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  • Archive for November, 2013

    Battle in Bangkok: Protest Politics & Key Factors for Investors (Guest Blog)

    November 30th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    Recent news coverage about the political turmoil unfolding in Thailand has led to speculations about the country’s future. Given the current political temperature, investors are primed to wonder whether Thailand can continue be a reliable hub of emerging market growth that it has been since the 2008 global financial crisis. This depends on several factors and our analysis of those is highlighted below.
    We conclude that (i) although the current political unrest may remind near-term investors of Thailand’s inherent political risk, the medium to long term prospect of Thai economy is less likely to be affected by an outcome of such unrest; and (ii) the real challenge for Thailand going forward is how it can cope with structural changes in its growth model.
    1. What causes the current Thai political upheaval?
    As followers of Thai politics may note, the ongoing protest movements that led to the current political upheaval revolves around one polarizing figure: former Thai prime minister Thaksin Shinawatra. Setting aside class and income gap analyses, the movements in general contain two opposing camps: his supporters vs. his opponents. While Thailand has experienced political protests before, most notably in October 1973 and May 1992, political protests have not become ingrained in Thai culture until Mr. Shinawatra became prime minister in 2001. Having witnessed Mr. Shinawatra’s party won many landslide elections to form governments between 2001-2006, the first group of his opponents (i.e., the “Yellow Shirt People” group, as manifested by the color of shirts worn by protesters) staged several public demonstrations. Later when an opposing force led by the Democrat Party became the government, the group that supported Mr. Shinawatra (i.e., the “Red Shirt People” group, again as manifested by the color of shirts worn by protesters) then staged several public demonstrations from 2009 to 2010.
    2. What is the future of Thai politics as a result of the current upheaval?
    The current political upheaval started from a disagreement over an amnesty bill. Proposed by the government led by Yingluck Shinawatra, Mr. Shinawatra’s sister, who became prime minister in 2011, the bill caused outrage among Thais because it would have essentially nullified thousands of corruption cases, among them Mr. Shinawatra’s conviction. As a result, the Thai public then started to protest the bill in a peaceful civil disobedience fashion in October 2013. Perhaps taken by surprise, the government softened its stance by promising not to pursue the bill further if the Senate rejected the bill. In November 2013 all members of the Senate presented unanimously rejected the bill. Ms. Shinawatra’s government has also continued, up to the date of this blog, to handle the protests in a manner that can be described as both stern and even-handed. Thus, the Democrat Party and opponents of the government are presented with the problem of picking a cause as popular as objecting the amnesty bill to keep momentum going in their street protests. Which brings us to the current state where the two sides are currently at the unblinking political standoff. Given a track record of Mr. Shinawatra’s party winning each general election by a landslide in the past decade, it is likely that the Democrat Party may not gain sufficient votes in the next general election to form a ruling government. Or that is supposed to happen if everyone plays by the same rule. But has protest politics ever been about playing by the same rule?
    3. How does ongoing political protests affect the Thai capital market?
    The short answer is not much, but this gives a sense of false hope. Although almost always punished by near-term investors, political instabilities in Thailand have not really affected the country’s capital market in the past decade. For instance, except the dip during the period of couple quarters after the global financial crisis in 2008, the Stock Exchange of Thailand SET Index has grown steadily from 2003 to more than double its size in 2012 before reaching a record peak at the second quarter of 2013. Many observers may note that this is the same decade where political protests became prominent in Thai culture. However, the SET Index has already climbed down after that quarter due to several trends that caused capital outflows from many emerging market countries, most notably the announcement by the U.S. Federal Reserve to taper its quantitative easing asset-purchase programs, and the breaking news confirming the then much-rumored “China Slowdown” in late May 2013, (i.e., several months prior to the current political standoff). This is not to understate the near-term effect of the political unrest – indeed in the period of one month after the protests against the amnesty bill had started, the SET Index moved massively downward from around 1,450 to around 1,350 points (about -7%). Nevertheless, given the long-term data that has seen sharp cliffs rubbed to shallow hills, it is reasonable to conclude that (i) there has been a decline in investment growth in Thailand for some time, and (ii) such decline was not necessarily caused by the country’s political risk alone. However, if violent clashes occur among protesters and/or the government, it would likely be reflected negatively further in the Thai capital market (i.e., severely delay its recovery from the already much lost ground).
    4. What are other developments that investors in Thailand should consider as crucial factors?
    There are at least three key global factors: the effect of the Fed QE tapering, China’s economic recovery, and Japan’s Abenomics policies. The most notable of these is the China recovery and Thailand’s place in China’s supply chain. Followers of China and Thailand economic growths may notice some correlation in the rises and falls in the economy of the two countries in the past decade. But this trend appears to end in the third quarter of 2013 where China economy seems to recover, but the Thai economy continues to slow down. Another factor that may render Thailand less competitive regionally is Japan’s weaker yen, and its potential diversifying of its manufacturing bases away from Thailand to neighboring Southeast Asian countries.
    Then there are the domestic factors: Rising business costs, and contraction in financial and real sectors. These factors combining with the dynamics of key global factors require Thailand to adjust its growth strategy in order to stay competitive; such strategy may include improving on its export-led growth model, and exploring further option in its service-led growth model. An example of this may be the Thai tourism industry, which is still doing extraordinarily well within the overall domestic contraction, expanding almost 30% year-on-year as reported by the Bank of Thailand in September 2013. A recent survey of flight cancellation in November also shows that Thai tourism industry has yet to be affected by the current political unrest, revealing almost unchanged number of flight cancellations during the industry’s “high season” in November and December.
    In summary, although political unrest alone may not have been a deal killer for investors in the Thai capital market, the peaceful resolution to any such unrest, as well as policy initiatives that attempt to address the country’s challenging factors, should make investing in one of Asia’s most dynamic economies less of a bumpy ride.
    Kemavit Bhangananda is a registered U.S. attorney with the State of New York Office of Court Administration. A former vice president of Lehman Brothers, he is a graduate of Thammasat University Faculty of Political Science (B.A. International Relations) in Thailand, and Suffolk University Law School (Juris Doctor) in the U.S.

