Posted by: Bruce Einhorn on April 22, 2010
Even as Bangkok has been hit by political unrest, Thailand’s medical-tourism industry has been surprisingly resilient. Overnight, one person died and 78 were injured when at least five grenades exploded in Bangkok’s financial and tourist district. (Note that this is the updated figure, based on a statement to Bloomberg News by the Health Ministry; earlier, Deputy Prime Minister Suthep Thaugsuban had said three people died.) This was the latest fatal incident in the capital, where 25 people were killed and more than 800 injured earlier this month when the military tried to force the Red Shirts - anti-government protesters who support deposed Prime Minister Thaksin – to end their demonstrations in the city. According to Bloomberg News, about 14,000 Red Shirts have rallied in the center of Bangkok, “where they set up showers next to the Four Seasons Hotel and slept under advertisements for Prada and Louis Vuitton.â€
You might think this would be huge turnoff for investors in Thailand’s hospitals, which count on patients coming from overseas - people who might stay at the Four Seasons, wear Prada clothes and carry Louis Vuitton bags - for an important part of their revenue. So far, though, investors are surprisingly sanguine about the impact of the unrest. Since the Red Shirt demonstrations started last month, the stock price of Bumrungrad Hospital, probably the premier destination in Thailand for international patients, is only down about 8 percent; meanwhile, Bangkok Chain Hospital is down just 1 percent and Bangkok Dusit Medical is actually up by 0.8 percent. (The benchmark Thai index is down 1.7 percent.)
What explains such confidence? In part, the timing of the Red Shirt revolt. As analyst Raweenuch Piyakriengkai of KGI Securities wrote in a report on April 1, the second quarter of the year is low season for the health-care sector, regardless of what’s happening in the streets. “It is the off-peak tourism season which means less international patient traffic,†Raweenuch wrote.
Since that KGI report came out, though, the once-peaceful protests have turned deadly. The situation could get much worse soon, given the huge political and economic divide between Bangkok’s upper and middle class Yellow Shirts and the northeast’s poor Red Shirts. If and when it does, I would expect the Thai hospitals to take a big hit. Medical tourists from Southeast Asia, the Middle East, Europe and America have plenty of other options for their hip replacements or tummy tucks without having to brave turmoil in Thailand.
Posted by: Bruce Einhorn on April 20, 2010
The Indian government is considering liberalization of higher education in the country, a move that would allow foreign universities to establish campuses in India. Check out this story from Monday’s Financial Times for more on the proposed changes. One angle that story misses: How the proposed reforms could help local schools. Consider one problem faced by the Indian School of Business, the B-school based in Hyderabad that is partners with Wharton and Kellogg and has just announced an alliance with Sloan. (For more on ISB, look at my story about the school in the current issue of Bloomberg BusinessWeek here.) Since ISB isn’t affiliated with a university, it can’t give MBAs to its graduates. Indian students don’t mind: Most of the other top B-schools in India can’t give MBAs either, and everybody knows that the piece of paper you get from ISB is an MBA in everything but name.
Still, the lack of MBAs makes it difficult for ISB to attract students from outside the country whose friends and family members and would-be employers aren’t quite so understanding. Not being able to offer MBAs “does make a difference when you are trying to attract international students, particularly students from the Asian region,†deputy dean Savita Mahajan told me recently in an interview in her Hyderabad office. “That has been a challenge for us. When you go to Singapore, Taiwan, South Korea, China, they are more conscious of the [MBA] label.â€
ISB’s Dean, Ajit Rangnekar, says he’s hopeful that the proposed education reforms could eliminate the problem, allowing ISB and others to grant MBAs. That would make the school more competitive in recruiting students. Non-Indian students currently make up only about 5% of the student body, says Mahajan. “We will truly be in that [top] league only once we are able to get international students,†she says. “That’s one of our biggest drawbacks now.â€
Posted by: Bruce Einhorn on April 12, 2010
Now that Chinese automaker Geely has agreed to purchase Volvo from Ford, will Palm be the next downtrodden Western brand to be swooped up by a Chinese buyer? That’s a possibility now that the creator of the Pre smartphone is, according to this Bloomberg News story and other news reports, seeking bids for the company. As they speculate about would-be buyers, analysts point to several companies from China that might want to grab the U.S. company as a way to jump-start their smartphone sales. Lenovo, the PC maker that has gotten back into the phone business in January after a two-year absence, is one. Huawei and ZTE, the two biggest Chinese makers of phone equipment, might also be interested.
