court of the government compound from Queen’s Road Central via this new building and there will be very sizable public open space – no less than 7,600 square meters – for the public to enjoy.”

“From there, you can go into the Botanical Garden and all the way up the hill. So we have adopted the theme and the whole project is about restoring green to Central.”

Reclamation and land fills While the Secretary clearly has her plate full – she has just started another item rolling. The government has launched a public consultation for reclamation outside of the harbor. The deadline for submission is end of February.

According to Lam, Hong Kong every day ships a large quantity of construction fills to Taishan of Guangdong for reclamation. She says Hong Kong should review whether the city should find a solution to the problem domestically instead of exporting it to its neighbor.

“That’s only reasonable and logical. If we don’t like reclamation in Hong Kong, it doesn’t mean the problem goes away,” she points out. “All these fills are shipped everyday for 170 kilometers up to Taishan for reclamation.”

“So a more responsible way to deal with our locally generated public fills is to find suitable places in Hong Kong for reclamation so that we solve our problem of public fills and we create land for future use.”

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Guo Li (first from left), Deputy Director of Liaison Office of the Central People's Government in the HKSAR, Eva Cheng (first from right), Secretary for Transport and Housing, and Donald Tsang (centre), Chief Executive, officiate at the launching ceremony of Hong Kong Boundary Crossing Facilities of the Hong Kong-Zhuhai-Macao Bridge.

Wu Xiao (second from right), Deputy Director of Department of Basic Industries, National Development and Reform Commission, Chen Guanxiong (first from right), Deputy Director of Communications Department of Guangdong Province, Chan Hon-kit (first from left), Director of the Infrastructure Development Office, Macao, join Donald Tsang, Guo Li and Eva Cheng for a toast at the launching ceremony.

Photo courtesy: Information Services Department

Photo courtesy: Information Services Department

HK-Zhuhai-Macao Bridge Construction Starts

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onstruction of the mammoth Hong Kong-Zhuhai-Macao Bridge in Hong Kong finally began in early December after a year of delay. Costing over HK$80 billion and scheduled to open in 2016, the mega project will connect the entire Pearl River Delta and provide a direct link between Hong Kong and the western side of the delta. Eva Cheng, Secretary for Transport and Housing, tells biz.hk in an interview the key benefits of the bridge to Hong Kong and what steps to be taken to safeguard the environment during the construction. biz.hk: What are some of the measurable benefits of the Hong Kong-Zhuhai-Macao Bridge (HKZMB)?

Cheng: The Hong Kong-Zhuhai-Macao Bridge (HZMB) is strategically important. It will significantly reduce transportation costs and time for travelers and goods on roads (see table) and facilitate the further economic development of Hong Kong, Macao and Western Pearl River Delta. The total economic net present value (ENPV) of the project is estimated to be about 40 billion yuan for an operation period of 20 years. The estimated ENPV for Hong Kong is

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about 23 billion yuan, 13 billion yuan for the Mainland, and 4 billion yuan for Macao.

With the connection by the HZMB, the Western PRD will fall within a three-hour commuting radius of Hong Kong. Hong Kong will benefit from this much more accessible economic hinterland, as the vast human and land resources in Western PRD will provide ample opportunities for Hong Kong businesses to expand their operation in the Mainland.

The commissioning of the HZMB will also benefit sectors in Hong Kong such as tourism, finance and commerce. In particular, it will enhance

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Hong Kong’s position as a trade and logistics hub as goods from the Western PRD and Western Guangdong, Guangxi, and beyond can make better use of the airport and container ports in Hong Kong. biz.hk: What are the early measures taken by the Government to minimize the impact on the environment?

Cheng: The Government has taken environmental protection fully into account at various planning and development stages of the HZMB local projects. The environmental impact assessments (EIA) were commenced in 2008 but we have since 2005 kick-started our public consultation activities to listen to public opinions and suggestions. We have actively engaged the public, and incorporated as far as possible the views of various sectors into the design so as to meet public expectation and minimize the impact on the environment.

In response to public concern on the impact on the environment, we have modified the site location and alignments. We have also proposed a large number of environmental protection measures to minimize pollution as much as possible in order to fulfill the responsibility of the project proponent. biz.hk: Can you give us some examples of how public opinions have been adopted in the project?

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Cheng: The current location and alignment of the Hong Kong Boundary Crossing Facilities (to be built on an artificial island), Hong Kong Link Road (HKLR) and Tuen Mun-Chek Lap Kok Link (TMCLKL) are the outcome of public consultation. The Hong Kong Boundary Crossing Facilities (HKBCF) will be located approximately 2 km away from Tung Chung and the HKLR approximately 700 meters away. Impacts on air quality, noise and potential visual aspects to the residents on Tung Chung premises would be minimal. biz.hk: Some of the project features are specially chosen to avoid damage to the environment?

Cheng: The HKLR will not touch the shoreline of Lantau Island. Alignment of the HKLR will be along the Airport Island to avoid ecologically sensitive areas.

For the TM-CLKL alignment, we have combined the southern landfall of the TM-CLKL and the HKBCF instead of locating it at the two islands called Brothers or Mo To Chau midway between Chep Lap Kok and Tuen Mun. This combination will reduce the construction of approximately 1.8 km of permanent seawall and the dredging of 5 million cubic meters of marine sediment. biz.hk: What are the other measures to minimize

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we will set up a dolphin exclusion zone of a 250-meter radius during the installation of the perimeter silt curtains and any re-deployment of the perimeter silt curtains. If dolphins are observed within the exclusion zone, the installation/re-deployment works will cease until they have left the area.

In addition, we will perform a dolphin watching plan, including regular inspections of the silt curtains and visual inspection of the waters inside the curtains. We will use the silence piling method when carrying out marine piling and will limit all vessels within the works areas to travel at a speed below 10 knots. We also propose to set up a marine park in the Brothers islands after completion of the project, which will facilitate dolphin conservation.

Overview of Hong Kong-Zhuhai-Macao Bridge Photo courtesy: Highways Department

the effect on nearby areas like Tung Chung?

Cheng: The HKBCF will be located at a distance of approximately 2 km from Tung Chung. The Environmental Impact Assessment indicated that the impacts on air quality and noise level would be minimal. Nevertheless, we will still take mitigation measures to further reduce the impacts. These measures include regular spraying of water on bare soil at the works areas during the construction period and regularly monitoring the air quality and noise level during construction.

We will take various measures to reduce the impact on water quality, including the installation of silt curtains around the site perimeter to prevent sediment dispersion. At the same time, we will limit the number of barges and daily filling quantity and regularly monitor the water quality. With respect to

the sub-sea tunnel of the northern connection of the TM-CLKL, we will adopt the tunnel boring machine method instead of immersed tube method to avoid large-scale dredging.

To further minimize environmental impacts due to reclamation, the Highways Department has developed a non-dredge reclamation method to form the 150 hectares reclaimed artificial island. This new non-dredge reclamation method can almost completely avoid dredging, significantly reduce mud disposal and greatly reduce backfilling material which is thus more environmentally friendly and satisfies the principle of sustainable development. biz.hk: How about the Chinese white dolphins which live in waters near the Lantau island?