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    Seoul Defense Dialogue (SDD) – 5 Things to Know

    November 28th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    The Seoul Defense Dialogue (SDD) is the region’s highest ranking multilateral security dialogue platform hosted by the Republic of Korea’s Ministry of National Defense. Under the slogan of “security and peace for cooperation,” the dialogue aims to improve the security environment and establish military trust for the Asia-Pacific region that includes the Korean Peninsula. The SDD was first launched in November of 2012 with the attendance of seven vice defense ministers, but this year the number increased to 24 countries.
    The SDD strives to contribute to bringing peace and stability to the Korean Peninsula and the Asia-Pacific region. With the military trust establishment amongst countries and the progress of security cooperation, the objective is for South Korea to take the lead so that the level its national prestige and visibility will rise. In reality, within two years since its formation, the SDD has already institutionalized and secured competitiveness.
    In 2012, the theme of the SDD was global non-proliferation, cyber security and national defense management. This year, these same themes were taken and intensified.
    5 Takeaways from the SDD are:
    1. SECURITY PLATFORM FOR KOREAN PENINSULA: SDD created a platform for South Korea to call its very own. Thus far, Korea has participated in many security dialogues such as the Shangri-la Dialogue. However, from the stance as a participant among many countries there were limitations in explaining our perspective. Through the SDD, South Korea was able to put forth to the international community its specific stance on North Korea with respect to foreign policy.
    2. KOREAN DIPLOMACY: SDD was able to expand the prospects of Korean diplomacy. Until now Korea’s foreign policy was focused on bilateral exchange with major powers. However, through this year’s SDD dialogue, South Korea had a forum to exchange views with a variety of countries like Europe, Southeast Asia and Oceania.
    3. DIALOGUE FORUM: in a situation where it is difficult for a country’s foreign affairs to take center stage, the SDD provided a forum for South Korea to play a central role relating to Korean security issues. Even amongst the difficult situation of South Korea-Japan relationship due to unqiue historical and militarization issues, there was a need for a dialogue channel. As such, SDD was able to create a space for dialogue between the two countries.
    4. MULTILATERAL DEFENSE MECHANISM: there is already a multilateral defense mechanism like the ARF in Southeast Asia, but currently Northeast Asia does not have one. The Six Party Talks is the most amiable, but currently not in commission. The SDD is a new approach to multilateral dialogue space for Northeast Asia beyond the Six Party Talks.
    5. MILITARY DIPLOMACY: regarding military diplomacy, SDD was able to open new prospects for military diplomacy. Security is devised of a hardware like military deterrent and a software like military diplomacy.
    Hwang Jae-ho is a professor in the Division of International Studies at the Hankuk University of Foreign Studies and director of the university’s Global Strategic Cooperation Center. He is also a visiting fellow at the Brookings Institution and an Advisor to the Asia-Pacific Global Research Group. He served as a key adviser to the Seoul Defense Dialogue. He played a central role in inviting civilian experts from home and abroad and setting up the forum’s agenda and session schedules.

