Monday, June 11, 2007

Lessons from the UNSW Fiasco

As if criticism from its students, Singaporeans and its peers in Australian education weren't enough, UNSW Asia has now received bad words from the Chinese Government. In news just out, the Chinese government has warned its student against private educational institutions, and this issue is seen to be a serious setback to Singapore's drive to become an education hub.

"In a recent advisory to students, China's Education Ministry noted the unexpected closure of the UNSW Asia campus, located in Singapore.

It criticised UNSW Asia for its 'exaggerated' and 'false' claims about being rated among the world's top 50 universities.

The ministry said students should do their research before enrolling in schools set up by foreign institutions in another country.

It noted that there is a growing number of such schools which it said have 'varying standards'.

'In choosing a school or courses run by a foreign school in a third country, students should try to avoid schools which are unstable or have dubious quality.'

When asked, Mr Bai Yan Lei, second secretary (education) at the Chinese embassy in Singapore, said no complaints have been received from the five or so Chinese students at UNSW Asia.

But the UNSW Asia issue, coupled with the closures of private schools like AIT Unicampus and Ritz Everton Academy, would inadvertently dim Singapore's allure as a study destination for Chinese students, he said." (Straits Times, Jun 11)
But, the Chinese government's criticism notwithstanding, I think there is a bigger underlying problem with these sort of education initiatives in Singapore, and that is that what should primarily be a private-sector driven endeavour has had its reigns taken over by bureaucrats, politicians and administrators who have little practical business acumen.

Operations like this, first and foremost, have to be commercially viable to survive. If you can't pay the fees of academics and you can't pay the rent, and you can't afford the computers and facilities to run an educational institution, you simply can't run a university. In other words, the initiative has to be business and market centric. But how can you expect the venture to be business centric when the initiative is led by a bunch of academics and government scholars who have PhDs and 1st class Honours degrees, but lack business acumen? It's only natural for such an initiative to fail.

The fact is, people who have spent the majority of their careers writing academic papers and in secure, government administrative jobs simply don't have the experience and business sense to successfully execute ventures like this. Such ventures have to be led to the private sector. Indeed, when you compare a venture such as Raffles Education Corp, to the abysmal performance of the UNSW-EDB joint project, you will get exactly what I mean.

The same arguments apply to many other initiatives and grand plans that the government has: unless they are spearheaded by experienced businessmen and entrepreneurs, many economic projects that Singapore tries in the future will face similar consequences to the EDB-UNSW fiasco.

Telstra: a Political Operation, or a Free-Market Business?

Phil Burgess, head of public policy at Telstra, has been on the record as having made the following comments:

"We've been aggressive because there is a move under way to confiscate something that is owned by 1.6million mum-and-dad investors and give it to a Singapore company," Dr Burgess told The Australian.

"We're talking about turning over Australia's only nationwide telecommunications network to a consortia run by the Singapore Government. That's a government that executes people, number one, and doesn't allow competition in its own country. It's unbelievable.

"We've had a national broadband plan since August 2005. It's been vetoed twice by the (Australian Competition and Consumer Commission). When people say we're threatening not to do broadband, it just isn't true. We need to have our costs accepted by the ACCC. We are not going to build it if we can't get a commercial return on our investment."

If you scrutinise this statement carefully, what Phil Burgess is saying is the following:

a. Telecommunications business in Australia should be given to Telstra because Telstra's shareholders are mum-and-pop shareholders.

b. Telecommunications business in Australia should be given to Telstra because it is an Australian company and Australia does not execute its people.

c. If Telstra cannot competitively operate a national broadband infrastructure, no other company should be allowed to do so.

Well, how's that for a competitive company?

The last time I checked, business should be conducted based on the ability of a company to offer its customers the best services and the best value, not some call to political arguments or human rights issues.

In my view, these statements are just shameful and show that Telstra does not compete on the basis of economic competitiveness but on the basis of slimy political maneuvering. And it just goes to show that business simply cannot be separated from its political environment.

SGX's Competitive Strategy

Today in the Business Times was an interview of SGX's head of listings, Laurence Wong:
'The smart way in dealing with competition is not only to make ourselves better but to really differentiate ourselves so that we deliver things that are difficult for other people to,' Mr Wong told BT.
In view of the competitive market environment, is this the correct strategy for SGX?

China is currently pushing for Shanghai to be its main financial centre, many of the top-tier Chinese companies have listed their shares on the Shanghai bourse. With this natural competitive advantage of the hinterland, Shanghai's stock market is well positioned for growth by concentrating on fund raising of the major companies in China. The combination of geographical proximity and political will gives Shanghai a natural advantage that is very difficult for a player like SGX to assail, so SGX naturally should not aim to bring the large Chinese companies to list on its trading board.

