World’s Most Competitive Countries

If you plan to invest overseas, you will be interested in the world competitiveness study conducted by IMD Business School in Lausanne, Switzerland. The study, based on analysis of economic output, government and business efficiency, skills and infrastructure, ranked 57 of the world’s economies to determine their competitiveness in the economic race. Below is the partial list for the year 2009:

• No. 1: USA (most competitive)
• No. 2: Hong Kong
• No. 3: Singapore
• No. 13: Germany
• No. 17: Japan
• No. 18: Malaysia
• No. 20: China
• No. 21: UK
• No. 28: France
• No. 30: India

(Please click here for the full list.)

To be sure, I was a bit surprised by the rankings. Despite its rapid growth, China was given the 20^th spot, two below Malaysia. According to the report, China was dragged down by concern about pollution, corruption and rising cost of capital.

India, which scored last in infrastructure among the economies studied, ranked 30^th. However, the nation’s Congress Party has just scored a big victory in election, which will enable the government to push through economic reforms. Analysts and investors are already predicting a better outlook for India.

So, perhaps the ranking can only serve as a rough guideline.

One thing is sure though – USA is a highly competitive country. Having spent some time in the States, I see these characteristics among the Americans – hard-working, innovative, risk taking, highly adaptable…

Despite its recent bad press, I am sure America will bounce back.

USA is number 1 in IMD's World Competitiveness Yearbook

source

Some Economic News

Mighty Toyota hits Speed Bump

I was shocked when I read that Toyota reported a loss in North America.

Toyota is the most-studied car maker in any MBA program. The Japanese firm is known for its lean production. Toyota is the second largest car maker in the world, behind Detroit’s General Motors. However, Toyota enjoys a far better profit margin.

Even so, the Japanese car maker could not escape the economic downturn. It reported an operating loss of 34.6 billion yen in North America. Globally, Toyota’s second-quarter net income fell 69%.

When the mighty Toyota is reporting loss, you know how bad the economy is.

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Singapore’s Casino Faces Uncertainty

Las Vegas Sands, which is building a casino in Singapore, is facing a cash shortage problem.

Singapore has an “interventionist economy”. The economy of the island republic is largely driven by the government. The two casinos under development, one by Las Vegas Sands and the other one by Malaysia’s Genting, were brainchild of Singapore’s government.

In the last few years, the government wanted to woo wealthy foreigners to migrate to the Lion City. To this end, it has built many luxury homes, such as those in Sentosa Cove. Lee Hsieng Loong’s administration is naïve to think that if they build the houses, foreigners will come. It has failed to realize that, in the 21^st century, Shanghai has replaced Singapore to become the magnet for expatriates.

Now, with the world economy heading towards recession, the casino by Las Vegas Sands is in jeopardy. I am not optimistic with the market for luxury homes too.

Financial Turmoil – Factor Analysis

Wall Street has been hit by financial storm in the last few months. Out of the top 5 investment banks of the US, only two still survive. AIG, the insurance giant, has also sought help from the government.

Many analysts, politicians, investors and angry tax payers point to greed as the root cause for the financial storm. The top executives of the financial institutions were greedy. So were some of the speculators.

But greed alone does not explain the whole story. After all, there are greedy fellows all over the world. The problem with Americans is that they have been living on credit for years. I spent some time in the U.S. and certainly know well that Americans are big spenders. In fact, it has been reported that there are more cars than drivers in the States. A typical family with two drivers – husband and wife – may have up to three or four vehicles.

America is a land of immigrants, and immigrants are often risk takers. This is, of course, not to say that native-born Americans are risk-aversive, as they have inherited the traits of their forefathers or have been influenced by the newly-arrives. You see, Americans like to take risk, including in investment. This is yet another factor which contributes to the financial turmoil.

Greed is bad, but some level of risk taking is actually a good thing. In his book, Microtrends, American pollster Mark Penn wrote (before the subprime crisis):
While the U.S. frets about personal debt, some in Europe and Japan are pressing for more bankruptcy options in order to generate more risk and entrepreneurship. Failure is a product of trying, of taking risk. If we never tried to go to the moon, we would never have had the Columbia space shuttle accident. Or, as the CEO of the now bankrupt Eastern Air Lines reportedly said, “Capitalism without bankruptcy is like Christianity without hell.”

P/S Factor Analysis is actually a quantitative method which I learned in my MBA study.

Keep Petrol Price High

The crude oil price has dropped in the past few weeks. In Malaysia, where petrol price at pumps is set by the government, there are already calls to review the price. “High petrol price has caused inflation!” These people claimed.

Let’s make the thing clear: Inflation is caused mainly by the rising commodity price, which in turn is caused by rising transportation charge and fertilizer cost. Trucks and buses run on diesel, not petrol. Taxis run on either diesel or natural gas. Airlines don't buy jet fuel from your neighborhood petrol kiosks. You won’t save a lot of money even if the government reduces the petrol price from RM2.70/liter to RM2.50/liter.

