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Singapore as US Values Partner in SEA?

I had the very enjoyable opportunity to listen to two US Ambassadors to Singapore, Former Ambassador Steven Green who is a UofM alum and long-time resident of the Miami area, and also current Ambassador Wagar who lived/worked in SFL for a number of years prior to being posted to Singapore.  Both were engaging, informed and interesting, not to mention willing to take questions and discuss regional issues concerning China/ASEAN/Singapore. Here are 10 things stood out to me from their more than 2 hours of comments and answers to questions.

First, they are both absolutely pro-business and both see the professional and corporate world as a tangible extension of US foreign policy.  Both were big TPP supporters as well.  This is quite the contrast to the usual social science line that capitalism is THE reason for all the world’s problems.  For these Ambassadors rather, capitalism is THE key to getting massive numbers of people out of poverty and promoting US interests abroad.  And while there certainly are “quibbles about the number of ladders available,” as Amb. Wagar said, Singapore is example A-1 for the case that capitalistic meritocracy is the BEST option for the most number of people.

Second, as democrats (both of them—political appointees of Clinton and Obama respectively) they openly pined for the “efficiencies of authoritarianism.”  I really can’t keep up with most lefties as they switch from the values of a meritocracy to the advantages of unilateral policy decisions in getting things (notably, the Left’s social agenda) done.  While both repeatedly took the relativist approach that “we can’t judge their brand of democracy or human rights” they also reminded us over and over that the US just doesn’t get things done like the Singaporeans do and should really learn a think or two from them.  Now, I don’t doubt that Singapore has done many things successfully that the US could learn from.  But, I really like my leaders (and academic speakers) to be a bit more consistent.  Maybe this was the “gone native” part of the presentation that Ambassador Wagar warned us about?

Third, Singapore was seen as THE strategic partner (but not Ally) in the SEA region.  Most advanced air force, best education and economy, most transparent govt, best infrastructure, etc.  But again, I found it more than a little questionable that Singapore’s “un-committed” political position was repeatedly praised as such an advantage to the US. While we certainly avail ourselves of the logistics available in Singapore, that they also facilitate transportation for NK and Iran and others makes me question the on-balance value to US interests of Singaporean neutrality (as opposed to housing logistical services out of the Philippines, for example). Isn’t the ease of mobility for transnationals of questionable intent one of the problems with BKK and Manila?  How is the fact that it’s even easier via Singapore such an advantage?  And of what value has Singapore’s air force and logistical support for the US been in the last year or so as China builds airstrips in the South China Sea (which both ambassadors condemned)?  Exactly none.  Because Singapore is trying to be politically neutral (and is 75% ethnic Chinese) they are actually limited in what they are willing to do (or allow the US to do from their ports).

Fourth, “similar values” make the US and Sing natural partners. What values, you may ask, do the US and Singapore share? Why, transparency, efficiency, education, good governance, racial balancing and business success.  According to the Amb’s, these are traditional values (use you’re own fingers for air quotes) that both the US and Singapore aspire to and these make us natural trade/political partners. When did any of these become national values to either country?  Sure, they’re important business concepts….but national values?  Further, these values that Singapore holds dear were placed in direct contrast to Indonesia and Malaysia (and I think you could add in the rest of ASEAN too) and their endemic corruption and “that’s how it’s done here” acceptance of bribery and cronyism.  I agree that Singapore is indeed THE bastion of transparency in SEA, just about anyone would be compared with there other SEA countries—and this was their point: see how damn impressive Singapore is to pull this off in SEA!? But I’m just not buying that these are values held dear by either country. Or that other countries (Thailand, which means “free country,” or the mostly-christian Philippines, for a couple of counter examples) couldn’t work just as well as “value partners” if that really was the deciding factor in military-logistical decision making in SEA. Now if you just want to talk about business climate/infrastructure, then maybe Singapore does have the upper hand institutionally, but there are other issues to consider that I fear were glossed over too easily.

Fifth, Singapore is a democracy but just not “our” kind of democracy; so those in the US that are a bit squeamish about HR abuses need to relax and stop being so judgmental.  First, aren’t they our partners in values? I guess we should just forget about that whole “Asian Human (alternative) Human Rights issue?  And second, whose claiming they should be a mini-US? Certainly no one at the presentation.  And likely not any US businesses.  Maybe conservative lawmakers would like to see more corresponding actual values between the two countries, but in general, I found this to be a straw man argument to allow for justification of Singapore’s more severe politics and unique ideas about culturally specific “human” rights.  It’s also a convenient way to mock an opponent by attacking a position that doesn’t really exist.  Students won’t call these men on it and business people never want govt involved in the first place. This is likely a line that they’ve been using (successfully) for decades.

Sixth, Singapore has gotten education and public housing and multi-cultural society right!  And the US is basically just too parochial (stupid) to follow their lead.  Oh, what could the US be with just a bit more Authoritarianism behind left-wing social issues?! (Did Thomas Friedman, village idiot, write their talking points?)  While this may indeed be true, the accomplishments on education and what not, and that the US should overhaul it’s educational system, the finer point here is this: “what choices are made” to achieve 1.9% unemployment and almost universal post-high school education?  I often chuckle that those who fault the US education system are products of the same (devaluing themselves and their own education with their comments).  Further, when discussing Asia these same critics are often the ones who also point out how the US educational system is one of, if not THE draw for most Asians to the US. I don’t doubt that there could be MUCH more done to improve the system (K-12 specifically) in the US, but “what choices” are required to do so?  Do you really like China’s system of nationalized curriculum and standardized tests?  How about common core and or NCLB?  If we make some college mandatory for everyone in the US, what does that due to wages?  Political pandering is easy…getting things done either requires a majority vote, a “little more authoritarianism,” or willingness to live with other outcomes.

Seventh, China won’t take over the world any time soon. Or ever, actually.  Demographics won’t allow it. They are running out of people. Combine that with their soft power failures and (massive) regional mistrust and you have waking giant that can’t get out of it’s own way. Both Amb’s remarked on how the US was THE destination for education and retirement and rich Chinese because the standard of living, the freedom and “fun” lifestyle, the educational opportunities, etc., All these opportunities exist here and no where else, they proudly chest thumped. My question: how do you get all this freedom AND have a bit more authoritarianism? I don’t know either.

When I asked about the values and keys to Singapores rise, I used the word “authoritarian” and they pushed back specifically on that word.  They instead used words like “forced” and “mandatory” and “constructed” and repeatedly the phrase, “not our style of democracy.”  Their view of the US and Singapore was summed up with this pithy remark (designed to show how stupid the US population is in general in comparison to the more advanced Singaporeans), “In the US, the people don’t trust the government.  In Singapore, the government doesn’t trust the people.”  Standard socialist (democrat) line: Trust me, I’m the government. (At least we supposed to trust you in the off-years when Dem’s are in the Whitehouse, right?  You don’t want to trust the Govt with the GOP in there right?  “Bush lied,” et al.)

Seventh, the most interesting concept they presented was the idea that South Korea and Taiwan are virtually irrelevant to world politics outside of political debates in the US congress concerning US regional strategy.  The Amb’s claimed that both declining regional economic powers with little to no military power but are still strategic to US interests in the region.  Neither provide any special access to other countries/markets (as Singapore does with ASEAN, they claimed). And the two countries have decided to focus on trade with China instead of investment (from the US and other more developed countries).  This choice was, in the Amb’s opinions, the wrong horse to back for long-term growth.

Eighth, Singapore is THE hub for all int’l business in SEA.  Best government, best banking infrastructure, best education, best judicial system, etc. in the region. Better and more stable than any other metropolis in SEA.  And since the demographics of ASEAN are growing (more youth than old people) the future of middle-class Asia is in SEA, NOT China or NEA, whose populations are all getting old.  While I agree with the demographics argument visa vie China and NEA, there is no way that Singapore provides any advantage for entrance into the Burmese, Thai, Vietnamese or Philippine markets that couldn’t be had in spades in those home countries themselves.  Yes, international law is likely to be better upheld in Singapore and so regional offices (that support multiple countries) are likely to be established in Singapore (or Hong Kong), but there is no cultural or linguistic advantage to being in Singapore over Bangkok for these other ASEAN markets. Just like you’re not getting more of the Chinese market in Sichuan by having an office in Beijing (their argument), you’re also not getting more of the Vietnamese market by having an office in Singapore.  Actually, since I’ve done business in each, I would personally argue that yes, you are better off in Sichuan with an office in Beijing than you are in Vietnam with an office in Singapore. Further, that Singapore is less corrupt and more transparent than the rest of SEA is true, but these practices don’t extend beyond the border.  I’ve worked directly with Singaporean owned factories and Singaporean individuals in Vietnam, Thailand and China and they were just as willing to participate in kickbacks and other questionable ethical practices as any other locals.

