Friends in Dubai are organizing a silent auction to raise funds for the Pakistan floods.

The Concerned Friends of Pakistan – Dubai Chapter, have partnered with Karachi Relief Trust (KRT), to support the affectees of the worst flooding in Pakistan in living memory. More specifically, our focus will be two fold – providing short term relief ‘Adopt a Camp’, as well as long-term rehabilitation ‘Give a Home’. (KRT website: www.karachirelief.org/)

To support this initiative we are holding a SILENT AUCTION on September 23rd and 24th 2010 at the Capital Club DIFC.

Thursday 23rd September – Opening Night Reception 7pm to 11pm

Friday 24th September – All day event 10am to 5pm

(10am-1pm: Ladies Only; 1pm-5pm: Open to all)

Occasional snaps over at Tumblr and Flickr.

Almost everyone we met in China on the Global Immersion Program expected a Yuan appreciation this year and further appreciation beyond that.

There’s currently some entertaining wars of words on wars of currencies bouncing about the econo-blogosphere in particular Roach vs Krugman vs Avent [aka The Economist's Free Exchange].

The Economist not so long ago urged Barack Obama to face up to China, but now seems to have changed tack.

The FT’s Lex are also urging restraint in the US arguing the politics would defeat its purpose:

If the US really wants a stronger renminbi, the best advice is to shut up, and let it happen.

More interestingly buried in the same Lex column:

Meantime, the Obama administration should leave it to Brazil, Russia and other emerging nations – where China’s shipments should overtake those to the three big developed markets this year, on CICC estimates – to make the argument for revaluation in public.

The fact China is set to ship more product to emerging economies than the US, Japan and Germany (I assume) seems like a pretty big deal to me; More evidence of the less US-centric era ahead and more important than the when and how of renminbi appreciation and dollar depreciation.

If you need more econo-spats in your life you could do worse than check Joseph Stiglitz vs Kenneth Rogoff and Ferguson vs Wolf

Further econo-web entertainment comes in the form of
Jonathan Mann’s “Hey Paul Krugman“, part of his song-a-day Rock Cookie Bottom series:

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I am as awed as usual by China on the Columbia Global Immersion Program Shanghai and thought I’d repost a review of the essential China Shakes The World that I read on my first trip to Beijing in 2008.

Napolean once said “let China sleep, for when she wakes, she will shake the world”.

My personal China awakening (late to the party as usual) happened on my first trip to shanghai last year where I celebrated my thirtieth with some close friends. walking down the pedestrian section of nanjing road, i looked around and it suddenly occurred to me that the rest of the world could have perished at that instant, and China would have barely noticed. (it was a feeling rather than a thought). I have barely stopped thinking about China since.
I spent july living in Beijing’s Haidian student district on an introductory Mandarin course and then joined John Shoaf‘s pre-MBA Columbia World Tour in Shanghai. Living in China for a few years is firmly on my life game plan map, in the meantime i am trying to learn more about the place.

China Shakes the World: A Titan’s Rise and Troubled Future — and the Challenge for America
James Kynge, former china bureau chief of best English language newspaper in the world (The Financial Times), won the FT / Goldman Sachs business book of the year award in 1996 with ‘China shakes the world’ which is a superb, concise introduction to how and why china is shaping our world.
The first half tells the condensed history of China’s post-cultural revolution rise and illuminates its leading position during much of the last six thousand years.
The book starts off recounting the mysterious disappearance of manhole covers all over the world (with plenty of reports of unsuspecting pedestrians falling into the suddenly-there holes from Mongolia to Montreal) as a signal of when the direction of the world – China relationship switched: the view of china flipped from how the outside world was changing china to how China was affecting the rest of the world. China’s voracious appetite for almost every conceivable resource including the scrap metal that those manholes were destined to become was just one signal that the causal direction was switching.
James has plenty of engaging first-hand accounts from his two decades living in china through which it often seems we are witnessing China’s economic transformation unfold through his eyes.
some of the major themes / ideas that run throughout include:

• Businesses everywhere are finding it harder to compete (manufacturers in particular), the sustainability of europe’s welfare state model is in question as the industrial base there is hollowed out.
• China out-competes and out-capitalizes everyone, especially America.
• Chinese possess the impressive combo of intelligence and second-to-none work ethic.
• China through lowering the cost of goods and its insatiable appetite for US treasuries (in part to manage its currency) has fueled the low-iinterest rate driven housing boom and general drive for yield that has resulted in the current sub-prime, credit-crunch, free-fall dollar mess we’re in.
• 400 million people have been lifted above the poverty line over the last 28 years of above 9.5% economic growth.