Should the diesel price be reduced? When the government hiked the diesel price in June, truck firms jumped on this opportunity to raise their transportation charge. However, I seriously doubt they would respond should the diesel price go down.

For that matter, I prefer to see the petrol price remains high. It may also be pointless to reduce the diesel price unless the government can force the truck firms to also lower their charges. We should, instead, do something to save the environment.

More Bad News for Oil Price

A total 5.18 million cars, trucks and other vehicles were sold in China during the first half of 2008. That represents a 19% growth compared to the same period last year.

It looks like the high oil price hasn’t deterred the ever-wealthier Chinese from buying cars.

At the mean time, Tata Motors has rolled out Nano – the world’s cheapest car. It plans to sell 250,000 units of Nano this year. Five years later the production will rise to 5 million units per annum.

Just imagine: one million Indians who otherwise cannot afford a car are now lining up for Tata Nano

Conclusion:

Demand for oil will remain high. Expect the oil price to hit US$170 per barrel.

Tata Nano

Management Lite & Ezy 46 – Economics 104

Supply, like demand, is also affected by many factors.

Factors affecting supply:

Input prices For example, when the price of memory chip goes up, supply of computer drop. (In practice, however, computer manufactures can transfer the cost to customers.)

Technology New technology often reduces operating cost and/or increases efficiency, which in turn increase supply.

Number of competitors The more competitors, the less a firm will supply.

Substitutes in production For example, Dell introduced AMD-based PC not too long ago. Supply for Intel-based PC is likely to drop.

Taxes Excise duty, service tax etc. reduces supply. (In practice, again the cost can be transferred to customers.)

Expectation of (future) changes in price If the producer expects the price to go up, it will boost production.

Related posts:

Economics 101

Economics 102

Economics 103

Management Lite & Ezy 45 – Economics 103

At a particular price-point, demand for a product is affected by many factors. For example, if the price of crude oil increases from US$40 to US$60 per barrel, Toyota Prius, the fuel-efficient hybrid vehicle is likely to sell better, as shown below:

Factors affecting demand:

Income effect Demand for normal good increases as income of consumers rise. Conversely, demand for inferior good decline as consumers have more disposable income.

Prices of substitutes E.g. palm oil is the substitute of soybean oil. If the price of palm oil increases, its demand will drop, but the demand for soybean will rise.

Prices of complements E.g. computer software is the complement of PC. Drop in PC price increases demand for software.

Advertising and consumer tastes Effective advertising could increase the demand of one product at the expense of its competitions.

Population Demand increases inline with population.

Expectation (future) changes in price Consumers are more likely to stock up (durable) goods if they anticipate price hike in the near future.

Related posts:

Economics 101

Economics 102

Management Lite & Ezy 44 – Economics 102

(101 is here.)

Demand of a product or service can be either elastic or inelastic. If it is inelastic, quantity demanded varies little even when the price changes significantly. The graph below shows the curves for elastic and inelastic demand:

One “classic” example of inelastic demand is that of cigarette. Smokers do not quit smoking simply because the government slaps a “sin tax” on cigarettes.

Price elasticity of demand is affected by a few factors, such as:

Availability of substitutes For example, demand for Chevrolets is likely to be very price elastic because of competition from Toyota, Honda, Nissan, Ford, Hyundai etc. Demand for Microsoft Windows, on the other hand, is more inelastic. While Linux and Mac OS are the potential substitutes, switching barrier is often too high.

Durable goods Demand for durable goods tends to be more price elastic than the demand for non-durables. Consumers of durable goods are often in a position to wait for a more favorable price, a sale, or a special deal when buying these items. This accounts for some of the volatility in the demand for durable goods.

Percentage of budget Demand for relatively high-priced goods tends to be more price elastic. This is because expensive items account for a greater proportion of a person’s income and potential expenditures than do low-priced items.

Time frame of analysis Over time, demand for many products tends to become more elastic because of the increase in the number of effective substitutes. For example, in the short run, demand for gasoline may be relatively price inelastic because the only available alternatives are not taking a trip or using public transport. Over time, as consumers replace their cars, they may opt for vehicles which are more fuel-efficient such as the Toyota Prius which runs on hybrid engine.

Reference:

James McGuigan, Charles Moyer & Frederick deB Harris, Managerial Economics: Applications, Strategy, and Tactics, 9^th edition

Management Lite & Ezy 43 – Economics 101

The analysis of supply and demand is the basic of economics.

Demand is a function of price. Generally, quantity of a product or service a buyer willing to buy drops when its price increases. This is illustrated by the market demand curve, as shown below:

Supply, as a function of price, is just the opposite. As price increases, the amount of a good or service that will be produced also increases. This is illustrated by the market supply curve: