biz.hk Aug 2012

20 1 & 2 D

W IN E

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Journal of The American Chamber of Commerce in Hong Kong

THE NEW FRONTIER?

www.amcham.org.hk

August 2012

COVER SPONSOR

August 2012 Vol 44 No 08

Contents

Richard R Vuylsteke

Editor-in-Chief Daniel Kwan

Managing Editor Kenny Lau

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Publisher

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COVER STORY

TRADE & INVESTMENT

ENERGY

WOMEN OF INFLUENCE

Recent reforms in Myanmar have caught worldwide attention. For the next decade, Myanmar could become an obvious destination for low-cost manufacturing, particularly of textiles. Is Myanmar the New Frontier? Will it succeed, and what are the speed bumps ahead?

US Assistant Secretary of State for Economic and Business Affairs Jose W Fernandez gives a detailed account of greater emphasis of US foreign policy on Asia and on promoting American business interests abroad

The debate over who should bear the cost for cleaner air continues despite Hong Kong’s two power companies – CLP and Hongkong Electric – have reduced their tariff increase at the end of last year after rounds of negotiations with the government

The “caffeinated” story of Jennifer Liu, an architect-turned-entrepreneur and founder of Caffe Habitu, and her vision behind running a contemporary business in a highly competitive city

Advertising Sales Manager Regina Leung

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.

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 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 Unit 1613 16/F, Workingbond Commercial Centre, 162 Prince Edward Road West, Kowloon ©The American Chamber of Commerce in Hong Kong, 2012 Library of Congress: LC 98-645652 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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AMCHAM NEWS AND VIEWS 04 Chairman’s Memo James Sun reflects on the passing of former AmCham chairman of 1993 Lyn W Edinger, talks about recent advocacy work at the Chamber, and highlights some of AmCham’s upcoming events and activities

18 Commitment to Connectivity More than 300 senior government officials and business leaders gather in Siem Reap, Cambodia for the inaugural US-ASEAN Business Forum chaired by US Secretary of State Hillary Clinton in pursuit of “Economic Statecraft”

22 The Bangladesh Challenge

07 New Business Contacts 66 executives joined AmCham’s business network last month

48 Mark Your Calendar

Achim Berg, a partner at leading US research company McKinsey, explains in a conversation Bangladesh’s advantages over Myanmar as a garment sourcing destination and how buyers should choose between them

TRADE & INVESTMENT

COVER STORY

25 Championing for American Businesses

08 Is Myanmar the New Frontier?

For the next decade, Myanmar could become an obvious destination for low-cost manufacturing, particularly of textiles. Will it succeed, and what are the speed bumps ahead?

10 Hong Kong’s Strength Hong Kong can be a natural platform for foreign businesses who are interested in investing in Myanmar given the city’s geographical advantages and excellent logistic support services

12 Observations from the Frontline Associate Director of Colliers International Tony Picon, currently based in Yangon, shares his observation of some of the practical difficulties of setting up businesses in the city

14 Implications of US Sanction

US Assistant Secretary of State for Economic and Business Affairs Jose W Fernandez gives a detailed account of greater emphasis of US foreign policy on Asia and on promoting American business interests abroad

26 Open for Business US Assistant Secretary of Commerce for Manufacturing and Services Nicole Lamb-Hale, on an official visit to Hong Kong and Beijing, discusses in an interview a number of US initiatives aimed at increasing exports, creating US jobs and attracting foreign investment

ENERGY 28 The Tariff Debate

A specialist in Asian Affairs of US Congressional Research Service and author of a number of research reports on Myanmar, Michael F Martin talks about current US sanctions on the country and what it means for businesses

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The debate over who should pay for cleaner air continues despite Hong Kong’s two power companies – CLP and Hongkong Electric – have reduced their tariff increase at the end of last year after rounds of negotiations with the government

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ENVIRONMENT 32 Make a Difference, Clean Up Our Beaches Ecovision’s Founder Lisa Christensen and Project Director Nissa Marion share their observations on Hong Kong’s marine debris and waste management

34 The Pellet Lesson Doug Woodring of Ocean Recovery Alliance discusses in detail the science and implication of the recent spill of 150 tons of plastic pellets into Hong Kong’s water

WOMEN OF INFLUENCE 38 A Caffeine High The story of Jennifer Liu, an architect-turned-entrepreneur and founder of Caffe Habitu, and her vision behind running a contemporary business in a highly competitive city

TALK-TO-AUTHOR 42 Winning through Innovation Award-winning correspondent Vijay Vaitheeswaran talks about his new book entitled Need, Speed and Greed: How the new rules of innovation can transform businesses, propel nations to greatness, and tame the world’s most wicked problems

CHAMBER NEWS 46 Lyn W Edinger, 1948-2012 Former AmCham chairman (1993) Lyn Ward Edinger, who had a highly distinguished multi-faceted career as an educator, a US diplomat, and a business executive, passes away at his home in Burlington, New York

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COVER SPONSOR

Chairman’s Memo Board of Governors Chairman James Sun Vice Chairman Richard Weisman Treasurer Peter Levesque Executive Committee Janet De Silva, Frank Lavin, Anita Leung Philip Leung, Belinda Lui, Alan Turley Governors Evan Auyang, Sara Yang Bosco, Brian Brenner, Tom Burns, Nicholas de Boursac, Walter Dias, Rob Glucksman, Toby Marion, Thomas Nelson, Andrea Richey, John Sigalos, Colin Tam, Elizabeth L Thomson, Frank Wong, Shengman Zhang Ex-Officio Governor President

Robert Chipman Richard R Vuylsteke

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

Kay Kutt Andre Leroy Donald Meyer Frank Wong Susan Reingold Robert Grieves

Energy Dominic Yin Entrepreneurs/SME Donald Austin Environment Bradley Punu Financial Services Catherine Simmons Food & Beverage Hospitality & Tourism Human Capital Information & Communications Technology Insurance & Healthcare

Veronica Sze Damien Lee Janet De Silva Peter Liu

Rex Engelking Owen Belman Hanif Kanji Intellectual Property Gabriela Kennedy Amy Lee Law Clara Ingen-Housz Pharmaceutical Stephen Leung Real Estate Alan Seigrist Senior Financial Forum Alvin Miyasato Senior HR Forum Jacqueline Algar Sports & Entertainment Raymond Roessel Taxation Evan Blanco Trade & Investment Patrick Wu Transportation & Logistics Brian Miller Women of Influence Jennifer Van Dale Margaret Helmig Young Professionals Sherry Lin

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Dear Fellow Members: As I write this Memo for biz.hk, I am flipping through the back issues of our magazine in 1993. I am sad to report that one of my predecessors and Chairman of 1993, Lyn W Edinger, passed away on July 21 at his home in Burlington, New York. Although I didn’t know Lyn personally, I am convinced by reading about him in the magazine that he was truly a legend. Widely recognized as a ”China hand,” Lyn set an example of what it meant to be an American, a patriot, and a true AmCham leader. A full obituary is included in this issue and I urge you to read it and learn more about him and his many contributions to Hong Kong, the American community here, and our organization. Our heartfelt condolences go out to his family.

In my inaugural address in January, I talked about my vision of AmCham playing the role of an honest broker for business interests in Hong Kong. Our successful Washington Doorknock in June is one example of how we have worked to achieve that goal. In the past

month the Doorknock has come to us.

Since our return from Washington, we have played host to two Assistant Secretaries from the US and two delegations of Congressional staffers. Meanwhile, we have invited representatives from the Liaison Office of the Central Government and the Hong Kong SAR Government to brief us on the Closer Economic Partnership Arrangement (CEPA). In short, we’ve been busy in keeping up the momentum.

But these activities actually represent only a small part of what we are doing. We are currently preparing a submission to the Chief Executive on his Policy Address, which is now re-scheduled to January. Good advocacy is built on solid homework and we take your views seriously. So I urge you to send in your ideas and opinions to publicaffairs@amcham.org.hk for consideration as we prepare our submission. Your input in this matter is highly appreciated.

September is approaching (I am sure that you need no reminder with Hong Kong’s simmering summer heat) and I would like to draw your attention to a couple of key upcoming events. Given Hong Kong’s hectic business calendar, I would suggest that you block those dates early to make sure that you won’t miss out.

First, our ninth Women of Influence Conference will be held on November 2 at the Four Seasons Hotel. Again in partnership with the South China Morning Post, we are inviting nominations for awards in five categories – namely Entrepreneur, Master in Charity, Arts or Culture, Champion for the Advancement of Women, Professional, and Best Company for Women. Past experience tells us that the awards are much more than just competition. They represent a common aspiration – regardless of gender – to achieve professional

biz.hk 8• 2012

excellence and to celebrate exceptional accomplishments.

We will soon announce our speakers and a list of panelists for the event. So stay tuned.

Sponsorships are still available for this event. Please contact Jin-ah Lee at the AmCham office for more information (jlee@amcham.org.hk).

Second, our Apparel & Footwear Committee is actively pursuing the possibility of organizing a delegation to Bangladesh late this year. The delegation is more than a fact-finding tour. It is also an opportunity to knock on the doors of government, industry leaders, and potential business partners to present our views on the prospects of Bangladesh becoming another key player in international sourcing and the global supply chain. This matters for many of our AmCham members in the sourcing and related businesses. The proposed delegation is another indication that we are an American chamber with international characteristics and that Hong Kong is a genuine regional and global hub – all spokes don’t go north.

Last but not least: in my last memo, I appealed to you to get physical as summer is here. Here is a truly meaningful opportunity. This year, AmCham is again a supporting organization for the Hong Kong Cleanup. Previously known as the Hong Kong International Coastal Cleanup, the annual challenge is now back. With the latest news about pollution on our shoreline, it’s time to roll up our sleeves and make a difference. Sign up now and help keep our city clean.

James Sun Chairman

biz.hk 8 • 2012

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New

Business Contacts The following people are new AmCham members: Actuant Global Sourcing Limited

ExxonMobil Hong Kong Ltd

HRT Edge Limited

Akin Gump Strauss Hauer & Feld LLP

FedEx Express

Jardine Matheson Ltd

Scot Stein Global Supply Chain Leader Andrew Abernethy Partner

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

APCO Worldwide

Berenice Voets Director and Asia Head of FMCG practice

Asia Securities Industry and Financial Markets Association Ltd Mark Austen CEO

Baker & McKenzie Kareena Teh Partner

Banque Privee Edmond de Rothschild S A Pierre Donnet Executive Director

BASF East Asia Regional Headquarters 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.

ISBN 978-962-7422-03-7

LC 98-645651

Gareth Rees Regional Head of External Communications, Corporate Communications Asia Pacific

Carter's

Caraa Ho Director / GMM OshKosh Macy Tsang Senior Director, Human Resources Jennifer Wong Director / GMM Mass Channel Carter's Fernando Angulo Vice President, Supply Chain Bruno Lannoo CFO Asia Ivan Li Senior Director / GMM Carter's Peter Kaminsky Managing Director

Chartis Insurance Hong Kong Limited Marc Breuil President & CEO

Richard Chu Senior Vice President

Friendy Fong Managing Director, Human Resource Services, North Pacific Region

GE Capital Asia Pacific

Christopher Wohlert Managing Director, Commercial Distribution Finance Rahul Mathur Managing Director, Leveraged & Sponsor Finance David Henderson Senior Vice President, Corporate Aircraft Finance Christophe Cerisier Managing Director, Corporate & Structured Finance Stephen Ezekiel Senior Managing Director, Head of Structured Finance Todd Davock Executive Director, Corporate & Structured Finance

General Electric

Michael Jones EVP, Business Development

GlaxoSmithKline Ltd

Margaret Cheung Director, Vaccine Commercial and Government Affairs Tiffany Lam Product Manager and Government Affairs Annette Chiu Regulatory & Medical Affairs Director Sally Storey Vice President & General Manager

Global Perspectives Hong Kong Ltd Carson McKelvey Managing Director

Graduate Management Admission Council (GMAC)

Children's Place (HK) Ltd, The

Danielle Jervis Associate Director, Marketing Asia Pacific Robert Yu Manager, Market Development Asia Pacific

Conrad Hong Kong

Great Place To Work

Fleetwood Lee Director of Sourcing Strategy

Richard Willeter Director, Corporate Services Asia

JosĂŠ Bezanilla CEO Susana Munoz Business Development Martin Chung Training Coordinator

Dow Chemical Pacific Ltd

Hang Lung Properties Ltd

Gina Ho Director of Sales & Marketing

Crown Worldwide (HK) Limited

Lee Hawleyll Managing Partner Trevor Chung Manager, Liner

Kiabi International Supply Services Ltd Virginia Lee Merchandising Director

Le Meridien Cyberport

Tim Bilfinger Executive Assistant Manager

Leading Authorities International Pte Ltd Antoine Ting Managing Director

Lenovo (Hong Kong) Limited

Elaine Tsui Marketing Manager, Lenovo Hong Kong Alice Ong General Manager, Hong Kong and Macau, Lenovo Angus Wong Director, SMB and Consumer Business, Lenovo Hong Kong Milko van Duijl President, Asia Pacific and Latin America, Lenovo

Linestone NP

Tuck Yui Wong Business Development Manager Ka Cheung Chau Operations Manager

McMillan LLP

Michael Yang Associate/ Registered Foreign Lawyer Annie Lin Tao Strategic Advisor Stephen Wortley Partner, Chair of Hong Kong Office

Microsoft Hong Kong Ltd Jacky Miu Corporate Affairs Manager

National Association of Asian MBAs Jino Ahn CEO & Founder

Oldham Li & Nie Solicitors Nicole Cavanagh Foreign Registered Lawyer

Oracle Systems Hong Kong Limited Carlos Roman General Manager, Systems Sales

Sino Group

Roger Poon Associate Director, Property Investment & Management

Meredith Morris Executive Communications Manager, Asia Pacific

Adriel Chan Executive Assistant to MD

Turner Broadcasting System Asia Pacific

Eva Airways Corporation

Hippo Batteries Ltd

UniGroup Worldwide - Hong Kong Ltd

Dorothy Hung Passenger Sales Representative

ExxonMobil Energy Ltd

Philip Wong Manager, Business Strategy & Regulatory

Eric Tam Sales Manager Fanny Shum Personal Assistant Niels Bakker CEO

Nashua Gallagher Regional Community Manager - Interactive Market Edwin Sun Head of Global Mobility, HK

VF Asia Ltd

Steven Guy Vice President

View our other members at:

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

biz.hk 8 • 2012

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COVER STORY

Myanmar, the New Frontier?

