Monday, September 25, 2006

Issues with China's Recent Success: Comments on Other Blogs

This week, instead of writing an entry on entrepreneurship pertaining to international business I have decided to post my thoughts on other blogs relating to China. There are many situations surrounding China’s rapid development which should be discussed and explored.

On the highly acclaimed blog by PSD (Private Sector Development) I have taken particular interest in an entry titled, “CSR stirrings in the Middle Kingdom.” This blog post deals mainly with Chinese manufacturers and the excessive damage manufacturing is doing on their environment.

I have also viewed an entry on a PSD blog, “Private sector public goods” which recognizes the large market the private sector of China has become. Many resources which previously had been used to manufacture and export goods are now being directed toward the private sector. The issue up for debate being should the Chinese Government aid private business in areas that are not fully sufficient yet?

"CSR Stirrings in the Middle Knigdom"

My thoughts:

Uniform Manufacturing Regulations Will Deter Externalities from Pollution

It is nice to finally see officials such as Victor Fung, chairman of the Greater Pearl River Delta Business Council embracing policies that put pressure on Chinese manufacturers to practice environmentally responsible operations. However in a society driven by wealth and affluence this may be a difficult task, unless the Chinese Government steps in and creates mandatory regulations for all producers.

It is hard to imagine these Chinese companies along the Pearl River Delta relinquishing their competitive advantage within the industry. Adhering to such regulations would require costly upgrades which would unfortunately increase the cost of production. If another company were to continue their fabrication process the advantage would now belong to their opponent. Although big investors can threaten to revoke contracts with large polluting manufacturers, their bottom line is without doubt their first priority. Without Government enforcement of this timely issue there is no real motivation within the Chinese companies to increase their costs and lower their margins to reduce pollution.

“Private Sector Public Goods”
My thoughts:

Government Interference will be a Step Back for China’s Free Market

Finding the correct balance between government involvement and privatization is a long standing debate throughout the history of business and economics. A free market economy will effectively allow China to correct problems which interfere with consumers’ demands. China’s private sector will benefit immensely through the free markets ability to recognize growing target markets.

The Chinese consumers have demanded that the private sector begin to pay closer attention to their wants and needs and this issue has never been more evident than in Visa International's triple digit growth. This rapid growth has been achieved by catering to Chinese citizens and offering low cost payments for its financial services. Amul diary’s distribution and marketing system would have never come into existence if it were not for the private sector recognizing a consumer demand existed between dairy producers and the urban market.

As for the female entrepreneur’s making textiles in India, if a demand exists for their product, companies will interfere and eliminate the restrictions the infrastructure now imposes. The private sector of China must realize that businesses are most efficient when not under Government regulation. China’s privatization of business has soared under a new free market economy; it would be a shame to involve their Government for problems which will ultimately be worked out through basic supply and demand.

Tuesday, September 12, 2006

Investors Keep China's Development on the RIse; They May Soon See Their Boom Become a Bust

With China on top as the leader in foreign investment it is beginning to cast major doubts about it's instant economical boom. According to a study released Wednesday, Asian countries attracted $177 billion of foreign direct investment and China receiving 45% of that with $79.1 billion. Economists expect China to remain in the forefront of foreign investment despite many fears that China's economic boom is at the expense of others. With Asian economic development at astronomical rates many fear rising oil prices are directly related to China's rapid growth. According to National Geographic Online, China's oil consumption grew at 11% and is now the second largest oil consumer behind the United States. Economic theory states that with an increase in demand buyers will bid the price of a supply to a new price point. Increased prices of oil are currently set at a point accommodating China's demand. With growth on the rise the prices for oil and other resources are destined to increase concurrently with China’s maturation. During the 1980's China's private automobile ownership was virtually 0, by 2003 the total was estimated at 14 million. "The potential number of Chinese people who could become consumers in the future is enormous," stated Lisa Mastney the project leader of Vital Signs 2005, leaving many to wonder exactly what impact the constant expansion will have on the environment, resources and foreign investment. The long term externalities are unknown but many feel that China's economic boom will soon bust leaving investors such as Stephen Wynn and Sheldon Adelson with billions on the table. China's infrastructure is not sufficient enough to handle the migration to urban areas resulting in complications with sanitation, land availability, resources and pollution. According to National

Geographic Online “Large cities, including Beijing, are smothered in smog. Old and weak people are often warned to stay indoors. Between 2001 and 2020 almost 600,000 people in China are expected to suffer premature death every year due to urban air pollution.” With China leading the world in foreign investment and expecting to attract 80 billion in 2010 investors seem to be engaging war upon themselves through competition for land and resources. China may never see it's 80 billion in 2010 and could soon drop off the list of foreign investment due to the inability to handle such an influx of cash flow, "Public health, social stability, and continued economic growth are all at risk as China continues to pollute its way to prosperity."

Tuesday, September 05, 2006

Wynn Hotels: Owner Believes the Company's Future is in Asia

Yesterday hotelier Stephen Wynn opened his second Wynn Casino in Macau China, reinforcing investors, developers and tourists’ beliefs that Macau will soon oust Vegas as the entertainment and gaming capital of the world.

Since the early seventies Wynn, has been on the forefront of Las Vegas development, transforming it from a city plagued by prostitution, drugs and gaming into a glamorous city of lights and excessiveness. Wynn initially began his career in hotels as an investor in the Golden Nugget; he then revamped it into a destination among the most popular in the mid-seventies to late eighties. He lost ownership in the Golden Nugget through a deal with MGM Mirage and then financed the Bellagio with a highly controversial method in finance, junk bonds. Now the Bellagio is a landmark in Las Vegas, setting the new standard in a city that drew 38.5 million tourists and 6 billion in revenue last year.

Wynn quickly realized the potential for the Wynn Macau after a casino monopoly was relinquished from Stanly Ho. The Chinese government wanted the strip of Macau to become more "Vegas-esque" as opposed to the drugs, prostitution and violence that have plagued the streets of Macau in the past. Sheldon Adelson, Wynn's number one competitor in Las Vegas has recently opened, Sands Macau to unparalleled success, recovering his initial investment in one. This success has opened Wynn's eyes to the emerging market in Macau. With China’s economy growing exponentially, many are looking at Macau as a place where entertainment is a viable market. At the opening of the Wynn Macau, Wynn stated that he believed the future of his Wynn hotels existed primarily in Asia and the “The speed of development is dizzying. The population it seeks to serve is expanding.” With Stanley Ho now in the backseat, Wynn is attempting to capture a large market share before the market becomes too saturated. Wynn also gave an insight into the potential of conducting business in Asia and said the Wynn Resorts would become a Chinese company in the next eight to nine years and is already employing one third of the company’s employees in China.

When asked about their competitve advantage over Sheldon Adelson, Wynn simply stated that the Wynn looks to set itself apart not on sheer size but the quality of the resort, “We never wanted to be the biggest we only enjoy being the best.”