A could be briefer! summary of some of the book’s chapters:

Rags to Riches.
Kynge recasts the economic revolution that started with Deng Xiapong’s (who famously said “to be rich is glorious”) reign (after the madness that was mao’s cultural revolution) as one based on the creative disobedience of china’s local governments rather than the top-down implementation of a genius Xiapong vision (which is closer to the official line). Deng’s genius lay in his strategy of running with whatever seemed to be working (i.e. creating jobs). we follow China in the 80s and 90s as it takes the initial steps towards becoming the world’s workshop. it’s a time characterized by an impressively enterprising private sector scrambling through post-communist bureaucractic loopholes, aided by subsidized capital, power and water.
those who ‘got rich first’ were often the unemployed or unemployable (who had no choice but to become entrepreneurs) which made for some surprising characters filling china’s rich list lists a few decades later (former convicts, peasants, etc).

The Future is the Past.
Kynge attacks the historical determinism widely prevalent in today’s China that its superpower status is inevitable; after all the country has laid claim to that mantle for much of the last few thousand years.
he questions whether China’s status truly was as strong as is often claimed. He opines that the Tang dynasty (800AD) was the country’s peak (and not unrelated, also its most open period) and that China had been in a state of relative, per capita decline through the end of the cultural revolution.

Most of the chapter takes place in Chongqing (once called Chungking), the contemporary equivalent of Chicago circa 19th century; Twain wrote “…astonishing Chicago, a city where they are always rubbing a lamp, and fetching up the genii, and contriving and achieving new impossibilities. It is hopeless for the occasional visitor to try to keep up with Chicago–she outgrows her prophecies faster than she can make them. She is always a novelty; for she is never the Chicago you saw when you passed through the last time”. hg wells wrote of an “unwholesome reek”, “a dark smear in the sky”, he found it “one hoarse cry for discipline”.

China is following the path trodden by America in the 19th century, or Japan post-1950, but the sheer scale and speed of its trajectory puts it in a class of its own.
Kynge talks about the ‘compression of developmental time’ when describing the unrivaled urbanization taking place. and with 700 million still living on less than 2$ a day, it can still count on pre-industrial revolution wages to maintain its competitive edge for the forseeable future.
linteresting, china studies much from america’s own rise, and models its highways, railroads, infrastructure on the us (learning from its mistakes of course and leap-frogging straight to the 21st century).
this is the magic of china – it is replaying out the birth of a great american nation but on a scale that dwarfs it.

Population Paradox.
Kynge discusses how the lure of a billion person market often masks a highly fragmented and obliquely protected domestic market, but the foreign investments continue regardless.

• Numbers hold a special, magical place in chinese culture (as we witnessed with 8.08pm opening ceremony on 080808).
• China takes a super-long-term approach to things: ZhouEnlai, Mao’s premier, when asked whether the French Revolution had been a success, replied without irony that it was too early to tell..
• China may grow old before it grows rich (thanks to the draconian one-child policy).
• Its famous lack of respect for intellectual property.
• Many chinese ventures are unprofitable and propped up by state banks (the state prioritizes jobs over profits, and
• China’s high savings means there’s is plenty of liquidity).

China goes to Europe.
James visits several cities in europe to see first hand the crippling changes that china’s matchless competitiveness has wrought on the crumbling european industrial hinterland (steel mills in germany, clothing factories in italy etc).
If Prato, a city that has been at the center of the global fashion textiles industry since the Medici’s, is unable to stand up to the chinese competition that starts with manufacturing and works its way up the value chain, in time buying brands, technology and skills, what does that say for the rest of europe and its welfare state so painstakingly put together after world war ii?



