Friday, November 17, 2006

SDU's role as Cupid comes to an end

In today's ST:

SDU's role as Cupid comes to an end
Govt matchmaker to hand reins to private agencies; it will accredit them

TWENTY two years, 42,400 successfully hitched singles - and a heap of scorn and bad jokes along the way.

Now, the Government's Cupid for graduate singles, the Social Development Unit (SDU), is hanging up its quiver and leaving matchmaking to the private sector.

It will not, however, quit the scene totally.

In an about-face from its early days - when the mere mention of it elicited a nudge and a wink, and when wags said its acronym stood for Single, Desperate and Ugly - the SDU brand now has cachet.

So its new focus will be on giving its stamp of approval to dating agencies and professional matchmakers, and on funding private-sector agencies and projects which promote dating.

The change in direction is perhaps a result of the national icon's acknowledgement that it has been unable to shake off its image as a state-controlled dating agency, and that private businesses will be better at helping the nation's singles pair up.

Yesterday, Mrs Yu-Foo Yee Shoon, Minister of State for Community Development, Youth and Sports, under which SDU falls, said: 'We believe that the private sector is more creative and innovative. We hope it will play a bigger role in organising social interaction activities and offering dating services for singles.'

While SDU and its sister Social Development Service (SDS) for non-graduates had done well, 'there will always be singles who prefer a private set-up', she added. For the SDS, specially selected grassroots leaders will be appointed to take over the organisation of matchmaking activities.

Hahaha! Guess what! This news confirms what we all knew all along: the government cannot make it when it comes to match make couples!!!

This is an explicit admission that the govt's social engineering policies and attempts at getting Singaporeans to make love have been a failure.

Well, I'm glad I threw away all those SDU packets that they've annoyingly sent into my mailbox for the past couple of years... I don't need you stupid govt to tell me to date and to find a mate.

Expect to see more failed government initiatives being outsourced to the private sector. Why? Because the government cannot make it when it comes to things like this! Social engineering is a deluded policy set up by LKY and that is bound to fail, because the forces of nature are more powerful than any state administrator.

Seriously, isn't this obvious?

'there will always be singles who prefer a private set-up'

Anybody who has ever had any date knows that they don't like to have Daddy and Mummy watching over their shoulder. Except perhaps Lee Hsien Loong who has had Daddy to tell him who to date and who not to date - he and his wife Ho Ching are the ultimate engineered couple. But they don't seem very lovey dovey do they?

Well, most Singaporeans are not like him and are able to make their own decisions when it comes to choosing a mate. And I think they're a lot more romantic in their approach to love than the Lee family 'marry a woman who's more capable than you' utilitarian-logic approach.

Singapore does not need the Lee philosophy to dating. And this move by SDU proves it!

Thursday, November 16, 2006

Singapore vs Hong Kong vs Shanghai as Financial Hub

Singapore makes a lot of noise about being a competitive financial centre - particularly a private banking hub with Swiss standard of private banking. But it seems that all the money is going to Hong Kong.

With the rapid growth of China, and multiple Chinese mega corporations having their IPOs lately, and the stumbling of Shanghai with huge instances of corruption (the former Shanghai governor was fired earlier this year for corruption), Hong Kong is emerging as the true financial centre of China.

Singapore, in comparison, picks up all the small bits and pieces with IPOs of small industrial Chinese companies with poor competitive positions.

A latest Knowledge@Wharton article confirms this:

"Most of the listed companies are state-owned. If you are a state-owned company listed in Shanghai you can't give your executives or directors [stock] options," Meyer says. "The Shanghai stock market has been on a long downhill slope for some time ... it also almost looks as if China has outsourced its capital markets to Hong Kong." He notes that the amount of capital raised on the Hong Kong stock exchange in the first half of 2006 -- fueled by Chinese company listings -- was greater than the amount raised in New York.
Hong Kong is effectively establishing itself as the New York of China - and the Hong Kong Stock Exchange is becoming the New York Stock Exchange of the East.


...Beijing also has learned in the last decade that "Hong Kong is a window to the rest of the world.... There is an advantage to keeping Hong Kong prosperous and not overshadowing it." Hong Kong has a deep talent pool of lawyers, accountants, traders, analysts and economists that can't be easily replicated in Shanghai, he adds.

And it also can't be easily replicated in Singapore. Despite Singapore's moves to be an private banking hub, the real bulk of the banking and financial services in Asia is going to be conducted in Hong Kong.

With massive IPOs, it only makes sense for fund managers and investment bankers to headquarter in Hong Kong where they can get access to the best companies. It doesn't make sense for fund managers to stay in Singapore, away from the action in Hong Kong.

And what about the argument that Singapore has a much cleaner environment and that Hong Kong is polluted and drives away talent? Well, Hong Kong is realising this and cleaning up its environment:

Environmental officials in Hong Kong have begun working more closely with mainland Chinese authorities and are posting pollution data on public access web sites. They have also sharply criticized Exxon Mobil for failing to install equipment to clean the smoke from dirty coal-burning electric units that supply Hong Kong with electricity.

"This is part of economic development," Rowse says. "Forty years ago, there were oxygen tanks on the streets in Tokyo. They cleaned it up." Hong Kong can't point its finger at China for air pollution "because much of it is coming from Hong Kong-owned factories. We're not innocent here." As for the threat of pollution to the city's growth, "Individual executives are very critical of the air, but the companies still know they have to be in Hong Kong to earn a profit."

The smog presents a temporary disadvantage to Hong Kong because employees don't want their families to have to breathe in polluted air. But with a strong resolve to clean up the air, Hong Kong should be able to fix this problem. Once it does it, its underlying structural advantages will establish Hong Kong as the financial centre of the East.

Wednesday, November 15, 2006

Some confusion over your philosophy, PAP?

"I believe at the end of the day, it is possible to create a society which is both competitive and compassionate"
-Vivian Balakrishnan

"...a well-educated university graduate who works for a multinational company should not be bemoaning about the Government and get on with the challenges in life. ... Some people cannot take the brutal truth"
-Wee Siew Kim

How ironic that just after Wee Siew Kim and his daughter establish that they are 'elite' and 'uncaring', Balakrishnan stands up in parliament to claim that the govt is building a 'compassionate' society.

Well they better start with their own MPs. Making such statements in parliament while your own party members make insensitive, uncaring and uncompassionate comments reeks of hypocrisy and is unacceptable for ministers and MPs who are amongst the highest paid in the world.

PAP, prove yourselves with actions, not empty words.

Building an Inclusive Society in Singapore

Indranee Rajah brought up several good points about groups of Singaporeans "not feeling included."

1. Those who drop of school at a young age and find it difficult to integrate into society because they cannot get into skills upgrading courses e.g. courses which require 'O'-levels are not accessible to those without the academic qualification - someone with relevant work skills and experience cannot attend a course which he/she is skilled or experienced in.

Her proposal was to remove this 'O'-level barrier for such courses, and to take into account relevant work experience.

2. Singaporeans (mostly males) with foreign spouses who cannot purchase a flat because the spouse is a foreigner - because policy makes it difficult for them to get a secure roof over their heads. So these Singaporeans find it difficult to settle down and have a family and... make babies.

Solution: Don't disallow them to rent the hdb flats altogether

3. Single unwed mothers who are not allowed to rent HDB flats - an outdated policy. MND does not want to encourage them to have babies out of wedlock.

Solution: Get the mother and child in a stable environment where the child can be educated and where the mother does not have to worry about extraneous circumstances

4. Can only rent if 2 singles above 35 - elderly's friends pass away and they cannot rent flat.

Solution: find rental housing for the elderly - integrate the elderly into the rest of society where there are young people etc.

All solutions proposed by Indranee are good ones, but there are deeper underlying structural problems with society and government that need to be addressed:

A. The first issue brought up about the O-level barrier is symptomatic of a society that has a myopic definition of talent and skills and only recognises academic performance, not practical life skills and other talents which are just as crucial to the functioning of a balanced society as are academic skills. In fact, given that the education system mostly focuses on dumb memorisation and rote learning, I would argue that those who have dropped out of school and have acquired real work experience and skills e.g. mechanics, cooks etc. have made better use of their time outside the education system than within it.

The focus on academic skills is simply too narrow minded and fails to take into take account multiple intelligences (musical, artistic, athletic, technical etc.) that make up a diverse humanity and that can contribute to the building of a richer society than a unidimensional one that is absurdly skewed towards 'scholars.'

It is this mindset that permeates the Singaporean psyche that needs to be purged and destroyed - and it is this mindset that is the real problem.

B. Issues 2,3, and 4 are HDB problems, and Indranee's proposed solutions are good, but they are only short term problems that, once again, attack the symptoms, not the underlying problems.

These problems arise because the government has this 'daddy knows best' attitude that is downright condescending, and often, completely wrong. It comes from misguided attitude that the government can socially engineer Singapore society into a utopia without single mothers and where the elderly find friends easily and where singaporeans only marry singaporeans.

What needs to be fixed is this arrogant attitude of the ministers who think they know everything, when in fact they only create more problems in the social fabric of singapore with their dysfunctional policies. Somebody needs to teach these people that the forces of nature are larger and more powerful than them and their arrogant 'philosopher king' attitude should be trashed. Lee Kuan Yew is one person in particular who harbours this attitude and the fastest way to see change in parliament is to kick the bugger out.

A longer term solution is to just abolish these stupid social engineering policies and just let nature take its course. The private sector and a free market can do fine to accomodate single mothers, foreign spouses, and the elderly. It does not need egotistical bureaucrats to mess things up - many of the problems Singapore faces could have been avoided if not for the meddling hand of the government.

All in all the government needs to be weakened and the private sector needs to get stronger. It is time for change to get under way.

And as can clearly be seen, the PAP's vision of a society where 'nobody is left behind' is so flawed, it's almost delusional. these groups of people are just a small number of the numerous groups are being left behind and Lee Hsien Loong had better get cracking on these problems in order to justify his cabinet's multi-million dollar salaries.

Friday, November 03, 2006

The Economics of Online Publishing


Fragmented Industry

The blogging landscape is highly fragmented. The exceptionally low barriers to entry allow many individual bloggers to set up their own websites and start publishing straight away - this acts as a major deterrant against 'industry domination' or 'monopolisation of talent' that may be attempted by any individual website.

Furthermore, the multitude of topics that are available for blogging make it extremely difficult for any individual blogger or group of bloggers to be all things to all people. Instead, individual bloggers are given the opportunity to specialise in what they know best for their own tailored audience.

Blogging Strategy

With this in mind, the best thing bloggers can do is to try to specialise in specific topics and create their own niche. They have to differentiate themselves from others and have a unique blogging proposition (UBP). Those who are able to do so create a unique brand and following of readers which are able to tell the difference between a certain blog and other different blogs.

Successful blogs differentiate by
  • tone of writing
  • specialising in topic
  • specialising in writing for a particular audience
  • have a unique way of differentiating their content from other blogs

Strategic Traps

Trying to dominate the blogging landscape is a sure recipe for failure. This is because the underlying structure of a fragmented industry makes seeking dominance futile, unless the structure can be fundamentally changed. The low (virtually non-existent) barriers to entry into blogging make this an unlikely proposition. Trying to be all things to all people maximises the vulnerability of a website to the competitive forces of other bloggers who are able to specialise and focus and produce content in specific niches, much better than a website which tries to dominate, can.

Hence, blogs or other websites which try to create a 'one-stop shop' or to be all things to all people are almost doomed for disaster. Take for example this website which is trying to be a centre for opinion and commentary - it is fighting a steep uphill battle against the fragmented nature of online publishing and looks set to struggle unless it changes its strategy to address the fragmented nature of online publishing.

B. News Operations

Unlike blogging, news operations are not highly fragmented. This is because it takes massive investments and a large managerial effort to produce a coordinated news production operation. Websites like the and build off the platform which consists of a global staff of journalists and news production crew. The large economies of scale make news production operations a naturally consolidated industry - it is important to distinguish this feature from the blogging industry.

C. Online Magazines

Online magazines are somewhere in between the large scale news operations and the small scale fragmented blogging landscape. And because they are somewhere in the middle, the face both competitive forces from individual bloggers and the large scale news operations - online magazines have to clearly differentiate themselves in order to survive.

This can be accomplished when a group of writers with a common goal, and unified editorial style - band together. This can form operations like 'group blogs' which are clearly centered around particular topics, like this website. A set of common minds with a clear niche can succeed, without falling into the trap of trying to 'dominate' or to be a 'one-stop shop.' Successful group blogs can continue the evolution into online magazines where they can start to derive the benefits of scale economies, learning curves, and managerial efficiencies.

D. Conclusion

So, which category does your website fall into? Take heed of the strategic landscape and pitfalls, and take the write strategy to online publishing. And if you do so, you should find your hits rising rapidly, along with all the benefits that entails.

This essay is also published at SGE

Tuesday, October 17, 2006

Virgin's Corporate Strategy

1. Richard Branson and the Virgin Group

Virgin’s first and most obvious distinctive resource is Richard Branson and the ‘Virgin People’ that make up the organisation. Richard Branson’s charismatic style and entrepreneurial flair is an asset that other organisations are unable to replicate, and it is his personality that is synonymous with the Virgin Brand and that makes the company unique. Similarly, the Virgin group attracts ‘Virgin People,’ who are ‘only a certain type.’ Together with Branson, the Virgin People form the human capital that is distinctive to Virgin that is impossible for other firms to copy.

Related to the people who make up the firm, is the ‘Virgin culture’ that has been built over decades and that distinguishes the work environment within Virgin Group from other organisations. It is a culture that is ‘not looking for clones,’ that is ‘like a family’ and is one that requires employees to have the ‘Virgin Flair.’ These unique attributes present in Virgin employees meld together to create a distinctive corporate culture that only the Virgin Group can claim to have.

Richard Branson’s personality is synonymous with Virgin’s strong branding & reputation. The brand was ‘recognised by 96 percent of UK consumers’ and is associated amongst consumers with ‘fun, innovation, success and trust.’ Virgin has been able to sustain the Virgin identity across multiple businesses in a way that that very few other corporations have, and the pervasiveness of the Virgin brand creates unique brand equity that is difficult for competitors to replicate.

2. Corporate Synergies

The corporate strategy of the Virgin Group is to operate like ‘a venture capital firm based on the Virgin brand.’ This strategy involves non-related diversification at the individual business unit level. Meanwhile, synergies are created from hierarchical relationships and the interaction of the corporate head office with individual business units. By leveraging the Virgin Brand which has established prominence in the minds of consumers, Virgin is able to enter new business areas with a bang and shake up existing orders. The unique Virgin culture also allows Virgin to break into new markets and execute its ventures very effectively.

Virgin’s corporate strategy is best described in the Virgin Charter – the individual businesses are focused and develop as autonomous enterprises under a single unified brand name. This decentralization of organizational structure and decision making allows an entrepreneurial environment for managers to pursue their businesses effectively, while avoiding the bureaucracy associated with large centralised corporations. At the same time, the individual businesses benefit from the world-wide, inter-industrial reputation of the parent corporation’s Virgin brand and are able utilize this brand recognition in their marketing efforts. This benefit of corporate parenting would not be available to them if they were operating under their own subsidiary brands, and is perhaps the greatest source of synergy within the Virgin Group. In this manner, Virgin is able to enjoy the benefits of both smaller entrepreneurial organisations and large conglomerates without the associated problems of bureaucracy and brand conflict that can often feature in diversified corporations.

Furthermore, Virgin has been able to deal with the potential downsides of autonomy and decentralization. To prevent the breakdown of communication links and individual business units pursuing their own strategies in an uncoordinated fashion (that could potentially be detrimental to the umbrella Virgin brand), the Virgin Charter sets out a management system and internet business strategy that takes advantage of information technology and the digital age to further establish the Virgin brand. A single web address,, is where consumers can go to have access to all the Virgin services under a single portal. This strategy helps to reinforce the corporate parenting strategy and enhance the synergies already derived from the corporate branding of the Virgin Group. By aggregating all the services into a single Virgin portal, the customer is able to access multiple services through a single distribution channel, and is enticed to turn into a ‘Virgin Customer’ where he comes to Virgin for his telecommunications, banking, terrestrial and extra-terrestrial transportation (Virgin Galactic), entertainment and internet service needs. In this way, the disparate Virgin businesses are able to gain from the successes from their corporate siblings – Virgin Rail gains customers referred from Virgin Mobile visiting the portal, while Virgin Money gains customers referred from Virgin Records, and so on. In comparison, competitor banking companies would hardly dream of marketing their services to a music crowd, while competitor railway companies would be hard pressed to market to mobile customers of an unrelated company. Even though the individual business units are in unrelated fields, the unified corporate strategy allows them to contribute to each other in a synergistic manner.

