Bahrain Dragon City

The real estate growth in Bahrain has always been a topic of controversy amongst us locals, mainly due to our Kingdom’s tiny geographical size and population. With all these huge projects being erected one after the other, who is actually occupying them, and are the costs justifiable? …But I digress.

Back on topic; with the steady growth in real estate in Bahrain, many great projects come to mind: “Amwaj Islands”, “Durrat Al Bahrain” and “Riffa Views”. However, one of the more recent projects, (still under development in fact), stubbornly stands out from the rest: “Diyar Al Muharraq City”.

Diyar Al Muharraq City is the largest private metropolitan development project in the Kingdom to date. Covering an area of 12 square kilometers, this huge project is split into a number of smaller, individual projects including:
Sarat Community;
Shaikh Isa Bin Salman Al Khalifa Grand Mosque;
Diyar Homes and;
Dragon City.

A project within a project, the “Bahrain Dragon City” is a multi-million district built on 115,000 square meters of land located in the southwest corner of Diyar Al Muharraq. It will consist of a shopping mall, numerous warehouses and a dining venue. The project focuses on delivering Chinese goods and services to the Kingdom in a single wholesale and retail trade facility. The developers aim to fully pre lease available space to prominent retailers from China and the Kingdom.

The project gets its name from its adoption of the unique, but undeniably gorgeous Chinese architectural and cultural references. The mall will host 700 individual retail stores, while an area of 5,000 square meters is designated to warehouses. The dining venue is a 6,000 square meter Asian-themed dining street with a car park capacity of 1,500 vehicles.

Set to be completed through 2 phases, phase 1 (which includes the Chinese themed mall) has already been initiated and is scheduled for completion by the end of June 2015. Phase 2 sets to double the size of the project to 335,000 square meters.

The project has faced some difficulties though:
Due to the exposed coast allocation, strong winds had slowed progress for a short period. Terry Carroll
-350 residential apartments are under construction adjacent to Dragon City. They need to be completed by the time the mall opens, straining the project’s time management further.
-The Dragon City has met with some disapproval from local merchants, who signed a petition against the project in 2014. They fear that the Chinese traders would eat away at their customer base and businesses.
-Moreover, if you have ever been to Dubai, the project is undoubtedly similar to “Dubai Dragon Mart”, and it admittedly follows in its footsteps. However, the success of Dragon Mart in Dubai is largely due to the energetic tourism industry in the sovereign state, coupled with the fact that in Dubai each year the number of tourists from China has grown 15-20 percent. David Macadam

With the issues mentioned above I often find myself contemplating the following:
What are the measures taken to recover the lost time and streamline time management? Is the Kingdom’s tourism industry even remotely as hyperactive as the one in Dubai to justify the costs of the project? What is to be done to win the approval of the local merchants?

 

Sources:

http://www.nassgroup.com/en/article/media-center/press-releases-1/bahrain-kicks-off-construction-of-dragon-city-project.html

http://www.constructionweekonline.com/article-32836-site-visit-dragon-city-bahrain/1/ Terry Carroll quote

http://www.arabianbusiness.com/bahrain-s-dragon-city-mall-project-60-let-ahead-of-launch-584489.html#.VTPzd5OFE6V

http://www.thenational.ae/business/retail/bahrains-dragon-city-follows-in-dragon-mart-footsteps David Macadam quote

http://www.diyar.bh/en

http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=379881

Death of American Industry

This article is interesting in many ways.  It highlights the shift that is taking place that is slowly taking shape around the world with China and their “industrial revolution.”  The steel industry has long been an American dominated industry because its superior manufacturing processes.  China has been making serious in roads to compete locally.  The article talks about the implications of opening the proverbial “can of worms” of using Chinese steel to build United States infrastructure.  It speaks of the price differential between Chinese and US steel, and it talks about the future of the steel industry.  The United States steel industry could have an uphill battle for future construction and bridge work if the steel used in the bridge projects in New York and San Francisco prove out to be high quality.

The common thought within the United States manufacturing and building sector was (and still is) that Chinese steel was inferior and could not be trusted.  The American Recovery and Reinvestment Act was supposed to help out industries like construction and the steel industries by putting limitations on where you can buy material and employing people.  The problem with this restriction, is there has been so much consolidation in the steel industry that many items are not made by ANY American producer.  In some cases, even if there is the American alternative, the price can be much higher and the project manager needs to reassess its job priorities.  The article talks about the situation where a company was able to find material in the United States that was almost double the price of the imported steel.