Reforms in Myanmar have caught worldwide attention. For the next decade, Myanmar could become an obvious destination for low-cost manufacturing, particularly of textiles. Will it succeed, and what are the speed bumps ahead?

By Daniel Kwan

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hen Stuart Witchell, a senior consultant at FTI Consulting, visited Yangon in early July, he was struck by what he saw. “It was like Thailand in the 1970s,” he told biz.hk in a recent interview. “It’s 40 years behind.”

Witchell is one of the many visitors to this commercial capital of Myanmar in recent months. Drawn by Myanmar’s new-found allure of becoming Asia’s “next bright spot” for investment, industrialists, consultants, bankers and traders from around the world have all flocked to this former pariah nation scouting for opportunities. “A lot of companies are saying, ‘We’ve got to go, we don’t want to miss

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The factory of Lat War Garment Company in the Hlaingtharyar Industrial Zone in Yangon.

the boat,” Witchell sums it up.

Also impressed was Raymond Yip, Assistant Executive Director of Hong Kong Trade Development Council, who led a delegation of more than 60 Hong Kong businessmen to visit Myanmar in June. “The country has certainly moved on since my last visit in 1999,” he comments.

Action for action The excitement is growing fast. An announcement by US President Barack Obama on July 13 to lift part of the sanctions against Myanmar has no doubt further fuelled investors’ interest in the country. For some, the announcement was long overdue.

American businesses, they feared, have

already lagged behind their Japanese and European counterparts who have not waited for the lifting of sanctions to do business with Myanmar. (For details of the lifting of US sanctions, see story on page 14) That the US is now encouraging American businesses to invest in Myanmar was one of the clear messages by Secretary of State Hillary Clinton when she spoke on her “economic statecraft” policy at a business conference in Siem Reap in July. And her meeting with Burmese President Thein Sein on the sideline of the conference was carefully crafted – it came immediately after President Obama’s announcement – to reinforce the message. (AmCham President Richard Vuylsteke attended the conference in Siem

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Reap. For a full report on the conference, see page 18).

A number of senior US officials have since spoken in public to further explain the US intent. Among them was US Under Secretary for Energy, Growth, and the Environment Robert Hormats. On a number of occasions, Hormats characterized the US position as “action for action.” In other words, the change reflects the US’s commitment to support reforms in Myanmar.

In a briefing at the Foreign Press Center in Washington, Hormats spelt out the US position: “The main reason is that we want to demonstrate our support for the reforms the [Burmese] government has undertaken. And we also believe that American companies

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are … very responsible investors … So we see American companies going in and actually supporting and providing the kind of investment – not just because of the money, but because of the way they invest – that will support the reform process in Burma.”

Hormats made clear that now is not the time for a gold rush. In an address to the Washington International Trade Association, he downplayed the possibility of big American investments – at least in the near term. “This notion that there's going to be a rush of American capital coming in there – there probably won't,” he told the audience.

“Burma is a very complex place and if you're going to invest, you have to do a lot of due diligence,” he stressed.

Photo courtesy: HKTDC

Due diligence Analyzing the risks involved and carrying out proper due diligence before making moves are exactly what Witchell and Yip would advise potential investors. Doing proper homework – understanding local regulations, finding the right business partners, and establishing the necessary business networks – are all essential steps for any businesses.

In addition, Witchell points out that the Myanmar government has not yet promulgated its revised Foreign Investment Law and it wasn’t clear how the new law would impact on foreign businesses. “My advice to companies is, ‘look, monitor the situation now, wait until that law comes into

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effect, and then start to look for partners,’” he says.

Similarly, Yip cautions that transparency remains an issue. Just finding out the relevant government regulations and necessary background of officials and their businesses can be frustrating enough to say the least.

“Information and data are not easy to gather,” Yip says. “Investors need to remember that, for example, Myanmar’s banking system is underdeveloped with a limited system of debit and credit, and an inefficient and

costly payment card structure.”

Investors interested in Myanmar must also take the country’s 1970s-like business environment into serious consideration. If modern connectivity – think facebook, emails and linkedin – is your cup of tea, then adapting to the country’s poor environment would definitely be a challenge. “Some people have taken their satellite telephones with them,” says Witchell. “Just the pure logistics like finding a room for your expatriate staff can be very difficult.” Inconveniences common to

most emerging economies – frequent power stoppages, poor transport system, and rudimentary logistic support services – are not just real but serious in some areas.

Tony Picon, Associate Director of Colliers International, makes this comparison between Yangon today and other Southeast Asian investment destinations. “Overall the cost of living [in Yangon] is roughly the same compared to Bangkok and a little higher than Vietnam if you exclude accommodation in both cases,” says

Hong Kong’s Strength Hong Kong can be a natural platform for foreign businesses who are interested in investing in Myanmar given the city’s geographical advantages and excellent logistic support services, says Raymond Yip, Assistant Executive Director of Hong Kong Trade Development Council smooth access from all areas,” he says.

In fact, Hong Kong’s exports to Myanmar were up around 40 percent in the first quarter of this year and the city is currently one of the key sources of investment in the country.

There are obstacles Raymond Yip (right) of HKTDC meets with His Excellency for potential investors, Dr Pwint San, Deputy Minister of Commerce in Myanmar, who should review their at a Hong Kong-Myanmar business seminar in Yangon in investment strategy June.

Photo courtesy: HKTDC carefully before taking the plunge, Yip cautions.

“Most of Hong Kong’s regional advanThese include Myanmar’s poor tages as Asia’s trading hub also apply to infrastructure and the lack of a workMyanmar,” says Yip who led a able transport system.

HKTDC delegation to the country in In particular, he points out that the June. According to him, Hong Kong lack of supporting industries would offers the best connections available in limit the choices for garment manufacthe region. turers who otherwise may be inter“Our proximity to this emerging ested in making use of the country’s market is within four hours of flying time, abundant labor resources. and we have air-sea connections, “The non-availability of local although Myanmar has yet to develop fabrics/materials makes FOB transac-

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tions difficult because most garment factories in Myanmar can only do CMT (Cut, Make & Trim),” he explains.

According to Yip, HKTDC is monitoring the development closely and is prepared to offer interested investors the most up-to-date intelligence when available. Meanwhile, two events are being planned by the HKTDC to enable Hong Kong businesses to become better familiarized with Myanmar and its business environment.

First, Myanmar is invited to participate in the annual World SME Expo to be held in Hong Kong in early December. Second, the trade promotion body is planning a second delegation to Myanmar in early March next year.

“That will depend on the commercial response as quite a number of similar missions have been or are being organized by other associations,” Yip says. Daniel Kwan Videocasts of the HKTDC visit are available on the council’s website. – Editor’s note

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its Corruption Perception Index which measures the perceived levels of public sector corruption. Things are not going to improve overnight just because of the lifting of the sanctions.

The point is that this not only makes doing business in Myanmar difficult, it increases the risks of foreign companies who are subject to scrutiny under anti-bribery legislation in their home Two issues stand out for investors countries. “If American or British who are pondering to go or not to go. companies are looking to expand there, One is the actual cost of doing then there’s issue such as the Foreign business there. While the wage of an Corruption Practices Act (FCPA) or average Burmese worker is roughly the UK Bribery Act,” Witchell warns. one-fifth of that of a Chinese worker, Myanmar actually adds an extra the country lacks skilled and middimension to the issue of corruption. ranking management personnel. In the The country is rich in natural resources country’s almost five decades of and foreign companies are obviously economic isolation, hundreds of interested in its minerals, oil and gas, timber, jades, and precious gems. Often these “extractive” projects raise questions such as lack of transparency, decimation of natural environment, violation of the Average salary rights of indigenous people, and labor protection. A of a blue-collar perfect example was the worker in Myanmar decision by Myanmar to suspend the Myitsone dam project led by a Chinese state-owned enterprise in northern Myanmar. The Burmese government, bowing to per month public pressure due to concern over the environment, shelved the project last September.

Picon who is now based in Yangon.

“Rental accommodation will be the main obstacle for expats moving here as rooms offering even basic services such as back-up power for individual units are in chronic undersupply,” Picon adds.

Costly business

US$70

thousands of educated and trained Burmese have left and moved to countries such as Thailand. Although many of them are now eager to return, their command of salaries will not be cheap, Witchell points out.

Yip of HKTDC echoes Witchell’s concern about wages: “Myanmar may offer cost-effective labor – average salary is about US$70 per month, among the lowest in the region. But this applies only to low-skilled labor.”

Another potential “black hole” is corruption. Let’s be frank, Myanmar has been ranked by Transparency International for years at the bottom of

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Transparency That brings it back to a central element of the announcement by President Obama last month. While the announcement makes it possible for American businesses to invest in Myanmar, they are required to report to the State Department about their activities in the country. Furthermore, if they are to deal with the state-run oil and gas company Myanmar Oil and Gas Enterprise (MOGE), they are legally bound to report within 60 days to the US Government the nature of their transaction, who they deal with, what kind of transaction they’re engaged in.

Stuart Witchell

According to Under Secretary Hormats, the US believes such transparency would help American businesses to be good corporate citizens. “We think that it’s also important because, from their point of view, it will give them a lot of credibility with the people of that country …So we think this is a very positive thing,” he told the Foreign Press Center in Washington.

While Myanmar certainly presents new challenges, Witchell who spent about a week in Myanmar to talk to diplomats, officials, and businessmen believes that the adventurous types will certainly see gold in the land of opportunity. Private equity funds for example are likely to take the first-mover advantage in snapping up good-value investment in Myanmar.

Another area of growing activities, interestingly, is in education. Witchell observes that a number of British education institutions and publishing companies are eyeing the bourgeoning market. The Japanese, meanwhile, are wasting no time to take advantage of their government’s development aid programs targeting infrastructure projects such as ports and highways.

Japanese banks and trading companies are following closely too.

Asked to summarize the Myanmar opportunity, Witchell concludes: “It’s a minefield at the moment, but if investors pick the right investment, the potential to grow is huge.”

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Bogyoke Aung San Road, a major tourist destination in central Yangon where the Bogyoke Aung San Market houses shops selling Burmese handcrafted jewellery, garments, medicine and foreign goods.

Photo courtesy: HKTDC

Observations from the Frontline

Tony Picon, Associate Director of Colliers International, is currently based in Yangon. In the following written interview with biz.hk, Picon shares his observation of some of the practical difficulties of setting up businesses in the city biz.hk: What are the current monthly office rentals in Yangon and do you expect the rates will further rise in the coming months? How do the rentals in Yangon compare with other Southeast Asian cities like HCMH and Hanoi?

Picon: Office rentals have reached US$65 per square meter in one building and others are catching up and this comes before a new investment law, improved foreign exchange systems, and liberalized banking and insurance regulations permitting foreign branches.

Therefore due to the severe lack of supply I expect rental rates to rise beyond US$150 per square meter. This compares to HCMC which reached US$110 prior to the global financial crisis. However, there were around 400,000 square meters of supply in HCMC at that time and currently only around 65,000 square meters in Yangon with little future supply expected in the next few years.

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biz.hk: Is it the right time for foreign developers to invest in hotels and offices in Myanmar, or is it still a waiting game?

What are the key changes that developers need to watch in the next 12 months in mapping out their strategies?

Picon: Now is the right time to start the process of developing hotels, leased apartments and offices, although probably the best way is to renovate existing properties or develop smaller properties in order to get involved quickly and benefit from the lack of suitable properties in these sectors. Consideration should be made regarding the foreign investment law, a new condominium act with foreign quotas, and changes to foreign exchange allowing easier remittance. biz.hk: What are your observations of the overall investment environment on the ground? Are reforms going in the right direction? Are changes happening

fast enough?

Picon: I think it is about perception at present. Reforms normally take time both in terms of legislation and implementation. However there was an expectation of dramatic changes over a short period but this has not come about and now the reality has set in.

It is difficult in the extreme to understand what is happening in regards to government policy for reform and so far little tangible changes are evident so it is still a waiting game. In some ways this is a good thing as I have always been concerned that the country does not have the capability and capacity to deal with a dramatic influx of foreign investment as it was largely shut off for the best part of 50 years. I am very optimistic about the future but the process will be fraught with many challenges over the coming years and those wishing to be part of the growth story should be mindful of this.

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Three Burmese girls pass by the Yangon City Hall (left) and the former Supreme Court of Myanmar (right) in Photo courtesy: HKTDC downtown Yangon.

Implications of US Sanction Michael F Martin, Specialist in Asian Affairs of US Congressional Research Service, is author of a number of research reports on Myanmar. The following is a written interview with biz.hk on the US sanctions and his advices for businesses in investing in the country biz.hk: Can you broadly describe the announcement in July by President Barack Obama?

Martin: The announcements of 11 July provided for the implementation of the selective easing of certain sanctions on Burma announced on 4 April

by Secretary of State Hillary Clinton.