3. Threats to Virgin’s corporate strategy

The success of Virgin Group hinges upon the corporate parenting strategy which is led by founder Richard Branson. The sustainability of Virgin Group’s competitive advantage depends on how well it continues to retain the Virgin culture and execute the strategy of decentralization under a unified branding. At least in the short run, with Branson continuing to lead the company, the strategy looks very strong and almost ‘unstoppable.’

In the longer run, however, Branson will have to put in place a strong succession plan and fill the corporate head office with executives who are able to understand and execute the Virgin Charter. While Branson himself might be irreplaceable, he can leave his legacy by ensuring that his vision is sustained through the Virgin Culture and Virgin People.

Virgin also has to ensure that it selects the industries it wants to enter very carefully. A single misstep could tarnish the Virgin Brand, and this could be disastrous for the group as a whole – unification under a single brand is a double-edged sword that can cut both ways. In addition, Virgin needs to continue to ensure that the individual business units perform in line with the greater Virgin brand, and not branch off in an unrelated manner. Doing so could dilute the Virgin brand if business units perform their operations in a way that lacks the fun, trust and quality that is associated with Virgin.

If Virgin is able to build a strong leadership engine, carefully evaluate future business opportunities, and retain the branding coordination between its diverse businesses, then its corporate strategy is well positioned to deliver a bright future for the company.



Dess, G., (2007) “Strategic Management: Creating Competitive Advantages,” McGraw-Hill Australia

Dick, deVries and d’Avaucourt (2000) “The house that Branson built: Virgin’s entry into the new millennium,” INSEAD, Fontainebleau, France

This essay was also published at SGE

Tuesday, October 10, 2006

Lee Kuan Yew's Comment on the Marginalisation of Chinese - Looking Back

I exchanged an email with a Malaysian friend over LKY's comments and the events that have panned out since then. Here are his insights.

I think its undeniable that Malaysian minorities suffer a form of negative discrimination ( a kind of reverse affirmative action) when compared with the majority. And factually, it would be quite hard to counter-argue what LKY said about Chinese minorities being politically defanged as in Indonesia and Malaysia. So far at least from the mainstream media - most seem to denounce the comments as inciteful and dangerous, Most Malaysian Chinese however secretly seem to be in profound agreement with LKY - namely most are disappointed that Badawi seems to have extended the priviledges in the NEP without any signs of a change in policy. LKYs comments came right after several incidents that made the Malaysian Chinese community feel vulnerable esp. after the PM's son-in-law and head of UMNO youth made comments about MCA (the Chinese party in Barisan national) as well as a concerted effort by some UMNO youth members to get rid of a Chinese politican in Penang on charges of not doing enough for the Malay population there. I doubt most Chinese would disagree with LKY about the marginalisation of Chinese.

Personally, I think the marginalisation proceeds from a policy of appeasement by the Chinese community given that they have given up most of their political presence in order to safeguard their economic interest especially after the race riots in May 69. However currently they too are finding their economic positions being under attck due to corruption, biased quotas on licenses and being muscled out on govt contracts. No doubt the Chinese community (the wealthy ones at least) mantains its economic position through buying off politicians in order to obtain contracts and cheap loans but for most of the rank and file - their economic superiority is decreasing. I see very little that can be done currently however - but a current of discontent has always been present.

I think the political reactions are quite predictable - a delayed grudging apology on LKY's side, Badawi acting as the moderate good guy while more fringe elements of UMNO making loud noises about Singapore's treatment of its own Malay minority. Nothing suprising there - the newspapers make all the right noises mixing nationalist puff-talk while ignoring the biased accounts from their own sides. Politically nothing much has changed except the continuous illustration of the fact that regionally we remain below the standards of political civility and that we cannot transcend playing the race card and prefer to enflame its attendant suspicions. Though LKY started the whole incident, discrimination was and continues to be a problem in Malaysia - the roots are complex including the fact that Chinese politicans and businessmen (sometimes they are interchangeable as those that fuel continued corruption.) It disturbs me that because we unable to transcend such dialogue - we may be fated to realise its consequences in increased and more dangerous regional tensions.

As usual the Singaproean press was completely muted over the apologies demanded by the Malaysians and the Indonesians. I just think that even though LKY might be speaking the truth it was probably an unnecessary comment that adds to strained relations, esp. considering that its coming from an 82 year old man who should be finding better things to do during his retirement than to inconvenience his son's government by inflaming sentiments around the region.

Sunday, October 08, 2006

Lee Hsien Loong's Criticism of the Internet: How should the blogosphere receive it?

In his recent speech at the 6th ASIAN-EUROPEAN EDITORS’ FORUM, 6 OCTOBER 2006, Lee Hsien Loong made the following comments about the blogosphere:

31. The internet is enabling ordinary citizens to post news and views on the web, making information available more quickly and plentifully than ever. The conventional wisdom is that the free flow of information on the internet is universally a good thing. It is undoubtedly very difficult to control information flow. But as we find terrorist groups using the internet to plan murderous attacks, and paedophiles using it to prey on defenceless children, we are learning that while the internet is a great boon to mankind, it is not an unmitigated one.

32. In the pre-internet age, newspapers and television stations not only reported news and opinions, they also filtered, processed and verified the information, in order to present coherent perspectives which shape the public debate and the public’s collective understanding of the world around us. The internet short circuits and undercuts this model.

33. Even in the internet age, there will still be a role for serious journalism, whether in print or on the web, because people will still seek out information sources which are reliable, verified and insightful. But it will not be easy to keep the public debate on this high plane, especially on controversial issues. For the internet also enables clever propaganda, inflammatory opinions, half-truths and untruths to circulate freely and gain currency through viral distribution, and these are not always easily countered by rational refutation or factual explanation. How to deal with this is something which every newspaper, and indeed every society, is grappling with.
For many in the blogosphere, such comments seem like a belittlement of bloggers, and an attempt to shape public opinion against internet journalism. But to what extent are these comments justified?

While it is true that there exist 'half-truths' and 'untruths' on the internet, it is also true that these half-truths and untruths are quickly corrected, or opposition to these untruths is quickly expressed. The rapid spread of information on the internet also allows the rapid spread of counter opinion and factual corrections in response to inaccuracies and half-truths.

Furthermore, the mainstream media is not exempt from 'clever propaganda, inflammatory opinions, half-truths and untruths.' In fact, in the light of many recent events involving the mainstream media (including the comment on IJ girls, the censorship of the 'mee siam mai hum' comment on television replay, and the obvious downplaying of news critical of Singapore in the mainstream press) one would think that the Prime Minister is describing the state of the local daily and broadcast content just as much as he is describing the internet. The simple truth is, the weaknesses he criticises the internet of having are just as prevalent in established media.

The difference between the two is, however, that the ruling party is unable to monopolise the internet and impose its power structures upon it. The internet is free-wheeling and democratic, anyone and everyone with access to the computer can publish content at the click of a button. The real issue about the internet, from PM Lee's point of view, is that it presents a serious challenge to the ruling party's power.

In view of this, should we bloggers worry about PM Lee's remarks? Perhaps the best attitude we should have is one of no fear - and that is to simply continue writing and publishing quality honest opinions about the state of affairs. The best way to respond to such criticism is simply to raise the quality of internet discourse and prove to the incumbents that the internet can be, and often is, a platform for intelligent and informed debate, often more intelligent and informed than the mainstream press.

With this attitude, the internet can keep the mainstream media in check and continue to develop and establish its credibility, even in the face of criticism by the government. And in the process, it can play its crucial role as an independent voice keeping the government in check, as it should in a healthy, genuine democracy.

Saturday, October 07, 2006

From Hip-hop to Bland Blogging: Are our new MPs really so shallow?

Subsequent to Lee Hsien Loong's annoucement earlier this year that the PAP was trying to make itself to be more 'hip' and 'cool,' the post 65ers have so far engaged in a couple of initiatives to execute this 'hip' strategy. The first of which is the P65 group blog, where the MPs try to write short snippets about their lives, the second is the plan to participate in a group hip hop performance. And, as we can probably guess, more such PR initiatives are probably on the way. However, I can't help but feel rather concerned about the direction that the PAP is taking, and the attributes of PAP MPs that these initiatives seem to reveal.

Certainly, the thinking behind this new direction must surely be one of innovation and breaking new ground - the PAP has never engaged in such 'hip' acts in its history. And for some reason, it has felt that it has to engage in such activities to connect with the younger generation. But is this really what the younger generation want from our MPs? Me thinks otherwise. The younger generation is more politically aware, and has a greater thirst for substantive political debate on real issues, not trying to put up a blog which they "didn’t intend ... to be a discussion place on policies." Seriously, if politicians don't discuss politics, what do they discuss? Anything else is really out of the interest of the public sphere, and has little relevance to Singaporean citizens.

But perhaps these initiatives really show up the inexperience and naivete of our MPs. Michael Palmer's protests that the MPs are not 'trying too hard,' claims that

The idea behind doing the hip hop is not about connecting with the youth through hip hop. That’s missing the point. It’s about connecting by showing that we’re willing to have a good time and laugh at ourselves once in a while.

But seriously, does he really believe in this? There are ways to have a good time and laugh at yourselves, ways that genuinely reveal one's personality and character to the people, and activities that do not need to take one so far out of one's comfort space. Seriously, I doubt Singaporeans have any expectations of our MPs to be dancers - that's not what they voted the MPs into power for. The MPs could engage in a thousand and one other activities that are publicly visible and yet do not seem so ludicrous to the public. And none more so than generation Y will be quick to see through this marketing gimmick.

Speaking of marketing, this brings me to my next point. Are the MPs really simply about putting up fronts? I certainly hope not, for then our future is in a precarious position. When Lee Hsien Loong talked about being a more inclusive and open government, this was certainly not what Singaporeans expected. In fact, the behaviour seems absolutely baffling and incomprehensible. That the MPs are willing to dedicate precious time and effort into such relatively shallow activities as hip-hop dancing, at the expense of other more important activities, is really no laughing matter.

But perhaps, given the we-know-all attitude of the PAP and the Yes-men culture within the political party, perhaps the initiatives are not so surprising after all. Couple this with a tendency for top-down policy making by leaders out of touch with the common populace, and you get 12 MPs hip-hopping away. These activities that the PAP are trying to pursue are simply showing up more and more the cracks and weaknesses in the power structures behind the ruling party. And while not yet disastrous, the overall direction that the PAP is taking is cause for concern.

Perhaps Singaporeans should step back and challenge the notion that a parliament full of PAP MPs is the best for Singapore. Just like so many other policies like the 4 million smiles campaign or the attempts to create love amongst singaporeans, the hip strategy doesn't look good to me. And if Singaporeans continue to let them engage in such intitatives, Singapore may soon start to look rather unhip.

Thursday, October 05, 2006

Andy Xie's Original Email

Well, well, at least Morgan Stanley hires people who are honest, forthright, and straight to the point. Unfortunately, they're also ruthless when their employees make comments that are politically incorrect. In any case, here's the original insightful email that Andy Xie wrote.:


Text of email attributed to Andy Xie:

I participated in the panels on Commodity (sic) and China-India and in some obligatory dinner parties. On Friday night the Singapore prime minister invited the speakers at the meeting that the Singapore government organized. Trichet, Larry Summers, Paul Volker (sic) Chuck Price, the finance ministers of ASEAN countries were there. No government official from China was there …guess I was there to make it look like China was represented.

The dinner was turned into an Oprah with PM Lee Hsein Long (sic) at the center. The topic was on the future of globalization. People fawned him like a prince. Of course, he is. There are two reigning princes in the world that the Davos crowd kiss up to, Jordan and Singapore. The Davos crowd are Republican on economic issues and democratic on social issues. Somehow they manage to put aside their moral misgivings and kiss up to Lee Hsein Long and Abdullah.

I tried to find out why Singapore was chosen to host the conference. Nobody knew. Some thought it was a strange choice because Singapore was so far from any action or the hot topic of China and India. Mumbai or Shanghai would have been a lot more appropriate. ASEAN has been a failure. Its GDP in nominal dollar terms has not changed for 10 years. Singapore’s per capita income has not changed either at $25,000. China’s GDP in dollar terms has tripled during the same period.

I thought the questioners were competing with each other to praise Singapore as the success story of globalization. Actually, Singapore’s success came mainly from being the money laundering center for corrupt Indonesian businessmen and government officials. Indonesia has no money. So Singapore isn’t doing well. To sustain its economy, Singapore is building casinos to attract corrupt money from China.

These western people didn’t know what they were talking about. Aside from the nauseating pleasantries some useful information came out of it. Trichet sounded very bullish on euro-zone economy (sic). He noted that euro-zone was catching up with the US in growth rate (sic) and talked about further gain in 2007. His tone was much more bullish than our house view. As Japan is surprising on the downside, I don't see how the rise of euro-yen could be stopped.

Larry Summers and Paul Volker (sic) were very worried about the US economy. As you probably know, Alan Greenspan is talking the same way. At the CLSA conference last week, he talked like one of his critics. There is fear of a US collapse. Many Americans think that an RMB reval (sic) would save the US. This is just a dream, in my view.

Most were worried about the future of globalization due to income inequality. As average workers in the west are not seeing wage increase (sic), they may vote against globalization. I thought that they were understating the benefit from cheap consumer goods. However, as inflation comes back, it does diminish the benefits for western consumers.

No-one was worried about the growth outlook for China and India. The Indian Planning Minister was very bullish, talking about 9% forever.

My sense is that policymakers are relexed (sic) about the short-term economic outlook but anticipate a US collapse at some point. Americans think that RMB reval could save the US. So they would keep pressuring China."

Andy Xie
Morgan Stanley

Courtesy of Asia Sentinel

Morgan Stanley Former Chief Economist Characterises Singapore as Economic Failure

Wow. This stuff is gold.

The original source is here

Morgan Stanley's Andy Xie Quit After E-Mail Attack on Singapore

By Netty Ismail

Oct. 5 (Bloomberg) -- Andy Xie's resignation as Morgan Stanley's chief economist in Asia last week followed an e-mail in which he characterized Singapore as an economic failure that is dependent on illicit money from Indonesia and China.

Xie, who worked at Morgan Stanley for nine years, sent the e-mail to his colleagues after attending the International Monetary Fund and World Bank annual meetings last month in the Southeast Asian island state. He questioned why Singapore was chosen to host the conference and said delegates ``were competing with each other to praise Singapore as the success story of globalization.''

``Actually, Singapore's success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials,'' said Xie, who was based in Hong Kong before leaving Morgan Stanley on Sept. 29. ``Indonesia has no money. So Singapore isn't doing well.''

Singapore's $118 billion economy is recovering from three recessions since the 1997 Asian financial crisis, and is expecting growth of as much as 7.5 percent this year. The city- state is grappling with growing competition from China and India, two of the world's most populous nations, where labor costs are less than a quarter of those in Singapore.

Prime Minister Lee Hsien Loong said in September that Singapore's economy may sustain annual growth of 3 percent to 5 percent for the next 10 to 15 years as the country expands industries from information technology to tourism.

``To sustain its economy, Singapore is building casinos to attract corruption money from China,'' Xie said.

`Internal E-mail'

Singapore is ending a four-decade ban on casinos. The government plans to triple tourism revenue to $19 billion and double visitors to 17 million by 2015.

Officials from the public relations departments of the Monetary Authority of Singapore and the government's information service declined to comment on the contents of the e-mail. They also declined to be identified.

Morgan Stanley confirmed the contents of the e-mail and said the New York-based firm doesn't elaborate on the reasons behind employee departures.

``This is an internal e-mail based on personal suppositions and aimed at stimulating internal debate amongst a small group of intended recipients,'' Cheung Po-ling, a Hong Kong-based spokeswoman for the world's largest securities firm by market value, said in a written statement. ``The e-mail expresses the views of one individual and does not in any way represent the views of the firm.''

`Strong Supporter'

``Morgan Stanley has been a very strong supporter of Singapore and has a great deal of respect for Singapore's achievements,'' Cheung said.

Morgan Stanley ranks sixth among merger advisers in Singapore this year, handling $1.5 billion of deals, according to data compiled by Bloomberg. It advised Temasek Holdings Pte., the Singapore government's investment company, in its purchase of a 9.9 percent stake in Mumbai-based Tata Teleservices Ltd. in March. Morgan Stanley, which ranks third among stock sale arrangers in Asia outside Japan this year, hasn't underwritten any deal in Singapore this year, according to Bloomberg data.

``I tried to find out why Singapore was chosen to host the conference,'' Xie wrote in the e-mail. ``Nobody knew. Some said that probably no one else wanted it. Some guessed that Singapore did a good selling job. I thought it was a strange choice because Singapore was so far from any action or the hot topic of China and India. Mumbai or Shanghai would be a lot more appropriate.''

`Fawning' Guests

At a dinner party hosted by Singapore Prime Minister Lee Hsien Loong, ``people fawned him like a prince,'' Xie wrote. ``These Western people didn't know what they were talking about,'' he wrote, describing the praise for Singapore as ``nauseating pleasantries.''

Xie declined to comment on his departure when contacted on his mobile phone on Oct. 2.

Xie, who said in September that the U.S. economy may fall into a recession in 2008, worked at the corporate finance division at Macquarie Bank in Singapore before joining Morgan Stanley in 1997. He spent five years as an economist with the World Bank, overseeing the bank's programs in Indonesia and other countries in the Asia-Pacific region, according to the New York-based firm's Web site.

Xie holds a doctorate in economics and a Master's degree in civil engineering from the Massachusetts Institute of Technology.

To contact the reporter on this story: Netty Ismail in Singapore .

Monday, October 02, 2006

Lee Kuan Yew and the Malaysians

Lee Kuan Yew has been widely reported today as having apologised, after inciting an incendiary reaction from the Malaysians after his comment that the Malaysian Chinese are 'systematically marginalised.' But after this whole brouhaha, what really is the state of affairs?

For Singaporeans, Lee Kuan Yew's comment has really been an embarrassment. The elder statesman has done no favours to the country's international relations with his provocative statements about inter-racial relations in the neighbouring countries. And even though there are inequalities, LKY should know better than to make such sensitive remarks, especially when his government seems paranoid about racial harmony in his own backyard.

As for the Malaysians, LKY's comment has probably incited feelings about racial quotas and positive discrimination in favour of the native Malays, and should fuel discussion amongst the Chinese community. It also highlights to the Chinese the kind of environment they live in and how perhaps Singapore might be a nice place in Southeast Asia to be.

Even though LKY is apologised, both sides have lost out, Singapore because of the ill feelings the comment has engendered, and Malaysia because of the racial tensions the comment has stirred. Indeed, the comment was 'uncalled for,' and LKY should seriously think about his words before rattling off such comments mindlessly. In his twilight years, it would be better to finish the race on a positive note, rather than be remembered for such clumsy commentary.

Tuesday, September 19, 2006

Entering Treacherous Waters

For its reputation as a group of technocrats, the People's Action Party has been rather slow to embrace the internet.

These last couple of weeks, BG George Yeo made his first foray into the internet by making a few posts at ephraim loy's blog. These posts have drawn much attention, yet the response from the internet has been largely disappointing, since Yeo's posts have little to do with substantive issues facing Singapore, but are rather just an account of various events in his life.

Other attempts by PAP MPs to engage the internet community are now either defunct or benign. MP Penny Low set up a blog to cover the NDP 2005, but that blog is now devoid of activity. Dr Teo Ho Pin also set up a blog, but most of the posts seem to be short replies on relatively mundane issues.

On the other hand, other political parties have long since jumped on the internet bandwagon and have been vocal and explicit on politics. Goh Meng Seng's blog is about his 'political struggle', James Gomez has written extensively on his thoughts, and Chee Soon Juan relentlessly publishes fiercely political content.

Indeed, the rise of the internet as a major media platform for the future points towards serious challenges to the PAP's political hegemony. The free-for-all, democratic nature of the world wide web means that censorship of criticism on this medium is virtually impossible, and the kind of power that the ruling party is able to exert on the main stream media evaporates into insignificance on the internet.

Strong critics of the establishment not only abound in cyberspace, they also dominate the digital discourse. Bloggers and blogs such as Mr Wang, Gayle Goh, Yawning Bread and Singabloodypore all command a high readership and are unabashedly critical of policies and the press. Yet all three PAP bloggers have yet to engage any of the criticisms of the government in any meaningful way.

The recent acknowledgement of the impact of 'The Digital Age' by PM Lee Hsien Loong during his latest rally speech is a tacit admission that the playing field of the future will not be newspapers or television, which the incumbents currently have a stranglehold over. Rather, it will be the internet, where opinions can be published in an instant, at no cost, to everybody and anybody in cyberspace. And with the 'Intelligent Nation 2015' goal of getting 90% of all households on broadband, that means virtually the whole nation will be exposed not only to the opinions of detractors, but also to audio podcasts and videos which may portray the government in a less than favourable light.

But perhaps the PAP's lack of significant presence on the internet foreshadows the beginning of its decline. For years the state has dominated the press and broadcast media, disseminating messages favourable to its regime and censoring all that would threaten its power. And yet, as the Prime Minister calls for more engagement of Singaporeans, particularly in New Media, the PAP seems to lack bite and is clumsy, at best.

Without the ability to censor or control the internet, the PAP will be forced to engage its critics to remain credible in the eyes of Singaporean netizens. Meanwhile, a continued avoidance of substantive issues does no favour to improve its image. The internet is a new, levelling playing field, where authoritarian censorship no longer works.

As the Digital Age unfolds, it will be interesting to watch how the incumbents behave, as the tools for maintaining their dominance slowly slip from their hands, and as they enter the new treacherous waters of the internet.

Blackmores - A Strategic Analysis (Part 4)

Distinctive Resources/Capabilities Analysis

It is Blackmores’ less recognisable distinctive resources and capabilities that mould the organization into an “industry leader in Australia for more than 70 years.” (Blackmores, 2006). The more significant resources and capabilities that can be identified which provide Blackmores with a sustainable competitive advantage are as follows:
  1. Guaranteed quality
  2. Thriving internal culture, expertly trained staff and industry savvy CEO.
  3. Purchasing power and extensive product range.
  4. Research and Development of existing and new products.
  5. Reputation, brand image and awareness.
(i) Guaranteed quality

It is Blackmores’ primary policy to ensure high quality products, with “ingredients sourced from around the world.” (Blackmores, 2006) Marcus Blackmore, following in his father’s legacy has demonstrated that he has “not been interested in pursuing growth at the expense of quality or control.” (Quinlivan, 2006) This uncompromising effort to be a firm recognised for quality healthcare products was rewarded in 2003, when Pan Pharmaceuticals was closed down. Blackmores never did business with Pan Pharmaceuticals, as Blackmores’ “extremely capable audit team” (Quinlivan, 2006) did not recognise Pan’s products as superior in quality or control. This unflinching standard of quality has filtered through into Blackmores’ reputation as a whole.

(ii) Thriving internal culture, expertly trained staff and industry savvy CEO.

Blackmores has a company culture that has built great relationships amongst both employees and senior management. It is a culture in which effort and quality is recognised with both tangible and intangible rewards, Blackmores recently awarded “50 free shares to all permanent staff.” (ASX, 2006) In addition, the firm lives by the philosophy that “it’s impossible to be an effective organization without satisfied and engaged staff.” (Blackmores, 2006) Furthermore, empowering staff and allowing them to work in teams, has provided Blackmores with a further distinctive capability, “At Blackmores, very little gets done without teamwork and staff taking ownership of projects.” The firm’s expertly trained staff, working together, ‘keep the wheel in motion.’

Training and development of a highly skilled labour force is imperative to Blackmores’ mission. Blackmores is committed to employing “high quality staff… [often] qualified health experts.” Blackmores provides the community with trusted information by not only training their own staff, but by “educating [their] retailers [ensuring that their] consumers are provided with superior information on the Blackmores product.” (Blackmores, 2006)

Finally, it may be argued that it is Blackmores CEO, Marcus Blackmore that is the firm’s most valuable distinctive resource. It is he and his father, Maurice who “had ideas about health way ahead of his time,” (Blackmores, 2006) that have provided the firm with the tacit knowledge of not only how to run this complex organization as a business, but also an unparalleled understanding and passion for complimentary healthcare. It is Marcus’ strong political ties that enable him to spend up to 2 days a week lobbying the government for legislative reform, “we’ve moved over the past six months from a largely confrontational approach to industry to one of collaboration and consultation.” (Quinlivan, 2006) “Blackmores and the CHC (complimentary healthcare council) are currently working to oppose the proposed increase in TGA fees and charges and to have GST removed from complimentary medicines.” (ASX, 2006)

(iii) Purchasing power and extensive range.

With an exceptionally large market share within Australia, and growing market share in the Asian markets, Blackmores continues to grow its leadership strength in buying power. This unique bargaining power enables the brand to maintain its superior standard of quality, while becoming more cost effective.

Blackmores produces products servicing in excess of 20 different matters of health, ranging from weight loss and muscular pain to infections. This extensive range of products allows Blackmores to extend its brand equity into the various nooks and crannies of the industry.

(iv) Research and Development Capabilities

Blackmores is an undisputed leader in complementary healthcare research and development. It continues to refine its seasoned products and develop new ones. Blackmores’ joint venture with a research team at the Southern Cross University places it at the forefront of research and development. The recent appointment of a research manager provides the firm with a further distinctive resource and substantial tacit knowledge not available to competing firms. This innovation has been one of the key factors providing Blackmores with a sustainable competitive advantage.

(v) Reputation, brand image and awareness.

Brand image and reputation is critical to a firm’s success within the complementary healthcare industry. Particularly after the Pan Pharmaceutical debacle, there has been a heightened awareness of the need for quality when it comes to medicines and supplements.

Market research has established that “Blackmores is the most trusted natural healthcare brand in the market place.” (Blackmores, 2006) This brand equity has been established over decades and is extremely difficult for competitors to replicate. It forms perhaps the most important distinctive resource for the firm, and is the result of decades of hard work and is the result of the combination of its unique corporate culture, first-class operations, research and development capabilities, and all the other distinctive attributes of the firm.

In a market that demands the highest quality, Blackmores’ brand gives it a strong, sustainable competitive advantage over its competitors.


Strategic summary

The external market is favourable for Blackmores’ industry, with many growth markets in the Asia-Pacific region. The aging population of baby boomers will also contribute greatly to the demand of complimentary pharmaceutical products.

The company has a strong brand reputation and an established market position in the industry, with strong links to industry suppliers and distributors. Its capabilities in research and development give it valuable intellectual capital and tacit knowledge that is hard for other firms to replicate.

Implications for future strategy

Blackmores has a bright future ahead of it. If it can continue to execute the strategies it has been pursuing and continue to strengthen its branding and relationships with suppliers and retailers, it can expect to see its share price continue to grow as it rides the Asian economic boom.

Blackmores - A Strategic Analysis (Part 3)


Value Chain Analysis: Primary Activities

Inbound Logistics
  • Extensive supplier checks means that Blackmores only receives the highest quality materials from its suppliers.
  • All warehouse employees are given extensive training to ensure the most efficient use of human resources possible.

  • Blackmores is moving its headquarters to a central location at Warriewood in order to more efficiently handle its operations.
  • “Everything we do in our Operations area is dedicated to delivering a quality product.” (Blackmores, 2006)

Outbound Logistics/Distribution Channels

  • Blackmores has various distribution arrangements depending in the country it is operating in. For instance, it has an extensive distribution network in New Zealand, with 1700 distribution outlets. In Hong Kong, however, it only distributes through one pharmacy chain store, as competition is highly intense in that market.
Marketing and Sales
  • Great reputation for quality.
  • Blackmores has the highest brand awareness in its category and is the most trusted. (Blackmores 2006 annual report)
  • Effective use of TV commercials to support the debut of new product lines, including Blackmores expansion into the arthritis segment with its Glucosamine product in 05/06.
  • Changes in the Therapeutic Advertising Code have allowed Blackmores to use health professionals in its advertising.
  • Use of the popular Blackmores website to actively communicate with consumers, including 164,000 active subscribers.
  • Blackmores is committed to becoming a source of information regarding health issues:
  • Effective use of the Blackmores website to communicate with its customers. The website won the Hitwise Top Site in the Health and Pharmaceutical category, and has 164,000 active subscribers who receive a fortnightly newsletter of health news.
  • Blackmores Naturopathic Advisory Service fielded 55,000 calls over the past year, providing alternative health information to consumers and professionals.
Value Chain: Support Activities

General Administration

  • Stable leadership over 30 years: Marcus Blackmore retains a 31% stake in the company.
  • Strong commitment to core values which are reflected in all aspects of Blackmores’ business. These core values are: Trust, Leadership, Superior Performance, A More Natural Approach to Health
  • Ability to successfully lobby for regulatory reforms.
  • Strong professional ties with other healthcare professional bodies such as the Pharmacy Guild of Australia, the Pharmaceutical Society of Australia, and the National Pharmacy Students Association.
  • Extremely strong commitment to quality at all costs creates a culture equally obsessed with quality.
  • Strong commitment to social responsibility, with substantial donations to charity and a focus on environmental sustainability, provides an ethical culture and helps enhance the brand image.
HR Management
  • Places great importance on recruiting, training, and retaining high quality staff, and this is reflected in the fact that Blackmores one of 12 Hewitt Best Employers awards for 05/06. This helps Blackmores in attracting new employees, important as the company expands its business into Asia.
  • Blackmores has a profit share arrangement where 10% of its Australian profit is shared between all permanent staff, and recently it gave each of its employees 50 shares in the company to reflect the value it places upon them.
  • Training provided for Blackmores employees through the Senior Consultant Training course is recognised and in some cases interchangeable with the Pharmacy Guild’s National Training Course.

Technology Development, R & D

  • Blackmores sends large contingents of staff to the main pharmaceutical and healthcare trade conventions around the world in order to stay in touch with the latest trends in healthcare.
  • Blackmores regularly funds research into new alternative healthcares, a recent example being a study into the immune benefits of the milk protein lactoferrin, which culminated in a new Blackmores’ product, Immunodefence.
  • Blackmores has relationships with several universities around Australia to ensure it stays on top of the latest research relevant to the industry. One of these universities, Southern Cross University, is the base for the Blackmores Research Centre, and the combined effect of all this research is to help Blackmores regularly produce new products.
  • Focus on procuring from quality suppliers over cheaper ones has meant Blackmores has a greater reputation for quality than many competitors, and allowed it to dominate in the wake of the Pan Pharmaceuticals collapse of 2003.
  • Extremely strong commitment to only procuring quality materials from suppliers:
  • Use of quality control teams to ensure that suppliers are of the highest quality.
  • Extensive product testing.
  • Regulatory compliance.

Blackmores - A Strategic Analysis (Part 2)

Porter’s Five Forces Analysis

The intensity of rivalry among competitors in the industry:
  • The industry structure is mainly that of monopolistic competition, with multiple firms competing for the consumer’s dollar. In the supermarket, 4-6 brands can be found selling relatively homogenous products.
  • The high industry growth should help offset battle for market share, as competitors don’t need to steal one another’s customers. Market growth is increasing due to recent pushes towards complementary healthcare, for instance the work of the Complementary Healthcare Association lobbying the government and surveys undertaken by industry help to spread awareness of complementary healthcare among the aging baby-boomer population.
  • The impact of regulatory bodies. E.g. if the Therapeutics Goods Administration tightens quality constraints, may erode profit margins of smaller firms, lead to push for economies of scale
  • There are low switching costs between brands for consumers, though the Pan Pharmaceuticals debacle highlighted the importance of strong brand equity to maintain customer patronage. Also, if the healthcare products are viewed as commodities, buyers will focus upon price and service as their differentiators.
One of the biggest competitors to Blackmores continues to be lower priced alternative complementary medicines. Bio-Organics and Herron are two brands that are competing directly with Blackmores and given their lower price products are sharing much of the market share with Blackmores. Additionally, there are added incentives to purchase Guardian products, such as Guardian loyalty cards. These factors help to boost Guardian owned products. Therefore, a possible improvement in the future for Blackmores is to introduce a loyalty scheme that will help retain their customers.