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The steel industry and the manufacturing world run in tandem.  Manufacturing has been sputtering in the United States and the steel industry is dependent on people buying cars, appliances, and building infrastructure.  The manufacturing sector has defected overseas to places like China and India because of cheap labor. The majority of the construction industry has stayed within the United States because of the superiority of the American made steel products.  Companies like Nucor have had a stranglehold on the construction industry because of the high quality, yet economically made steel that they were able to produce. The danger, as the article talks about, is the threat on the construction industry which has started to shift towards Chinese steel.  I think that if President Obama extends tariffs, it will have a temporary positive effect on the industry by putting China and the US on equal footing in terms of pricing, but what is the long term game?

While I agree that it is important for China and the United States to be on an equal playing field, I think that the bigger problem is the need for more planning within the industry to become a feasible and efficient producer of steel and employer of American jobs.  Assessing our risks of bringing in more capacity to the industry vs. not being a significant player will be something to watch for.  How does the industry help bring manufacturing jobs back into this country without a plan towards the future?

 

Main Article:

http://online.wsj.com/article/SB10001424127887324049504578545431938331880.html

Supporting Articles:

http://www.nbcnews.com/business/jobless-claims-rise-manufacturing-growth-slows-6C10387815

http://www.silive.com/news/index.ssf/2013/06/staten_island_lawmakers_charge.html

 

Hog-wild for Factory Farming: Hot Dogs Made in China

As the Chinese population and economy continue to grow, safer and more efficient industrialization practices are necessary to keep up with the demands of a hot dog hungry China. This is not an exaggeration as China is “the world’s largest consumer of pork.” A recent takeover of Smithfield Foods by Shuanghui Holdings Ltd., “China’s biggest meat processor,” will provide valuable insight into industry practices that are commonplace in the U.S. Current processing methods in China lack quality control as the majority of meat is produced by small farms that process less than 500 hogs per year.

From Hog to HotdogThese “conditions on smaller farms can be squalid, with a lot of physical contact between farmers and animals, which can transmit disease.” This type of environment can become a breeding ground for contamination leading to outbreaks of diseases like swine flu and foot-and-mouth disease, having major health implications on Chinese consumers. Authorities blame irresponsible farming practices and the disjointed meat processing system that is not easy to “regulate and makes it more difficult to avoid bad practices.”

In contrast, the highly sophisticated and streamlined systems of pork production in the U.S. is often viewed negatively by Americans and referred to as “factory farming.” Smithfield’s facilities have the “capacity to slaughter as many as 110,000 hogs a day,” and most U.S. farms are much larger than their Chinese counterparts, raising over 2,000 hogs annually. Ironically, these modern processing techniques are the envy of Chinese authorities who are looking to utilize the “expertise of Smithfield’s management team to enhance its pork-processing facilities.” Skeptics claim that the Shuanghi-Smithfield partnership “will exacerbate such problems as complex supply chains and food-contamination risks.”

Although the trend in U.S. agriculture is to go “back to the start” as expressed in marketing campaigns by environmentally conscious companies like Chipotle Mexican Grill, this is not the reality in China. As health out-breaks are more widespread in this Asian country and regulation lacking, efforts to “control food safety” and create more modernized processing methods are a welcomed site.

In such an industry, operational expertise will prove essential in restructuring the pork processing system in China. They will likely face challenges like determining adequate process and capacity design for farming facilities and distribution channels; forecasting to meet the demands of a growing population; Slaughter Pigs in Chinaand improving inefficient and broken supply chains. Improved product quality will likely be most prominent and follow a manufacturing-based definition as increased standards will ensure a safer finished product.

On a personal note, I am an advocate for more naturally produced food in smaller farming environments, yet I understand that the demands and current conditions in China are quite different from the U.S. All criticism aside, the majority of the U.S. population relies on the safe meat supply provided by corporations like Smithfield to ensure peace-of-mind at the dinner table. How do you think that the new deal between Shuanghi and Smithfield will impact Chinese and U.S. consumers, respectively. Will the Chinese citizens have a similar sentiment toward industrialized farming practices in future decades?

Article Source

 

 

KFC China: Straying too Far from Kentucky?

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Bloomberg Business Week featured KFC, a Yum brand restaurant, in two recent articles focusing on the brands Chinese storefronts. KFC, a household name in US fast food chains, has been suffering in several different aspects. Originally tied with the name “Kentucky Fried Chicken”, KFC has evoked feelings of unhealthiness with US consumers for years, and has suffered sluggish sales. However, the chains crowning glory has been KFC China which has been a start for Yum brands and been increasingly profitable.