    Negotiating in Asia (Strategy 2): Assembling Your East-West Negotiation Dream Team

    November 21st, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    Gray is the New Black:
    One core Confucian value is respect for elders. In the West, elders are certainly respected, but arguably not to the highly deferential level seen in many Asian regions. While those in the West may aspire to be, act and appear youthful, signaling innovation and adaptability, many in Asia aspire to be seen as older rather than younger, signaling the need for greater recognition and respect.
    If a negotiator is relatively senior in age, but appears relatively youthful in appearance, this may also lead to mixed signals since the Asian counterparty may simply interpret the counterparty to be relatively young, which as mentioned, is not considered as great a virtue in Asia as in many Western countries.
    So what is the most clear signal of having reached a mature age? Gray hair, among many other things. This will serve as a constant visual reminder to the Asian counterparty of that particular negotiator’s age, and thus, presumably senior status and need for recognition and respect.
    As such, the takeaway should be that your negotiation team should be composed of at least some senior figures—preferably with shades of gray–when negotiating in Asia.

    If interested in more Asia-related research and consulting services, CLICK HERE to contact us at the Asia-Pacific Global Research Group.

    “Cash Donations” are the Strategic Choice for Philippine Haiyan Disaster Relief: 6 Things to Know (Guest Blog)

    November 14th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    A variety of people have in good faith attempted to organize donations, mostly in the form of physical goods, to be delivered to the Philippines to aid victims of Typhoon Haiyan. But for those who want to help, “cash is king” in terms of aiding the Philippines rather than donations of food and clothing.
    Sending cash is better than sending food for the following reasons:

    Reason 1: The selection of food is subject to the “availability bias”