The Hong Kong Exchange also shares the advantage of close proximity to the mainland, as well as the advantage of being a very well developed capital market. As such, the major Chinese companies have also dual-listed on the HK Ex as part of the capital raising. In combination with the entrepreneurial culture of Hong Kongers which have created many local businesses, HK also has a natural advantage compared to Singapore when it comes to securing big business.

Where does that leave SGX? Well, it sounds like SGX is left with the scraps. But that doesn't have to be the case. With Mainland and HK investment bankers going for the big guns, Singapore's investment banking and brokerage community can focus on its comparative advantage by pursuing a differentiation strategy which involves focusing on specific niches. And from the looks of it, SGX has done this. By expanding its REIT market and pursuing second-tier companies in the smaller cities around China, SGX makes itself an attractive destination for companies which may not be able to attract the attention of investors and bankers in Shanghai and Hong Kong. So, as far as this area is concerned, I think SGX has got it right.

An interesting idea would be for SGX to pursue an acquisition of a bourse in China that has a similar competitive position to it, if and when regulations allow and the opportunity presents itself. The Shenzhen stock exchange seems like an interesting option. Of course, if the acquisition opportunity does not materialise, joint venture and cooperative agreements can be seeked. The Shenzhen stock exchange is a second-tier exchange that has lagged its bigger brothers in Shanghai and Hongkong, and has a similar market positioning to SGX in the sense that it seeks smaller companies to list. With this convergence of strategic interests, the Shenzhen bourse would make a very interesting partner for SGX to work with.

DBS ends talks to buy S Korea's KEB

News just out - DBS has decided not to buy S Korea's KEB.

SINGAPORE - Singapore's DBS Group Holdings, Southeast Asia's largest bank, said on Monday that it has ended talks with Lone Star about buying a stake in South Korean lender Korea Exchange Bank (KEB) .

The statement came after Korea's Yonhap news agency on Sunday quoted Lone Star chairman John Grayken as saying that the US investment firm had stopped talks with DBS.

Mr Grayken didn't say why the talks ended, but said that the Dallas-based fund would keep looking for a buyer for KEB, despite a legal battle over the 2003 purchase of the bank.

'We notified Lone Star that we would not be going forward due to the uncertainties in the market surrounding the local issues that have been going on for over a year,' DBS said in a statement. -- REUTERS

Acquisitions are a major source of growth in the banking industry. However, it is not exactly clear why DBS should be seeking an acquisition in South Korea. South Korea is a well developed economy with a highly developed banking market so the growth and revenue enhancement opportunities of entering the South Korean market via an acquisition are not clear. Furthermore, it is not immediately clear where the synergies are between the South Korean banking market and DBS' main operations in Southeast Asia and its fledgling operations in China, which just opened earlier this year.

In order to justify the acquisition, there would need to be significant value-enhancing opportunities that the KEB acquisition would bring to DBS' international banking services, such as investment banking or trade finance. But given that there is rather small amount of international trade between Singapore and South Korea and the main opportunity in this deal for international finance is between China and South Korea, DBS should focus much more on its organic growth in the mainland rather than seeking an acquisition in a market that is non-core to its operations. Southeast Asian companies are unlikely to list on the South Korean stock market, and similarly South Korean companies are unlikely to list their shares on the SGX. M&A activity between the two regions is also unlikely.

Furthermore, given the Singaporean origins of DBS and its predominantly Chinese culture, there would probably be several integration issues when it comes to merging the corporate cultures of KEB and DBS, the least of which being the different languages being used.

All in all this is probably good news for DBS shareholders that Jackson Tai has pulled away from the deal as any prospective deal would likely be risky and involve the winner's curse - destruction of shareholder value.

Tuesday, June 05, 2007

Think Markets Are Efficient? Think Again.

I was just reading about inflation targeting in the conduct of monetary policy, and I came across statement:

"My view of markets is that virtually all participants have access to the same information - however, they hold different views on the structural framework within which economies and markets move and thus interpret the same data quite differently. This is the only way that some investors will buy while otheres are selling and that prices can change dramatically in the absence of new data. It also explains the puzzle where analysts switch direction like reef fish."

A very insightful and well articulated paragraph on why even though in the absence of asymmetrical information markets can exhibit inefficiencies, and why astute investor who possesses a superior structural framework with which to analyse markets and economies can derive superior profit!