Image by shehab.hamad via Flickr

America bought and sold.
Takes us to average america to show first-hand how the country’s middle is being hollowed out (middle class, middle america, mid-sized businesses) and sets the scene for a possible future where the politically critical middle class turn against further globalization. the key idea here is that china started out at the bottom of the global value chain – manufacturing – but is moving higher and higher up much faster than a lot of people realize. although china is spending more and more on r&d, it still significantly lags the us on this front, but it is increasingly simply buying its way up the value chain (buying brands and the ip of companies bankrupted by china’s competitiveness).

Not enough to go around.
The mismatch of resources (in part due to China’s inefficient, wasteful use of its geological assets) and the size of its population has meant the environment has been an incontestable loser of china’s magnificent rise. but as kynge notes in the book’s final pages when tempering the possibility of a military clash between the US and China, pragmatism usually wins over at least in the short-term in china and as the environmental costs to china continue to be felt, action will probably be taken. in deed the SEPA profile seems to have risen noticeably since the book was published.

We also learn about the CNOOC v congress battle, and that the commodities boom kicked off when China joined the WTO – probably not coincidentally. also, the yangtze river is running dry!

Corruption and inefficiency are to blame for a lot of this (as well as a philosophical disrespect for nature).

Collapse of Social Trust.
China has a rich philosophical history (we learn about the concept of ren- roughly benevolence) but as mencius said in his bull mounatin parable (on ren, human goodness):

“The Bull Mountain was once covered with lively trees. But it is near the capital of a great State. People came with their axes and choppers; they cut the woods down, and the mountain has lost its beauty. Yet even so, the day air and the night air came to it, rain and dew moistened it till here and there fresh sprouts began to grow. But soon cattle and sheep came along and browsed on them, and in the end the mountain became gaunt and bare, as it is now. And seeing it thus gaunt and bare, people imagine that it was woodless from the start.”

Social trust is being eroded at an alarming rate, evident in

• News with bonus (pr companies customarily bribe journalists to print stories).
• the emergence of 100,000s of private detectives a job that did not exist just over a decade ago.
• state corruption has lead to HIV infecting one million peasants and orphaned 100,000 children.

Communism vs Democracy.
Kynge: “the main problem with China’s political systen is that it does not permit the checks and balances necessary to supervise and regulate a capitalist society”
some personal thoughts: i believe in democratic in principle (checks and balances, efficiency, accountability, etc, legitimacy), but apart from police and military states that rule completely by fear and intimidation (saddam’s iraq, iran, egypt, etc) there is an invisible social contract between party and people in non-democracries.
the lack of legitimacy conferred by elections if anything drives regimes like china, singapore and the uae to work especially hard to appease their populaces (and you can’t help but be impressed with these systems’ efficiency- beijing’s pre-olympic transformation could only have happened in this context, india would fail given twice as long).
On balance, the loss of efficiency inherent in democracy is a worthwhile sacrifice in my opinion, but it needs renewal i think.

Can we be friends?
‘Waishi’ or foreign affairs in china often blurs the boundaries between friendship of individuals and that of states when it comes to achieving goals.
Chinese schoolbooks teach that the 109 years leading up to the cultural revolution involved attackis and fireign meddling by the US, Japan, Russia, Britain and France without distinguishing between then and now (this will be unsurprising to anyone who grew up in the Middle East where the West, US, and Israel are given similar treatment) which is obviously unhelpful in building sincere fruitful relationships with foreigners.

The state uses nationalism and its ability in returning international respect and prestige to china to build its legitimacy amongst its people. but this brooding, sub-surface xenophobia is difficult to control (evidenced in the street’s reactions to the US bombing of the chinese embassy in belgrade or the recurrent anti-Japanese demonstrations)

We are entering a new era of international politics defined by the geopolitics of scarcity, Kynge outlines a very real possible scenario of heightened military showdowns between the US and China but ends the book on a more hopeful note extolling China’s pragmatism (at least in the short-term) as a characteristic that could lead to the unprecedented peaceful rise of a superpower.

my (more worriesome) thoughts on this at the moment are that key differences between the japan and german post ww-ii rises including:

• The commitment to china’s (played down) military build-up.
• Size!
• Sustained domestic pressure to grow (they need 24 million jobs a year, and must feed the increasingly rich and decreasingly agrarian population).
• and China’s is just as xenophobic as everyone else it unfortunately.

A must read for anyone remotely interested in what our future will look like.

I will have to add the 30million bare branches expected in China by 2020 to the list. Figuring out what to do with that many frustrated, un-marriable men could produce some truly ugly incentives.