Recently, however, KFC China has suffered from image issues and quality problems, and therefore there sales in China have been dipping. For KFC in the past, unhealthiness was not as much of an issue for its Chinese counterpart, because it brought a unique competitive advantage: its traditional American menu. KFC China took a different approach that may have ruined that competitive advantage, by trying to adapt the menu to the Chinese audience and adding traditional Chinese fare. So far it appears that this was not a wise choice, and consumers are left wondering what happened to their beloved American food. KFC needs to reassess their product design to match the wants of the Chinese customer base.

On top of this reconstructed image issue for KFC China, what may have been even more damaging was quality control issues. A history of poor quality issues can be severely damaging to a brand, especially one associated with the food industry. Consumers take extra precautions with what they are putting into their bodies, so when news of KFC chicken containing “unacceptably high levels of antibiotics” the chain suffered. This on top of already high concerns dealing with avian flu, made Chinese consumers even more skeptical about consuming this product. This illustrates, how damaging a quality issue can be for a brand, as discussed in Chapter six.

KFC China had been so successful in the past, that Yum has considered completely selling the United States stores in order to focus on those abroad that were growing at a much faster rate. However, if they continue to have these image and quality issues in China, getting rid of US stores may be a poor choice.  If KFC abandons its US stores, does that destroy its image of being a classic American restaurant even further? Only time will tell what happens to this brand, but it is crucial that Yum and KFC managers assess this project.

What are your thoughts on KFC and KFC China?

Questions for discussion:

1. Should KFC focus on one brand or the other? Or continue with both?

2. How should a major fast food brand adapt to international markets? Maintain their original image, or add traditional food, specific to the location?

3. Where to you see Yum and KFC moving in the future?

Article Links:

http://www.businessweek.com/articles/2013-05-16/kfc-loses-its-touch-in-china-its-biggest-overseas-market

http://www.businessweek.com/articles/2013-05-14/should-kfc-rethink-its-china-strategy

 

CAPSIM and Chinese Government Infrastructure Spending?

While it might seem that a business simulation website and government infrastructure spending in China might be worlds apart, the underlying strategy theories and challenges between the two are very much the same.  Capsim is a web learning application that challenges users to attempt to duke it out with other real teams and computer opponents.  The essential challenge that is presented is to attempt to out maneuver your opponents in an effort to gain additional market share and subsequent profits. The Chinese government’s efforts to invest in infrastructure to stay ahead of the curve of its growing middle class needs present the same problems my team faces but with significantly greater consequences. One need not look farther than Detroit or Las Vegas to see what happens when exuberance and poor forecasting meeting economic decision making.

What is the common challenge between these two situations? Well, in a word, uncertainty. Uncertainty is the lack of true knowledge of the future environment as well as the actions of other players in the global or virtual world. While in both situations, one could attempt to forecast probabilities of what would be required to support future business ventures or population transitions or growth, no one can know for sure.  This uncertainty can doom a seemingly smart and well planned out investment today to become a nightmare tomorrow.  The Chinese policy of building 20 cities a year for the next 20 years is a perfect example of poor planning to models that don’t properly predict changes in an economy. The absolute waste of resources that that is going into these ghost cities within China reminds me of the comparison between the cost of bombs and schools made by Eisenhower at the end of this term.

I was reading a Financial Times article today about perceived overinvestment by the Chinese government  that really got me thinking about the strategy to be played in our virtual competition being fought on the web.  While moves that my team makes are truly inconsequential to my existence, investments and the forecasts that fuel them are being made in one of the largest emerging economies in the world and they may be proving to be the wrong decisions. While there are opinions and models that show both sides of the argument, the fact remains that models can be wrong.  To this end, the study mentioned in the article notes an effect of this investment on 4 percent of potential GDP as well as 10 percent of actual GDP. Considering the complete poverty that is experienced within many areas of Chinese society, one is forced to consider how this value can be better directed to ventures that would help those individuals improve their economic situations.  Added on top of this, no one can completely account for the human cost of misallocated resources. Just imagine if Albert Einstein was not given the opportunity to receive any education in his lifetime…

While this may prove out to be utter hogwash criticism of long term planning and development by Beijing, one has to recognize the reality that all of these decisions and really all of life’s decisions in general, are based on uncertainty and essentially game theory. After reading this article, I sat back and thought of other examples of terrible investments made in ventures that at the time seemed to be the greatest thing since sliced bread. Of course, each decision varies significantly in financial value; the point that really can be driven home is the absolute uncertainty of operating in a dynamic world.

What sorts of decisions have you seen or made in your personal or work life that proved to be terrible even though everything pointed to a great outcome at the time you made the decision?

 

China’s over-investment problem

http://ftalphaville.ft.com/2012/11/29/1288653/chinas-over-investment-problem/

 

11:11 Make a Wish – China’s Cyber Monday

Many may know and participate in the United States huge rush for online shopping after Thanksgiving, also known as Cyber Monday.  However this ranks as the second largest e-commerce event in the world.  In the recent years, an online shopping extravaganza has emerged for China.  It began in the 1990s by college students who did not have a significant other.  As a replacement for Valentines Day, young adults without partners began treating themselves to dinners and gifts.  The concept of the date arose by November 11th or 11-11 which has 4 singles (for singles).  It has now erupted into possibly the busiest online shopping day in the world.

The simple items have now evolved into jewelry, TVs, and even cars.  The event has also spurred the need for different marketing techniques and price cuts.  As the article mentioned, some retailers have promised discounts up to 70 percent off.  The deals are very hard to resist and resemble many aspects of the United States’ Cyber Monday.  Halfway through the day,  approximately $1.6 billion in sales have been accumulated by means of the largest website for online shopping in China, tmall.com.  This amount has surpassed the $1.25 billion that United States online retailers took in last year’s Cyber Monday according to the article’s source comScore, a research firm.

Companies have also had to begin planning and forecasting sales and delivery services months in advance.  Alibaba, the largest Chinese operator of e-commerce, has requested additional lounge chairs and made reservations for rooms in nearby hotels for their employees to take much need breaks and relaxation.  According to the article,  more than 800,000 delivery personal will be working Sunday with the additional 75,000 hired seasonal workers.  And one of the largest companies has even expanded their operating capacity by 50 percent.

Although the idea of a large shopping spree day online in China may be different from the United States, there are many similarities when it comes to the businesses and their preparation.  Do you see a growing trend in online shopping in American or believe that making the trip to the store is necessary?  In my opinion, I believe it matters in the nature of a product to either purchase it from a picture on the screen or physically taking the good off the shelf.

 

Article Source : http://finance.yahoo.com/news/singles-day-chinas-online-shopping-070856623.html

Manufacturing Taking a Turn for The Better


As I was growing up, as a kid in the early 90’s, I quickly learned that anything that said it was made in China was an inferior product to those that were made here in the USA.  However, even with this connotation of poor quality it seemed that every product that I came into contact with was made somewhere outside of the country.  Over these years, leading to this very day, the vision of these products has moved away from the poor quality of old.  Now it seems that what truly upsets us about products not made in with the USA is the fact that we have many of our own looking high and low for a job in the manufacturing industry.

In recent years it has seemed to have come nearly impossible to compete with markets like China, where it comes to manufacturing, with considerably low wages being received by their workers.  While wages in China are coming up, from an average of 58 cents per hour in 2001 and an estimated $6 per hour in 2015 http://www.csmonitor.com/Business/new-economy/2012/0510/As-Chinese-wages-rise-US-manufacturers-head-back-home, there is still a large gap compared to their American counterpart, at about $19 per hour http://www.trade.gov/mas/ian/MBU/index.html.  Even so, as stated in the Wall Street Journal article “Once Made in China: Jobs Trickle Back to U.S. Plants” manufacturing jobs are starting to make their way back to the good old USA.  The progress has been slow in the American manufacturing market after a 35% decline in jobs between 1998 and 2010 we have seen just a 4.3% increase since.  But, this increase that is expected to be about 3.2% this year compares to that of just 1.6% in all other fields.

These changes in the American manufacturing market have reasons that are not solely based on the increase in wages overseas.  It has been said that the American is more than 3 times more productive than that of their counterparts from China http://online.wsj.com/article/SB10001424052702304587704577333482423070376.html#project%3DSLIDESHOW08%26s%3DSB10001424052702304363104577390470454369272%26articleTabs%3Darticle.  Shipping costs are becoming increasingly more expensive and companies are coming out close to even, if not better off, manufacturing in America when these costs are put into play.  These factors and the fact that overseeing the physical production becomes worlds easier when it is taking place in your back yard are bringing manufacturing jobs, little by little, back to the USA.