    When choosing to send food, people are likely to look at what they have around them in their house or maybe in their near-by store. However, what you have available is not necessarily the best food for a disaster situation. The best food for a disaster situation is the food that the disaster experts have pre-planned and made ready for these situations. Choosing what you have available, is what behavioral economists call the “Availability Bias”. Choosing what you have available is likely not the best food for this situation.
    Reason 2: Shipping food is expensive
    Even if you could find the appropriate food in Korea, it is expensive to ship it quickly to the Philippines. That shipping cost is subtracting from the total aid that will reach the victims. In addition, all packages sent to the Philippines will have to clear customs, perhaps incurring additional costs.
    Reason 3: Shipping food cheaply means shipping food slowly
    Sending food by ship instead of an airplane will save money, but it could take up to 30 days to arrive. Customs will also get bogged down by the enormous amount of items that are being shipped to the Philippines, thereby slowing not only your food delivery, but also important medicines.
    Reason 4: Getting the food to the victims may be extremely difficult
    Most hard hit areas have little to no communication. Airports that are operating in hard hit areas are being used by the military planes that are delivering aid and evacuating people. If a land route exists, the roads may be blocked or bridges may be gone. If you ship by boat it is slow and you need transportation once you get to land.
    Reason 5: Giving different food to different people is a bad idea
    Humans have two types of thinking systems in their brains: A logical, slow-thinking system that can process information one piece at a time and a primitive, fast-thinking system that is built for survival and is driven by emotions and instinct. In a normal, relatively stress-free environment the logical system can operate more easily. It is great at planning for the future, for example. In a disaster environment, stress is extremely high and this triggers the primitive fast-thinking system to go to work to ensure your survival. This system can also be dangerous: crimes of passion, for example, are a result of using this brain system. So, why is it a bad idea to give different food to different people? Because the primitive brain is doing all the thinking for the victims (they are in survival mode), and if you give Person A something different than Person B you may introduce a feeling on inequality, jealousy, envy, etc. It’s like adding fuel to a fire and it could lead to increased stealing, fighting or worse.
    Reason 6: Resources are limited
    In the short-run, resources such as trucks, ships, airplanes, and airports are fixed. Resource supply is fixed. In a disaster, obviously, the demand for these resources increases, thereby triggering an imbalance. You may have the right food ready to go in Manila, but you may not be able to obtain the use of the resources to get it to the victims. Bottlenecks are occurring now. If you ship food you are increasing demand for these resources, creating further bottlenecks in the system, and thereby slowing down the flow of aid to the victims. Important aid such as medicine and water may be crowded out.
    Reason 7: If you send cash, food can be purchased locally
    There can be a secondary benefit to the victims of purchasing the nourishing food that they need. When you purchase food, you stimulate the economy. The vendor receives money and the government receives tax revenue. This increased consumption can have a ripple effect through the economy, as the vendor uses his/her increased cash flow to purchase from other vendors and on and on. Which economy is in more need of stimulation? Many crops have been damaged in this agricultural-based economy. People are out of work, as the workplace may be gone. Infrastructure will need to be rebuilt. Therefore, purchasing the food in the Philippines will allow them to get this much needed secondary benefit.
    In sum, sending cash is the most efficient way to get aid to the Philippines. Ideally, that cash is funneled to an agency that has expertise in disaster recovery. They will be able to buy or order the right food at the right price. The agencies are experienced in logistics, so they will be able to get the aid to the victims as good as or better than you could. There will be delays for reasons mentioned above. You cash will be spent locally whenever possible, and therefore give the Philippines a much needed additional stimulus. In addition, the cash can be used to buy medicine, supply medical aid, erect temporary shelters, supply clean water, etc.

    So, which agency should you send your money to? Try (no affiliation with the author). This site lists agencies that are supporting the relief effort for Typhoon Haiyan. It also rates the agencies based on financial performance, accountability, and transparency.

    Brian Sullivan is an Assistant Professor of Finance at Hallym University in South Korea. He is a graduate of both The University of Chicago Booth School of Business and The University of California at Berkeley. His wife is from the Philippines.


    The Extreme Economics of South Korea’s “English Fever”: Why the Numbers Don’t Add Up

    November 14th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    How much should a person pay, as a non-native speaker, to master the English language?
    For some, it would be a rational calculation, dispassionately weighing the potential costs and benefits associated with learning the English language. But arguably for the vast majority of South Koreans, the process would be the antithesis of dispassionate—an extremely passionate process in which the only economic limit would be primarily based on how much the particular person (or very likely, the person’s family) could afford for such education. This has led to an entire industry or micro-economy in South Korea that is often beneficial for producers (an elaborate and vast array of private education institutes, known as hagwon), yet often not so beneficial to the very target group that is seeking such knowledge and language capabilities—South Korea’s students.
    Currently, over 17,000 hagwons exist that teach English and related educational services exist in South Korea today. That’s roughly one hagwon for every 3,000 people nationwide (not just those of student age). Even more, the annualized growth rate of the hagwon industry from 2005 to 2009 was an astonishing 20.5%. Such explosive growth has economically incentivized even more hagwons to enter into the private education sector–with some being more qualified than others. In the same period, the total sales of English language hagwons increased annually by 26.1%. Sales per hagwon also increased by 230 million won from 190 million won.
    On the consumer side, in 2012 alone, the total expenditures on private education was approximately 19 trillion (not billion) won. Of this figure, the vast majority of such funding was spent for elementary school level private education (7.8 trillion won), followed by middle school private education (6.1 trillion won), and then high school education (5.2 trillion won). In total, the average monthly cost of private education for every student in the country is approximately 236,000 won per student every month (for elementary, middle and high school students combined)—that adds up to nearly 3 million won per year, in an economy with a GDP per capita of 22,590,000 million won. Such figures do not even include private education figures at the university and post-graduate level, as well as for various professional certificate and other professional training institutes, which would drive up the figures appreciably higher.
    With so much spending based on South Korea’s notorious “English fever” (a colloquial term denoting the nation’s obsession with learning the English language for academic and professional reasons), surely there must be a nice payoff to show for it.
    Unfortunately, although this may have been the financial case for many (but not all) in the hagwon industry, it has not been the case for the hagwon’s client-students. In a recent survey of 60 countries worldwide by EF Education First’s English Proficiency Index, South Korea ranked 24th, a mere two spots ahead of Japan (26th) and just a few more spots ahead of China (34th). This, in effect, ranks South Korea as a mid-tier English speaking country, which often prides itself on its English proficiency relative to other Asian countries. However, according to the survey, it was precisely other Asian countries, such as China and Vietnam, which made the most advancement in their English capabilities.
    South Korea’s test-taking numbers, at least on paper, are often exceptional. But paper test-taking metrics (used to survey a large group in a time and resource-constrained environment like a country’s student population) generally only measure the “theory” of a discipline—namely grammatical rules and vocabulary resuscitation test-taking capabilities–which often fails to accurately measure the “actual application” of the discipline in the real world. In part, this is based on the country-wide working practice of a top-down “teaching to the test” pedagogical approach–whereby rote memorization often represents the dominant teaching medium.
    This is in part due to the nation’s fixation on standardized tests like the TOEFL and TOEIC, which are too often needed and used as an important filtering metric for admissions into Korean universities and employment at Korean corporations (irrespective of whether English is actually needed or not). Perhaps it is for this very reason that the average (but not every) South Korean is more concerned about getting the “right answer” on an English aptitude exam than on actually learning to use it on a practical basis.
    As the evidence shows, quantity does not always translate to quality. The average South Korean student has been exposed to nearly 20,000 hours of English education from kindergarten through university—another staggering figure–according to the EF Education First survey. If you adhere to Malcolm Gladwell’s argument in his book Outliers, which asserts that it takes about 10,000 hours to become a “genius” (highly specialized expert) in a particular area, virtually every South Korean should be an English genius, in other words, at least proficient in aspects of writing, listening, and speaking. But unfortunately, this is not always the case—although it should be, given the resources underlying English language acquisition.
    Not all may agree with Gladwell, but certainly a consensus can exist that 20,000 hours of exposure to English education (or even a notable fraction of that figure, if you don’t agree with EF’s figures)—is not ideal.
    The extreme economics of South Korea’s “English fever” syndrome represents not only a dire financial drain on the national economy, but also a socio-economic one. Many families are separated by choice for months or years, so that one parent (typically the father) earns money to finance such extreme educational costs. In this “goose father” setup, such funding earned in the separate country is then sent to the other parent (often the mother) who is taking care of the child to study English overseas. Such voluntary family separation has and will continue to reap socio-economic problems if it continues.
    So what is the solution? Obviously, no silver bullet answer exists. And we have all heard the usual posited solutions: better teachers, more customized classes, innovative curriculum development, and the like. Thus far, however, little progress has been made. So perhaps a more forward approach could be considered. For instance, as one example, the country could embrace English fully and entirely by making it an official national language (as Singapore, which has one of the world’s highest education and GDP/capita rates in the region, among other countries) in addition to Korean. This may seem drastic and even radical for some, but integrating the language into all levels at school and throughout the country could make the nation more in line with its aspirations of being a “Middle Power” and socio-economic hub. Or instead, it should focus on less English education for most of its students, while require extreme English education for those only who will need it on a regular basis for their future global career trajectory.
    For a shorter version of this article’s topic (with an accompanying video interview clip) in the Wall Street Journal’s (WSJ) Korea Realtime website, CLICK HERE.

    If interested in more Asia-related research and consulting services, CLICK HERE to contact us at the Asia-Pacific Global Research Group.