Business Beyond the Reef

Will he believe this time?

Good news on the Russian front!  I am always leery of doing business in a system I don’t understand, and I am no expert on Russia.  I’ve been there but several years ago.  But this week, the country is grabbing my attention – for positive reasons.

One piece of good news is Moscow’s decision to delink its application to join the World Trade Organization from its neighbors Kazakhstan and Belarus.  Trying to join as a customs union was always going to be complex and long struck me as a delaying tactic by those in Moscow who didn’t really want to subject themselves to the WTO’s rules of behavior.  Now they seem to be getting serious – possibly a sign that more forward-thinking power brokers are gaining an upper hand.  We can hope.  In any event, applying alone can only speed things up, especially now that Washington has apparently agreed to be Russia’s champion to make things happen in Geneva.

And American companies are taking a rosier view of Russia’s prospects as a decent place to do business.  Dunkin’ Donuts is re-entering the market after giving up eleven years ago – planning to open twenty coffee and donut shops in Moscow this year.  The company couldn’t get the Russians interested in donuts the first time around, plus they had to cope with a rogue franchisee who added vodka and meat pies to the menu.  Wasn’t the right image, apparently.  McDonalds has survived in Russia for twenty years, but Burger King joined the fray only in January.  Starbucks has been in Moscow for three years and now has 26 shops in the Russian capital.

The big bet, however, is John Deere’s decision to invest half a billion dollars in Russia! The tractor company opened a huge new plant in Russia Tuesday, banking on strong growth in Russian agricultural production.  The company plans to assemble tractors, combines, backhoes, graders, loaders and forestry equipment.  That kind of investment shows confidence though I am bemused by the reasoning.  Says John Deere’s CEO, Samuel Allen, himself quoting a Russian poet: “Russia cannot be understood by the mind alone. … In Russia one can only believe.”

Believing is sometimes tough.  Witness yesterday’s New York Times article about Russian investigators simply ignoring evidence, presented by Germany and the United States, about Russian agencies seeking and accepting corporate bribes.  Until Russia takes corruption seriously and does something about it, it’s going to hard for the rest of us to take Russia seriously.

Taiwan High Speed Rail (photo: Yali Shi)

My friend Greg Wong gave a great presentation in Honolulu Tuesday about doing business in Taiwan.  Greg is chief of the commercial unit at the American Institute in Taiwan (AIT), America’s ersatz embassy in Taipei.  AIT was set up in 1979 after Washington decided to recognize Beijing as the government of China.  The Taiwan Relations Act created AIT as a non-profit that has a single contract – with the U.S Government to represent the nation’s interests in Taiwan.  AIT is not an embassy.  It just looks, acts and smells like one.

I won’t try to relate all the details, but Taiwan’s market is booming and is crying out for more U.S. product, both goods and services.  You can get a great feel for the market by looking at the Country Commercial Guide put together by Greg and his staff in Taipei.  Suffice it to say that this island of only 23 million people is now the 10th largest market in the world for American exports.  Taiwan is the 6th largest market for U.S. agricultural exports and our #2 market for Foreign Military Sales.

Taiwan has long sent a lot of students to the United States, but I didn’t realize that it had grown to be our sixth largest source.  Greg commented that his office sees strong interest at the secondary level in the Big Island’s Hawaii Preparatory Academy.  Honolulu’s Hawaii Pacific University gets enough Taiwanese business to make it worthwhile setting up a recruitment office in Taipei to work the island.  A University of Hawaii rep was listening enviously.  Taiwanese students are spending some $700 million annually in the United States, making educational services our 9th largest export sector in Taiwan.  Hawaii earns $4.7 million from these students – and that doesn’t count proceeds from family travel or room and board outside of dorms.  Big business.

And big changes.  The environmental situation is far improved since I lived there in the late 80s.  Then, you often couldn’t see the mountains around Taipei and the river was so putrid that they had to move the annual dragon boat races to a lake in the mountains.  The dragon boats are back now.  And you can see plenty from the top of Taipei 101.

My old staff, Greg’s current staff, can easily help U.S. companies enter the Taiwanese market.  Greg tells me that his office now handles more than 2000 clients a year, far more than in my day.  Give them a try.