More specifically, three separate actions were taken on 11 July with respect to US sanctions on Burma. First, President Obama issued a presidential memorandum delegating to Secretary

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Clinton the authority to waive the prohibition on new US investments in Burma contained in section 570(e) of the Foreign Operations, Export Financing, and Related Programs Appropriations Act of 1997. Once the new investment ban had been waived, the Office of Foreign Assets Control (OFAC) of the Department of the Treasury announced General License No 17, which stipulates the conditions under which US persons can invest in Burma. One of the conditions listed in

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General License No 17 is a requirement to report dozens of names that they think should be information about the investment to the Departincluded on the list given current US laws. In ment of State as specified in a separate document, April, Secretary Clinton indicated that the SDN “Reporting Requirements on Responsible Investlist would be updated along with the proposed ment in Burma.” easing of sanctions to insure that certain people Second, OFAC also released General License did not benefit from the sanction waivers. While a No 16, authorizing few Burmese the export or companies have re-export of finanbeen added to the cial services to SDN list this year, Burma from the they are ones United States or by specifically identiUS persons. fied by the White General License House in its press No 16 supersedes release for the 11 General License July announceNo 14-C and No 15. ments.

Presidential ExecuOne of the tive Order 13310 particular difficulhad prohibited the ties in maintaining export or re-export the SDN list for US Secretary of State Hillary Clinton meets with Burmese of financial services Burma is the President Thein Sein in Sien Reap. Photo courtesy: Department of State to Burma, using distinctive nature authority granted of Burmese by the International Emergency Economic Powers names. The spelling of Burmese names into the Act of 1997, or IEEPA. English alphabet has not been standardized, so Third, President Obama issued a new presithe same name can be spelt in several different dential Executive Order – E.O. 13619 – augmentways. Many of the Burmese nationals on the ing the list of Burmese nationals subject to current SDN list have multiple “also known as” targeted political and economic sanctions to listings. Companies considering doing business include people who have threatened the peace, in Burma should make sure they do a very security, or stability of Burma; are complicit in or thorough “due diligence” review of their prospecresponsible for human rights abuses; or have been tive business partners to see if any of the principal directly or indirectly involved in arms trade people or companies may be subject to the existbetween North Korea and Burma. ing sanctions. biz.hk: Can you comment on the Specially Designated Nationals list?

Martin: The SDN list is the administrative method by which OFAC and the US Treasury Department identify those individuals or companies subject to US financial or commercial sanctions. Several US laws, including the Burmese Freedom and Democracy Act of 2003 (BFDA) and the Tom Lantos Block Burmese JADE (Junta’s Anti-Democratic Efforts) Act of 2008 (JADE Act), subject slightly different lists of Burmese nationals to various economic sanctions.

The SDN list is supposed to include all the sanctioned Burmese nationals (as well as other foreign nationals subject to sanctions) on one list.

Several international human rights groups and Burma interest groups have been critical of OFAC’s diligence in updating and maintaining the SDN list with respect to Burma, offering

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biz.hk: Certain sanctions remain in place despite the announcement. What do those sanctions cover?

Martin: One of the continuing sanctions that has been in the news of late is the general ban on the import into the United States of goods of Burmese origin. Section 3(a)(1) of the BFDA prohibits the import of Burmese goods, but section 9(a) makes the general import ban subject to an annual renewal by Congress. On 2 August, Congress passed H.R. 5986, which among other things, extended the general import ban on Burmese goods until 25 July, 2013.

Other Burma-specific sanctions that remain in effect include: a visa ban for certain Burmese nationals; restrictions on the provision of financial services to certain Burmese nationals; the freezing of assets of certain Burmese nationals; a ban on the import into the US of goods containing

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jadeite or rubies mined or extracted from Burma; a prohibition on conducting business with certain Burmese companies; and a requirement that the US representatives at multilateral development banks (such as the IMF, World Bank, and the Asian Development Bank) oppose and vote against the provision of any loan or financial or technical assistance to Burma. biz.hk: What business will benefit most from the latest lift of sanctions by the US government?

Martin: At this time, it is difficult to predict which types of businesses are most likely to benefit from the easing of the ban on new US investments in Burma and the restrictions on the export and re-export of financial services. Clearly, new opportunities have opened up for US companies considering doing business in Burma, but various other factors will determine if and when US companies decide to invest or do business in Burma.

It is easy to overlook that for the last 50 years most businesses have been able to legally invest and/or do business in Burma; the US laws only applied to US persons as defined in the law. Hong Kong, Singaporean, and Thai companies, for example, could invest in Burma and conduct business in Burma if they wanted to do so.

However, many decided not to do so because of circumstances in Burma – poor infrastructure, lack of reliable electricity and transportation, widespread corruption, to name a few. Until these essential business conditions change, many US and other companies will probably hold off on making major inroads into Burma. biz.hk: US sanctions on Burma are directly linked to the issue of political prisoners. What will it take before the US can lift all sanctions against Burma?

Martin: In general, “lifting US sanctions” can be done in two ways. Either the President can waive the existing sanctions (as was done on 11 July) or Congress can pass new laws amending or removing the sanctions. Most – but not all – of the existing Burma-specific sanctions provide for a presidential waiver, subject to certain conditions.

President Obama has already demonstrated a willingness to exercise his authority when he thinks conditions in Burma warrant the issuance of a waiver. This is part of what the State Department has called their “action for action” policy in Burma.

For its part, Congress has passed H.R. 5986, extending the general import ban for another year,

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indicating that it is not time to lift that particular sanction. The White House has indicated that it will support Congress’ assessment, and President Obama is expected to sign the bill into law.

President Obama, Secretary Clinton, and several US officials have repeatedly stated some of the necessary steps that Burma must take before more of the sanctions could be lifted. One of those conditions is the unconditional release of all political prisoners. Depending on which source one uses, from 300 to up to over 800 political prisoners remain in detention in Burma. Many of the remaining sanctions require the release of all political prisoners before they can be removed.

Another critical issue is the resolution of the political differences between the Burman majority and Burma’s various ethnic minorities. While the Burmese government under President Thein Sein has been able to negotiate preliminary ceasefire agreements with most of the existing ethnicbased militias, the Burmese military reportedly has not fully complied with the terms of those agreements.

In addition, efforts to negotiate broader political agreements with the representatives of the ethnic groups have progressed slowly. Also, the recent civil unrest in the Rakhine State would seem to indicate that ethnic tensions extend beyond areas where ethnic-based militias exist.

A third issue is the protection of human rights and civil liberties. The Thein Sein government and Burma’s new parliament have taken some significant steps to bolster the protection of human rights, such as the passage of a law allowing public demonstrations, legalizing the formation of unions, and easing censorship. However, much still needs to be done to meet international human rights standards.

The Burmese military reportedly continues to commit gross violations of human rights to civilians in conflict areas, including conscription of child soldiers, forced labor, rape, torture, and murder. While the new labor law allows the formation of unions, it allegedly does not adequately protect the right to organize unions, with reports of Burmese and foreign-owned companies dismissing and harassing workers who attempt to form unions.

Finally, plans to eliminate the pre- and postpublication censorship of the news media were placed on hold following what the Thein Sein government saw as irresponsible coverage of the civil unrest in the Rakhine State.

Last, but not least, both the White House and Congress remain very concerned about alleged

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arms trade with North Korea. It is probably unlikely that President Obama or Congress will support the removal of all sanctions on Burma until the Burmese government provides sufficient assurances that it has stopped all arms trade with North Korea. biz.hk: For non-profits, how would the latest lift of sanctions help facilitate their humanitarian programs in Burma?

Martin: OFAC’s General License No 14-C, issued on 17 April, 2012, already made it easier for humanitarian assistance programs to operate in Burma.

General License No 16 supersedes 14-C, but should make it easier for non-government organizations to provide humanitarian assistance in Burma.

However, one of the questions left unresolved by the 11 July announcements is the timing and the process by which one obtains permission to export or re-export financial services to Burma.

For example, it is unclear if an organization or individual needs to obtain pre-approval from OFAC for the transfer of funds to Burma via a US bank to prevent payment to a Burmese national or company on the SDN list. If pre-approval is not required, who is legally liable if such an illegal transfer were done by US bank – the person requesting the transfer or the US bank? The procedures for implementing General License

About Michael F Martin: Dr Martin is a Specialist in Asian Affairs for the Congressional Research Service of the Library of Congress. From 1994 to 1998, he was

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No 16 remain to be seen. biz.hk: Given the fact that exports from Burma to the US are still banned and global supply chain often takes time to build, would it be wise for sourcing companies (i.e., garments, toys, footwear, etc.) to actively plan for sourcing from Burma now? Or would you advise a wait-and-see strategy instead?

Martin: A sourcing company considering doing business in Burma should certainly take into consideration that Congress has extended the ban on importing Burmese goods into the US for another year. A new Congress will take office early next year, and it may wish to consider this issue again, particularly if the Burmese government has made significant progress in addressing the issues mentioned above. For now, goods of Burmese origin can be exported to the European Union, Japan, South Korea, Southeast Asia – basically to anywhere in the world except the United States.

However, as I previously mentioned, this has been true for many years, but few sourcing companies chose to purchase goods made in Burma. To me, this would indicate that the main reason for the lack of Burmese exports isn’t the existing US sanctions, but the poor business environment inside Burma.

the assistant chief economist for the Hong Kong Trade Development Council (HKTDC). Prior to his time with HKTDC, Dr Martin taught at Hong Kong Baptist University, Doshisha University (Kyoto, Japan), Colby College and Tufts University. After leaving Hong Kong in 1998, Dr Martin worked for six years for the American Road & Transportation Builders Association (ARTBA) in Washington, DC. Dr Martin holds a B.A. in economics from the Michigan State University, and a M.A. and Ph.D. in economics from the University of Massachusetts, Amherst.

Dr Martin lives in Takoma Park, Maryland with his spouse, Meipo Fun Martin, who was born and raised in Hong Kong. They both practice aikido, a Japanese martial art.

The answers above are the personal views of Michael Martin, and do not necessarily reflect the views of the Congressional Research Service, the Library of Congress, or the US Congress – Editor’s note

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Caption: US Secretary of State Hillary Clinton delivers remarks at the US-ASEAN Business Forum and Dinner in Siem Reap, Cambodia, Photo courtesy: Department of State on July 13, 2012.

Commitment to Connectivity On 13 July, more than 300 senior government officials and business leaders met in Siem Reap, Cambodia, participating in what was billed at the first US-ASEAN Business Forum. Richard Vuylsteke, who participated with AmCham counterparts from Bangkok, Hanoi, Phnom Penh, Saigon, and Singapore, reports on the event

By Richard R. Vuylsteke

I

n another high-visibility implementation of President Obama’s “pivot to Asia” (now often rephrased as a “rebalancing” of attention and resources), US Secretary of State Hillary Clinton participated in a flurry of high-visibility meetings around the 19th meeting of the ASEAN Regional Forum (ARF), held in Phnom Penh on 12 July.

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The ARF is the region’s broadest and oldest security dialogue forum and focuses annually on roughly 25 topics such as disaster relief, counterterrorism, and maritime security.

Following the ARF sessions and several side meetings with participating senior officials from Japan, Korea, and China, Clinton flew north to Siem Reap, near Angkor Wat, and shifted focus to business topics at the US-ASEAN Business Forum.

Economic Statecraft Clinton chaired the Forum, which was organized by the US Chamber of Commerce and the US-ASEAN Business Council, with support from AmCham Cambodia. Entitled “Commitment to Connectivity,” the event delivered on the public-private partnership at the core of the

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Secretary’s pursuit of “Economic Statecraft.”

Among the large US government contingent at the forum were Undersecretary of State Robert Hormats, Under Secretary of Commerce Francisco Sanchez, and most of the US Ambassadors posted to ASEAN, including Derek Mitchell, the newly confirmed US Ambassador to Burma/Myanmar.

The day featured speeches and breakaway panels assessing the business environments, investment opportunities, and challenges to developing integrated business plans across the region of 10 Southeast Asian nations. The concluding dinner highlighted the overall themes of the event and illustrated the wide differences in economic development between newly emerging ASEAN economies, such as Myanmar and Cambodia, and the larger and wealthier economies in the region.

In her welcoming speech at dinner, Secretary Clinton emphasized “the importance of advancing the ASEAN connectivity agenda and steps all can take in government and in business, in ASEAN and in our individual countries, to advance integration and economic engagement.

“We’re pursuing an economic statecraft and jobs diplomacy agenda to promote sustainable growth and prosperity across the region,” she said. “We know that by doing so it will help the countries of ASEAN, but it will also help the United States. Last year, U.S. exports to ASEAN exceeded $76 billion, and that was up 42 percent since 2009. We have more than twice as much investment in ASEAN as we do in China. So there is a great deal of potential for continuing to grow our economic activity.”

“I gave a speech in Hong Kong last July describing what we hoped will be a thriving economic system across the Asia Pacific,” Clinton said. “It came down to four key attributes: openness, freedom, transparency, and fairness.

And we believe that those all go together.”

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Myanmar emerges Forum participations then heard remarks from Prime Minister Hun Sen of Cambodia, Prime Minister Yingluck Shinawatra of Thailand, and President Thein Sein of Myanmar. Each used the occasion to emphasize their commitment to further reforms and urged increased investment in their countries.

Following immediately on the heels of a US announcement of easing sanctions on his country, Myanmar’s Thein Sein declared his country’s determination to build “a new nation through peaceful transition,” evolving away from decades of military administration. He did not downplay the difficulties ahead. It was going to be challenging to make “true changes in the country.”

He outlined three reform commitments – “to walk out from a centralized system that the country had practiced for half a century and eventually build a matured democratic State” and “ to achieve a long-lasting peace in the country” as well as “to transform the centralized economy into a marketoriented economy.”

Integrated markets?

Myanmar admittedly has a long road ahead to recover from decades of economic isolation, but the other ASEAN nations also have daunting challenges ahead before they can reach the geo-political and economic integration goals set in 1967 when the first five nations formed the regional organization.

