China's Renminbi goes slowly global

Great power shifts are usually accompanied by changes in the international reserve currency. So it is telling that China is taking steps to broaden the use of the renminbi among international investors. Dominance of the global economy, Beijing believes, goes hand-in-and with dominance of the global monetary system.

Measures to internationalise the renminbi are nothing new. Hong Kong banks have offered offshore renminbi accounts for more than six years, and currency swap agreements with foreign central banks have been in place since 2000. But they have accelerated in recent months. Restrictions on offshore transfers have been eased and a programme allowing companies to settle cross-border trades in renminbi expanded. Last week's decision to open up domestic bond markets was particularly significant. Until then there were few investment opportunities for international holders of renminbi.

These are, however, only small steps. Whether China will be able to stomach the rest of the renminbi's journey to reserve currency status is far from clear.

A reserve renminbi would have to be fully convertible, on the capital account as well as the current account. But this would imply opening up China to the whims of global capital – precisely what it has been protecting itself against (as its huge foreign exchange reserves attest). Freer capital flows may also prove destabilising for domestic banks, creating liquidity bubbles in good times and choking off the credit supply as conditions deteriorate. No longer would the banking sector be an effective instrument of macroeconomic policy, as it has been during the crisis with its government-induced lending sprees. It would be a source of, and not a remedy to, increasing economic volatility.

Even less palatable for the government is the prospect of losing control over the renminbi. Maintaining a currency peg in the face of massive capital inflows is extremely difficult. And if increasing foreign demand for the renminbi pushes up its value, China's export-led growth model – which relies on an undervalued currency – may become unsustainable.

China will become the world's largest economy in the next few decades. It is natural that the renminbi eventually attains reserve currency status. China should not push this process forward prematurely, lest it destabilises its economy. But the sooner it starts the domestic reforms that will prepare it for such a shift, the easier it will find its new international role.

(Source: Financial Times)
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Business Model Innovation and the Red Queen Effect

Most companies try to differentiate themselves from their competitors by better products or improved processes leading to a better cost structure. The problem is that their competitors do the same thing at the same time so after a firework of new products the situation is pretty much the same. You moved forward but your competitor also moved forward. If you do not move you fall behind. This effect is also called the Red Queen Effect. It takes all the running you can do, to keep in the same place. That is the typical situation most companies find themselves in. You move, you move but you gain no competitive advantage.

This trend will continue unless you make time to plan and carry out tasks that will enable your business to become more PRODUCTIVE and more PROFITABLE. If you fail to make business development a priority, then this cycle will only conclude when either you, or your business, collapse. There are literally hundreds of different things you can do to improve the productivity and profitability of your business. Some will take a long time to implement; others can be completed very quickly. Some offer only a small improvement to your business, while others can be nothing short of revolutionary.

Business model innovation is about building a new business model with which you can differentiate yourself within your business model you use.

(Image source: Mikefilsaime.com)

Vietnam discovers the consumer society

Vietnam began to liberalize its economy in the 1980s, when the country’s leaders launched doi moi (or “renovation”). It was only after President Clinton lifted the US trade embargo in 1994, though, that multinationals began to pile in. Since then, Vietnam has taken off. In 2007, it joined the World Trade Organization (WTO)—just in time for the global financial crisis. The country weathered the storm well, posting 5 percent growth in 2009. This year should be even better.

For retailers and consumer goods companies, Vietnam is an attractive market: the economy is growing briskly and sustainably, and the population is adding a million people a year. Even more important, the country’s middle class is growing fast: from 7 million households in 2003 to an estimated 25 million in 2013. Vietnam’s literacy rate is 92.5 percent, and from 2003 to 2008 the number of college and university students nearly doubled. The cities, though mostly small, are expanding rapidly. Six of them—Can Tho, Da Nang, Haiphong, Hanoi, Ho Chi Minh City, and Nha Trang—account for 40 percent of the country’s sales, according to AC Nielsen estimates from 2007.