Cheng: For the protection of Chinese white dolphins,

Origin – Destination

Current Distance and Traveling Time

Distance and Traveling time with HZMB

Reduction in Distance and Traveling Time

Zhuhai – Kwai Chung Container Port

about 200 kilometres about 3.5 hours

about 65 kilometres about 75 minutes

more than 60%

Zhuhai – Hong Kong International Airport

over 200 kilometres about 4 hours

about 40 kilometres about 45 minutes

more than 80%

biz.hk: What are the future checks and balances to ensure compliance of environmental laws and regulations?

Cheng: Based on the recommendations in the EIA reports, the contractors will engage environmental teams to undertake monitoring of water quality, air, noise, waste management, ecology, as well as landscape and visual impacts on the environment. The Highways Department will engage environmental consultants as “Independent Environmental Checkers” to audit the environmental monitoring works carried out by the environmental teams and check the effectiveness of the mitigation measures.

The Highway Department will also employ an environmental consultant to set up an Environmental Project Office to oversee the cumulative environmental impacts arising from the HZMB Hong Kong projects and other concurrent projects in the adjoining area (including the HZMB Main Bridge project in the Mainland waters) to ensure the compliance with Hong Kong laws on environment. biz.hk: A trial scheme of ad hoc quotas for crossboundary vehicle traffic is expected to be rolled out in Shenzhen Port Bay. What are some of the basic concepts and parameters of the trial scheme, and when the scheme will be introduced?

Cheng: The first phase of the trial scheme to introduce ad hoc quotas for cross-boundary private cars will be launched in around March 2012. Eligible owners of Hong Kong private cars with five seats or less may apply for ad hoc quotas under the scheme to drive their private cars into Guangdong Province. This will further facilitate travel between the two places. We are planning to provide facilities for private cars at the future Hong Kong-Zhuhai-Macao Bridge. biz.hk: How will the government set the toll of the

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Photomontage of the East Artificial Island for Tunnel landing Photo courtesy: Highways Department

bridge?

Cheng: The toll level is yet to be determined. The three governments will work out the toll levels for different types of vehicles before commissioning of the HZMB. The three governments have reached a consensus to set the toll level as low as possible to encourage patronage. We will consider a series of factors including costs, expenditure, traffic flow and users' affordability in deciding the toll level. biz.hk: The Passenger Clearance Building (PCB) on the HKBCF is likely to be the most iconic structure of the project within the Hong Kong territory. What are some of the key features of the PCB? Cheng: The PCB will be an iconic building at the HKBCF. While complying with the airport height restriction and avoiding the construction of a megasized building to minimize the visual impact, high ceiling roof will be supported by long span structures in the PCB to free up space from columns in the halls as far as possible.

To minimize the need for artificial lighting, controlled natural sunlight will fill the departure hall of the PCB through skylights and then filter into the arrival hall. The PCB will provide various facilities, including convenient and efficient arrival and departure halls at its ground floor and first floor respectively. Drop off lay-bys will be provided and passengers can walk to the clearance halls after getting off their vehicles and after completing the clearance process, continue their journey all at the same level.

The HKBCF will be well connected to the Hong Kong International Airport and Tung Chung new town which are at convenient locations and with excellent transportation networks. With its linkage to a wide variety of transport modes available in the proximity, the HKBCF will become a multi-modal transportation hub (including HKIA, Skypier, Airport Express Line, Tung Chung Line as well as strategic road networks connected to different areas of Hong Kong) in the area.

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HUMAN CAPITAL

TJ Wong

Peter L

Harriet Hol

iu

brook-Lui

ASIA POWERING GROWTH – A HUMAN CAPITAL PERSPECTIVE More than a dozen speakers share their insights on talent recruitment and retention in Asia at the 20 t h annual Human Capital Conference organized by AmCham’s Human Capital Committee.

This year’s theme is ‘Asia powering the future of the global economy.’

By Kenny Lau

A

mid a shaky global economy, business leaders across all industries and sectors are now looking increasingly to Asia, particularly China and India, for growth opportunities.

Countries in Asia are now leading the world in economic growth, and many believe Asia will become a region powering the future of the global economy.

To achieve economic growth, it requires commercial viability and success, and ultimately having the right talent and human resources in place. If Asia is to become a center of growth, human capital will be no less important of a factor in delivering results.

Speaking recently at the annual AmCham’s Human Capital Conference, business leaders discussed in detail aspects of what they are thinking and doing about manpower capability of their

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respective organizations, in order to better understand what will be required of Asia, including Hong Kong, to meet the increasing need of talent recruitment and retention.

People factor Hong Kong as Asia’s financial and trade hub has played a vital role in global commerce and has been instrumental in facilitating economic growth in the region. Hong Kong’s core values for the rule of law, protection of IP rights, and free flow of information are critical factors to business success, says TJ Wong, Dean of the Business School and Chair Professor of Accountancy, CUHK. “It is really about the level of integrity and professionalism of the people,” he says. “Our principles and

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high ethical standards as well as a global mindset are our strategic advantage. And we’ll need people who adhere to the core values as China continues to open up rapidly.”

Economic growth often comes with challenges, especially in developing countries such as China and India. When thinking about the challenges of growth, it is not so much about strategy, supply chain or

Robin Moriarty

marketing but about people being able to get stuff done, says Robin Moriarty, Managing Director HK-International, Kimberly-Clark North Asia.

A survey of 83 HR managers in China indicates that less than 10 percent of the candidates they see are suitable in terms of the skills that they need for the positions for which they are hiring, Moriarty points out.

Using Goals in Business Execution

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ompanies regularly set goals or targets to achieve results. The difficulty in using goals to drive business execution is that people within an organization often receive the information and translate it very differently, says Murray Sargant, VP and GM, Asia Pacific and Japan, SuccessFactors.

“It is a typical process that organizations go through where data get translated and interpreted in a way that they don’t control,” he says. “The fact is that companies change their strategy on a regular basis but operationally they don’t.

“We don’t have that agility in the organization and we have a traditionalist model, partly because we tend to want to be comfortable doing the same things but with tweaks. But we don’t want tweaks or people taking goals and tweaks them for their own use. Otherwise, why bother doing it?”

When goals are set organizationally, they have to be driven from top to down, and sometimes goals are very difficult to translate or interpret, Sargant believes.

“We sometimes try endlessly to perfect the goal to the point that no one actually comes up with any goals. Or, organizations simply come up with too many.

“It is not coming up with goals that we have the problem with; it is executing goals, getting people in the organization doing these things that you know are inherently important to the outcome of the company.”

“The mantra is that we don’t need to make things

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Murray Sargant

more complicated but to make them a lot simpler,” he adds. “Then, we will have a lot more benefit in being able to make the change happen.”

Goals are important because they provide exclusive strategic direction and it is important to understand goals because it is one way to get performance feedback.

“It always amazes me that some people start on the process and retrospectively assign goals for the performance that they have just accomplished,” Sargant notes. “Goals should be set well ahead of the process that you are embarking on.”

“There should be statements that you make in the planning cycle of your business,” he suggests. “They are not fixed in stone but should be adaptive and changed depending on what’s occurring in the organization or market. The idea is to set up a goal planning process ahead of the curve so that we know how we are performing against those goals and measuring it.”

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“There is no issue with academic qualifications or number of candidates,” she says. The issue is with the professional skills, the interpersonal skills and the ability to carry things out and to get things done.”

Knowing how to drive initiative behavior in an organization at a local level and how to inspire and be motivated to be teachers helping others to learn are critical, she says. “What you really need are people at the global and regional levels who are pan-cultural, who can go in and figure out how to be effective in more than one culture.”

Multi-dimensional Indeed, an understanding of multi-culture has never been more relevant to employers and employees alike. One way to engage employees and develop future leaders is to focus on training and development across cultural experiences that are personalized, Alan Darr, VP of Human Resources, Shangri-La Int’l Hotel Management Ltd, suggests.

Alan Darr

“You have to throw away this idea that you can send everyone to a training course and expect it to work,” he says. Instead, “we need to do very targeted and specific development on an individual basis to grow them into future leaders.”

One way to encourage the development of employees is by assigning a specific project that they own and for which they are accountable, notes Sara Yang Bosco, President of Emerson Electric Asia-Pacific. “The experience is irreplaceable because it gets you ready. Once you’ve done it, the next time will be much easier and you will start bringing your own ideas to the table.”

Many organizations are now moving towards leaders-as-teachers model, where their own corporate staff is taking on the role of a faculty by becoming better facilitators and trainers. The 70-20-10 rule of resource allocation is often applied to human capital and leadership development, Andrew Warneck, Managing Principal, Leadership & Talent Consulting, Korn/Ferry International, points out.

The rule calls for spending 70 percent of the

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Applying Behavioral Economics in Business

Sara Yang Bosco

human resources effort on developing the right experiences for people and putting them into the right job at the right time; 20 percent on exposure through which people are able to get the right visibility and exposure to the right people through coaching and mentoring; and 10 percent on classroom-type programs.

Learning agility But nothing will matter unless people have the ability to learn from experience and adapt to an ever-changing environment. Learning agility is the ability and willingness to learn the right lessons from experience and successfully applying the learning to new and different situations. People of high potential are those with the right intelligence and motivation who have gained competence and experience from previous assignments and are learning agile, Warneck notes.

Self-awareness, a main component of learning agility, is found to be the number one predictor of executive success, he points out. They are individuals who are comfortable with complexity, highly curious, and can work easily with a diversity of people. They are very reflective and sensitive of the impact they have on other people and very willing to take the heat and resistance of change.

“Many leaders foul because they depend too much on what made them successful in the past rather than learning new behaviors for new situations. Learningagile leaders know what to do when they don’t know what to do,” he points out.

Learning agility is now a focus in talent recruitment

Andrew Warneck

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rinciples of human psychology are often applied in advertising to engage consumers, but they are much less relied upon as guiding principles in the management of businesses, in strategic planning of organizations or in understanding the intertwined relationships of employee and customer behaviors that affect the bottom line.

That is now changing.

“What we are trying to do is helping organizations better understand human nature by applying behavioral economics to the problem of business,” says John Fleming, chief scientist for Gallup’s Marketplace Management and Human Sigma practices. “We are trying to better understand how people behave and why they behave the way they do so that businesses can design their customer offerings to more accurately reflect what customers want as people.”

“We believe it is the next big thing because it holds out the promise of gains in performance and we’ve seen that in the data,” he adds.

Behavioral economics is the intersection of psychology and economics. It applies human psychology to the problem of business decision-making under a wide variety of settings. It is a perspective that differs from traditional economic theories and some of their assumptions of how human nature works.

Human Sigma is one such approach where customer engagement and employee engagement are combined as a diagnostic tool to understand the health of an organization. It is about bringing the employee and customer systems in a business together, rather than keeping them separate, as one way to build an engaging workplace.

“There are two ways you can make money: by reducing cost and by raising revenue,” Fleming explains. “Our data suggest that if you can find out and better understand why employees behave the way they do and when you can have a workplace that is engaged, you can drive down costs because people are more productive. When customers are connected emotionally, they spend more money and you become more profitable.”

The theory of neo-classical economics assumes that human beings are relentlessly rational as dispassionate evaluators who have the access to and the ability to process all the information necessary when making choices, and that individuals and organizations always act in their self-interest.

In contrast, proponents of behavioral economics

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John Fleming

believe people are irrational that emotion is always an overriding factor in decision-making. In other words, people are assumed to make their decisions not by evaluating the available evidence but responding to them emotionally.

The basic premise is that people make decisions that are not straightly predictable from a rational point of view for many different reasons.

“Consumers might choose your brand for reasons that aren’t rational,” Fleming says. “The choice employees make to stay with a company when they might be able to get paid more elsewhere is not a rational one.”

“Business managers assume that their employees and customers do very predictable, straight-forward things. What we suggest is that it is not an accurate reflection of human nature and that human nature is more complicated than that,” he adds.

Companies and organizations worldwide are beginning to explore how they can go about driving performance through initiatives that take human psychology into account. Also as a result of the global economic slowdown, business leaders are now re-focusing on higher efficiency and better utilization of resources.

“They are clearly thinking about these issues,” Fleming notes. “Because the old way of doing things isn’t panning out very well these days and some of the old assumptions just aren’t working.”

Whether or not a company embraces the new approach is sometimes a result of a particular philosophical stand, Fleming acknowledges.

“The major goal of behavioral economics is to make organizations more effective and more efficient,” he adds.

“The consequence of it is that people typically feel better about the work they do. It is really about improving quality in the human side.”

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not only 2012 but also 2013, 2014, and 2015,” U says.

“With the way things are going, it is very difficult to make a determination because of how it will make people feel. It is a long-term investment.”

Work/life balance Nick Avery

because there is a younger generation of employees who are tasked with more job responsibility and assigned leadership roles. “Young people are taking bigger jobs sooner because we need them to,” Nick Avery, Head of Talent and Resourcing, Asia Pacific, HSBC, points out. “It is not today that worries me, it is tomorrow. [That’s why] we accelerate.”

“We need to find those people that have the ability and, using an agility-based approach, put them through a period of sequence of experience to get them ready faster,” he says. “It is an accelerated development initiative and a very hands-on approach.”

Kin Chong U

Hidden risk Judging by how well executive search firms are currently doing in the market, growth opportunities are everywhere in Asia. However, a problem, from a human capital development standpoint, lies underneath. In Asia, there is a tendency that some companies are merely looking for “quick wins” that are measured by stock prices, notes Kin Chong U, Career Development Director, KPMG China.

“That is a barrier to leadership development,” U believes. “Because people are pushed to get quick wins, they will focus more on the financials and not necessarily on the people.”

Companies, he adds, are also facing pressure in headcount management as labor cost continues to surge across Asia. It was particularly challenging in China post-crisis because employees in China were expecting a pay rise amid robust GDP growth when other parts of the world had not truly recovered and had to keep cost down.

“The big question is do you recruit for tomorrow and how much headcount are you going to budget for

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Employee engagement and work/life balance are issues HR professionals deem as key drivers in attracting and retaining talent. The definition however may vary in different organizations, different industries, and even different locales.

Emma Reynolds

“When I asked our employees about work/life balance or if they wanted to leave the office by 6:00 pm every day, they said they joined the accounting profession knowing what it would be like,” U recalls.

“Instead, it is about in control of schedule and life.”

Visibility and physical presence at the workplace no longer equals productivity, Emma Reynolds, co-founder and CEO of e3 Reloaded, believes. The way people work regardless of race, gender, or age will become more globalized, more connected and more mobile.

“We are still stuck in the 20th century mindset in the way we work, where we work and when we work,” she says. “We have to move on from the 20th century mindset that unless you are at your desk, you are not working.”

Leaders should instead focus on the design of work and re-think every convention to foster a new relationship with control, she adds. “Why do we still have a rush hour? We have to stop and rethink, reinvent and redesign work if Asia is to lead.”

Kyle Lundby

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Human Capital Defines Future

T

alent recruitment is increasingly an issue of prominence and a defining factor from a human capital perspective. This is particularly true with respect to Asia as a result of a sudden shift of focus to the region among a growing number of companies that are looking to expand their operation and have a stronger footprint in Asia.

“Asia has been important for the last 10-15 years in terms of the future, but the future has suddenly become very real and upfront, given the development in the US and Europe in the past two years,” says Mitya New, managing director of Leading Organizations, a consultancy that focuses on leadership and team development for MNCs and local companies.

“It is no longer just a question of the future that we are now working towards as Asia continues to grow and develop,” he adds. “It is suddenly that Asia needs that revenue right now. That will drive changes the way they look towards people in human capital.”

The idea that human potential and capability will become the defining differentiator in the future will be comparable to differentiators of the past such as those of the Industrial Revolution or innovation of the technology sector in recent years, New believes.

“I think the responsibility lies primarily with the private sector – in other words corporate – to respond to the human capital and talent development challenges that are impacting the market,” he says. “Company leaders need to recognize that selecting the best and most appropriate talent is important, but equally critical is that investments are made into organizational and team effectiveness.”

From a human capital perspective, a fundamental shift in expectations among MNCs with respect to Asia has been formed. The bar on performance and expectation of employees is rising considerably, New points out.

Ssenior managers are getting more involved and looking for the skills they would have normally expected in the US and Europe but perhaps not found in Asia.

“Having the best people will not deliver results unless they are working effectively as a team,” he says.

“The matrix is not going away and, if anything, is going to get even more challenging in an increasingly virtual world. Making the matrix work is as important as having the best talent.”

Companies, he adds, are now expecting to find the exact capability and skills, ways of working, and understanding of matrix organizations that they find in their home operation.

“If I were hiring, I would be looking for someone who has global experience and the understanding of the way organizations operate across different parts of the globe,” says New. “I’d be also looking for someone who has a good track record in leadership as well as learning and talent development, and someone who understands the significance of team effectiveness.”

Some MNCs have been operating in Asia on a more cautious basis by setting up joint ventures or partnerships but have not fully committed to the region. That is changing because “if Asia is suddenly center stage, a joint venture may not be the way you operate in the region,” New says. “That drives certain changes in the people you want running your operation and you want to be much more in control of what’s happening on the ground.”

Local companies in China and India have been growing rapidly in the past decade, and their human capital approach has been more about filling the gaps and finding people for the job because of the tremendous rates of growth, according to New. However, they are maturing and are now more interested in how they can become more sustainable in the way they grow, instead of just growth.

At the end of the day, employee engagement is about bringing energy to the work environment and strategically focused behavior, says Kyle Lundby, Director, Asia Pacific, Valtera Corp. “If Asia is to power the global economy, we need to get the right people in the door, and keep them once they are in the door. That is true of leaders and employees.”

When recruiting across different countries, HR professionals need to pay attention and adjust to the work environment, Lundby suggests. “If you understand what people are looking for in employment deals and you can create an environment that aligns with that, you are more likely to be able to engage and retain your employees.”

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Mitya New

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TRADE & INVESTMENT

Exporting into China Now After having served as chairman of the Steering Committee of the Shanghai 2010 World Expo USA Pavilion, former US Undersecretary of Commerce for International Trade Frank Lavin is now taking his years of experience in export promotion to the private sector.

By Kenny Lau

A

ccording to research by the Boston Consulting Group (BCG), China will very likely become a country with the largest population of online shoppers by 2015 at a compound annual growth rate of 33 percent.

China, BCG says in a recent report entitled The World’s Next E-Commerce Superpower, is now home to the largest population of Internet users in 2010 at 457 million, a number more than those in the US and Japan combined. It is a result of affordable Internet access and government efforts to modernize the country’s telecommunications infrastructure.

Subsequently, China will experience an imminent “e-commerce explosion,” BCG predicts, as a result of a growing population of “urban dwellers” and of both middle and affluent classes, among whom “shopping is huge.”

“When a developing country has high rates of growth, consumer product demand outstrips overall economic,” says Frank Lavin, founding chairman and CEO of Export Now Inc, an online shopping platform in China, and co-author of Export Now: Five Keys To Entering New Markets. “The Chinese population is increasingly characterized by affluence,

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Frank Lavin

sophistication and discernment.”

It is because “when you are moving out of the low income bracket and are finally attaining some degree of financial security that not every penny has to go to food, your discretionary income just goes right into consumer spending.”

Phenomenal growth In an environment under which a rising middle class is getting more connected to the Internet, online shopping is poised to become an important part of

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day-to-day commerce.

Interestingly, China’s e-commerce system is only a few years old and in 2008 it accounted for only about one percent of all retail sales in the country, Lavin points out.

And many American businesses were not too excited then about a channel that was only one percent of the market share. “It was just too small even just a few years ago.”

However, e-commerce in China has grown at a 60-percent yearly rate in the past few years, and, by next year, e-commerce should reach 8 percent of the total retail sales segment. “It is now a sizable segment of the market,” Lavin stresses. “Taobao alone has 370 million registered customers right now.

However you look at it, it is a staggering number.”

Taobao is one of the most well-known e-commerce platforms in China today.

More significant are the “positive attributes” that come with the growth of online shopping in China.

“The delivery system of goods is now better and the financial payment system is now better,” Lavin notes.

The introduction of AliPay (Chinese equivalent of US-based PayPal) has allowed the average Chinese consumer to pay directly online, as credit card penetration in China remains low.

One advantage of e-commerce over traditional channels is that the new model of selling products is no longer shelf-space constrained. “It means any item of any size or color can be shown at the same time,” Lavin explains. “This is enormously helpful to merchants who have a broad product line but have trouble in traditional distribution channels.

“It also allows for easier experimentation with your product line because you can change your products or prices easily, while you also get real data like who is looking at your Web page or what advertising drives people there. You get real time feedback,” he adds. “If you use traditional channels, you rely on merchants to tell you and you don’t always know. The huge advantage is the direct control from the company into the sales channel.”

The disadvantage is predictability and “getting it

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right at once” because businesses in e-commerce are no longer relying on a retail chain or merchants to take bulk orders. “If your businesses are selling through wholesalers or distributors, they will place orders and buy from you,” Lavin notes. “Some of the commercial risk is pushed off to the merchant and you are not taking all of the risk [if a product doesn’t sell particularly well].”

Selling to China China is becoming increasingly affluent, driven by extraordinary GDP growth. And because many Chinese consumers can now enjoy shopping for the first time in their lives, demand in China for US products is “booming, huge, and on fire.”

“China now has this extraordinary middle class with deep purchasing power, a hunger for quality and curiosity about international brands,” Lavin says. “It has turned into one of the most promising marketplaces in the world for US companies.”

A fundamental commercial question about selling to China – and other international markets – remains for many US businesses. That is, which product will work in a market and which one will not. “The statement that something that works in the US is also likely to work in China is more true today than ever because of affluence,” Lavin believes. “But it is not always going to be 100 percent true.”

The key, he says, is to manage the risk exposure of US companies. “We can’t promise ultimate commercial success but what we can do is contain the cost.

Even if you spend a year trying to make this work and it doesn’t, your total financial exposure and expense will not be outrageous. That is the beauty of exporting now.”

The number one quality required for success in China, he adds, is persistence because there would be “many twists” on the road that businesses would have to adapt and for which to make some changes by recalculating business plans. “You’ve got to have alternatives and other ideas. Adaptation is number one requirement.”

Export Now While China is a sizable market for consumer products, some US businesses on smaller scale will find the painstaking process of connecting to

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Chinese customers to be an unattractive proposition. The issues of language, shipping cost, currency fluctuation, regulatory compliance and taxes are some of the most striking barriers US exporters have to face.

“When a small US business has to deal with CRM in a language unfamiliar to them and in different time zones, it poses a problem,” Lavin points out. “When a Chinese consumer has to buy directly from the US a 30-dollar product that costs 40 dollars to ship, it also doesn’t work.

“Chinese consumers don’t want to have to call someone in the US when they buy US products.

They want to deal with someone in China in the Chinese language.”

This is precisely the rationale behind Export Now, a bridge that allows any US companies to sell directly onto e-commerce platforms in China from the desk of their factory without going to China, learning the Chinese language or stationing employees in China.

“You just give us the goods and products and sign up in English, we pose your products on an e-commerce platform called T-Mall and take your products to Shanghai, and you are in business,” Lavin notes. “For very little money and little management, you can pose on a Chinese Web site in China as easily as you could pose on any domestic platform in the US.” “What we are doing is taking them into the market of the country while all of the confidence elements for the transaction are brought to the consumer,” he further explains.

The edge It is all domestic US undertaking as businesses pay and receive in US dollars and drop off their goods in Long Beach to be shipped to Shanghai for stocking in a warehouse. Orders are filled on the e-commerce platform in China where customers pay in Chinese yuan, deal in the Chinese language for customer support, and plan ahead based on local delivery terms and time zone.

“US companies could right now without us go onto T-Mall. They are not required to go through us,” Lavin stresses. “But you have to set up your own warehouse, set up your own team and design your own Web page. Bigger companies can do this but

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Numbers at a Glance: 457 million – total number of China’s Internet users in 2010 476 billion yuan – China’s e-commerce market in transaction value in 2010 44 percent – e-commerce penetration of China’s urban population by 2015 329 million – estimated number of e-commerce shoppers in China by 2015 30 million – number of consumers shopping online for the first time every year until 2015 Source: The Boston Consulting Group

smaller ones might find this quite a burden. It is for small and medium US companies that want to be online in China.”

While the new platform will be extraordinarily helpful for some, it is not for all, Lavin cautions.

Complicated products that require assembly or instructions are less likely to work as well in an e-commerce channel than in traditional channels. “People might not be comfortable buying something online if they need to have someone in a shop showing them how to turn it on or how to work it,” he says.

Nevertheless, it has taken what many have perceived as the most challenging market in the world and made it an easier market for US exporters who can now sell into China less expensively. Additionally, T-Mall serves not only as the e-commerce platform of the world but also as the billboard and phonebook of the world, Lavin believes.

“Simply having that kind of visibility that reaches to the Chinese market for a small fee is something that many US businesses will find extremely attractive,” he says.

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SPORTS & ENTERTAINMENT

6th

M

AMCHAM GOLF OPEN TOURNAMENT

ore than 40 players participated in the 6th annual AmCham Golf Open on November 21st at the Discovery Bay Golf Club for a day of fun golfing in four-person teams and for charitable causes of AmCham’s Charitable Foundation through mulligans.

“It was a gorgeous day weather-wise, and the course conditions were absolutely superb at the picturesque Discovery Bay layout,” says AmCham chairman and event participant Rob Chipman. “It was a perfect occasion to entertain clients, meet other AmCham members and measure just how rusty our swings have become over the summer.”

“AmCham’s Sports & Entertainment Committee did a customary great job in organizing a wonderful day on the course,” Chipman adds. “We were plied with a magnificent buffet lunch followed by a round of golf, then drinks on the terrace and another excellent buffet with a prize presentation.”

“We enjoyed another spectacular fall day for the Golf Open,” says Ian Stirling, vice-chair of AmCham’s Sports & Entertainment Committee. “We had a spirited competition on the course and spirited prize giving, adding to the legacy the event has created over the years.”

“A big thank-you to all participants and our sponsors Asian Tigers Mobility, Charles Schwab,

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FedEx and DHR for supporting the tournament,” Stirling adds. “Their commitment has helped ensure the championship continue to be a success and remain the flagship event of S&E Committee each year. We look forward to welcoming more participants next year.”

Team winner

Nelson Tsai, Josephine Shum, Michael Hagan and Dan Schulte

1st Runner-up

Christine Greybe, James Abruzzo, Kevin Ling and James Restelli

2nd Runner-up

Andrew Jackson, Stewart Saunders, Andrew Pound and Craig Reid

Longest Drive winner James Abruzzo

LEADING SPONSORS

Nearest to Pin winner

BIRDIE AND TRANSPORTATION SPONSOR

Bradley Punu

BIRDIE SPONSOR

AmCham chairman Rob Chipman, left, and Sports & Entertainment Committee vice-chair Ian Stirling

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CHINA BUSINESS

Raymond Tan (far right), explains to a delegation led by AmCham to his Dongguan factory

SUPPLY CHAIN, FOOTBALL AND WEALTH

An interview with Raymond Tan of Luen Thai Holdings Long established as a global leader in the garment business, Luen Thai boasts some best practices in supply chain management. Raymond Tan shares with biz.hk his insights and personal experiences in the rapidly changing garment industry, succession planning, and giving back to the society.

By Daniel Kwan

H

ow can watching a Manchester United football game be linked to running a multibillion-dollar global garment business? And what does succession planning have to do with supply chain management? Finally, an “island boy” becomes a “selfish” philanthropist?

Connecting the dots here is Raymond Tan, executive director of Luen Thai Holdings and president of Luen Thai International Group. A father of two,

36

Raymond is an avowed Manchester United fan (even though he supports the Chelsea Football School here) and also a core member of the second generation of the Tan family.

For those who are not in the apparel business, Luen Thai may not be a household name. It is however one of the biggest garment manufacturing firms in the world. According to company information, Luen Thai manufactures for top brands such as adidas, Coach, Polo Ralph Lauren, Targus and

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totals over 12,000 and is expanding.

While many manufacturers are talking about moving from China to economies like Vietnam to escape China’s rising production costs, Raymond believes the Mainland would continue to play a central role in the global supply chain for garment business. “There is always something that needs to be made in China,” he says.

Given its concentration of suppliers and manpower, South China will remain “the place” to be in for Incentive schemes and peer recognition are used to drive productivity at workplace garment manufacturers, according to him. Brands need to study their own value chains carefully and UNIQLO. Its garment business produces over 74 determine which links can migrate to other countries. million garment pieces annually.

“Each brand is a little different and each brand Raymond is often credited for transforming Luen always has some very complex high-value products Thai from a traditional apparel manufacturer to a that we will continue to see the value of making them modern and highly diversified company today. In fact, in China,” he says.

Raymond was the recipient of the Owner-Operator The Tan family also has strong ties with the PhilipAward of DHL/SCMP Hong Kong Business Awards pines. Raymond’s father, Tan Siu Lin, a in 2003. His eldest brother, Henry, who is the CEO of well-respected philanthropist from Fujian Province, Luen Thai Holdings, won the International Award of made his first bucket of gold there. Raymond was sent the same scheme in 2010. by his father at the age of 14 to Guam first to study and later to help run the family business there. “I often tell people that I am an ‘Island Boy’. A lot of my experiThe Luen Thai Group is one big business empire. ence actually came from the time when I went to It has business interests spanning areas such as hotels school and worked in the islands.” and tourism, fishing, insurance, air and ocean cargo According to him, the turnover rate of workers in services, real estate, footwear, health care services, the Philippines is much lower than that in China wholesale distribution and retail. Its mega-sized where young workers move on once they’ve got better garment production facilities are now divided between job offers or saved enough money to start their China and the Philippines. In China, it has built the business. Stability of the workforce is a significant Supply Chain City in Dongguan of Guangdong advantage to the Philippines in competing against Province. In Philippines, its number of employees China.

China and the supply chain

“Each brand is a little different and each brand always has some very complex high-value products that we will continue to see the value of making them in China.”

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In addition, Philippine workers are more “westernized” compared with their Chinese counterparts.

This is another appeal for supply chain operators like Luen Thai who cater to customers increasingly requiring total services from design to manufacture and retail.

“With customers who now require us to do more of their supply chain functions, communications and interacting with customers in the design, development and technical exchange areas become more and more important,” Raymond explains. “Most of the Chinese technical people don’t speak English but Filipinos do.

That offers us another advantage in building a long-term sustainable business model in the Philippines.”

“I would not say that Ferguson is one of the best football coaches … but he is the best manager out there who can motivate people all the time and they still want to win. He is able to make very good drastic decisions.”

“If you look at the first 11 players this year versus last year’s – they won last year – but he practically changed the whole team. He got the guts to do that.”

“I am a very happy person because I connect everything. I play football, have a football school; and I learn from a team which I support, I raise my son through football and I make adidas products!”

Football and garment Luen Thai’s ability to adapt to changes is a key factor behind its success. It started to prepare for the end of the quota system long before it ended in 2005.

Anticipating the fast changing demands of customers in an increasingly flat marketplace, it adopted various business models – D2S (design-to-store) and LEAN manufacturing – to service and support customers along the entire supply chain. Raymond says it has become obvious that Luen Thai needs to stay focused with its customers to compete.

For example, it builds the E2E or End-to-End business model for its key customers so that they can enjoy full support from Luen Thai. “End-to-End meaning that the front-end will take ownership of the back-end,” Raymond says. “We aligned them with the factory and it was a big change for us because normally people think that I am either front-end or the back-end.”

Although Raymond now oversees a huge business, he says he is learning every day. He does not have a MBA but he has found his best teacher in his passion – football. Originally started years ago because of health reason, he now plays football regularly. And his favorite pastime is watching the weekly Manchester United matches.

To Raymond, following the Manchester United games is not about wins or losses and Alex Ferguson is more a teacher than a football coach.

“Every time he (Ferguson) wins, I ask myself, ‘what did he do right?’ Every time he loses – a match or a season, what did he do wrong? And then I want to see how he can pick it up again,” Raymond says. “It’s like go to a MBA every year or every week by learning from one of the best managers in the world.”

He uses the team’s change-over as an example.

“One thing that I learned last year was how Ryan Giggs who was 37 years old could still play. So I ask myself: Should I really retire my people who are in their 60s?

If they can work even if they reach 70, why do I have to retire them?”

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Raymond Tan and AmCham President Richard Vuylsteke

Succession planning Luen Thai has now established itself as a leader in providing end-to-end apparel and consumer goods services. In order to stay competitive, Raymond is convinced that having good succession planning is just as important.

“Succession planning has become another competitive edge,” he says. “Customers are looking for partners who they can say, ‘I know you have a long-term strategy and you are working on people development both internally and within the family and I can see faces [of these people].”

“They want to know that they can partner with you and you won’t go away for the next 10 or 20 years,” he adds.

Raymond says that the Chinese has a saying similar to the old English proverb – ‘from clogs to clogs is only three generations’ – and people often blame the third generation for failing to carry on the family business. However, he says that the seniors – the first and second generations – are just as guilty as the young ones if they don’t plan the succession ahead carefully.

“Couple of years ago, I told my father that wealth doesn’t go past the third generation. If the history tells you that, so you know that risk exists but choose not to manage it – and business is all about managing risk – then you fail and don’t blame the third generation,” he says. “I told my father that you cannot blame them. If we are not willing to spend enough time to communicate

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with the third generation, we cannot expect them to understand what we want them to become.”

The Tan family has taken succession planning seriously. According to Raymond, not any “Tans” can become part of the family business.

At present, only six of the Tan third generation are in the family business (Raymond has four brothers and one sister) Raymond and hi and those who want to twin brother Jerrys come in will have to go at age 10 through vigorous tests and trials.

“If they want to come into the family business, they have to volunteer and we will not ask them. They volunteer but it doesn’t mean they will be accepted.

We will go through a proper evaluation and HR will ask them to take tests,” Raymond says.

“Their character becomes very important and we care less about the education. Do they have the right values to work in the family business?” Raymond asks.

“I often tell them that you come into the family business as a servant, not as a boss. You don’t come in because you carry the family name. You serve the rest of the family and serve the people.”

“It’s a very different way of thinking because I told them, ‘look, we are not in an industry that can give you very high pay – some of them were working in i-banking and they actually took a 30 to 60 percent pay-cut when they came in. If you come in, you’ve got to take that pay-cut.”

Right values Although the Tans are almost as Chinese as you can get (most grandchildren still spend their weekends with their parents), they run their family affairs almost entirely in a western way. They have established a family office, adopted a family constitution and even held a family assembly every year. Outside accountants and lawyers are hired to help plan each household’s financial and tax affairs. A career and

education committee is tasked to give the Tan children the best advices and a recreation committee looks after matters like holiday planning.

One of the reasons why the Tan family has chosen such an approach is their American background, Raymond says. “Many of our family members are American citizens and you have to start to think about your legal structure and tax planning,” he notes. “Also [Luen Thai] being a listed company, there is a list of governance issues. The combination of all these forces us to think ahead of time.”

All these, Raymond stresses, is to instill the right values for the family members and specially the young ones who grow up without experiencing much hardship and turmoil.

“I always encourage the third generation that the only competitive edge that you would have is your attitude,” he explains. “If you have the right values and your attitude is right, no matter how the world changes, you will be successful.”

“For me, wealth is not money. I always tell my kids, ‘If you ever think the dollar sign equals wealth, then you will not be happy,” Raymond adds. “The happy persons never measure their achievements by how much they make or how much they own, or what kind of positions they are in.”

Social enterprise Nowadays, Raymond is putting his words into action. In addition to the family business, he is supporting an equally ambitious venture – the ChelseaFC Soccer School (HK). Run by Hong Kong’s football legend, Leslie George Santos, the school is the biggest football school-cum-charity in Hong Kong offering training to boys and girls aged five to 17 years old. The school now has over 1,000 students and 12 full-time coaches. It runs out-reach programs in 13 of Hong Kong’s 18 districts. As a social enterprise, it also offers free training to kids who cannot afford the training fees.

Raymond is convinced that the approach used by the football school – integrating football training with charity – can produce more long-lasting benefits.

Children not only learn playing football but much more.

“Customers are looking for partners who they can say, ‘I know you have a long-term strategy and you are working on people development both internally and within the family and I can see faces [of these people].”

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HEALTHCARE

Is Health Protection Scheme for You? Raymond Tan at the family exhibition room in the Dongguan factory

“I am not encouraging kids to play sport that they don’t spend time studying. I want to make sure the kids actually learn discipline from the sport and they actually study even better,” Raymond says. “When the kids go to the pitch, their parents also have to come because they are kids. We don’t ask them to come to our pitch [in Lok Fu] because transportation cost is too much. We go to them and we go to the districts and to reach out to them.”

“Kids from low income families usually lack confidence. If you are able to give them something that they are very good at in school, they become more confident. I agree that we should support the weak and the elderly, but why can’t we reduce the liability of the community by making them become a productive member before they become a liability.”

“I am trying to build more assets for the community than supporting the liability. If we work with them at a very young age to make sure that they have the

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right values and confidence, they will be successful and they will not become somebody who needs help in the future.”

For Raymond, the school represents much more than just charity works but energy to keep going.

Unlike people who envisions luxury and leisure after retirement, the 50-year-old “island boy” says this is what makes life interesting.

“For a lot of people, they retire without a reason …

I don’t want to do that and I don’t want people to remember me as somebody who make garments when I am gone. I want to have a meaningful life at the end of the day,” he says.

“I don’t need more money because I don’t want to buy a private jet or a Rolls Royce and I don’t want to just give my money to my kids,” he adds. “I have to have a reason to make money. Now, [this school] actually gives me another drive that the more money that I make, the more I can help and build this organization in the long run.”

“I don’t want you to think that I do all these for everyone else. I do all these for myself and I am a selfish person. I enjoy doing it and I am happy. The way I look at this is that I can be happy and I enjoy doing it. I am a businessman and I create a win-win model. So why not?”

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In 2008, the government put forth a package of proposals on healthcare reform. The package includes six financing options on how to fund the healthcare system. A second stage consultation was launched in October 2010. Last July, the government released a report summarizing the results of the consultation which concluded that the public supported the proposed Health Protection Scheme (HPS). Mary Ann Benitez interviews noted health economist Peter P. Yuen on the scheme, its merits and whether this scheme will be of benefit to your business.

O

f the six financing options put forward by the government in the first consultation exercise, a voluntary private health insurance plan generated the least public opposition, says Professor Peter P. Yuen of Hong Kong Polytechnic University. “The whole idea is good,” he says.

Most products that insurance companies are selling now do not provide adequate protection. The private hospital market is just about 10 percent in terms of market share even though 2.42 million people in Hong Kong have private medical insurance.

This means a lot of people with private insurance still go to the public sector because of the limited coverage, said Professor Yuen, who is Dean of the College of Professional and Continuing Education of the university.

Professor Yuen, who is also the Director of the Public Policy Research Institute and professor in the Department of Management and Marketing, says a lot of the plans are so-called indemnity plans which typically provide HK$500 a day for hospital in-patient.

“But when you are really sick, you cannot take advantage of it,” he says.

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12 • 2011

Pros and cons Under the proposed Health Protection Scheme (HPS), the government will attempt to provide adequate protection and offer guidelines on coverage of pre-existing conditions and renewal during old age.

“It is voluntary. You will have government guidelines and one of the features is life-time coverage, no refusal, transparency of premiums and there is also arbitration mechanism if there is a dispute. That is very good,” he says.

The premium will increase with age and the scheme would allow insurance companies to put loading on high-risk groups such as elderly people who are likely to file most claims.

“The maximum loading will be three times the normal premium for that age group,”' Professor Yuen says. “If I look at some of the indicative premiums by the government, then a 60- or 70-year-old elderly person – even if he or she is healthy – will typically be paying about three times that of a young person.”

“If you are in the high-risk group, you will also pay about three times more. So that means if you are

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Local concern

n her mid-30s, Mitch is supposed to be just enjoying life and building her career. But five years ago she was diagnosed with the autoimmune disease, lupus and her life has been turned upside down.

The PR officer has been in and out of hospitals.

She is thankful she is currently fully employed. And full time work means she has medical insurance provided by her employer that covers limited portion of her treatment expenses. She pays HK$80 to $100 more for her medications each visit, half of the amount charged by public hospitals.

She waits nearly two hours in the queue to see a doctor so she often takes half-day off work. She has been hospitalized four times so far this year and although she has medical insurance she has been absent for months from work.

Amid all these hassles, talks about the proposed health care reform have Mitch worried.

She admits she has not read the full report of the proposed scheme but she knows that if the government proposal would mean patients being shunted to the private medical system, it would be personally disastrous for her.

She does not trust the private sector and she believes patients will have to pay more out of pocket if they require hospitalization. She adds she rues the day when she is unable to work, and that her elderly and sickly parents will have to take care of her instead of the other way around.

“I don’t know how that insurance will help me.

Also, I’m afraid we’ll be forced to go to private doctors whom I don’t trust,” she says, due to past experience.

"Also I feel that the government has not been transparent about the details of the health care reform.

They are asking you whether you accept something but there are no details,” she adds.

“They tell you, you don’t get covered. If it doesn’t cover outpatient, drugs and medication then what does it cover?” elderly, retired with no income, your premium will be as much as 10 times that of a young person.”

"This plan also requires a deductible every time you use it which is HK$10,000. There is also co-insurance meaning the first HK$10,000 you have to pay 10 percent. So an elderly person who has no income has to pay a very high premium 10 times that of a young person. Every time he goes to hospital, that is HK$10,000 deductible and co-payment.''

"Do you think a lot of people would continue to

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10 Key features of HPS:

Peter P. Yuen

subscribe?'' Yuen asks.

Most of the elderly people would drop out. Highincome, middle class people will buy medical insurance anyway and would not need a government plan.

“It will not help in the long run with this ageing population,” Professor Yuen says, adding that the HK$50 billion to be set aside by the government for the scheme will run out in 10 to 15 years based on experts’ opinion.

Even if the government would continue to pump in money, it will not help because it will be subsidizing the working age.

• No turn-away of subscribers and guaranteed renewal for life; • Age-banded premiums subject to adjustment guidelines; • Covering pre-existing medical conditions subject to waiting period and time-limited reimbursement limits; • High-risk individuals insurable with a cap on premium loading (say 200 percent); • Sharing risks arising from accepting high-risk groups through High-Risk Pool industry reinsurance; • Offering no-claim discount up to 30 percent of published premiums; • Providing insurance plans renewable on leaving employment and portable between insurers; • Requiring the insurers to report all costs, claims and expenses; • Providing standardized health insurance policy terms and definitions; and • Establishing a government-regulated health insurance claims arbitration mechanism.

