Saturday, February 27, 2010

Day Nine: Tour of the Mekong Delta

27 February 2010

Tour of the Mekong Delta
We had an enjoyable day traveling to the upper branch of the Mekong in the Mekong Delta region. Once we arrived at the tourist center, we took a boat ride on the Mekong to a coconut candy factory on one of the islands in the area. We were shown how the candy was made, given some samples, and given the opportunity to purchase some candy. While we were at the candy shop, John gave us the opportunity to sample snake wine, which several of us did.

Boats at the Tourist Center

Hoa our guide for the Mekong Tour

The next part of our tour was a ride in a donkey pulled wagon though town. We then went on a gondola ride back to the larger boat. The next stop on the tour was to stop on an island which is popular for growing fruits. There we sampled several fruits and listened to some traditional Vietnamese music. The songs were about love, life, and grapefruit in the region. After enjoying the locally grown fruits and music, we once again boarded the larger boat and traveled back to the tourist center and took the bus to the Mekong Restaurant. The food at the Mekong restaurant was very good as were the views of the gardens around the restaurant.

Saowanee and Gity enjoying the gondola ride

Three ladies singing a traditional Vietnamese song

 
Lunch at the Mekong Restaurant

Gardens at the Mekong Restaurant

One of the foods that I had not seen before was large puffed rice balls. These were nearly a foot in diameter. We had no idea what we were to do with these so Murray asked the waitress if we were to rip them open and she told Murray yes but stopped Murray as he attempted to do just that. It was rather amusing but any of us would have done the same. The shocked waitress quickly obtained a pair of scissors and started cutting up the rice balls.

Day Eight: CyWorld, IDG Ventures and Ho Chi Minh Stock Exchange

26 February 2010

CyWorld and IDG Ventures

Michael from CyWorld gave us an overview of CyWorld and the challenges of the use of the Internet in Vietnam, particularly in regards to Social Networking. Michael introduced CyWorld as a Social Networking Internet Application which started out in South Korea. CyWorld is currently in many countries around the world and is similar to Facebook but with some noticeable differences.

I enjoyed Michael's presentation and the discussion session afterward. I learned several things which I had not given much thought to in the past. The first thing that I took away from the presentation was that you can not simply change the text on your site or application and expect it to do well in another country. In particular if Facebook simply changes to add the Vietnamese language as a choice on it's site without taking cultural norms and behaviours into consideration then they will fail in Vietnam. This lesson can be applied to other countries as well. The second thing that I took away was that just because something seems difficult or nearly impossible does not mean it cannot be done. I thought it was interesting that credit card usage is nearly nonexistent in Vietnam but on-line gaming, CyWorld, and others have found other ways to receive payment from customers. The most noticeable method for obtaining payment is by using prepaid cards. I found it even more interesting that they have been able to find unique methods of selling these cards. One of the most impressive was selling them at ATM machines.

Ms Thu Huong Duong from IDG Ventures gave us an overview of IDG and the marketplace in Vietnam. One of the areas of the greatest opportunity is in on-line payment in Vietnam. The greatest barrier to developing an on-line payment system is gaining the trust of banks. It is necessary to gain the trust of banks to make on-line payment systems work in Vietnam. Once again it goes back to building relationships. This is one aspect of both the culture in China and Vietnam which is very important in doing business in the region.

Thu was asked about the investment climate in Vietnam versus other countries that IDG operates. Thu replied that Vietnam is growing quickly and that investments in Vietnam are paying off much faster than other countries along with a high rate of return. Typically start-up companies become profitable after 5 to 7 years and generate returns between 20 and 30%. IDG has been very successful with their investments do to their hands on approach. All candidate companies are carefully screened and must meet specific criteria. Once a company is chosen, they are given support in helping form relationships and advice is given to them on various decisions and the companies are given the latitude to decide on their own. This has worked out well for IDG and they have only had a few instances where a company did not follow the advice given to them. IDG has had to assist these companies after making a mistake or two but IDG knows that letting one make mistakes is the best way for the company;s management team to learn.