For instance, business speakers at various sessions emphasized the need for swifter regulatory harmonization among at least clusters of ASEAN countries in order to create the economies of scale that would make them more attractive to investors targeting the region’s population of roughly 600 million.

Until relatively recently, ASEAN has talked more about regional integration than actually achieving

substantial results. Part of the problem is that the organization has a consensus-based, approach to issues, meaning that contentious issues are often left on the table unresolved.

Recently, however, China’s recent aggressiveness on its South China Sea claims has helped galvanize a new attitude toward connectivity among ASEAN nations. Despite considerably different views of how to interact with “the elephant in the room” in most ASEAN discussions, China’s willingness to use economic and trade levers on ASEAN countries and, increasingly, shows of military strength seems to be stimulating more focus on regional integration.

What’s ahead?

One strength of the day-long event was a refreshing degree of candid comments about what individual ASEAN countries and the institution as a whole needs to do to attract investment.

“Trade craft is statecraft,” said panelist Liu Tuck Yew, Singapore Minister of Transport. “What does ASEAN have to offer? It has 600m people and a combined GDP of 1.8 trillion dollars, but it’s not homogenous. There are lots of emerging markets and a few mature economies. But every country wants to grow its middle class, which means large growth potential for goods and services.” He made an optimistic plea for the development of “an ASEAN single window for importers and exporters,” stressing that while “countries are looking for investors, companies are looking for good partnerships.”

ASEAN countries in fact are experiencing a growing middle class and as David Kiu, a senior manager at P&G in Singapore, pointed out, “In the FMCG sector we’re seeing more similarities among consumers in ASEAN than before. Therefore, economy of scale is important for our businesses. We need more harmonization of regulations to allow these economies of scale. This will in turn fuel greater growth.

Matching business needs and governmental goals, however, is proving difficult in many sectors. As one

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Secretary of State Hillary Clinton poses for a photo with US ASEAN Ambassadors in Siem Reap. US Ambassador to Myanmar, Derek Mitchell, is the fourth from left.

Photo courtesy: Department of State

business leader said, “The main problem now is not tariffs, but behindthe-border issues such as speeding up and harmonizing customs procedures and improving regulatory standards. We need much more transparency, predictability, and consistency of implementation.”

Panelist David Cunningham, President, Asia Pacific Region for FedEx Express (and former chairman of AmCham HK) stressed the advantages of improving the efficiency of customs operations in countries throughout the region. While many countries emphasize the advantages of their geographic location, one has to compare the “distance map” with the “time map.”

“Compare, for example, how long it takes to move an item from point A to point B in ASEAN,” Cunningham said.

“What’s the difference from Chicago to Paris versus Phnom Penh to Indonesia?

The time factor in ASEAN can be significantly longer, making the geographic proximity much less relevant.”

Panelist Giles Ward, CEO of ACE Insurance Ltd (Australia) urged greater market access and easing of ownership restrictions, along with greater harmonization of regulations across ASEAN. “More and more businesses are now cross-border, and insurance should be as well,” he said. “Moreover, people need to look at insurance as another source of contingent capital. For example,

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insurance puts cash back into an economy after a disaster, and we’ve seen many natural disasters greatly disrupt economies in the region.”

Panelist In Channy of the ACLEDA commercial bank in Cambodia pointed out the difficulties the 30,000 SMEs in his country have in finding financing domestically. He called for more foreign interest, including joint ventures on SME financing. This theme came up repeatedly, as SME financing is an issue throughout ASEAN. Fellow panelist, Tan Sri Dr Munir Majid of Bank Muamalat Malaysia Berhad, suggested turning to a relatively untapped resource besides the US and EU banks. “Consider looking to other financial sources, such as Saudi Arabia and other Islamic sources through Islamic banking,” he said. “Islamic funding for SMEs is an area of needed focus in ASEAN, as it is a huge source of funds.”

Work force development remains a major hurdle for many emerging ASEAN economies. “Business people are essential to remaking the world,” said US Ambassador to ASEAN David Carden.

“Sure, [ASEAN countries] need development plans, but they also need to focus on people. Connectivity goes beyond hard infrastructure – it must include people.”

Repeatedly, business leaders recommended greater investment in education by government, while the government

leaders present, especially those from emerging economies, urged more private sector investment initiatives in educational development, including setting up trade schools and committing to more extensive on-the-job training.

And in the area of hard infrastructure development, Kevin Thieneman, CEO of Caterpillar (China), urged governments to reject the “lowest bidder orientation.” Infrastructure is supposed to be long-lasting, not to use for a few years and then be replaced – so there’s a need, he says, “to look beyond the initial price and including long-term contracts in the whole package deal for such things as continuing maintenance, equipment renewal and upgrades, and job training.”

In this way countries could save major funds in the long term, but the concept is not yet well rooted in ASEAN.

Next time A one-day forum can’t be expected to cover every business sector, but surprisingly there was no mention of agriculture development opportunities.

Given that so many ASEAN nations are primarily agricultural, this was a major shortcoming in the agenda.

One participant also pointed out that the US officials present, “Perhaps talked a little too much about ‘how can business help us implement our policies’ and not enough about ‘what can the US government do to help American business thrive.’ We are being asked to undertake some major initiatives, but even on minor asks like the APEC business travel card we don’t get much help. It was promised when Condi Rice was Secretary of State – and we’re still waiting.”

Ask business leaders working in ASEAN markets what priorities need to be addressed and these topics invariably come up – stable laws, improved physical and regulatory infrastructure; regulatory harmonization; support and stimulus for innovation; greater transparency and predictability, and – always – strengthened primary, secondary, and vocational education. It’s an agenda that should keep future ASEAN business forums aggressively occupied.

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The Bangladesh Challenge A study by leading US research company McKinsey last year finds that Bangladesh has emerged as a reliable readymade garment sourcing destination for global brands compared with regional competitors such as Myanmar. Competitive pricing, a much bigger RMG sector, and functioning logistical support all make Bangladesh a more attractive place for retailers in sourcing as China’s rising labor costs put pressure on their profit margins. Achim Berg, Partner of McKinsey, summarizes Bangladesh’s advantages over Myanmar and explains how foreign buyers should choose between them biz.hk: What are the top three issues of concern to Chief Purchasing Officers when it comes to sourcing in Bangladesh, and why?

Berg: When we talked to CPOs about their concerns regarding sourcing from Bangladesh, the three areas noted most were infrastructure, compliance, and supplier performance/workforce supply.

The infrastructure issue is not surprising, as Bangladesh faces a number of challenges in realizing planned projects, especially in transport and logistics. The Dhaka-Chittagong corridor is critical to the transport of goods and is often very congested. Productivity at the Chittagong port is inefficient and lead times are long due to the lack of a deep-sea harbor.

Adding to the infrastructure problem is the currently unreliable energy supply, although this issue appears to be solvable within a few years’ time. The government is working hard to address these problems, and results must be seen soon.

Compliance is another concern noted by CPOs. Although there has been some improvement, there continues to be gaps and new risks could emerge. For example, while suppliers have worked to meet the stricter standards of Western stakeholders, new emerging regional customers threaten to lower the expectations when it comes to compliance. Also a topic in this context is corruption. Sourcing offices witness many cases of corruption, which will need to be managed closely; and failure to do so could lead to lack in transparency of supplier selection and therefore, to quality and compliance issues.

And the third area of concern is supplier performance and workforce supply. Labor costs, for example, are seen as a challenge mostly in the shorter

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and medium terms, as suppliers have only started to focus on increasing productivity. However, as labor costs increase internationally, some buyers feel that Bangladesh will maintain its relative level of competitiveness. Production inefficiency has an impact on lead time as well as production costs and requires buyers to invest in training. Also, the lack of skilled middle management could lead to issues in production planning, inefficiencies, sub-par product quality, and labor disputes. biz.hk: Bangladesh and Myanmar are often referred to as the next “hotspots.”

How would you compare these two countries in terms of their overall competitiveness?

Berg: In the short- to medium term, the garment industry in Bangladesh will likely remain more competitive. But as our McKinsey Global Institute stated in a recent study on private equity investments in Asia-Pacific, Myanmar could become a magnet for firms, if Myanmar can maintain the current pace of reform.

This is necessary for international actors like the European Union, the US or Australia to lift the remaining sanctions.

The main competitive advantage for both countries is the supply of low-cost labor, which is the key for CMT (Cut, Make & Trim) manufacturing of low-priced items. Myanmar has a higher literacy rate, so it could provide better access to skilled labor. But industry sources rate the availability of skilled labor availability in Myanmar's garment industry as challenging and productivity levels as low.

With around 5.000 factories Bangladesh offers significantly more capacity compared to Myanmar’s 200. In logistics infrastructure, Myanmar also lags behind

Achim Berg

Bangladesh, which is ranked 79 in the World Bank’s Logistics Performance Index, while Myanmar 133. And the gap widens in the international shipments rating. Energy supply remains unreliable in both countries.

The Bangladesh government supports growth and improvement of the garment industry by easing the import of textile machinery, while import barriers apply in Myanmar. And through an agreement with India, Bangladesh suppliers have better access to highquality fabrics, supporting the development away from basic, low-cost product only. biz.hk: For foreign apparel buyers, how should they choose between them?

Berg: Our study shows that wage levels are only one factor contributing to the FOB price that influences decision making regarding where to source.

However, when comparing overall sourcing unit price, companies need to also consider labor efficiency rates, logistics costs, and others. Overall, there are five elements that need to be evaluated when companies are making decisions about which country is best for their sourcing needs. These elements include price, quality, capacity, speed, and risk.

Using these criteria to compare Myanmar and Bangladesh, Myanmar is still lagging behind when it comes to capabilities. Our most recent discussions with those responsible for their sourcing offices view Myanmar as a potential sourcing country to complement the sourcing activities being pursued in Bangladesh – but more in the medium term. Myanmar is not yet seen as a fully viable alternative to Bangladesh as a sourcing country.

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TRADE & INVESTMENT

Championing for American Businesses In the past two years, US foreign policy has put much greater emphasis on Asia and on promoting American business interests. The former – some called it “rebalancing” or “pivot to Asia” – emphasizes the US’s relationship with Asia. The latter links US economic interests with diplomacy. US Assistant Secretary of State for Economic and Business Affairs Jose W. Fernandez recently spoke at AmCham and gave a detailed account of the policies and what they mean for business

By Daniel Kwan

T

he new emphases, according to Jose W Fernandez, US Assistant Secretary of State for Economic and Business Affairs, represent a doubling of efforts rather than reformative changes. The concept behind is simple. “Basically, economics and diplomacy are inseparable,” he says.

Diplomacy Economic statecraft, a term coined

by US Secretary of State Hillary Clinton last year to highlight the focus on economics in diplomacy, is not a new creation but something “other countries around the world have understood for a long time,” Fernandez said.

“When the Turkish Prime Minister went to Liberia, he didn’t bring an army with him; he brought a hundred businessmen. It was the same thing when Luiz Inácio Lula da Silva, President of Brazil, went to Africa. He didn’t bring the Brazilian Air Force, he brought Brazilian business people with him.”

“Why? It’s because Lula saw part of his job is to help his business colleagues and as a way of aiding the Brazilian economy. So that’s what she [Clinton] asked us to do,” Fernandez added.

In other words, breaking down

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Jose Fernandez

market barriers, helping US businesses to compete abroad and lobbying for a level playing field are now all part of US diplomats’ jobs. Keeping America competitive and supporting more American jobs at home are no longer the exclusive responsibilities of the US Trade Representative Office or the Department of Commerce.

“Every time we go abroad, we are given ‘points’ on economics even if you are a ‘political’ person,” Fernandez said. “You are asked to speak about economics. It’s all about bringing economics to the forefront of our diplomacy.”

“For example, I’ve done that when I was in Columbia. [When I returned], I talked to US businesses about the opportunities I saw there. So I act as a scout, a promoter and a facilitator,” Fernandez said.

In his address to the Chamber, the Assistant Secretary explained that economics and diplomacy are like twins.

“The United States has long been deeply engaged in developments in the Asia-Pacific region,” he told the audience.

“That engagement continues today.

The future of the United States and the Asia-Pacific are inextricably linked. And as Secretary Clinton highlighted (in her speech at AmCham last year), we are not just a diplomatic or military

power here. We are an economic force as well.”

“In 2010 alone, our exports to the Pacific Rim were US$320 billion, supporting 850,000 American jobs. If the same numbers applied to Hong Kong, it would mean that 80 percent of its exports supported nearly a quarter of its work force.”

China focus Fernandez also emphasized that China plays a key part in US’s engagement with Asia, adding the China-US relationship is not a zero-sum game. “We cannot talk about US economic relations with Asia without discussing our economic relationship with China.

China’s economic achievement in recent years is undeniable. It has lifted hundreds of millions of people out of poverty, urbanized, and modernized.

China is returning to the world stage in a big way, with millennia of experience as a global leader behind it,” he says.

In an interview with biz.hk, Fernandez pointed out that while the US seeks a level playing field for American businesses, the emphasis is on fair competition – not privileges or special favors for US firms.

For example, he said when President Barack Obama announced in February the setting up of the Interagency Trade

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Enforcement Center to “investigate unfair trading practices worldwide,” the mission was not to target China.

“It will not focus on China necessarily. It will focus on unfair trade practices everywhere. Some of our biggest cases have not been against China and they are against our European partners. So do not assume that this (ITEC) is directed at China. It’s directed at making sure that we have an even playing field,” the Assistant Secretary said.

In fact, Fernandez said the US sees China as a partner in a lot of areas and two particular fields stand out. First, the US has taken steps to remove some of the inconveniences faced by Chinese tourists who wanted to visit the US. For example, the US has added 50 officers in China to process visa applications. According to

him, the US granted visas to more than 1 million Chinese visitors last year and the impressive growth is expected to continue in 2012.

Brand USA Attracting more Chinese tourists is therefore a crucial element of the Brand USA initiative launched under the US Travel Promotion Act of 2010. Although the US is the world’s largest economy, it has lagged behind other countries in the realm of tourism. In 2000 (preSeptember 11), international arrivals in the US fell by 37 percent – from 17 percent of the world market in 2000 to 11 percent last year. Moreover, between 2000 and 2010, global travel market actually grew by more than 60 million

travelers each year, yet US visitation stayed virtually flat. (According to Chinese official statistics, 38.6 million Mainland Chinese citizens travelled abroad in the first half of 2012, up almost 20 percent from the corresponding period in 2011.)

In response, Brand USA is the US’s first global marketing effort to promote the country as a premier travel destination, and channel of information about US visa and travel policies and procedures. Its target is to increase the number of international visitors to the US from 62.3 million in 2011 to 100 million by 2021.

Fernandez said Mainland Chinese tourists are important to the US not just because of their numbers but also of their capacity to spend. “One of things that we’ve learned is that tourists from

Open for Business Nicole Lamb-Hale, US Assistant Secretary of Commerce for manufacturing and services, visited Hong Kong early this month after attending the US-China Investment Co-operation Forum in Beijing. She explains to biz.hk about a number of initiatives by the US government to increase exports, create American jobs and attract foreign investment Nicole Lamb-Hale

biz.hk: Can you give us an update on the National Export Initiative? How did the US perform in the past year? Would you also comment on trade with China?

Lamb-Hale: In 2011, we hit a record US$2.1 trillion in US exports, which supported 9.7 million US jobs. That’s very significant. With respect to our performance under the NEI during the first five months of 2012, we are also doing really well in terms of the numbers.

I can’t predict what will happen in the second half of the year, and again there are a lot of factors that are going on that will impact our ability to hit those numbers. There are headwinds out there but I think that we are really making efforts and great strides to improve the export performance of US companies.

We believe that as we continue to work through issues that will improve our commercial and trade relationship with

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China, we’ll also see some improvement in those numbers. US companies see great opportunities in China and I anticipate that as we resolve some of the challenges that US companies faced in doing business in China, those numbers will improve.

Among the things that we talk to the Chinese government about are IPR protection, transparency, ensuring that there is a level playing field, and there is no discrimination against foreign companies. Those are some of the challenges that affect multiple sectors. biz.hk: There are some concerns over the export of US high-technology to China. Will this affect US exports to China?

Lamb-Hale: As long as we are talking about products that have civil uses and civil end-users, I don’t think there are

any issues with respect to high-tech products. If they are products that have national security sensitivity, that’s something that we will have to look at in terms of license regime which is not in my portfolio – that’s under the Bureau of Industry and Security of the Commerce Department with respect to export licensing.

Again, there are many opportunities for Chinese companies to import high-tech equipment and products, and we need to be clear on the uses of those products and to make sure how those licenses are obtained. biz.hk: What are the measures taken by the US government to help American SMEs to invest in China?

Lamb-Hale: There are many challenges that smaller companies face. Some of those are just making

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China spend on average US$6,000 per trip; the average for the other tourists is US$4,000,” Fernandez said. “Tourism from this part of the world is exactly what we would like to encourage.”

Select USA Another area is foreign direct investment. The Assistant Secretary said China was America’s fastest-growing source of FDI from 2005 to 2010 at more than 50 percent average growth per year.

“One positive example of Mainland Chinese investment was Dalian Wangda Group's decision in May this year to purchase America’s second-largest movie theater company – AMC Theaters – for US$2.6 billion. We want to continue this trend,” he said.

sure that they understand the market.

Understanding that you can’t do business in Beijing like you do business in Denver. There are differences. So one of the things that we really encourage SMEs and US companies to do is to leverage on the resources the Foreign Commercial Service provides. They have programs such as the Gold Key Program and there is a partnership program under which the Foreign Commercial Service helps companies to find partners in the market that they can work with. Those are the kinds of things that support and help SMEs to navigate any markets around the world. biz.hk: How about Chinese investment in the US? What areas should Chinese investors consider?

Lamb-Hale: Manufacturing businesses would have great promise in the US. The US is open for business. It is the best market in the world for the ease of doing business in terms of rule-of-law, transparency, protection of intellectual property rights, so I don’t want to single out any particular industries.

There are a lot of success stories that are out there of Chinese companies who have done well. One that I can think of is Lenovo. They have done very well in North Carolina. They are an example of a company that is very integrated in the US

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Contrary to popular perception, the US welcomes Chinese investment and claims that the Committee on Foreign Investment in the United States, or CFIUS, makes acquisitions in the US difficult are not true, the Assistant Secretary clarified.

“I often hear the misconception that CFIUS is some all-powerful organization determined to impede any foreign investment. This is obviously not true based on the numbers I just cited. CFIUS is simply an interagency committee of the US government – of which I am a member – authorized to review mergers, acquisitions, and takeovers from foreign companies that could affect the national security of the US.” “CFIUS does not consider economic or other policies, and it applies the same

rules and clearance standards to all investors, regardless of country. CFIUS regularly clears investments from both private and state-owned Chinese companies, often within a month. All of its rules are public and explained in detail.”

He encouraged Chinese investors to leverage on the resources provided by the Select USA program to come and invest in the US. Launched by President Obama in 2011, the program coordinates various US government agencies in order to complement the activities of different states in attracting foreign investment.

“We and SelectUSA can direct your queries to the different states’ economic development agencies, making sure you get connected to the right partners for your investment selection process,” he added.

economy and the community they are in.

There are a number of companies that have done well.

country, we haven’t been promoting the US actively and we have been at a disadvantage from the standpoint of tourism or tourism export.

What Brand USA is all about is to help eliminate some of those barriers international visitors who are interested to visit the US faced. For example, visas.

In 2011, there were a total of just over 1 million Chinese visitors to the US, a 36 percent increase from 2010. By May of 2012, 39 percent more visa applications were processed in China than in the prior year. We are really making progress. And China is a focus of the National Travel and Tourism Strategy that was released recently.

We are really working hard with the private sector in the US to help ensuring that people feel welcomed when they come to the country. There has been a lot of partnership with some of our tourism companies to help train our Customs and Border Control officers how to be friendly. It’s about improving customers’ services and making it easier for foreign tourists to navigate – including having translation of signs into multiple languages – so we are working hard at it because we understand that there are some people who feel that we are not a welcoming country. But when you come, you’ll realize that’s not true.

biz.hk: Can you tell us more about the Select USA program?

Lamb-Hale: It was launched last April. It’s designed to help businesses from around the world to understand how to invest in the US. It is neutral as to locations. The various states in the US have their own investment programs and certainly the federal government is not choosing one state over the other. But the goal is to help businesses to navigate regulatory processes and help them to understand if there is any confusions and how to do business in the US. There is an ombudsman function so if a company is having problems, then there are people that they can call, to help them navigate their issues with investment. biz.hk: What about Brand USA? Lamb-Hale: Brand USA is a publicprivate partnership. The company is the Corporation for Travel Promotion that does business for Brand USA. It’s a Washington DC non-profit organization. It partners with the US government to promote the US to tourists from all over the world. Because as a

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ENERGY

The Tariff Debate

Last December, the two power companies – CLP and Hongkong Electric – were embroiled in tough negotiations with the government over proposed tariff increases. Both companies at the end lowered their increases. However, the debate over who should pay for cleaner air and a stable supply of electricity was postponed rather than resolved

By Daniel Kwan

A night scene of Black Point Power Station.

A

mCham has lobbied for cleaner air for many years. Better air quality is not just a health issue but also a business competitiveness issue. Poor air quality drives talents away and that’s bad for business and bad for everyone.

Richard Lancaster, Managing Director of CLP Power Hong Kong, says he totally agrees. CLP which serves approximately 80 percent of Hong Kong’s population fully supports reducing carbon emissions and the use of cleaner fuel for power generation. In fact, CLP has cut its total emissions (measured by Nitrogen Oxides, Sulphur Dioxide and Respirable Suspended Particulates produced) by

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Photo courtesy: CLP Group

82 percent in the past two decades while electricity demand in Hong Kong has gone up by more than 80 percent in the same period.

The debate A central issue in the current debate of Hong Kong’s energy policy is about who should foot the bill for cleaner air. In an interview with biz.hk, Lancaster believes the public understands there is no free lunch. He says: “People do generally understand the principle that if we want better environmental performance, then there is a higher cost.”

Nevertheless, consumers have expressed a reluctance to face a higher

electricity bill. As reflected in polls and media reports, the average consumers often rejected suggestions of a tariff increase by asking: “can this be deferred, or can somebody else pay it for us?”

In announcing the Interim Results early this month, CLP Vice-Chairman Betty Yuen indicated that the power company is actively looking into various options to defer the tariffs hike.

However, she conceded that the power company faces real practical challenges in sourcing clean fuel amid rising gas prices.

Any intelligent debate on the issue should be based on facts and science.

Here are a few of them. First, Hong Kong does not have natural resources

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and relies on imports to meet its energy needs. Moreover, Hong Kong does not have any meaningful renewable resources. In other words, solar and wind power are not viable solutions and natural gas and nuclear are the most feasible choices to achieve cleaner air.

Second, Hong Kong has been keeping its tariffs low for a long time and its electricity charges are cheap compared with cities like Sydney, Tokyo, London and Singapore (see graph). Singapore is often praised for its cleaner air over Hong Kong’s but 80 percent of Singapore’s fuel mix for electricity generation is natural gas (compared with CLP’s, the percentage is 21 percent by the end of 2011).

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Because of its reliance on natural gas, Singapore has seen its electricity tariffs increase 68 percent over the past seven years and will rise another four percent this year.

“Hong Kong has been keeping tariffs at a low level for many years – in fact for more than 15 years – and we are now at a stage where we’ll have to play catch-up,” Lancaster explains.

Lancaster says the public, government and other stakeholders in the debate need to carefully review all factors that would affect the tariff increases. On the issue of fuel mix, the CLP is willing to support whatever decisions made by the government through consultation with the public.

However, it would be unrealistic to rely solely on the power companies to absorb all costs in the clean air agenda.

“We are doing everything we can to keep electricity tariffs as low as they can be. But when we are faced with a major change – such as bringing in a new gas supply into our business and doubling the gas that we are using – and the price of that new supply is going to be two to three times of what we currently pay, there is nothing we can do to continue to absorb that cost,” Lancaster says.

“What we want to be able to do is to explain the factors behind the tariff increases, to give people a clear idea of where electricity tariffs are heading so they can plan for it, and to give them support and advice that they need to better manage their energy costs.”

percent Reduction of total emissions CLP has made in the past two decades

Richard Lancaster

Critical issues The Managing Director points out several critical issues which are often overlooked in the public debate. In order to achieve

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2012 Residential Tariff Comparison Residential Tariff HK cents / kWh (as of January 2012) 300 270 240 210 180 150 120 90 60 30 0 Rome

Berlin

Tokyo

Amsterdam

Brussels

Sydney

New York

Wellington

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standing with the National Energy Administration in 2008 regarding Hong Kong’s energy supply. As a result of the MOU, Hong Kong is locked in to import natural gas from the Mainland.

The deal – Lancaster describes it as “a pretty good deal” – ensures a new supply of piped gas via China National Petroleum Corp’s second West-East Gas Pipeline to Hong Kong. This new supply is critical because of the depleting gas output from the Yancheng gas field near Hainan Island where CLP currently imports natural gas. With the conclusion of the new gas supply arrangement to import gas from China’s northwest and upon the government’s request, CLP has dropped its plan to develop a HK$10 billion Liquefied Natural Gas terminal on South Soko Island.

On the one hand, Hong Kong benefits from the 2008 deal as it secures for the SAR a relatively stable supply of clean energy over a long period of time. Hong Kong on

Luxembourg

cleaner air, the government has set stringent emission caps for power companies to follow. By 2015, power companies must achieve a 45 percent reduction of emissions from their 2010 caps.

In addition, the new Air Quality Objective adopted by Hong Kong in January also confirms that power companies must further cut down on their pollutant emissions. Without the power companies’ participation, it would be virtually impossible for Hong Kong to achieve its new air quality standards.

To fulfill these higher emission and air quality standards, power companies which currently still rely on coal for power generation therefore have no choice but to switch to cleaner sources of energy – natural gas or nuclear, or both. In fact, both CLP and Hongkong Electric have been working hard to make the switch.

Another equally important development was that the government signed a Memorandum of Under

Manila

Madrid

London

Singapore

Lisbon

Helsinki

Paris

Houston

Macau

Washington, D.C.

San Francisco

CLP Power

Seoul

Miami

Shenzhen

Shanghai

Jakarta

Vancouver

Taipei

Kuala Lumpur

Notes: Comparison based on annual domestic consumption of 3,300 kWh. Tariff and exchange rate at January 2012.

Source: CLP 2011 Annual Report

the other hand loses the opportunity to explore potentially costcompetitive gas supplies from the international gas market and to develop itself as a centre for design, engineering and operating expertise in LNG terminals.

Feeling the pinch There are two main reasons why customers generally have not felt the pinch of rising fuel costs in the past.

One was that part of fuel cost increase in the past was passed through to customers under the power companies’ adjustments in fuel clause accounts. In the case of CLP, the company has run a fuel clause charge deficit for many years. It is difficult to predict if the deficit would be reduced (or increased) given the high volatility of the natural gas market.

Another reason was because of the cheap gas supplies from the Yancheng gas field. But the gas field which has been supplying gas to CLP’s

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The Black Point Power Station in Tuen Mun is one of the world’s largest gas-fired combined cycle power stations.

Photo courtesy: CLP Group

Black Point Power Station for many years is running out of gas. The Yancheng supply – based on contract signed two decades ago – is much cheaper than gas supplies available on the market today.

Because of the more stringent emissions reduction requirement in 2015 and the volatility of international gas prices, CLP expects that customers will inevitably face substantial increase in electricity tariffs in the coming years. CLP has repeatedly explained that the company makes no profits on fuel. Since fuel cost is expected to increase by around 250 percent by 2015 from the current levels, this will translate into roughly a 40 percent increase in overall cost to customers.

Betty Yuen, CLP Vice-Chairman,

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has said that CLP is examining several options hoping to minimize the impact of tariff increase. For example, the power company is urging the Yancheng gas field to improve extraction and supply of gas to Hong Kong. It will also seek to purchase better quality coal to generate more electricity.

“We also encourage local customers to use electricity wisely so that the Photo courtesy: CLP Group Gas pipeline in Black Point. tariff rise can be deferred to some extent,” Yuen said at the Interim Results meetconsider all these factors with the ing. “In addition to an energy cost hike, government to decide whether there CLP will also consider other factors will be tariff increases in the coming such as sales volume of local electricity year.” and operating expenses. CLP will

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ENVIRONMENT

Nissa Marion (left), Cristina Tonda, volunteer, and Lisa Christensen (right) of Ecovision

Photo courtesy: Ecovision

Make a Difference, Clean Up Our Beaches Lisa Christensen and Nissa Marion, Founder and Project Director of Ecovision, an organization dedicated to cleaning up Hong Kong’s coast lines, share with biz.hk their observations on Hong Kong’s marine debris and waste management

By Jennifer Wong

T

welve years ago, Lisa Christensen was shocked by the state of the beaches in Hong Kong. As a surf-enthusiast, she would regularly visit Dai Long Wan in Sai Kung. She recalls seeing a line of trash collecting by the shoreline and being disgusted by the plastic bags floating around her body as she swam out at sea.

In 2000, Christensen started Ecovision in Hong Kong where 45 members set out to clean Dai Long Wan. However, Christensen realized that one annual cleanup was only a temporary mend to a

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much bigger issue. She recalls in a recent interview, “Two weeks later we went back and the trash was back again.”

Christensen and her team joined forces with the International Coastal Cleanup (ICC) in 2004 and developed a team challenge, which helped the movement grow from a couple hundred volunteers to almost 12,000 last year. In 2011, 11,912 volunteers who participated in the Hong Kong International Coastal Cleanup Challenge collected and 47,942 kilograms of trash, covering over 172 kilometers of coastlines on Hong Kong’s

beaches. This represents a participation increase of 37 percent over 2010.

Waste, ecosystem Hong Kong, although a developed metropolitan, has a relatively inefficient waste management system compared with cities which are at a similar stage of development. According to Ecovision, about 83 percent of the trash found in the coastal area is land-based, such as plastic bags, Styrofoam lunch boxes, and used bottles etc. The trash finds its way mainly

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through sewage pipes and rivers, and some through littering.

The trash seen on the ocean surface makes up only 30 percent of the waste.

The other 70 percent of the marine debris actually sinks to the bottom of the ocean; therefore prevention is critical.

The sunken trash eventually degrades into the earth and toxifies the ocean.

The high winds and high tides of Hong Kong wash up the trash past the beaches and up to the surround greenery, which proves very problematic.

“Mangroves are one of Hong Kong’s treasured ecosystems. They are a nursery for biodiversity …but they are being strangled by trash,” Nissa Marion, Project Director of Ecovision, warns. It’s difficult to remove the plastic and polystyrene debris caught in these mangrove trees resulting in the extinction of many species of these trees.

“The whole system is choked on trash and if the mangroves suffer, the ecosystems that depend on them also suffer,” she explains.

The mountains of waste in Hong Kong not only present an environmental threat, but also affect the economy, tourism, recreation and fishing industries. Marine debris in the ocean inevitably causes the fish population to decrease, thereby affecting the local fishing industries. Additionally, Ecovision estimates that the US$1 billion cost of cleaning up and fixing marine debris put a huge dent in the economy.

Tourism is also negatively impacted.

“Hong Kong is an island. We have numerous gorgeous beaches, a big sailing community, and a large community that enjoys recreation and activities around the water. Now, it’s a health and safety issue,” Christensen says. For many years, open water swimmers are hesitant to join local races because of the water pollution. The famous annual cross-harbor swim was only revived last year after a 33-year break.

How can you help?

You can either join the team challenge or you can prevent the initial problem by controlling your waste management. Minor changes such as

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sorting out your office and home trash into recyclable trash and other trash, not buying plastic bottles and plastic bags will make a huge difference.

“Marine debris is easy to prevent. We can actually stop it from happening.

It’s a little bit harder, as an individual to envision how I’m going to stop climate change, but I can be responsible for my own waste,” Marion points out.

The team challenge Karry Lai (left) and Nissa Marion of Ecovision uses friendly competition to motivate groups of students, businesses, NGOs and other more to protect the marine environment. volunteers to clean up Hong Kong. The Christensen believes that the government events used to apply only to coastal needs to provide more infrastructures, cleanups, but this year the competition especially recyclable bins. has been expanded to include many other “We need more bins, in more places, areas of Hong Kong such as country parks so that people have greater access to and city streets. them. That’s a very common problem for The challenge lasts for a span of six people. They always complain about not weeks and starts on the third Saturday of having enough out there,” Christensen September. Participants sign up online in says. groups of three or more. After registration, the teams can then attend briefings that are intended to train the participants and raise awareness of the situation.

Ecovision’s mission is to empower, During the six-week span, participants educate and advocate. They strive to will sign up for different cleanup locations empower individuals and business and log the amount of trash they collect corporations while teaching them and on an online data card. raising awareness. Ecovision also takes all The event is a year-long educational the data from the events and advocate for platform for Ecovision, as they will take policy change. the data and trash indexes collected from Its target is to achieve a 50 percent the six-week challenge and report the reduction in waste going to landfill within results to the participants and governfive years and an education plan implement. Ecovision will advocate ways to mented by the government ultimately minimize waste and become more resulting in closed loop integrated waste eco-friendly. management system for Hong Kong.

“We can see from our participation “The long term vision is a closed loop levels and feedback that awareness is integrated waste management system, growing in Hong Kong, but converting but that can’t happen until everyone is awareness into action is the next step,” educated and understands the system,” Marion says.

Marion notes.

The government has taken a number Twelve years ago, Lisa Christensen of steps to reduce wastes in recent years. was appalled by the sight of Hong Kong’s Most notable was the introduction of the beaches. Today, the problem still exists.

50-cent plastic bag levy in 2009. However, Public awareness is clearly rising (see more than 80 percent of Hong Kong next story), but actions need to be taken citizens – based on public polls – still to ensure a clean and healthy environfeel that the government could do ment in the future.

Future vision

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marine life. The bigger the piece of plastic, the more likely it will cause physical damage. The smaller it is, the more likely there can be chemical or toxic impacts. Those won’t necessarily kill the animal, but it would pollute them. The longer the plastic stays in the ocean, the more chance it will be toxic. biz.hk: So the real issue now is how long it will take to clean up the mess?

Woodring: Well, the problem is that there were trillions of pellets spilled during this event. I was in Repulse Bay on the weekend, which wasn’t one of the main beaches at all. If you just look hard at the tide line, the pellets are really translucent, and once you know what they look like, you can see them. I think the pellets will be around for more than a decade in Hong Kong.

They will float, they will not all be on

Tracey Read of Plastic Free Seas and the pellets she found in Discovery Bay.

THE PELLET LESSONS

H

ong Kong people were served a stern wakeup call in early August when Typhoon Vicente struck. The tropical storm caused a container spill that sent 150 tons of plastic pellets – also known as nurdles to make everything from water bottles to computer parts – into the water. For weeks, volunteers and the government have tried to clean up beaches and reduce damage to the environment. Doug Woodring who runs Ocean Recovery Alliance – a registered non-profit organization in Hong Kong and California – and former chair of AmCham’s Environment Committee, is an authority on plastic in the ocean. Despite his globetrotting travel schedule, biz.hk catches up with him this month to understand more about the science, health implications and lessons learned from the accident

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the beach when the clean up happens.

They will be in the water floating. The cleanup crews, literally in thousands, have cleaned up the brunt of it. But the pellets will be in the ocean for a while. biz.hk: Is it technically possible to clean up the pellets?

Woodring: They are just very dispersed. The problem is there are a lot of other plastics and garbage out there too that are just like the pellets.

It’s a problem that many beaches and coastal communities have – which is that people’s garbage finds its way to the ocean through illegal dumping, accidental storm drain, illegal landfills, and coming out of rivers and so on. We have to remember that the pellets are simply a pre-production version of the final products. Every time we use a [plastic] fork, knife, coffee lid, plastic water bottle – those are pellets in

Photo courtesy: Gary Stokes

biz.hk: Is it true that because the pellets are non-toxic, the spill does not pose any health risks to Hong Kong?

Woodring: Technically that’s true.

When the pellets are fresh they are non-toxic. Now, the problem with pellets in the ocean or any plastic in the ocean is that they act as aggregators for the toxins. They are like a magnet for heavy metals, PCBs, pesticides, and all of these things that float on the surface of the water. The pellets or any other piece of plastic become a carrier for this stuff. The longer it’s in the ocean, the more it can absorb. So it’s not the pellet itself, but the longer it’s in the water the more it becomes a carrier for the toxins.

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Because the pellet looks exactly like an egg, any bird or fish will eat it.

Most likely it won’t kill the bigger animals, as it will just pass through their systems. But the issue is that when the pellets are in a fish or a bird, the fatty tissue of the animal can suck the toxins off the pellet. Once it’s in the tissue, it won’t go away, and it builds up over time. The more they are exposed to this, the more it goes up the food chain – through the tissues but not through the plastic. biz.hk: In other words, the plastic serves as a medium?

Woodring: Yes, as a delivery medium.

There’s an interesting description of how plastic in general can injure

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Plastic Pellets spilled into Hong Kong water

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another form. All the other garbage out there are just pellets that have been made into new things. The spill of pellets is only one of the problems.

That was a bad accident, but when you’re cleaning the beach, don’t just go for the pellets. We need to clean everything including styrofoam, straws, caps and bottles. The much bigger macro issue is that the pellets wouldn’t be there if we were not consuming so many plastics to begin with. biz.hk: Is it safe to consume seafood now?

Woodring: The pellets probably haven’t caused any danger yet to the seafood. But Hong Kong and China waters are not clean, so I would not assume that the seafood is safe to begin with anyway. Most of the live reef fish that come from Hong Kong are not from Hong Kong. They come from far away reefs. That’s a different environmental problem. Those are probably clean, but the reefs are getting depleted because they are overfishing and dynamiting. But I would not eat bottom dwelling seafood like mussels and clams from the Pearl River Delta.

That’s due to the normal toxin in the water.

No one will really know how many pellets are still out there that haven’t been cleaned up. They say 150 tons were dumped. You could conclude that over the next five or eight years, if the pellets are still floating around in our waters, they could start making an impact. The fish are still eating them, but you are not going to get toxified for eating them. If you are eating the stomach of the fish, you might crunch into a pellet if the fish did not digest it.

It’s not good that the pellets are in the water, but it’s probably not a huge threat today.

Woodring: The pellets will be in the ocean for a while, and in fact [a lot of plastic wastes] have been in the ocean for many decades. You can find pellets in almost all the beaches in the world.

They often use pipes or suction vacuums to transport these pellets from a container to a train or a boat.

When you attach the pipe, it’s like attaching the fire hydrant – when you turn it into a truck or a train, at least in the US or Europe, there’s often spillage. These things are so small and they go into the drains easily, and then into the oceans. The industry in the US and Europe quite effectively in the last 15 years got together and said we need to manage the transport of these pellets more safely. That may not be happening in other parts of the world and the spillage is probably still happening. The long term consequences again are the more pellets and plastic in the water, a higher chance of them getting toxified by other things and a good chance that other marine organisms will consume them and maybe then get toxified.

that made a big impact: Gary Stokes, Tracey Read and Kevin Laurie, because when the pellets washed up on their beach, and they acted quickly. I think the government and the press did not take this story seriously until days later. Most people have assumed that plastic is not a killer and not a major threat, so they didn’t think that it’s a big thing. But in fact, it’s a solidified oil spill. It’s solid oil – that’s what plastic is. And what we are having with pollution and plastic pollution is generally as a solidified oil spill, it just happens in bits and pieces and there’s not aggregation so people don’t see it as a threat.

The government probably could have gone after it faster. Whether it is a life threatening or not, it’s still a pollution issue for the natural environment of Hong Kong. It could have been addressed faster. Now there’s some awareness around it, which is hopefully a benefit of the problem.

The silver lining is that people are thinking about this and a lot more people are going out to clean the beach and mobilize themselves very quickly to do a response on an environmental issue – and a lot of them were young people, which is good.

Now, we hope that the message will be not just about pellets but about

biz.hk: Have you observed any areas of improvements in the way the government handled the aftermath?

Woodring: I would say that great credit goes to three people in Discovery Bay

plastic in general. That is the broader issue across the world and our communities. It’s not just beaches are dirty. Plastic is a resource and we should be calling it resource management not waste management. When you talk about resource management, people think about it in a very different way. How can I grab that resource, how can I use it, how can I collect it, how can I redesign it. biz.hk: What are the lessons learned?

Woodring: Pellets are really difficult to handle, collect and clean up. We can manage their transportation more safely such as using thicker bags to carry them in. Obviously during a typhoon, the ship should not be in the water in the first place. Some discussions have been made with Tracy and Gary with Sinopec (which manufactured the pellets) that at least if you are going to ship pellets, they should be contained internally. It’s good thinking on how you should pack containers on a boat. You put the more dangerous things in a container inside the boat opposed to on the very edges.

People probably don’t think about that very much. It’s a lesson for all of us to think that way – let’s put the things more difficult to handle inside the boat.

In terms of broader issues of pollution, it just shows that people care because they all mobilized to clean this up. We are still getting calls for volunteers to help. It’s a nice change in the attitude of people in Hong Kong. The next step is to learn about the broader issue of pollution and waste management. Plastic pellets are the seed for our plastic consumption: water bottles and food containers.

Hong Kong is one of the most wasteful and garbage producing places in the world. This, perhaps, is a way to look back on ourselves and see how we can slow some of this consumption.

One of Ocean Recovery Alliance’s main focuses is plastic pollution. In March, it launched Hong Kong’s first ocean film festival – Hong Kong-San Francisco Ocean Film Festival. In early summer, it published a new book, Water Margin, on Hong Kong’s waters. It is bringing the Plasticity Forum – a full-day conference to discuss plastic pollution – to Hong Kong next year. – Editor’s notes.

“The government probably could have gone after it faster, whether it is a life threatening or not, it’s still a pollution issue for the natural environment of Hong Kong.”

biz.hk: The cleanup will likely take months to complete. What are the long-term consequences?

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WOMEN OF INFLUENCE

A Caffeine High Jennifer Liu, founder of Caffe Habitu, is a powerhouse entrepreneur with enviable energy and vision. Her coffee company is a very contemporary business model that consistently invites scrutiny and admiration. In this interview over a cup of coffee (of course!) the architect-turned-entrepreneur talks about her passion for good food, overseas influences, her business journey and the hopes she has for the city she loves

By Nadine Bateman

J

ennifer Liu relaxes on a comfortably upholstered seat. Behind her is a wall adorned with a sunny yellow paint effect – she has designed both the seat and the wall.

She sips coffee made with beans she has selected, from a cup she has chosen as part of the range for her company.

The owner of Caffe Habitu – which recently opened its 24th branch – says this is her preferred hands-on approach to her business which even includes learning about plumbing.

“I am a very hands-on person. If a pipe bursts you’ll see me first – before the plumber. I’ll want to know what happened and how it can be prevented in the future,” says Liu. She maintains that this attention to detail is crucial for somebody creating a start-up venture, as she has.

“Being an entrepreneur, launching a business is like having a baby, you have to really nurture it well in the first five or six years or so, and then it will grow.”

Valued time

Jennifer Liu

Photo: Create Images

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biz.hk 8 • 2012

The architecture graduate says she has a passion for good food and excellent coffee and, although she has no background in the catering or hospitality industries, was confident about her ability to spot a business opportunity when, in 2003 amidst the SARS epidemic, she opened the first Caffe Habitu.

Says Liu: “I’ve always been quite an optimist. I think I get that from my parents who told me about their difficulties in their early days in business in Hong Kong and that there will always be ups and downs.”

“SARS was something unpredictable, but it brought Hong Kong together as a city. People had previously been engrossed in their own lives and businesses. After SARS I think they valued time spent with friends and family and began to consider the environment and so more green spaces were created and they began to eat out more often.”

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Liu observed that, before SARS, Hongkongers weren’t too keen to eat al fresco as it wasn’t part of their culture and that only hawkers offered food outdoors and fine dining was always inside where the air-conditioning was.

“I was one of the first to have an open air restaurant space in Hong Kong – I believe it was the biggest – it was a roof garden in Causeway Bay.”

Family ties She had worked in Causeway Bay as an architecture intern – her first career choice – which she studied at Cornell University, but decided not to pursue.

However, she says she has utilized that discipline to create stylish interiors for Caffe Habitu and also says her experience in the profession provided her with the ability to make informed business decisions.

Says Liu: “I’m very grateful that I went to architectural college in America as it has shaped the way I think today. It has helped me take risks in business and view things from different perspectives. When I worked in an architect’s office in New York I made presentations and pitched [for commissions] – for example in big shopping malls where I presented ideas and concepts. That was a great learning curve and gave me confidence.”

Liu’s parents own the Liu Chong Hing Bank and real estate companies, but she says there was never any pressure put on her to join the family businesses.

“My parents were quite liberal and didn’t try to persuade me to go into the family banking business or stay in architecture. They fully supported what I wanted to do.”

“They didn’t ask me how or if I was going to make money from this venture, they were just happy that I enjoy what I’m doing and make a decent living out of it,” she says.

“The best piece of advice my dad gave me was to make sure I have a passion for what I do in order to be successful.”

Taste of success Liu’s first success was a property website which she created after she became frustrated while flat-hunting.

“I thought it was time to get out from under my mum’s feet, so I started to look for an apartment. But because I had to work six days a week, I only had Sundays off to do that and it was a real waste of time spending my only day off seeing 10 apartments when none of them were suitable.”

She thought it would be useful if she could see photos of the properties before she viewed them, but says there was no agency offering such a service at the time, so she took photos herself and archived them on a website.

Liu believes she was the first to introduce something which is now common practice for reality agencies. It was a huge success but she sold the company in February 2002.

“We went through the whole

“Our generation needs to start thinking that, aside from business and money, there’s got to be something else to believe in. I believe in Hong Kong and its future – that’s why I want to invest in it.”

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dotcom thing with mergers and acquisitions and I realized when it got to that stage it was no longer something I was passionate about,” she explains.

Indulge a passion With the proceeds from the sale, Liu took off on a year’s tour of Europe and it was during that trip that she indulged her passion for good food and coffee with specific countries tantalizing her taste buds.

Says Liu: “I particularly liked France and I loved Italy. I’d gone to school there for a while and learnt photography and cooking. I also really enjoyed the cozy, family style restaurants.

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“When I returned to Italy in 2002 I knew it was probably the only time I’d get to travel like this and so I took the opportunity to see as much as possible and eat as much as possible.”

When she returned to Hong Kong Liu says she really missed European café culture and sought to recreate it here where there were big brand coffee chains and Chinese tea shops but no boutique cafes at the time.

Once again, Liu’s parents offered her good advice. “My dad said if I was going to start something again it must be something that comes from within – something I really love.”

Liu acknowledges that her privileged upbringing helped her launch

the business but says it’s been her own hard work that has created a thriving company which continues to grow.

“I know I was lucky to have good start-up funding from family and friends so it wasn’t like I had to struggle with my first cafe. It’s a little more difficult to be an entrepreneur in Hong Kong today compared to 30 or 40 years ago when my parents did it. It’s a joke that you need a million to make a million now.”

Liu says she always makes sure the company is making enough profit from the existing cafes before opening a new one and says there’s a lot more room to grow.

“I could say let’s stop at 24 and see

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how it goes but I feel that there are enough Hong Kong people who appreciate good food and want affordable coffee to keep growing the business.”

Coffee break On the first floor of Tak Woo House in Lan Kwai Fong is the lastest addition to the cafe chain. Located above a clothes shop, it’s a first for the boutique coffee house which usually locates its shop fronts directly onto the street. Liu says the reason for this change of direction is because rents are so high in Hong Kong – the biggest challenge here for SMEs. Nevertheless, she’s confident customers will find their way to Caffe Habitu for a

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number of reasons.

“When people come here [to one of my cafes] I want them to feel relaxed and take time out to put life into perspective: to take a pause. Although caffeine is a stimulant, drinking it should be a relaxing experience – like it is in many European countries.

“I don’t think coffee should be drunk quickly to give you more energy so that you can work faster and longer, I think it should be savored and it should give you a moment to reflect – that’s why I like to design cafes with sofas and a relaxing ambience.”

Liu thinks more Hong Kong bosses should make sure their staff has at least one good coffee break every day in addition to their lunch hour because she believes it will make them more productive in the long term.

As for Liu’s own staff, she’s convinced investment in training is vital and has opened a coffee academy where staff receive training before they go to work in Caffe Habitu.

“Onsite there is too much distraction and it’s not professional – we don’t want customers to see staff being trained. The academy shows our staff we are serious about what we do; it’s not just an afterthought. And the training doesn’t just include technical skills, we explain why we need to do things the way we do.”

Liu says her Habitu team is femalebiased and “like a big family … and we appreciate the need for work-life balance.”

As for expansion, Liu says she’s had a number of invitations to make a move in the mainland, but is “very cautiously” looking for the right outlet and says there’s “still a lot going on in Hong Kong that I’m interested in.”

Hong Kong brand

coming year will be an ambitious project that aims to outline a 20-year strategy for Hong Kong.

Explains Liu: “I’m a Steve Jobs advocate; I believe in connecting dots. If we’re expanding as a Hong Kong home-grown brand to other parts of the world, the brand – no matter how successful – is still rooted here and so it will have the same image as Hong Kong, whether that’s hip and cool or not.”

To that end Liu says Caffe Habitu has invited a number of influential people from Hong Kong and around the world in order to “produce a well-balance thesis incorporating academic and business views about what Hong Kong could become with the infrastructure, energy and DNA that we have.”

She says Hong Kong is still perceived to be a very successful international city but wonders whether that can be sustained as it faces competition from other Asian cities such as Singapore, Shanghai, Beijing “or even Jakarta.”

Says Liu: “Our generation needs to start thinking that, aside from business and money, there’s got to be something else to believe in. I believe in Hong Kong and its future – that’s why I want to invest in it.”

This interview was conducted in June in what was then Jennifer Liu's newest Habitu outlet in Lan Kwai Fong. Next month the whirlwind entrepreneur will open Habitu's flagship two-storey store called The Academics in Causeway Bay, in parallel with the opening of the sixth The Table restaurant by Habitu inside Hong Kong’s hippest bookstore, Eslite, in Hysan Place also in CWB. – Editor’s note

Her biggest focus during the

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TALK-TO-AUTHOR

big country does this as well as the United States.

However, the problem is in the primary education system where we have not adapted to the times, meaning that the system of education that was appropriate for an industrial economy where most people were expected to do factory jobs and repetitive jobs that did not require a lot of use of brain power, where children were not required to do a lot of original thinking, creativity, and challenging the teacher. Today, the US economy is called a post-industrial economy, and brain is more important than brawn, but the educational system hasn’t changed. That’s the problem.

Winning Through Innovation Vijay Vaitheeswaran is an award-winning senior correspondent for The Economist. A prolific writer, Vaitheeswaran spoke at the Chamber in June and talked about his new book, Need, Speed and Greed: How the New Rules of Innovation Can Transform Businesses, Propel Nations to Greatness, and Tame the World's Most Wicked Problems. Despite its long title, the book is a must-read for strategists and entrepreneurs who are interested in innovation and how to win (or fail gracefully) in a rapidly changing world economy. In the following interview, Vaitheeswaran shares his insights on innovation, US competitiveness and what motivates success

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biz.hk: In the area of innovation, is America losing its mojo?

Vaitheeswaran: I think it’s a challenging time for America when it comes to innovation, but we can also look back in history and say there were always challenging times. Three decades ago, Japan posed a great challenge to the US. A lot of people said the US cannot survive, all the jobs would go to Japan and Japan would become No 1.

What we saw was that it was not true. There are several reasons for this but the most important one is that innovation is not a zero-sum game.

This means just because Japan comes up doesn’t mean that America has to go down. Or just because China gets it, it doesn’t have to be at the expense of the United States.

A rising tide can lift many boats, however it will not lift your boat if your vessel has many holes, which is the second point that I want to make. The US has been historically a tremendously innovative economy, but there are some areas where we need to work on our policies. For example, on immigration, education, investment, and science and technology research. biz.hk: Should the US reform its education system?

Vaitheeswaran: The strength of the US education system lies in university and the higher educations. It’s still the best in the world both in terms of encouraging original thinking and also being able to connect cutting edge research with commercialization in the market place. No other

biz.hk 8 • 2012

biz.hk: Is the US immigration policy good for the US in maintaining its edge in innovation?

Vaitheeswaran: Historically, one of the great strengths of the United States has been its open immigration policy, towards skilled immigrants. This is a tremendous competitive edge the US has over Europe and Japan, which are societies that tend to be relatively closed (particularly Japan to immigration). This is something that helps the US deal with skills shortages because enough skills can be found in the world and helps it constantly renew its entrepreneurial energy because the best entrepreneurial people come and start businesses in America, which create jobs for Americans. It also helps overcome the demographic problem when a population gets much older and you don’t have enough workers to pay for the pensions and benefits. China is going to have this problem because of the one-child policy. The problem is that, post-911 terrorist attacks, the US’s traditional attitude towards immigration has closed and turned in a bad way. This has become an unfortunate victim of a different problem. I argue that we need to go back to traditional American values. biz.hk: For a lot of Americans, the world is still “unsafe.” If that view remains unchanged, why should they be convinced that the immigration policy should be adjusted?

Vaitheeswaran: You raised an important point.

Clearly the mood has changed after the attacks of 911. We need to keep this in perspective.

biz.hk 8 • 2012

Political terrorism is not something new, it is a more than 1,000 year-old phenomena. Every generation needs to deal with political terrorism in its own way. My argument is that of course we need to have proper security measures that apply to everyone, not only to immigrants. Airports need to be secure and we need more security in federal buildings because there are also American citizens who are home-grown terrorists. We’ve seen this in Wako, Texas to bombings in Oklahoma, so immigrants are not the only problem.

It’s a security problem and we can do that and still maintain our traditional values which are freedom, country of immigrants and country of opportunity. If we give up our values, then we lose what makes us America. biz.hk: What are the problems with China’s innovation strategy?

Vaitheeswaran: I think China has tremendous potential to be an innovative leader. However, the role of government policy supporting state-owned enterprises that are seen to be strategic or national champions is undermining China’s ability to become an innovation leader.

The reason is because innovation is fundamentally not a top-down process. It’s a bottom-up process. No government can pick strategic winners and direct capital to the exact technology of the future, because only entrepreneurs and markets can find this through trial and error. Governments are not very good at trial and error. biz.hk: You use the term ‘gold plating’ a lot in your book and you don’t seem to like it. Why do you think businesses should not ‘gold plate’ their products and services? What are the dangers in doing so?