Ninth, 7 guys with a vision of hard work, transparency, good-governance and education are the keys to Singapore’s success and the wonderful second generation is now carrying the torch forward.  I’m not sure how much of the job of Ambassador is promotion of US business interests into Singapore and the promotion of Singapore to the US business community, but it’s obviously the first or second (promotion of actual US foreign policy being the other) priority.  If that’s their job, then their doing great.  I’m all for making money, getting educated and getting govt out of my life as much as possible, but I’m not sure that promoting the Singaporean model is exactly “my kind of democracy.”  The Amb’s, close personal friends of LKY and his son (Green was one of three Americans invited to LKY’s funeral), were unequivocal in their support for Singapore as THE key to business, logistics, regional military power and the future of US interests in Asia.

Finally, both gentlemen were very polite, willing to talk afterwards and have been more than successful in their respective lives outside of public service (Ambassador Green was the CEO of Samsonite and has donated tens of millions of dollars to FIU—Thank you so much, sir.).  They have more experience than I do in Singapore and in govt. And while I respect their opinions though I obviously don’t agree with, as they stated to me, “the premise of [their] argument” on a number of issues.  But that’s kind of the point of education, isn’t it?!

“Life, uh… finds a way.”

John Hammond: [as they gather around a baby dinosaur hatching from its egg] I’ve been present for the birth of every little creature on this island.
Dr. Ian Malcolm: Surely not the ones that are bred in the wild?
Henry Wu: Actually they can’t breed in the wild. Population control is one of our security precautions. There’s no unauthorized breeding in Jurassic Park.
Dr. Ian Malcolm: How do you know they can’t breed?
Henry Wu: Well, because all the animals in Jurassic Park are female. We’ve engineered them that way.
[they take the baby dinosaur out of its egg. A robot arm picks up the shell out of Grant’s hand and puts it back down]
Dr. Ian Malcolm: But again, how do you know they’re all female? Does somebody go out into the park and pull up the dinosaurs’ skirts?
Henry Wu: We control their chromosomes. It’s really not that difficult. All vertebrate embryos are inherently female anyway, they just require an extra hormone given at the right developmental stage to make them male. We simply deny them that.
Dr. Ian Malcolm: John, the kind of control you’re attempting simply is… it’s not possible. If there is one thing the history of evolution has taught us it’s that life will not be contained. Life breaks free, it expands to new territories and crashes through barriers, painfully, maybe even dangerously, but, uh… well, there it is.
John Hammond: [sardonically] There it is.
Henry Wu: You’re implying that a group composed entirely of female animals will… breed?
Dr. Ian Malcolm: No, I’m, I’m simply saying that life, uh… finds a way.

(Thank you, IMDB)

Would you get fake-divorced to save on your taxes?  Apparently hundreds of people in China will.  I’m not saying that this is right or wrong, it’s just one way to play the system.  But I am saying that even after 20 years in Asia, the extend that average people will go to make money still amazes me sometime.

Ultimately this story is either a great example of how creative Chinese can be in overcoming political/financial obstacles thrown up in their pursuit of wealth.  Or, with a bit of context, it’s another example of how that pursuit of wealth has made even the sacred fair game.  Maybe it’s both.  The point being, This Ain’t Kansas Anymore.  While the “game” is the same (make as much money as you can ASAP), the way it is played is not always what you’re used to back home.  If you still dont’ think that everything you see is a show, you just don’t get it.

Are you performing The Ferrari Test?

Don’t let the fact that the companies in this article are all large lull you into to thinking you’re too small to get ripped or that you’re too important a client for your factory to pull these kinds of tricks on you:

Despite well-known risks in China, auditors there often are not inquisitive enough or alert to possible fraud, some experts say.

Auditors in China may pore tirelessly over documents and yet “fail to spot the red Ferrari parked on the doorstep and fail to ask who it belongs to, how it was paid for,” said Peter Humphrey, founder of ChinaWhys, a Shanghai-based anti-fraud consultancy that has investigated white-collar crime and fraud at scores of multinational firms in China.

China experts said it is difficult to do business there without encountering demands for gifts or kickbacks.