Both Michael and Thu pointed out several threats and opportunities of doing business in Vietnam. The government is always a concern in any country and is no different in Vietnam. It is important to have close ties with the government so that you are aware of challenges which may impact your business and so you may attempt to influence the government. One such example which Thu gave was with a popular on-line game which IDG is involved with. Many people had been complaining to the government that children are more concerned with playing on-line games rather than doing their homework. As crime among the youth was up as the children are stealing and doing other things in order to get enough money to continue playing these on-line games. The government decided to put together a set of media laws and one of the provisions of the law would have made it impossible for the on-line gamers to play the games so the company would need to find something else to do or go out of business. IDG was able to work with the government to compromise by having CyWorld limit players to a maximum of 3 hours of play time per day.

Below is a list of a few other threats which were identified in the meeting
  • IT has a lower barrier to entry
  • On-line ad revenue is on a decline
  • Many business functions still require government approval

Ho Chi Minh Stock Exchange

The visit to the Ho Chi Minh Stock Exchange (HOSE) was very interesting. We saw some similarities to the Hong Kong Stock Exchange such as the presence of a trading pit even though not many companies use it. Both exchanges stated that the pit is maintained as a backup. Another similarity between the two exchanges was that the Hong Kong Exchange has been incorporated and HOSE is in the process of doing the same.

The most noticeable difference between the two exchanges was the level of development between the two exchanges. The Hong Kong Exchange has a long history and is well established whereas HOSE is a young developing exchange. Also the volumes of shares and investment vehicles traded are much different between the exchanges.

HOSE is a small exchange and has some competition within Vietnam from the Hanoi Stock Exchange. To help increase listings and volume within HOSE they are working with six other Association of Southeast Asian Nations (ASEAN) nations to make it easier for investors to invest in the member nations exchanges. The exchange has signed a Memorandum of Understanding (MOU) with the Korean Exchange to facilitate trade in the derivatives market.

The Ho Chi Minh Stock Exchange is young but has a great deal of potential if some issues are worked out such as having stiffer penalties for insider trading, convertibility of the Dong, and government control over the market. Regarding the last note, the government appears to be doing a good job in creating a supportive business environment in Vietnam however it is still of some concern to investors. One particular area of concern is the wide gap between rich and poor in Vietnam. One must wonder how long will the government be able to tolerate such a discrepancy. Hopefully Vietnam's middle class will continue to grow and as more opportunities become available to the people of Vietnam so that this will not be a concern.

Day Seven: U.S. Consulate and Nike (Ching Luh shoe factory)

25 February 2010

U.S. Consulate - U.S. Commerical Service
At the U.S. Consulate, Michael, talked to us about the mission of the Chamber of Commerce in Vietnam. Michael pointed out that the Consulate supports U.S. companies exporting products to Vietnam. He said that the consulate has had some successes but it far behind the amount of imports from Vietnam. In 2008, the U.S. Vietnam total trade was valued at $16B with only $3B in exports to Vietnam. Typically the consulate is able to match between 80 and 100 companies per year.

Some of the things that companies need to be aware of is that the country is still divided into north and south markets. These markets have different dynamics in consumer preferences and political situation. Most of the businesses for the U.S. and other countries are mostly in the south, which is causing some issues. Each country needs to have a presence in the north as well as it is very important to have contact with the government in Hanoi. The primary hurdles for doing business in Vietnam is poor infrastructure, power generation and distribution, as well as government regulations.

These hurdles also provide opportunities to businesses operating in Vietnam. Some other areas for opportunity are in management, education, oil, and gas.

Intellectual Property Rights (IPR) Management is another area which may provide a challenge to companies operating in Vietnam. IPR is not respected in Vietnam so there have been instances of companies applying for trademark protection and having the trademark out on the street before the application is processed.

Relationship building is very important for doing business in Vietnam. You must build relationships before ever talking business in Vietnam. This is also a challenge as most commerce in Vietnam is done through relationships. These relationships may be far removed such as the example that Michael gave with someone needing a product will buy from someone who was recommended by a friend or neighbor who heard of this vendor from his uncle's friend's neighbor. If a company is introducing a new product this may be less of a challenge if there are no substitutes which are established and available.