Source: Background brief by Legislative Council Secretariat, November 2011

Force to save As well as an HPS, Professor Yuen proposes that instead of forcing the public to save, government can save for the public.

“We figured that if you save 3 percent of your salary, when you retire you will have reasonable savings. Three percent of one’s salary is about HK$10 billion a year,” he says.

This HK$10 billion can be set aside for government savings account each year. “Gradually this fund will build up. As the population ages, your fund will grow and you can use this money to tackle some of the acute problems we are facing.”

The money could be used to treat those chronic illnesses such as cataracts, gallstones, angioplasty, hip replacement and dementia, and spend it in the public sector.

“That would probably be much more effective. It could be used also for vouchers in public-private partnerships. But you target health conditions to help people who are waiting and not getting care,” he says.

He believes it is financially feasible as HK$10

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12 • 2011

billion a year is not unrealistic in Hong Kong, adding it does not need another public consultation as it is within the government’s power to do with its budget surplus.

High premiums He suggests that government delinks the proposed HK$50 billion subsidy to make the scheme less controversial and more viable.

Based on a study findings released early November, Professor Yuen says that benefits of the proposed HPS and existing employers-provided plans are comparable.

The median premium of existing plans is HK$912. For the government one, the premium will vary according to age. But even for the younger one, it would be $1,290.

“For the 50s, the premium would be $2,700, which is close to three times the current premium. So my conclusion is the benefits are similar but the

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12 • 2011

Expatriate factor

P

rofessor Sian Griffiths, Director of the School of Public Health and Primary Care at the Chinese University of Hong Kong, says it is too early to say if HPS will be a factor for expatriates to consider when moving to Hong Kong.

“But there are many other incentives for international companies and they will probably use their own insurance schemes,” she says.

Her colleague, assistant professor and health economist, Liu Su, said she does not think that HPS would be a main consideration for multi-national companies, especially those from the UK and US, moving to the SAR. “Hong Kong has plenty of other incentives for businesses. This won’t make it more attractive or less, at least not in the short run,” she says.

Both Professors Griffiths and Liu believe since most multi-national companies need to maintain employee benefit standards that are comparable across countries, they will probably set up some employersponsored health insurance to attract talents.

“HPS mainly deals with individually-purchased insurance, and in the near term, the core benefit package will not be as nearly comprehensive as the group insurance multi-national companies usually offer; plus, it’s voluntary and self-financed, albeit some government subsidy,” says Liu. “I don’t think there will be much crowd-out of employer-sponsored insurance offered by big companies, as a result of its implementation,” adds Liu who holds a PhD in economics.

But the self-employed will welcome the reform as it would hopefully make purchasing of individual insurance plan “easier, since the market is supposed to be more regulated, competitive and transparent,” she points out.

“They will be able to compare offers from different insurance companies more easily. And the competition, given enough participation from the insurance companies, hopefully would drive the price down.” government plans are more costly ... this is because of the guidelines on no-refusal and high-risk groups. So you need to jack up the premiums,” Yuen says.

He believes majority of employers, particularly small sized businesses, would not want to migrate to the HPS because of the higher premiums.

“The whole sustainability of the HPS will be a problem as well,” he says.

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Jan 2012 AmCham Chairman Inaugural Luncheon

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James Sun 2012 AmCham Chairman At this specail inaugural luncheon, Rob Chipman, AmCham's 2011 Chairman, will review the Chamber's accomplishments in his challenging year as AmCham's leader, and will introduce his successor, James Sun. Join us as AmCham’s incoming Chairman, identifies, highlights and addresses the pressing issues impacting the business communities in Hong Kong and Asia Pacific. Most importantly, they will share insights on AmCham’s key priorities for 2012.

James Sun is Managing Director and Responsible Officer of Charles Schwab, Hong Kong, Ltd, overseeing Schwab’s business in Asia. James joined Charles Schwab & Co Inc in New York in 1998, before relocating to Hong Kong in 2004. He is responsible for overseeing Schwab’s business in Hong Kong and other key markets including China, Taiwan, and Singapore.

Mr Sun served on the Board of Directors for Chinese Finance, Investment & Business Society, and is a member of the US Financial Planning Association. As Vice-Chairman of the American Chamber of Commerce in Hong Kong, he has extensive board involvement and provides his keen insights on Hong Kong and China related issues.

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Venue: Renaissance Harbour View Hotel Oasis Room (8/F) 1 Harbour Road, Wanchai, Hong Kong Time: 12:00 - 2:00pm (Lunch included)

Time: 12:00 - 2:00pm (Lunch included) Fee(s): Member Fee: HK$250 Non Member Fee: HK$350

Venue: AmCham Office 1904 Bank of America Tower 12 Harcourt Road, Central

Taking Your Business to New Heights with ICT

Herman LAM Heung Yeung Chief Executive Officer Cyberport It is predicted that Hong Kong’s Internet economy will grow by seven percent per year -- faster than the forecasted GDP growth rate of four percent -- and will reach HK$146 billion by 2015. The growth will be driven by Mainland China’s fast-growing export business. New Trends for enterprises looking for opportunities include Web 3.0, IPv6, Mobile applications, Stereo 3D and Cloud computing.

Join us for this informative event as Cyberport unpackages some of the following ways it is helping these opportunities: • Incubation Program providing full range of support to start-ups and entrepreneurs • Collaboration effort eg setting up Shanghai Representative Office to help enterprises to soft-land mainland • Training and networking opportunities with venture capital investors, and inviting angel investors and successful start-ups to share tips and tricks with enterprises/ICT talents Mr Herman Lam Heung Yeung joined Hong Kong Cyberport Management Company Limited in March 2010. As the CEO of Cyberport, Mr. Lam is responsible for leading, representing and administering the company as well as playing a prominent role to promote and implement Cyberport’s public mission strategies.

Fax: (852) 2810 1289

Time: 12:00 - 2:00pm (sandwiches and beverages provided) Fee(s): Member Fee: HK$250 Non Member Fee: HK$350

Email: kalau@amcham.org.hk

2012 January

Feb Learning from Cyberport -

For information, see website: www.amcham.org.hk Tel: (852) 2530 6900

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Venue: AmCham Office 1904 Bank of America Tower 12 Harcourt Road, Central

Mr Lavin will address such topics including: • Has President Obama stabilized? After a difficult first year, President Obama appears to have regained some lost ground. Will he remain competitive through next year or will the economy pull him down?

• The Republican nominee: Much of the Republican field is unknown or appears unlikely to enjoy broad public support. Can Republicans pick a winner to go toe-to-toe with the President?

• Foreign policy: What will the impact of foreign policy be on the election?

• Charisma, money, and organization – how do the candidates stack up?

Frank Lavin is the Chairman of the Public Affairs Practice for Edelman Asia Pacific, working with companies across the region as they grapple with regulatory challenges and sensitive government relations issues. He also serves as CEO of Export Now (www.ExportNow.com) which helps US companies sell on China’s TMall/Taobao platforms.

In Government, Lavin served as Under Secretary for International Trade at the US Department of Commerce (2005-2007). In that capacity, Lavin served as lead trade negotiator for both China and India and was the senior policy official in the Department responsible for commercial policy, export promotion, and trade negotiations across the globe.

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