Transparency International, a corruption watchdog, surveyed business executives who said Chinese firms in 2011 were second only to Russian companies in being most likely to pay bribes abroad.

As always, the key to being successful in any work in China is the Due Diligence done BEFORE the project begins–and don’t fret if this DD takes longer than the production time of your project itself.  It’s time well spent.

If you’re spending more money than you can afford to lose (or can afford to pay double for the same qtty’s) then you need to go to China BEFORE you ever start any work or sign any agreements.  Visit factories/suppliers actual facilities, not just their trade-show booth.  Go to at least 2-3 different cities as well (and I don’t mean three neighboring cities like Dongguan, Songgang and Huizhou either).  Spread your visit out over multiple provinces and cities so that you can really get a feel for the level of development in the surrounding area (likely where all the sub-suppliers will be located).

A trip to multiple cities in China for 7-10 days can cost less than $5K.  Compare that with the cost of being 14-30 days late or the cost of shipping incorrect, poorly produced and/or unacceptable product back home.

There are things on the ground that you can never get from Skype, email, photos and even trade shows–you have to be there to know what it’s really like.  Spend the money now to be assured that you know what you’re dealing with or spend it later on repairs, rejects, late-delivery and other hassles.

Good luck!

Why do good companies stumble in China?

This is a response to a question by Dan Harris of China Law Blog Fame.

why do some companies seem to just coast into China while others stumble in and never recover?  What more should we be writing about to help those seeking to do business in China or to sell to China?

Dan, you’ve hit the nail on the head once again.  The non-business aspects of business are so much more often the sources of business failure than the numbers/dollars/dates.  I’m constantly amazed at how many foreign clients will say to me about their Chinese counter part, “Yea, they agree with how we do business, but our relationship is worth so much to them that we’re not worried about them doing X.”  And then it happens and they’re shocked that money wasn’t the most important (actually it likely was, they just figured out how to make it without the foreign company).

Like what you’ve read about in New Guinea, China to has different reactions to Westerization/modernization—not the least of which is the rise of (actually continuation of) Chinese Nationalism, that often manifest itself as spats of anti-foreigner racism.  These attitudes are very close to the surface for many Chinese and can be expressed in myriad ways that will affect business but never show up in any due diligence report.  Experiences that we’ve seen over the years include: Chinese not wanting to see foreign companies prosper (relative to Chinese), Chinese managers/owners not willing to work directly with foreigners, openly admitted anger that foreigners marry Chinese women, and a number of other personal issues.  While racism can be the worst case scenario, to say that it’s uncommon is a bit naive, I think.

Less personally offensive, but no-less destructive to business success would be business goals and objectives of local workers, political leaders and/or factory management that conflict with the business goals of the foreigner partner/buyer.  These are often never identified in any business meetings and are only understood after the fact as bits and pieces of previous experiences are revealed by individuals and the larger context is understood in greater detail.

For example, how both groups of workers and factories managers deal with holidays, over-time demands, rejected product, and criticism of work quality are examples of things that happen on almost every project that are almost always at odds with what foreign companies expect.  The ages, education and experience levels are radically different in various parts of China and so expectations for factories in Guangzhou cannot be transferred wholesale to Chongqing or Ningbo—yet many foreign companies are doing just that; “Going to China,” as if it’s just one big homogenous industrial zone.

There are too many example to cite but in the last ten years, my experience has been that “non-business” factors are much more likely to sink projects than are the numbers/dollars/dates (as those are usually contracted out clearly before hand).  As you continue to identify these cultural issues for your business professionals, you’ll save them time and money.  Keep up the good work!

What happens when the miracle is over?

Not sure yet, but it looks like it will be very very bad.  And it’s coming sooner than many want to believe.

From the article:

We now know that [rehypothecated assets] has been happening in China with the most critical component of its economic growth miracle: steel. We will soon discover that all other assets: stocks, bonds, commodities (including gold and silver) and finally cash (think deposits) have been comparably rehypothecated and criminally commingled. The end result will be the most epic bank run in world history, which incidentally is precisely what the central banks are attempting desperately to delay as much as possible by generating excess inflation to “inflate” away the debt, leading to rematching of finite assets and virtually infinite liabilities. Alas, in a world in which credit-money liabilities are in the quadrillions, and in which the real assets are in the tens of trillions, only hyperinflation can seal the deal.

Or, in other words, lose-lose.