Another challenge is that credit card use is just starting so it may be difficult to collect payment for goods and services unless the product or service is easily paid for in cash. There are also challenges to converting dongs to dollars however, companies are able to do this so. To be able to change currency and get money out of the country it would be important to work with local banks and the government.

The Vietnamese government recognizes that some of the laws and regulations are a hindrance for doing business in Vietnam. As a result the government has contacted the business community and asked them to develop a list of the top thirty regulations which are a problem for doing business in Vietnam. The government has responded and changed some regulations to make them more business friendly and to better match the regulations with the goals of the government.

Nike (Ching Luh shoe factory)

We met with Larry from Nike and Kelly from Ching Luh. Larry gave a presentation which covered how Nike operates in Vietnam and other countries. He made it clear that Nike is a design, development, and marketing company. As a result, Nike does not manufacture their products. Nike partners with companies such as Ching Luh after an extensive screening process. All of the contracted manufactures are contracted month by month however Nike will not abruptly terminate a contract. If it is decided that a relationship needs to be terminated discussions will occur over several moths between Nike and the manufacturer to give the manufacturer time to find another contract and make decisions regarding employees and operations.

Whenever Nike enters a contract with a manufacturer, Nike will attempt to contract for the full capacity of the plant. By maintaining a plant at full capacity, Nike is able to have more influence over the operations at the facility and it helps the manufacturer to maximize the earning potential of each facility. Nike is only able to do this in the footwear product line. It is more difficult in apparel to contract for the full production of a facility so very often Nike products are made along side of Adidas and other brands.

Kelly started off by giving us a tour of the factory. The tour of the factory was very interesting. I have worked as an assembler in three different factories before and during college. I took notice of several inefficiencies in the plant which surprised me.

One such area was that one of the computer automated systems had a process which needed to modified by hand rather than preprogrammed into the computer. This can lead to inconsistencies and be more labor intensive than is necessary. When I asked our group's guide he replied that labor is cheap so it is better to let them change it on the line rather than have it preprogrammed. I did not ask our guide but this would make sense if a style is run once in one factory only and never run again. This may be the case but I do not know. Another inefficiency that I took note of was that there were places were one line ran into another and a person was taking items from one line and placing them on another. A much better solution it to use belt to move products from one line to another. When I first saw this, I assumed that the individual was performing Quality Control (QC) between the lines however when I observed her it was clear that she was not inspecting the product at all.

I also noticed several differences between U.S. based manufactures that I worked for and the Nike employees. One of the first things that I noticed was that all of them were wearing sandals. In the factories I worked in, it was mandatory that you were closed toe shoes so that there is some protection for your feet in the event that something is dropped or spilled on your feet. Another difference that I observed was that there did not appear to be much talking between employees unless it was work related. in the U.S. it is very common for workers to be making small talk among themselves. This is one of the challenges that managers of U.S. factories face daily.

There were many similarities between U.S. factories and the Ching Luh facility. Workers in the U.S. and Vietnam work an eight hour day. Workers in the U.S. typically get a 1/2 hour lunch and two 10 minute breaks. Workers at the Ching Luh factory have a 1 hr lunch break and two 15 minute breaks. I think that some reasons for this difference may be due to food preparation and the size of the factory itself. The logistics of breaks alone must be remarkable.

Some other similarities were that both use process guides to show what steps make up each operation and which steps precede and come after each step. The reason for this similarity is do to ISO 9000 series certifications which manufactures had undergone during the 1990's and early 2000's. The one thing that I saw at the Ching Luh facility that I have not seen in the U.S. is the use of the process board which showed the various steps along the production cycle and highlighted the critical areas with red and green boarders. This board communicates to each employee from day one where they fit along the production cycle and were the critical steps are along the way. By doing this managers are able to divert attention to particular areas along the production process to help produce a higher quality product as well as maximizing the output of the factory.