The Vietnamese government estimates that retail sales reached $39.1 billion in 2009—almost twice as high as five years earlier. And the country has room to grow: per capita retail sales, at $450, are among the lowest in Asia. Setting up shop in Vietnam, however, isn’t easy. The market is fragmented and difficult to reach, and although 100 percent foreign-owned retailers can register for an operating license, they are generally allowed to open only one outlet. To expand further, they must pass an “economic needs test,” in which the government analyzes a new project’s economic impact.

Vietnamese consumers want the same things others do—good, reliable products that enhance their daily lives. What makes Vietnam distinctive, though, is how quickly consumers are moving up the ladder—“leapfrogging". Vietnam is one of the world’s fastest-growing economies, and there’s no reason to believe it will slow down. Its infrastructure is improving, and modern trade has made significant inroads. Asia’s youngest population and the rapid adoption of modern technology make Vietnam an exciting market. But it is by no means an easy one.

(Source: McKinsey Quarterly)

The contest of this century will probably be between China and India

In the recent issue of ‘The Economist’; the most discussed topic Contest of the Century, was the cover story.

China has officially become the world’s second-biggest economy, overtaking Japan. In the West this has prompted concerns about China overtaking the United States sooner than previously thought. But stand back a little farther, apply a more Asian perspective, and China’s longer-term contest is with that other recovering economic behemoth: India. These two Asian giants, which until 1800 used to make up half the world economy, are not, like Japan and Germany, mere nation states. In terms of size and population, each is a continent—and for all the glittering growth rates, a poor one.

As the years roll forward, the chances are that it will increasingly come down once again to the two Asian giants facing each other over a disputed border. How China and India manage their own relationship will determine whether similar mistakes to those that scarred the 20th century disfigure this one.

As China and India rise in tandem, their relationship will shape world politics…

Africa Unlikely to Follow China’s Goose

I was reading an article by Mr Andrew Batson on Chinese investment into African economies which I found it very interesting....

Can Chinese investment inject some Asian-tiger-like vigor into African economies? That’s certainly the hope of many – including World Bank President Robert Zoellick, who has urged Chinese companies to expand beyond infrastructure and resource-extraction projects and also invest in manufacturing in Africa.

Reuters And with China’s labor-intensive industries, like textiles, increasingly challenged by the rising salaries they need to pay workers, there is pressure for to shift to lower-cost locations.

That is, after all, a trend that aided China itself in earlier decades, when the textile and garment industries shifted from Japan and Taiwan as costs in those economies rose. Japanese scholars dubbed this phenomenon the “flying geese” model: One economy, like the first goose in a V-shaped formation, can lead other economies toward industrialization, passing older technologies down to the followers as its own incomes rise and it moves into newer technologies.

Something like this seems to still be happening in Asia, where countries that are poorer than China — such as Vietnam, Bangladesh and Cambodia — have in fact been picking up some of the textile and garment business in recent years as Chinese costs go up.

But a new short paper published by the Vale Columbia Center on Sustainable International Investment, at Columbia University, casts doubt on whether China’s low-end industries will actually shift to Africa in “flying geese” style.

First of all, say authors Terutomo Ozawa and Christian Bellak, China’s own hinterland is large and still relatively poor, which means factories seeking lower-cost locations can find them inland, before having to look abroad. “China’s own vast interior seems more attractive as new production sites than any faraway countries,” the paper says.

Second, China’s government seems in no hurry to give up labor-intensive industries to African or other countries. Pointing to the government’s policy of restraining its currency’s appreciation against the dollar, the authors say “China is not quite ready to dismantle labor-intensive industries that still provide much-needed jobs at home.”

And third, the authors argue, many African countries are not well equipped to take such Chinese investment even if it were on offer. “Infrastructural deficiencies (e.g., unreliable power and water supply, transportation, communication, poor governance, inhospitable regulatory environments, work ethic) in Africa are well known. This explains why foreign multinational enterprises in general, let alone China’s, have not yet seriously advanced into the continent in search of low-cost labor,”.

Building a better Pricing Structure

Well-managed companies already recognize the critical role pricing plays in driving performance. A foundation that underpins excellence in pricing is the key to realizing its potential...