An old friend of Hawaii, Greg’s career and mine have a couple of parallels.  We have both headed up AIT’s commercial operations and we have both run the U.S. Export Assistance Center in Honolulu – but separated by more years than I want to think about.  But his Mandarin is a whole lot better than mine!

We see eye-to-eye on Chinese food and agree that Taipei has the best all around Chinese food in the world.  When Chiang Kai Shek fled to Taiwan in 1949, he brought China’s best chefs with him.  The Cultural Revolution destroyed many of those that remained, along with their recipes.  Beginning about 1987, when Taiwan ended martial law and began to allow travel to China, Beijing chefs began to buy recipes back from Taipei’s best restaurants.  Taiwan’s chefs have done cooking courses in China to help restore China’s culinary culture – as well as turn a profit.  I’m getting hungry just typing this.  Give Taiwan a try!

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I asked Greg if the time had come to sign up a Taiwanese agent or rep and expect them take you into southern China.  After all, Taiwan is China’s largest source of “foreign” investment, especially in the southern provinces.  Greg said you might get lucky with the right rep, or by piggybacking on the efforts of a Taiwanese company, but that you are still best off going to China either directly or through Hong Kong.  If you are interested in doing that, come see me, and many better speakers, at the U.S.-Hong Kong-China Business Forum in Waikiki on Friday, May 14.  Great speaker line-up, people any company can pick something up from.  I understand the early bird registration price is good through May 10, but there’s no reason to delay, is there?

I posted a few days ago about how the United States is doing at attracting international visitors.  When looking at the dollar receipts from travelers, rather than just the number of visitors, you capture the real export effect and you can see the nationalities that tend to spend more money.  The ones you really want to bring in, right?  Geography will cause profound differences, but let’s compare the national results with what’s happening in Hawaii.

View of Waikiki from Diamond Head (photo: Sanjay Acharya)

Just as with the national numbers, we’ll use Hawaii’s preliminary data for inbound visitors in 2009, the latest available.  I’d like to be able to take a detailed look at which visitors spent the most money, but I haven’t seen those numbers yet.  We’ll just have to see what we find using the simple visitor counts that have been published by the Hawaii Tourism Authority.  Hawaii attracted 6,419,138 visitors in 2009, but the bulk of those were from the mainland United States.  As our interest is exports, we need to back those out and recompute things.  Taking the U.S. visitors away leaves us with 2,139,442 international visitors.  So where did they come from?

The biggest source by far was Japan, contributing more than 52% of international traffic.  Next up was Canada (I saw plenty of Canadians at our Hawaii Scottish Festival a couple weeks back) with nearly 16%.  Australia was our 3rd largest market (just short of 6%).  South Korea came in 4th (2.6%), followed by China and the United Kingdom (virtually tied at about 2.1% each).  Here are Hawaii’s Top Ten markets compared to the entire United States, using just visitor counts for 2009 to be comparable:

Hawaii’s Top 10                                      U.S. Top 10

Japan (52%)                                            Canada (33%)

Canada (16%)                                          Mexico (23%)

Australia (6%)                                          United Kingdom (7.6%)

South Korea (2.6%)                                 Japan (5.3%)

China (2.1%)                                            Germany (3.1%)

United Kingdom (2.1%)                             France (2.3%)

Germany (1.5%)                                        Italy (1.4%)

New Zealand (0.8%)                                 Brazil (1.5%)

Italy (0.5%)                                                South Korea (1.3%)

Taiwan (0.5%)                                           Australia (1.3%)

A few things leap off the page here.  Hawaii has no land borders so we don’t have the drive-in business that the mainland gets from Canada and Mexico.  And it is only natural that Hawaii should get more traffic from countries that are an easy flight away, rather than on the other side of the world.  So the predominance of Asian markets isn’t surprising.

There is a worrisome over-dependence on the Japanese market.  Having 52% of your customers from a single supplier leaves you wide open to economic, geopolitical or even fashion setbacks in that market.  Visitor traffic can swing quickly, so this is troubling.  We’ll look at what Hawaii is, or is not, trying to do about it in the next few days.

What may be surprising is that traffic from Europe still shows up in the top ten, despite distance, expensive flights and almost no spending to lure these customers.  And the absence of Latin American visitors is interesting; despite changing planes in Los Angeles or Dallas, total flight times for Latin American visitors are really no worse than for some of Hawaii’s Asian customers.  We’ll look into this, too.