There were several comments about the lack of air conditioning in the factory itself. We were very hot during our tour so we could not imagine how these employees are able to work under these conditions. It is only February and by the time June, July, and August come, the temperature in the factory must be much hotter. I have several comments on this area. First, these employees have been living in the hot climate of Vietnam all of their lives so they are acclimated to the temperature much better than people who have only been in the region for a few days. Second, factories in the U.S. can get very hot as well and none that I have worked in were air conditioned and I would be surprised if any are. There may be sections of a facility which have AC for various reasons but it would be unlikely that an entire plant would not have AC.

Overall I think that the facility that we saw was well run and provided a good opportunity for the employees in the factory. I would have liked to see more attention paid to worker safety with footwear particularly since they are producing footwear. It is understandable why they do not but it is unfortunate. I would think that Ching Luh would be able to come up with a program to provide employees with better footwear at least while working on the assembly line.

BTW: I recall someone asking if any of us would be willing to work under the conditions that these workers endured. My answer is that it exactly why I went to college.

Thursday, February 25, 2010

Day Six: Free Day and Travel to Vietnam

24 February 2010

Free Day - Visit to the Big Buddha
Sixteen of the students decided to visit the Big Buddha in Hong Kong. We took the metro and the tram to get to the Big Buddha which was an experience on it's own. This was a good thing as today was very overcast and the Buddha is so high that it was very difficult to see anything once we got there. Lee and Chintan were very fortunate to see the Big Buddha a couple of times when the clouds parted so Lee was able to get a few pictures that he will share with the rest of us. Lee and Chintan visited a synagogue in the morning so perhaps God parted the clouds for them.

Aaron is waiting on the train

We were commenting that WMATA should consider using doors along the the Metro stations such as these on the Hong Kong Metro. The use of these doors prevent people from falling on the tracks and helps make the Metro system much safer. Aaron was actually commenting that the children that he works with on FIRST LEGO League (FLL) had recommended this type of a solution when they were working on their research this year.

The metro system was very clean and easy to navigate. We were impressed how open the stations felt. A much different experience than the DC Metro System.

The next part of our journey was the tram ride to the top of the mountain to the Big Budd ah. Every third car on the tram has a glass bottom and we opted to get the cars with the glass bottom. Most of the group were fine with this but there were a couple of people who did not enjoy it as much as the rest of us.

Day Five: Hong Kong Trade Development Council and Hong Kong University

23 February 2010

Hong Kong Trade Development Council

During our visit with the Hong Kong Trade Development Council (HKTDC) Ms Cherry Lee spoke to us about the opportunities of doing business Hong Kong and China and why it is best to do business in China by going through Hong Kong. Ms Lee stated that the one country two system policy allows Hong Kong to be in a unique position by allowing business to be conducted under Hong Kong laws and to allow Hong Kong to be an arbiter for setting disputes between businesses from other countries and main land China.

The HKTDC was setup to facilitate matching companies between other countries and Hong Kong to encourage business in Hong Kong. The HKTDC is also focusing on facilitating business with mainland China however part of the supply chain must be in Hong Kong. An example may be that a US Company wishes to have control valves assembled in mainland China and shipped to North America and Europe. HKTDC will be able to assist the US company in finding a broker, wholesaler, shipper, etc. who are located in Hong Kong to help with the transaction.

Ms Lee gave us several advantages of doing business in Hong Kong, and in particular in doing business in mainland China through Hong Kong.
  • Resilient Economy
    • Hong Kong may be used for arbitration if the contract is signed in Hong Kong
    • Low tax rate both personal and business
  • Location
    • Centrally located in the region
    • Ability to travel to most major markets in the region within 4 hours
    • Within 5 hours you are able to travel to ½ of the world’s population
  • Dynamic People
    • People speak multiple languages with most speaking English
    • Communications – many people educated in the UK or US
  • Creativity

Since Hong Kong was returned to China, Hong Kong has been in a unique position to help businesses understand how to do business in China and to provide unique services to bring foreign and mainland companies together. Ms Lee had a few slides which displayed how Hong Kong fits within the Value Chain. I was not able to capture the slides very well but I do recall that she pointed out at least three areas, two of which I was able to capture. The two areas were in finance and marketing.