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TechCrunch on foreign applications to US schools:

Foreigners Attending US Grad Schools Way Down: Wake Up, Xenophobes
It’s happening: Lou Dobbs’ dream come true and Silicon Valley’s worst nightmare. We’re already seeing the reverse brain drain as smart immigrants take their US educations and experience building companies and creating technology back to their home countries. But now, xenophobia and the lack of any sensible H-1B visa policy is keeping the world’s brightest minds from coming to the U.S. in the first place.

U.S. grad school admissions for would-be international students plummeted this year, according to the Council of Graduate Schools—the first decline in five years. The decline was 3% on average, thanks to increases from China and the Middle East, but some countries saw double-digit declines in interest in a U.S. education. Applicants from India and South Korea fell 12% and 9% respectively—with students turning their sights on schools in Asia and Europe instead.

This shouldn’t be a surprise. Much of the world’s economic growth—hence, jobs—is in emerging markets, the schools are far cheaper and in many cases competitive academically, and then there’s the H-1B issue. If America won’t allow a PhD just trained in our top schools to work here and contribute to the economy—why come here and take on the student loans to begin with?

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Jon Oliver asks Columbia‘s Bruce Kogut if he’s ever had a student he thought would do some serious jail-time and then chats to Harvard MBAs about the ethics oath.

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Lex in a recent note on Luxury in Japan:

What is really spooking the industry though – in a country that has accounted for over half of Louis Vuitton’s sales – are fears that buyers will stay away when the economy recovers.

The column refers to an interesting recent McKinsey report on the Japanese Luxury market.

I think anyone who’s been to Japan will agree it’s the world’s most sophisticated consumerist society. The report attempts to assess the potential long-term impacts of the current downturn that has seen year to date sales decreases of 10% – 20% in Japan. The Japanese consumer base remains the No. 1 consumer for the luxury goods sector and so the market’s developments are vital to the sector.
The long-term question is also vital in terms of Japan perhaps being a harbinger for luxury trends globally (it could of course also be a very specific exception but I’d hedge with the universality approach though with potential for significant time lags in trends coalescing).

Japan’s luxury market has grown so fast and fragmented so far and extended to the middle class consumer with such fervor that one wonders if there’s a certain saturation point beyond which luxury loses its credibility. Part of luxury’s original allure after all was scarcity.

The report highlights some recent trends from Japan:

Decline of conformity and the rise of individuality
This I think is a growing trend all over the world. The question is when does this happen in luxury’s fastest growing markets – China and the Middle East. Will they develop along the familiar arcs of Japan and Europe or will they leap-ahead, catching up with the developed markets in the ways they have in other markets such as tech / mobile? My limited experience of China leads me to think that China will get there before the Middle East as contemporary Chinese culture leaders are already localizing style trends (last month’s Wallpaper* magazine Made In China special was a nice look into that world). The Middle East seems to still look primarily at the US and Europe for its fashion and cultural reference points. Still, it’s just a matter of time.

Increasing preference for luxury experiences rather than luxury goods.
I sense that this trend might take a little longer to play out in China, The Middle East and India where luxury still seems to play an important role as a visible status symbol. Here though, the Middle East may beat China and India to the experience as the saturation point of luxury will be reached far sooner meaning standing out from the crowd may need to move on to other areas like holidays, spa treatments, etc.

Fragmentation of the luxury wallet.
This is partially due to competition from other luxury expenditure (experiences vs goods – so airlines, hotels, spas, restaurants etc) and partially due to the proliferation of goods targeting the luxury consumer (these now include fast fashion brands, sportswear brands and increasing numbers of luxury or premium brands).

Luxury bubble.
McKinsey also claim that part of the growth of luxury in Japan was an unsustainable bubble driven by a rising Euro, an influx of foreign brands entering the market and massive store expansions all around. These trends are now all reversing or plateauing.

Diminishing importance of the department store.
The report also notes that department store sales have been decreasing and see the potential for this trend to continue unless the department stores make strategic changes (that McKinsey would no doubt happily consult on!).
I question how much of this trend is linked to the massive expansions of mono-branded retail even for niche brands. The report also notes that the number of department store doors have fallen consistently over recent years which will have contributed to the trend. If there’s a retrenchment of mono-branded businesses there may even be an additional opportunity for department stores to claw back market share.