Over the past two decades, most companies have recognized the bottom-line impact to be gained through effective pricing. Yet awareness by itself is not enough. Tapping the full promise of pricing requires an infrastructure to drive real and sustained pricing performance. With such a foundation, a company can establish and strengthen pricing activities by creating deliberate decision processes, a specialized pricing organization, mechanisms that appropriately measure and reward pricing excellence, and robust support tools and systems.

A pricing infrastructure can be difficult and costly to create. It requires investing appropriately, empowering the right people, articulating clear targets and goals, and managing risk. Yet the benefits of realizing true pricing excellence are worthwhile: a one-percentage-point improvement in average price of goods and services leads to an 8.7 percent increase in operating profits.
(Source: McKinsey Quarterly)
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Biodiversity: The next environmental issue for business

For most companies these days, the environment—which is synonymous with climate change for many executives—has become an important topic. But another key environmental concern is emerging: biodiversity, or the diversity of species, variety of ecosystems, and variability of genes. Biodiversity now occupies a similar position in the public debate as climate change did in 2007.

Biodiversity is the variation of life forms within a given ecosystem, biome, or on the entire Earth. Biodiversity is often used as a measure of the health of biological systems. The biodiversity found on Earth today consists of many millions of distinct biological species. The year 2010 has been declared as the International Year of Biodiversity.

Majority of executives, 59 percent, see biodiversity as more of an opportunity than a risk for their companies. The companies identify a variety of potential opportunities, such as bolstering corporate reputations with environmentally conscious stakeholders by acting to preserve biodiversity and developing new products or ideas from renewable natural resources. The positive outlook on biodiversity is in stark contrast to executives’ views on climate change in late 2007, when only 29 percent saw the issue as more of an opportunity than a threat.

Given that threats to biodiversity are getting more and more public attention, companies with any direct or indirect exposure to biodiversity issues will benefit from addressing them in some way. A collaborative, industry-wide approach is necessary for understanding issues such as biodiversity and exploring potential solutions.

(Reference: McKinsey Quarterly; Wikipedia)
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Creative Tension

In learning organizations, the leader's work starts with the principle of creative tension and includes building shared vision...

Leadership in a learning organization starts with the principle of creative tension. Creative tension comes from seeing clearly where we want to be, our "vision," and telling the truth about where we are, our "current reality." The gap between the two generates a natural tension.
Creative tension can be resolved in two ways: by raising current reality toward the vision, or by lowering the vision toward current reality. Individuals, groups, and organizations who learn how to work with creative tension learn how to use its energy to move reality more reliably toward their visions.

The principle of creative tension has long been recognized by leaders. Martin Luther King, Jr., said, "Just as Socrates felt that it was necessary to create a tension in the mind, so that individuals could rise from the bondage of myths and half truths, so must we create the kind of tension in society that will help men rise from the dark depths of prejudice and racism."

Without vision there is no creative tension. Creative tension can't be generated from current reality alone. All the analysis in the world will never generate a vision. Many who are otherwise qualified to lead fail to do so because they try to substitute analysis for vision. They believe that, if only people understood current reality, they would surely feel the motivation to change. They are then disappointed to discover that people "resist" the personal and organizational changes that must be made to alter reality. What they never grasp is that the natural energy for changing reality comes from holding a picture of what might be that is more important to people than what is.

But creative tension can't be generated from vision alone; it demands an accurate picture of current reality as well. Just as King had a dream, so too did he continually strive to "dramatize the shameful conditions" of racism and prejudice so that they could no longer be ignored. Vision without an understanding of current reality will more likely foster cynicism than creativity. The principle of creative tension teaches that an accurate picture of current reality is just as important as a compelling picture of a desired future.

Leading through creative tension is different than solving problems. In problem solving, the energy for change comes from attempting to get away from an aspect of current reality that is undesirable. With creative tension, the energy for change comes from the vision, from what we want to create, juxtaposed with current reality. While the distinction may seem small, the consequences are not. Many people and organizations find themselves motivated to change only when their problems are bad enough to cause them to change. This works for a while, but the change process runs out of steam as soon as the problems driving the change become less pressing. With problem solving, the motivation for change is extrinsic. With creative tension, the motivation is intrinsic. This distinction mirrors the distinction between adaptive and generative learning.

(Image source: Wordpress.com)