I really enjoyed our visit there. I spoke with Ms Lee about some of the opportunities and services that HKTDC provides and intend to look into using some of HKTDC’s services in the future.

Team 2 and Aaron are ready for the first visit

Hong Kong University

Dr. Michael Enright gave us an overview of doing business in China and working with the Chinese Government. One of the first things that he impressed upon us is that things move very fast in China and the region. He stated that you can be out of touch with the US or Europe for a couple of months and you do not lose anything however if you leave the China and surrounding region for only two weeks up to 1/3 of what you knew is irrelevant so it is more important for businesses with business in the region to have a presence in the region.

Particularly China’s government may make changes to policy which is counter to previous initiatives. There are two main drivers for this behavior. First, China is driven by results not principles which mean that if something is not cultivating the desired result there is no hesitation to change things. The second thing is that there are three key areas which are nonnegotiable and must be protected. The first thing is that the Communist Party must remain in control of the government. Second, Taiwan must be part of China once again and the third is that Tibet must remain under Chinese control.

I want to thank Lee for putting Dr. Jacobina in touch with Dr. Enright. The meeting was very informative and it was clear that Dr. Enright is an authority on China's business climate.

Monday, February 22, 2010

Day Four: Alcoa International, Ltd. and Hong Kong Exchanges and Clearing Limited Visits

22 February 2010

Alcoa International Ltd. Visit

Our Cohort visited with Anil Govada, Managing Director of Alcoa Asia Pacific today. It was a very informative visit as Anil talked about working and living in Hong Kong and about what it takes to be successful in doing business in Asia.



Anil started out talking about the history of Alcoa and Aluminum. Coming from an Engineering background, I found this very interesting and it reminded me just how much I have forgotten since obtaining my bachelors degree. In particular when he mentioned Young's Modulus, I recalled it from material science but did not remember exactly what it was. Now that I am able to perform a search I see that I may have recalled more than I had thought at the time. It's just that I have not had a chance to use it so it was on the shelf.

Warning, the rest may be a bit dry so move to the next paragraph unless you want to read about Young's Modulus. I was recalling that there are four different ways to test the strength of a material although I could only recall the names of two. When I did a search on the web I found that yes there are four measures of stress of a solid material. They are compression, tensile, shear, and torsion. Young's Modulus is the measure of the stiffness of a material and can be determined from the stress-strain curve of a material. I recall being in a lab at Broome Community College when we were shown a machine for testing the tensile strength of materials. A material will be able to maintain its dimensions when being pulled apart to a certain point then the material will start to deform and then finally snap in two. Young's Modulus can be determined from this test if you plot the length of the bar compared to the load applied to it. Young's Modulus will be the slope of the straight line while the material is able to handle the load. Once the material starts to give the plot will turn to a curve until the material breaks. OK, back to Business.

I had not thought much about how long aluminum has been around therefore I did not think of it as a relatively new material in history. Alcoa was the company which introduced aluminium in 1888 and since they had developed the technology for easily obtaining aluminium from Bauxite they had a monopoly on aluminum production for many years. It was also interesting that Bauxite is the 2nd most plentiful mineral on the planet next to sand.

Of course we were not there just for a history lesson about Alcoa and aluminum, we were there to learn about Anil's experience of doing business in Asia. One of the many things that I took away from the meeting was that as a manager doing business in another country you are already a foreigner so it is important to do things which make you less of a foreigner and more like a local. One example he gave was the giving of small tokens of money during Chinese New Year. Alcoa will not reimburse Anil for giving out small gifts to employees however it is expected that he would as it is part if the local culture. His staff would have understood if he did not give them a small gift but it would have distanced himself a bit more from his staff so he made the extra effort to visit with each staff member and give them a small gift.