The bargaining power of buyers:
  • Bargaining power of buyers is moderate to weak.
  • Many buyers mostly accounting for a small proportion of total sales. The complementary healthcare industry utilizes 3 major distribution channels - Chemists, grocery stores and healthcare stores to access a wide range of consumers who generally all purchase relatively low volumes (ASMI, 2006).
  • Blackmores has sought to differentiate its product via a quality focus and some competitors have a cost-focus. This Differentiation strategy helps to develop brand loyalty and is aimed at nullifying the impact of higher prices on consumer demand.
  • No real threat of backward integration – given the diversity of customers.
  • The customers are end-users, so there are no resale issues
  • The absence of any real switching costs favorably influences buyer power, as it allows dissatisfied customers to change readily within the healthcare brands. Again, the focus on brand image and service helps to offset this lack of switching costs.
  • The retail stores and distributors, however, have some bargaining power because they are able to influence the amount of shelf space given to Blackmores. However, Blackmores has a good working relationship with distributors and has a good share of shelf space amongst retail outlets.
The bargaining power of suppliers
  • Generally quite weak, as there are many supplier companies selling relatively homogenous raw materials and commodity products – price, quality and service are the only real differentiators.
  • That said, suppliers don’t need to contend with substitute products, except for advances made in specific healthcare products.
  • The industry is a very important customer of the supplier group (Industry worth more than $1billion). It is a growth industry that suppliers would want to remain on good terms with.
  • Supplier products are vital to the industry’s business, which gives them some power over the industry. However the push for quality and the high number of suppliers means it is difficult for them to utilize this as leverage.
  • No real switching costs between suppliers, only real logistical issues. So again industry has the power to shop between suppliers.
  • Suppliers do not pose much of a threat of forward integration – they manage a diverse portfolio of clients so it is unlikely to be cost effective to develop them within the niche healthcare industry. Furthermore, it would be difficult produce the diverse raw-inputs that are necessary to manufacture healthcare products.
Threat of Substitute Products
  • Synthetic medicines prescribed by professional doctors act as a substitute for the natural medication that Blackmores sells. However, the trend suggests a growingacceptance of natural healthcare products, such as those produced byBlackmores.
  • Within the Asian markets that it is competing in, Blackmores will face intense competition from companies selling traditional Chinese medicines (e.g. Eu Yan Sang). Blackmores will have to work around cultural preferences for these products in countries like Taiwan, Hong Kong and Singapore.
Threat from Potential Entrants into the Industry
  • No major legal barriers to enter the market
  • Few secrets to manufacturing of health supplements
  • Main barriers to entry are the existing supplier/buyer relationships, and the brand name and reputation of Blackmores.
  • Threat of entry by global multi-level marketing firms (e.g. Amway, Nu Skin, Unicity) which often sell nutraceutical supplements
  • Another threat that could possibly undermine the success of Blackmores in Australia is the potential arrival of an international company with intact infrastructure taking over local businesses in Australia. Already there is an abundance of companies competing for a segment in the complementary pharmaceutical industry and therefore separating oneself from the rest is an issue Blackmores must attend to.

Blackmores - A Strategic Analysis (Part 1)


Company Background
  • Founded in the 1930s by Australia’s pioneering naturopath, Maurice Blackmores.
  • Goal of the company is to shift the focus of the health system away from treating diseases to one that encourages people to accept responsibility for their own wellbeing
  • It is a customer-focused company inspiring people to take control of, and invest in, their health and wellbeing. They are “leaders in developing and marketing products and services that deliver a more natural approach to health, based on our expertise in vitamins, minerals, herbs and other nutrients.”
Industry Definition
  • Blackmores’ industry is defined as the complementary pharmaceutical industry.
  • This includes complementary pharmaceutical products, nutritional and health supplements.
  • Companies in this industry are mainly involved with the purchase of raw materials and the conversion of these raw materials into natural medication products which are then distributed through retail stores, pharmacies and chemists.
  • More established companies like Blackmores also have a strong sales service where qualified naturopaths and health experts provide advice to customers, in addition to established research & development capabilities to develop newer and better complementary healthcare products.


The Macro-Environment

Demographic and Sociocultural Trends

The ageing population of baby boomers in Australia is perhaps the most significant trend driving growth in the complementary pharmaceutical industry. These baby boomers form a large section of the population, and have had the highest median household incomes of any generation. They are increasingly leaning towards non-prescribed medicine to be the greatest form of treatment for their various physical ailments, as well as natural healthcare supplements to be a source of health and wellbeing. This demographic trend will continue to set the consumer agenda for the years ahead, and especially so in the healthcare industry.

Changing health environments on a national level has meant that people are tending to accept over-the-counter (OTC) products more regularly compared to prescribed medicine. Not only is it sometimes cheaper to purchase OTC products but the feedback from several complementary pharmaceutical companies has demonstrated consumers are more than happy with their results.

Growing acceptance of alternative medicine has dominated mainly the muscle/joint segment of the products produced by Blackmores. More and more people are seeking alternative medicines to combat their muscle/joint soreness, and Joint Formula with Glucosamine and Chondroitin (60 Tabs) continues to be one of their best sellers.

Global Economic Trends

In terms of the global arena there is no doubt that Blackmores is looking to further establish itself in the rapidly growing economies of Asia, which present many growth markets and opportunities for the company. In particular, Blackmores has found the Malaysian and Thai markets to be two of the greatest assets to the company. It has already been in Thailand since 1997, and Blackmores’ products are located in over 1,000 stores throughout Thailand.

Blackmores’ greatest form of overseas expansion lies in Thailand. The company has also made in-roads into Singapore, Hong Kong, Malaysia, Indonesia and New Zealand. However Thailand continues to be the best of the international entities. “The Blackmores business in Thailand has experienced an average growth rate of 20% over the past six years whilst the growth rate in the comparable sub-category is 10%” Further welcome news for Blackmores is that overseas it is not only the expatriates that are purchasing their products but also locals. It is this segment that the company is looking to pursue.

Regulatory Climate & Technological Environment

Regulators were previously quite adversarial towards the complementary healthcare industry. Marcus Blackmore has been actively lobbying for better regulatory conditions. The company also engages in extensive research and development activities. These regulatory and technological factors are discussed in more detail in the analysis of the firm’s internal environment.

Monday, September 18, 2006

Do CEOs ever have a responsibility to "talk down" the share price of their company?

Talking down the share price of the company you are responsible for can often invoke an incendiary reaction from incumbent shareholders, especially if you have yet to build up the almost religious cult following that Warren Buffett has. And if you haven’t, doing so either takes

i. a strong sense of moral courage,
ii. a questionable sense of ethics,
iii. questionable business judgment, or
iv. a very good utilitarian reason to do so.

Talking Down in an Efficient Market

Assuming an efficient market, one can consider three main reasons why a CEO would want to talk down his company’s share price.

1. Public information does not reflect inside information

Under the information perspective for decision usefulness, markets respond rapidly and rationally to newly released public information. This means that market value diverges from intrinsic value only if public information does not reflect inside information, and the market has over optimistic expectations of the firm’s performance based on public information that does not give an accurate picture of the company’s inner workings.

When this happens, CEOs have an interest in ‘talking down’ their share price and releasing accurate inside information to the public, in order to manage shareholders’ expectations. The risk for the CEO is that the company will report future earnings that are below shareholders’ expectations that were based on faulty information. This could result in adverse consequences for the CEO’s job or compensation. This also allows the public to have better information of the internal state of the company, and avoids an over-allocation of capital to the company’s shares by the capital market.

2. The CEO wants to reduce expectations to make future performance seem better than it really is

Assuming public information more or less reflects the inner workings of the company, a CEO might be motivated to talk down the share price by making the company appear to be in worse condition than it really is, in order to make future earnings results seem abnormally high. A CEO stands to benefit financially from this practice when earnings performance is higher than expected, but doing so is ethically questionable, since it essentially involves deceiving shareholders and the market.

3. The CEO’s judgment is inaccurate

If public information is congruent with inside information, then a third reason why an honest CEO might want to talk down his company’s share price is because he has an overly pessimistic assessment of the company’s prospects. The converse is true if he tries to talk up share price in an efficient market with little information asymmetry – the CEO may be over estimating the prospects of his company. This is probably much more prevalent in practice.

Talking Down in an Inefficient Market

If, however, public information does accurately reflect inside information, and if a CEO is not prone to questionable ethical behaviour, then one has to consider relaxing the efficient market assumption in order to find reason to talk down the share price. With the advent of new fields of study like behavioural finance and comments of ‘irrational exuberance’ by such luminaries as Alan Greenspan, this may not be such an outrageous relaxation of assumptions after all. In fact, assuming that the market may not be efficient relaxes the need to assume that either:

a. information asymmetry exists,
b. a CEO is behaving unethically, or
c. a CEO’s judgment is inaccurate,

or any combination or permutation of the three.