What does it all really mean?
The report claims, unsurprisingly that consumers are trading down due to economic factors. However, about one-third claim their buying habits have changed for good and this is what is worrying the industry. I imagine it is also quite likely that minds will be changed again once confidence returns, but that may be a painful wait and it may leave a permanently altered and possibly smaller luxury landscape.

McKinsey make a few recommendations:

Consolidating brands and reviewing under-performing brands.
This runs counter to the consumer desire for individual – which would imply more niche brands.

Extending brands. Armani, Missoni, Bugatti have already begun doing so with their moves into hotels, restaurants etc.

Over-invest in CRM. Customer experience is forecast to be a major differentiating factor in the success of certain brands and retailers over others. Data-mining is also singled out as an area for improvement, especially for department stores. The report notes that the best customers account for anywhere between 20% to 45% of sales – this is where the focus needs to be.

Online sales are expected to grow. Samantha Thavasa is held up as an example of what can be done. Some Japanese department stores are already seeing online stores amongst their top 5 performing stores.

Luxury in the Gulf.
What if anything does this all mean for the industry in the Gulf (one of only two markets expected to grow this year)?
There was probably an element of over-expansion of luxury there too by both retailers and developers (although based on better short-term fundamentals than China’s phantom luxury mall projects). I still sense that the sophistication of the GCC consumer lags most other markets which should play into the big luxury groups’ strengths; advertising and location will continue to drive the consumer habits. Department stores were also late to the game and are probably better placed to perform solidly in the region.
There will doubtless be a shake-out with lesser performing brands being dropped as retailers focus on their winners but the industry faces far fewer of the existential concerns confronting the land of the rising sun.

Sounds like it was a lot of fun. Check these guest lectures:

Derek Sivers, founder of CDBaby and David Simon, a former colleague from Yahoo both showed up. Doug Rushkoff came by, as did designer Red Maxwell. Greg Linn from Columbia Records did a killer presentation about relationships as well. Stephanie Henry, who used to work in Ronald Reagan’s post-Presidential office stopped by. Uber-agent Stuart Krichevsky came to talk about his business as well. Michael Cader talked to us about publishing, and Bill Godin, the world’s #1 manufacturer of hospital cribs came by for a world-class presentation.

Megan Casey gave us both business insights and a lesson in improv, while her former boss, Adrian Zackheim gave us the inside scoop on book publishing. Jay Parkinson, who is singlehandedly reinventing medicine also stopped by, but left us with no Tamiflu. Frank Eliason gave up Tweeting for a day to share his thoughts with us as well. Dave Balter, a model entrepreneur (as opposed to a model who’s an entrepreneur) had plenty of inspiring insights.

Seth was one of the speakers at CBS‘ BRITE ’09 conference. Be sure that I will be in the audience if he comes back while I am at Columbia.

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Richard Florida and The Economist’s Free exchange highlight a recent Career Cast and Going Global survey that asks students where in the world they are excited about launching careers:

1. UK
2. China
3. US

The list then diverges for US and foreign-born students with Hong Kong, Germany, Australia, France and Japan making strong showings in both.

No one is surprised at China’s strong showing. Free exchange responds to Florida’s confusion at the UK’s pole position:

Perhaps it has to do with immigration policy. The government has made it hard for firms taking TARP money to hire foreign labour. This may not directly impact tech workers, but it sends a powerful message. Britain may appear more welcoming. It has a points system that allows qualified English-speaking students to migrate, even without an employer sponsor.

Free exchange on why these charts may worry the US:

IMMIGRANTS have been instrumental to the success of America’s economy. More than a quarter of science and engineering companies started between 1995 and 2003 had at least one foreign-born founder. Immigrant-owned companies generated $52 billion in revenue and employed 450,000 workers in 2005.

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Dubai, at the vanguard of globalization and home to a monumental property bubble (relative to its tiny economy) has not taken the Great Deleveraging well (although at least we are in good company). There’s little doubt that there is more pain to come as we work through the aftermath of the era of excess (in which we partook with typical Dubai extravagance).
However the recent $20billion bond offering ($10billiion of which was subscribed to by the UAE‘s Central Bank i.e. Abu Dhabi) should allow the city-state to move from survival mode to strategizing mode.

There is plenty for Dubai to do in order to clean up the bubble’s fallout including introducing bankruptcy laws, recapitalizing its banks and updating its work permit laws.

Looking strategically beyond the bubble, I want to focus on what I believe is a huge opportunity and potentially an important pillar in building a sustainable recovery for the city: Entrepreneurship.

Entrepreneurship is a part of Dubai’s DNA.
It has been in frantic start-up, high-growth mode almost continuously since Sheikh Rashid’s audacious port investment in the 70s. The city’s business families had to look outside the emirate early on by virtue of the limited size of the local market and are now some of the region’s leading enterprises (MAF, Landmark, AlGhurair / Mashreq, Al Futtaim). The city-state itself has created some truly world-class companies including Emirates, Emaar and Jumeirah. It has also been home to many other smaller entrepreneurial successes over the decades (Flip Media, Byrne, GEMS, ITP).
The early entrepreneurial spirit continued with Sheikh Mohamed’s even more frantic rush to build Dubai into the region’s undisputed commercial and tourism hub. Both rulers acted more as businessmen than statesmen (whether or not you agree with that approach is a topic for another blog post) and worked hard to appeal to traders and businesses from around the world.
The strategy has been a success in terms of producing the region’s best business infrastructure, both hard and soft.

Dubai has succeeded at attracting globally competitive talent that puts the city far ahead of. Dubai’s talent pool is far deeper and wider than any other city in the Middle East. The key now is to capitalize on this talent rather than allowing outdated laws to drive it away (especially as Doha and Abu Dhabi are poised inevitably to draw away the cream regardless).

As a former serial entrepreneur in Dubai and a part of the team that developed the city’s first SME-based initiative I have a few ideas that Dubai could quickly implement:

Employment Visas
Update the employment visa laws such that out of work skilled workers can, at a price, remain in the emirate, perhaps even self-sponsoring themselves. At the minimum the city should extend the period that skilled expatriate workers can spend in between visas as they search for new opportunities.

Licensing
Introduce a new type of license at the Department of Economic Development that allows for start-ups with lower capital requirements than currently required, but with corresponding limitations on the businesses:
Specifically, different bank account types could be introduced that limit the amount or usage of checks (one of the main reasons for the current min. capital requirements I believe). Limitations on how many employees can be sponsored on these licenses. Upper limits on revenues (although how you control this may be difficult).
This would be especially helpful to those in the finance, media and service sectors – the capital-light, knowledge-heavy industries that Dubai needs to fulfill its knowledge-based economy aspirations.

Incubators
The flip-side of the stupendous over-building that just took place in the city should be the falling prices of in many cases world-class offices. This is terrible for developers and bankers but is great for budding entrepreneurs. The city happens to own a lot of the commercial and residential developments that will be flooding the market soon. Segments of these should be bundled and offered to entrepreneurs at attractive rates with basic business services and administrative support. Licensing and other government costs should also be included in the offerings which should be guaranteed for a three period.

PR
Leverage Dubai’s core competency – its PR machine (although the shine has come off this a little recently). Launch a campaign to entice other recently out of work talent from all over the world by highlighting the city’s advantages: Dubai is soon to have one of the best value-offerings in terms of infrastructure (office, roads, airport, residential) in the world (although we lag shamefully in telecoms), lets let the world know. The sooner local developers face the music and reduce their rent and sales rates (and book the associated losses I’m afraid) the sooner the city can start rebuilding, turning a current liability into a future asset).

And more

• Convince the UAE to start acting like one country. This would mean Dubai-based companies, particularly those in the real-estate and finance sectors, could serve the capital where growth should remain relatively resilient throughout the downturn – the capital’s economy is surprisingly unwelcoming to Dubai-based companies.
• Open up the Mohammed Bin Rashid Foundation to non-locals.
• Set up and Angel Investment Fund (pool some of Dubai’s leasing businesses to co-fund it).
• Encourage emerging markets’ companies to set up regional bases in Dubai (China, India et all will continue to grow through this mess).

It’s long been known that entrepreneurship is central to sustainable growth. Dubai has gone some way to creating the required conditions. It’s the opportune time now to go all the way. And best of all, it’s an affordable (part) solution to the city’s crisis.

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