Along these same lines, Anil stated that there are four rewards channels that as a manager you need to pay attention to or your business will fail. The four channels are Shareholders, Employees, Community, and Customers. He stated that these are not in any particular order and said that not one of these are any more important than the other. If you fail to pay attention to any one of them you will not be successful. Anil was very critical of the use of Stock Options as a way to improve the performance of managers as this causes them to focus only on the Shareholders and have a very short term focus.

Another area that Anil talked about a great deal was the importance of "Key Disciplined Execution." He explained this by talking about the way Alcoa makes strategic business decisions about what business units to sell, what markets to target, and what businesses it should acquire. For Alcoa, they want to be known as being the best in the industry want to only do business in areas where they can be number one or number two. This approach is very similar to Jack Welch's strategy while he was at GE.

To further make his point, Anil, showed us two pie charts with one showing revenue and the second showing income. It was clear from these two charts that the highest revenue area flat rolled, provided the lowest income to Alcoa. If Alcoa looses its position in the market on flat rolled products the best thing Alcoa can do is to get out of the market and let the competitors take it over.

Team 2 with Anil at Alcoa

Hong Kong Exchanges and Clearing Limited

We were given a presentation by the director of communications about the history of the exchange and given a tour of the exhibition area.

A view of the outside of the trading pit.

Lee and Murray hamming it up

It was interesting to learn about how the exchange had developed and to see real time data on asking and bid pricing for stocks and put and call prices on options and futures. One of the unexpected things I learned is how color as an indicator is not universal. On the Hong Kong exchange it as we are accustomed to with green indicating rising stock prices and red as dropping stock prices however in mainland China it is the opposite as red is viewed as a luck color so it makes more sense for them to use red as an indicator for rising stock prices.

This was an interesting visit and I look forward with comparing Vietnam's exchange with Hong Kong.

Sunday, February 21, 2010

Day Three: The Hong Kong Jockey Club

21 February 2010

Today we were able to exchanged some of our US Dollars into Hong Kong Dollars. Some of the groups were able to get a good exchange rate by dealing with one of the smaller exchange shops and having a larger group of people which gave them a beter position for getting a better rate. The best rate was $6.60 HK/$1 US.

We went to Simpson Sin Tailor, Ltd. shop and some people had ordered suits to be made for them. Here are a few pictures from the shop.

Aaron tries to get a good deal.

Brendan finds out the damages.

The group with the shop staff.

Today we spent the day at the horse races. We had a great deal of fun comparing one another's stategy for picking horses and placing bets. It was even more fun as the minimum bet is $10 HK which is $1.52 US so it felt like you were betting more that you really were. I do not like to gamble too much so the price was right for me. BTW I was very luck today. Since I did not know what I was doing on picking horses, I just picked horses by their name. I decided early on to pick names which were from Monty Python movies or skits or sounded like they could. All in all my strategy allowed me to take away $257 HK from the track which is $38.94 US. Not a bad day at all.



Later in the evening some of us went down to view the light show at the harbor. It was a short walk from the hotel. The path that we took from the hotel was the "Avenue of the Stars." Among the many stars along the walk we recognized Bruce Lee and Jackie Chang.

Aarron and Bruce Lee

Jackie Chang's star on the walk

Here is a video I posted on YouTube of the Hong Kong Harbor Light Show http://www.youtube.com/watch?v=ORrFtAtw-NU&feature=PlayList&p=6007DC47401169D1&index=0&playnext=1

Saturday, February 20, 2010

Day One & Two: Travel to Hong Kong

19 & 20 February 2010

Our flight from Washington to Chicago was on time and uneventful. When we arrived in Chicago and looked at the departure board we found that our flight from Chicago to Hong Kong was delayed by nearly three hours so we all found things to keep us occupied.

We arrived safely in Hong Kong just before 9 PM local time. We enjoyed a 40 minute trip from the airport to the hotel. On the way we were told what many of the sites were as we drove past. One of the most impressive was the port. It was quite a site to see how many containers were leaving Hong Kong and knowing that most of them will end up in the US and most likely will not make the return trip.


I am impressed with how clean Hong Kong is. I expected it to be somewhat similar to Bangkok or Vientiane but found it even cleaner than Washington, New York, LA or any other US city.