Assuming public information reflects inside information, a CEO is honest and behaves with integrity, and the CEO accurately understands the value of his company, a CEO would be motivated to talk down the share price of his company if he noticed that the stock of his company was trading at a price significantly above its intrinsic value.

Doing so would:

i.Protect current shareholders from having an inflated sense of their wealth.
ii.Prevent a transfer of wealth, rather than a creation of wealth, from those buying the shares at the inflated price to those selling the shares at the inflated price. This is particularly important if we hold that prices eventually correct to reflect a company’s intrinsic value. When that happens, many retirement funds and children’s college funds can be destroyed overnight when share prices fall from lofty heights.
iii.Prevent the CEO & management team from being the victim of unrealistic expectations that are imputed into an inflated share price.
iv. Encourage efficient allocation of capital in the stock markets.

The very idea of an inefficient market, however, suggests that efforts by a CEO to persuade the market to 'rationalise' its pricing may well be unsuccessful. There is a significant chance that an inefficient market with irrational participants will ignore the talking down of the CEO, since the market has already ignored the public information available and has mispriced the company's stock.


Whether or not one believes the market is efficient, there are times when a CEO is rightfully motivated to talk down the share price of a company. And none other than Warren Buffet and Charles Munger "like the stocks of both Berkshire and Wesco to trade within hailing distance of what [they] think of as intrinsic value. When it runs up, [they] try to talk it down. That's not at all common in Corporate America, but that's the way [they] act." And if shareholders can suspend their immediate reactions of unhappiness towards such a move, they might well find that the CEO's actions are in the long run interests of the company as a whole.



Kerin, Paul (2006), "Tactical Retreat," Business Review Weekly
Scott, William R. (2006), Financial Accounting Theory, Person Prentice Hall
Tilson, Whitney (2003), "Charlie Munger's Worldly Wisdom," The Motley Fool

Saturday, September 09, 2006

Competitive Strategy: The Five Forces (Part 1)

When pursuing a qualitative analysis of a business, one of the key components of an analysis is the competitive dynamics of the industry the business is in. Michael Porter, in his book, competitive strategy, outlined the five key forces that determine the profitability of an industry. And while these five forces are not exhaustive, they form a useful guide to analysing a firm's competitive environment.

Force 1: Internal Rivalry Within the Industry

Internal rivalry refers to the state of competition between companies in the industry itself. A company in an industry characterised by low competition is likely to exhibit high amounts of abnormal profits. For example, Microsoft competes in the operating system industry, and has very little competition in this area. For all practical purposes, the company has a monopoly in the desktop operating system market, and faces very little competition. This enables it to raise prices and maximise profit, without having to worry about competitors undercutting its prices to compete away market share. A company such as Microsoft is said to be a price maker, since it has much power to set the prices of its Windows products.

Conversely, a business that is in an industry with a highly competitive market structure is likely to be a price taker. This means that it is forced to take the price that is set by the market. For example, the average soybean farmer's produce, with his few acres of farmland, only constitutes a drop in the ocean amongst the global soybean market. As an individual producer, the farmer has no say on the price of soybeans, since any attempt to sell his produce above the market rate will fail (nobody will buy his soybeans since they can get the same product at a cheaper price), and besides, he has no incentive to sell below the market rate when he can clear his barns at the going rate.

It therefore follows that companies that are within a competitive industry should seek to shape the competitive landscape so as to minimise competition, and derive competitive advantage. This, however, is the subject of another essay.

Force 2: Potential Entrants/Barriers to Entry

Even though a company might be in an industry with little competition, the competitive landscape of the industry can change rapidly once new competitors enter the industry. Thus, industries are attractive to the extent that there exist barriers to entry into the industry. For instance regional newspapers often operate with high barriers to entry. The large amount of fixed costs involved with purchasing and setting up printing equipment, coupled with the high editorial and administrative costs that are necessary to maintain a newspaper, prevent competitors from entering small regional markets. Customer brand loyalty can also create large barriers to entry, since there is little incentive for a reader to switch newspapers when he or she has been reading it for the last 20 years. High barriers to entry deter competition, and in turn help to maintain abnormal profits associated with lesser amounts of competition.

Conversely, an industry with low barriers to entry will invite competition, and companies in the industry will see any abnormal profits competed away rather quickly. For example, it is easy to set up a lemonade stall along the beach to sell drinks to passers by. Any abnormal profits, however, will quickly attract competitors who will rapidly compete away these profits. The lack of barriers to entry allows other enterprising individuals to quickly enter the lemonade market, and the lemonade stall owner can do little to keep them out.

Competitive Strategy: The Five Forces (Part 2)

Force 3: Threat from Substitute Products

The availability of multiple substitute products can decrease the profitability of an industry. This is because customers have more choice available to them and can switch to other products easily if the products of an industry are priced too highly. However, when a product is very unique in the market and there are few, if any, substitutes, this will mean that there are high switching costs involved for customers and that the company or industry producing the product can raise prices to earn abnormal profits.

One example of an industry with no substitutes is the water industry. There is no substitute for water, and utilities companies, if operating in a monopoly, have the potential to raise prices upwards. The lack of substitutes means that people do not have the choice to switch to other products, and water companies often exhibit strong pricing power. However, because there is a need for the provision of this basic resource to society at large, governments often regulate that water companies are not allowed to raise prices above a certain point, to prevent an abuse of industry power at the expense of society.

On the other hand, the t-shirt industry faces many substitutes. If a customer is looking to buy a new t-shirt, he will be very much spoilt for choice. He has at his disposal the option to purchase collared tees, short sleeved shirts, tank tops, or basically any other garment that clothes his upper body. This availability of multiple substitutes greatly diminishes the pricing power of any t-shirt producer, who often has to provide value in other ways, in the form of designs or brands.

In general, an industry that has few substitutes or potential substitutes is an attractive industry to operate in.

Force 4: Bargaining Power of Suppliers

The third force that determines the profitability of an industry is the bargaining power of the suppliers of inputs into the industry. The more consolidated the suppliers are, the more bargaining power they will have, and the higher the prices the suppliers will be able to charge to companies in the industry. The higher the prices of inputs, the higher the costs for the industry, and the less profitable the industry will be.

An example where a supplier has very strong bargaining power is the personal computer industry. Two of the key suppliers, Intel and Microsoft, dominate their industry and are able to exert strong bargaining power on their customers to push up the prices of their inputs: computer chips and operating system software. Because the PC assemblers are relatively fragmented, they do not collude to exert as much counter-bargaining power as they possibly could.

On the other hand, a global giant like Wal-Mart faces fragmented suppliers and thus is able to exert strong bargaining power on the products it needs to stock its shelves. This allows it to keep costs low and pass these savings on to its customers.

It should thus be apparent that, all other things equal, a favourable industry to be in is one which has suppliers that have relatively weak bargaining power.

Force 5: Bargaining Power of Customers

Just as strong suppliers can eat into an industry’s profits, so can strong customers. Conversely, an industry can exert pricing power against the weak bargaining power of numerous small customers. In this way, the bargaining power of customers relative to suppliers helps to determine the level of profitability of an industry.

A regional newspaper with a monopoly will be able to raise prices relatively easily because its customers are many and fragmented. It will also be able to charge a premium for advertising because it is the only platform available to advertisers to disseminate their messages. The customers of the newspaper have weak bargaining power, and the newspaper is able to profit accordingly.

On the other hand, a regional broadcast station with a monopoly will also be a strong buyer when it comes to negotiating for programming airtime. If the television producers are a fragmented bunch, their industry will have to suffer a loss of profits due to the fact that the customer of their products is in a very strong negotiating position because it is the only customer for the product.

Once again, the weaker the bargaining power of an industry’s customers, the more attractive the industry is.


Before investing in a company, it is necessary to understand the competitive environment it is operating in. A company in an industry that scores poorly on the five forces is likely to be vulnerable to competition and have its profits competed away. Such a company is likely to make an unattractive investment.

The astute investor is always on the look out for a company that is operating in a favourable competitive environment, or which has the ability to shape and mould the competitive dynamics of its industry so that the competitive forces are relatively benign. Such companies stand a much higher chance of not only maintaining their profits, but growing them far into the future.

For an example of an in-depth Five Forces Analysis of a company, peruse Blackmores - A Strategic Analysis (Part 2)