Vaitheeswaran: The great Harvard professor, Mike Christensen, who is one of the great experts on innovation, has shown that the tendency for companies to make products that are better every year to cater to their customers is normal. This is how most companies behave. They want to make better products, to go after the most profitable customers. This is very reasonable. The problem is the more you do this, the more vulnerable your company becomes to attack at the bottom of the

43

market. This is what we saw happen when the big companies making main-frame and mid-sized computers, which were very expensive some 30 years ago, were attacked by the personal computer. They saw this as a toy, and never thought that it would be used in offices. Of course we know the story of the lesson and the PC revolution. It’s not that the companies were stupid or ignorant, companies like Digital understood the problem but they were unable to change the incentives within their organization because they were still making profits and it’s very difficult to stop an organization that is profitable from goldplating its assets. All the incentives for sales person, engineers and managers are about keep doing what you are doing. biz.hk: Are patents good for innovation in the New Economy you talked about in your book?

Vaitheeswaran: Patents are one form of intellectual rights. The reason that intellectual property rights matter is because innovators deserve rewards. If you don’t give rewards to people who create valuable innovations, then we will have less innovation in the future and all of society will suffer. It’s extremely important to think about the rewards for innovation. However, this doesn’t mean that we should revisit how patents are rewarded. There’s no reason to think that the reason we give patents today, which are a fixed monopoly for a certain amount of time and comparable across all the industries, cannot be changed in the future to be more flexible. The pharmaceutical and bio-tech industries have very different investment horizons than software and IT. So we may need to think of having new arrangements for IP that are more flexible depending on the nature of the industry. Another point is that the marketplace is moving so quickly because of how innovation is happening now that patents may be less relevant today than they were before. Trade secrets may be more important today than patents in some industries. biz.hk: You talk about purpose and profit in your book. How can business schools today teach purpose-maximizing to their students?

Vaitheeswaran: I am a big believer in capitalism, and I think the idea of having a backlash against capitalism as we see happening today after the financial crisis goes too far. I think the solution is not more government. However, capitalists themselves as business schools and business leaders need to do much better to encourage the younger generations to think about business and its social responsibility. Part of that has to do with under-

44

standing the motivational power of purpose. When we are fundamentally in the ideas economy or the post industrial economy, many studies show that money and profit are no longer the best motivators for people. Of course you need to have enough money to live comfortably, otherwise people only think about money. Once people have enough money to live comfortably, money is not longer a good motivator to the ideas economy. People want independence in their work, they want to have the opportunity to be challenged by their work, and in particular they want to believe that there is a purpose in their work. These are much more powerful motivators. Even if you are so super capitalist and only interested in the profits of your company, you can motivate the employees and your stakeholders by embracing a bigger purpose for your organization and for their work. That will make you a more successful capitalist. biz.hk: What about the movement of corporate social responsibility?

Vaitheeswaran: CSR as a movement has largely failed because it misunderstood the role of business. I’m with Milton Friedman who argued that “the business of business is business.” We must not confuse the role of government or civil society with the role of business. However, business can redefine what it means to be profitoriented by looking to the long term. Business has been too short-term oriented and has so often missed opportunities. By investing in communities, for example, you could ensure that there are enough people and natural assets to buy your products. You could ensure that there’s enough good will and license to operate by making sure you are in a suitable good neighborhood. These are business reasons, it is not CSR. These are good business reasons for why you could define what your business does broader than simply looking at the bottom line or the next order.

Vijay Vaitheeswaran is currently The Economist’s China Business & Finance Editor. He is currently based in Hong Kong to open a Bureau for the magazine in Shanghai. – Editor’s note

biz.hk 8 • 2012

CHAMBER NEWS

F

Lyn W. Edinger, 1948-2012

By Kenny Lau

ormer AmCham chairman (1993) Lyn Ward Edinger passed away on July 21st at the age of 63 at his home in Burlington (Otsego County), NY. Edinger had a highly distinguished multi-faceted career as an educator, a US diplomat, and a business executive throughout his many years in China and Hong Kong as well as in Singapore and London.

Born in Syracuse, NY, Edinger earned an undergraduate degree in History at Princeton University and taught for three years at Nanyang University in Singapore, where he also learned to speak fluent Mandarin, before returning for a master’s degree in economics and international relations at Tufts University. He was later recruited by Chicago-based Extel Corporation to set up a sales division in Asia Pacific.

“Lyn was indeed a distinguished post-war first-generation American China hand, pioneering sales to China’s Ministry of Posts and Telecommunications for Extel in the 1970s, which was the premier maker of telex terminals in the world at the time, and became the market share leader in China through Lyn’s efforts,” recalls Tom Gorman, past AmCham chairman (1995).

China hand In 1983, Edinger joined the US Consulate General in Hong Kong as a senior commercial officer at the recommendation of then-US Ambassador to Burma Burton Levin. He had served in the post for five years, working closely with both local and US government officials for the promotion of trade between the US and Hong Kong. During the period, Edinger had established a close relationship with members of AmCham Hong Kong, particularly on China-related business issues.

“I met Lyn in the 1980s when he was in charge of the Commercial Service at the US Consulate here,” says Mark Michelson, past AmCham chairman (1996) and a long-time active member of the Chamber. “The Chamber has always had a close relationship with the US Consulate, and Lyn reinforced and expanded that relationship. He was very active and had tremendous knowledge of China, plus he had the valuable combination of experience in both government and business.”

For about a year between 1988 and 1989, Edinger was stationed at the US Embassy in Beijing as a commercial counselor, “responsible for all commercial officers and programs at posts throughout China as well as bilateral negotiations” between the two countries.

It was also in Beijing where he answered a call of duty during the events of June 4, 1989 in Tiananmen Square. Dispatched into the crisis area by then-US ambassador to China James Lilley, Edinger was to assess the situation and to search for and evacuate

46

biz.hk 8 • 2012

American citizens as well as families and dependants of US foreign services personnel. Named as one of “the magnificent five who performed brilliantly and courageously during Tiananmen in June 1989,” Edinger later received a special Presidential Commendation for his bravery.

Honeywell and Nortel Subsequently, Edinger came back to Hong Kong to re-join the business sector in 1989 as managing director of Honeywell China Inc responsible for operations in Mainland China and Hong Kong, and in 1992 as regional VP for Business Development of Northern Telecom, for which he negotiated agreements for entry into markets of Vietnam and India.

Edinger in late 1994 left Hong Kong for London to join Northern Telecom as Vice President, “responsible for all of Nortel’s government relations and trade policy activities outside North America, and in 2003 retired as VP of International Business Development at Nortel’s corporate headquarters in Research Triangle Park, North Carolina.

In addition to his role of a business executive, Edinger was actively involved in a number of trade associations including AmCham. Prior to assuming his chairmanship in 1993, Edinger was a very active member of the China Commercial Relations Committee (later renamed the China Business Committee), Gorman points out.

“Lyn’s great sense of humor and his humility made him a very popular member of the many AmCham delegations in those days to China, elsewhere in Asia, and to Washington,” he says.

“At the helm of the Chamber, Lyn distinguished himself for his low-key but far-sighted style of leadership during an era when the annual renewal in Washington of China’s Most Favored Nation (MFN) trade status was very much at risk,” Gorman further notes.

“It was an issue for which AmCham had an influential voice in the conversation, and Lyn once coined the phrase ‘honest broker’ to describe the role our Chamber aspired to play in that annual process.”

AmCham Chairman The year 1993, in which Edinger served as AmCham chairman, was a crucial time as multi-lateral political and economic relationships among the US, Hong Kong, and Mainland China were at great stake in a very sensitive era: China was haunted by the events of 1989 and was highly dependent on trade with the US; US had elected a new president who vowed to get “tough” on China; and Hong Kong had a “raging” discussion as a result of Governor Chris Patten’s reform on the local political structure amid an immi-

biz.hk 8 • 2012

nent handover of sovereignty.

“At the time, we had already been fighting for China’s MFN trade status with the US for a few years, and China saw year after year how Lyn and the other Chairmen consistently went to Washington and met with officials,” recalls Doug Henck, past AmCham chairman (1997). “Another huge issue for us was whether or not we should support Chris Patten’s reform, and we were often asked to come out with a position.”

“When Patten introduced those reforms and China reacted the way it did, our membership, which, like Hong Kong itself, was so diverse, was pretty much split in half in terms of their views,” Henck says. “If we had come out in one way or another on Patten’s reform, we would have also put our very good and constructive relationships with Beijing, Washington as well as Hong Kong at tremendous risk.”

“What Lyn did was to leave aside the specifics of the reform for a moment and to focus on basic principles,” Henck notes. “These include the rule of law, free flow of information, and freedom of the press, and are crucial values to our members and Hong Kong.

Lyn was right at the heart of these core principles and understood that Hong Kong needed them in order to maintain its way of life.”

In order to tackle “raging” issues in sensible manner, Edinger came up with what is now known as “The Common Sense Test,” a short series of simple but critical questions to determine how AmCham should be involved in “dealing consistently with the American, Hong Kong and Chinese governments” while “anchoring our integrity in such dealings.”

“The Common Sense Test was so right on that I don’t remember anybody editing a single word out when we first read it,” Henck points out. “I was so inspired because Lyn was able to take a step back and turn to basic principles, which allowed us to think without getting into the emotions of the issue and to move forward.

“It was simply brilliant leadership on the part of Lyn because he was able to espouse a policy publicly that made sense and develop a close working relationship with Governor Chris Patten, who was highly complimentary of Lyn and of AmCham because of Lyn’s ability.”

“Lyn was a natural leader who was intelligent and had a good understanding of so many things,” Michelson believes. “He was so articulate that we were able to build a trust with the Clinton Administration, a trust that eventually helped the administration defend the extension of China’s MFN status and, eventually, WTO membership.

“There is no question that he was someone people always respected and that he was one of the best leaders AmCham has had.”

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2012 Sep

Mark Your Calendar Sep

11

“How to Go into China" plus "Trading with China” Kristina Koehler, Director, Klako Group This seminar will provide you with tips about incorporating in China as well as case studies and business models in relation to optimizing your trade activities in China. It will also emphasize on some of the most important points of consideration a company needs to make when establishing a company in China - including Corporate Structuring, Employment, Chop Control, Accounting, Tax and other such requirements.

Kristina Koehler has worked in the Chinese legal and accounting industry since 2003 when she joined Klako Group as its China Director. Fluent in English, German, French and Mandarin, Kristina advises and represents clients (mainly from Europe, North & South America and Australia) with their business interests in China. She has worked on numerous complex transactions including corporate (re)structuring, company liquidations, and M&A deals, and frequently represents foreign clients and advises on tax, accounting and trade related matters.

Kristina is co-author of Klako Group’s monthly magazine, ChinaInvest.biz, which provides insight into investment, tax and operational issues for foreign companies entering or expanding in China, and a contributor for other publications on topics related to the Chinese legal, accounting and business practices.

The Birthday List: Ten IT Trends That Are

Sep Shaping Business in APAC

20

Sep

25

Jim Fagan, VP & Managing Director, Rackspace Hosting Asia Pacific Rackspace, an industry leader in IT Hosting and Cloud Computing, will share the results of its annual Top Ten list - The Birthday List - and discuss the latest IT trends in APAC illustrating how all businesses can enhance their operations, both at home and abroad. From a look at Hybrid Computing to the latest development in e-Commerce and Cloud Computing, audience members can learn how to extend their online reach, achieve optimal uptime and utilize tried-and-true strategies while saving as much as 60 percent of IT spending.

Jim Fagan oversees Rackspace Hosting and Fanatical Support in APAC while managing sales, marketing, channel and data center operations. He has spearheaded the company’s expansion since 2008 (when Rackspace first entered Asia). His commitment to industry-leading SLAs, new partnerships, and unparalleled customer experience has helped Rackspace become a popular and well-regarded leader in the region.

Prior to joining Rackspace, Jim served as Finance Controller for Dell’s Managed Service business and was responsible for the financial management and pricing structure of Dell’s newly formed services division. He spent nine years at Dell primarily providing finance planning, pricing and operational finance support to Dell’s global business.

China: Transitioning into a New Economic Era Jing Ulrich, MD and Chairman of Global Markets, China, JPMorgan 2012 may be the first year in over a decade when China’s actual GDP growth does not surpass the official target by a wide margin. What does the slowdown mean for China’s household and corporate sectors? Much of the deceleration in recent economic activity has been induced by the government’s restrictive housing policies. What is the outlook for the property market?

The recent slowdown in retail sales also calls into question the resilience of Chinese consumption. Considering the interplay between household savings, spending and investment in the current environment, when may discretionary spending growth recover?

With food making up 30% of China’s CPI basket, will the rise in global food prices reignite inflation and complicate monetary policy?

Jing Ulrich is responsible for covering the firm’s most senior global clients across all asset classes, and for maintaining relationships with executives at the helm of China’s leading enterprises and government entities. Jing is one of the most prominent advisors to the world’s largest asset management companies, sovereign wealth funds, and multinational corporations. She also serves as an independent director on the boards of GlaxoSmithKline (GSK), a leading global healthcare company, and Ermenegildo Zegna, an Italian luxury-goods firm.

For information, see website: www.amcham.org.hk

Tel: (852) 2530 6900

Fax: (852) 2810 1289

Venue: AmCham Office 1904 Bank of America Tower 12 Harcourt Road, Central Time: 8:00 - 9:30am (Light Breakfast included) Fee(s): Member Fee: HK$150 Non Member Fee: HK$250

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Venue: Renaissance Harbour View Hotel Concord Room 1 (8/F) 1 Harbour Road, Wanchai, Hong Kong Time: 12:00 - 2:00pm Fee(s): Member Fee: HK$520 Non Member Fee: HK$620 Corporate Table Fee: (10-12pax): HK$6,300 MEDIA WELCOME

Email: kalau@amcham.org.hk