Good luck with that. I’ve written before about the spotty track record of Chinese companies trying to grow globally through M&A.; The best of the lot so far has been Lenovo’s purchase of IBM’s PC division in 2005 – and that’s not saying much. Lenovo is No. 4, behind market leader HP, Acer and Dell, and its global market share in the fourth quarter of 2009 was a respectable 8.9%. That’s thanks largely to Lenovo’s commanding position (33.5% market share) in its home market, though, something that the company didn’t need the IBM deal to achieve. Meanwhile, in the market where the acquisition should have helped the most – the U.S. – the company’s sales have slumped. Something to keep in mind in the days ahead as we hear more about the likelihood of a Chinese company trying to leapfrog to the top tier of the smartphone business by buying Palm.
Posted by: Bruce Einhorn on March 31, 2010
There are some things too challenging even for China. Anybody who thinks China’s economic mandarins are all-powerful need only look at the sorry case of the country’s top chipmaker, Semiconductor Manufacturing International Corp. (SMIC), for proof that there are some things even Chinese leaders can’t manage. The Shanghai-based company, which got its start a decade ago as part of Beijing’s campaign to create a local chipmaking industry to compete with the world’s best, has lost $1.4 billion since 2005. SMIC hasn’t made a profit since 2004 and last year alone had $828 million in red ink.
The company’s founder and longtime boss, Richard Chang, was great for reporters; an evangelical Christian, Chang regularly talked about doing God’s work and he helped fund an impressive new church building near SMIC’s headquarters in Pudong. (See this story I wrote about Chang’s mix of religion and business.) Chang wasn’t so great for investors. The company’s New York-listed ADRs IPOed at 17.50 in 2004 and by January last year they were trading just above 1.50.
In November, Chang left the company. Since then, things have started to look up for SMIC. The new boss, David Wang, is the former president of Asia for Applied Materials and analysts like the change he’s brought to SMIC. “Wang seems to have brought a more Western-style management style to SMIC that demands more accountability from every level and a harder focus on profitability,†BofA Merrill Lynch analyst Daniel Heyler wrote in a March 17 report. Wang is also the CEO of another Shanghai chipmaker, Shanghai Hua Hong International, raising hopes of consolidation. And Wang has helped end the destructive rivalry with the world’s top foundry chipmaker, Taiwan’s TSMC, which reached a settlement with SMIC in November over the Taiwanese company’s charge that SMIC had stolen its trade secrets. As part of the settlement, TSMC agreed to accept shares in SMIC and $200 million in cash. TSMC is now proceeding with that plan: On Monday, it applied to the Taiwanese government for approval to receive as much as 10% of SMIC.
All this is welcome relief for beleaguered investors in SMIC. The price of its ADRs is up 97% so far this year. Don’t get carried away, though. Heyler sees the company losing another $185.5 million this year and not turning profitable till 2012.
Posted by: Bruce Einhorn on March 25, 2010
As calls grow louder in the U.S. for the Obama administration to pressure China over its undervalued currency, it’s good to check in with William Fung, group managing director of Li & Fung, the giant Hong Kong-based trading company that sources goods from China and other countries for companies such as Wal-Mart and Talbot’s. I spoke to Fung today when he stopped by the Bloomberg office to talk about Li & Fung’s disappointing earnings. (More on that news here.) When it comes to the fight over the yuan, he doesn’t expect Beijing to budge. To understand why, he says, look back to Japan’s “Lost Decade,†the period after Japan’s real-estate bubble burst in the early 1990s. “Every time I talk to these guys [in China], they say ‘We’re not going to repeat Japan’s mistake,’†he says. For them, mistake was the deal the Japanese made with the U.S. and the Europeans back in 1985 to allow the dollar to depreciate against the yen. According to Fung, Chinese officials are convinced that agreement, signed at the Plaza Hotel in New York, doomed the Japanese. “They think the Plaza Accord was the beginning of the Lost Decade,†he says.
Some people outside China argue a yuan appreciation would help the Chinese achieve their goal of boosting domestic demand, making China less reliant on the export sector (which crashed after the Lehman bankruptcy). Fung doesn’t think Beijing’s ready to buy that line. “They fullY intend to follow Japan and Korea†and focus on exports, he says. “They’re not going to go to this Amercan-style consumer-spending-on-steroids economy for a while. They just don’t believe in it.†In order for Chinese consumers to start spending big, Fung says, Beijing first needs to establish a solid social-safety net so ordinary Chinese people feel more confident in spending rather than saving. “That takes time,†Fung adds, “as you have seen in America.â€
One thing to remember: It’s in Li & Fung’s interest for China to keep the yuan down. The company's traffic is largely one-way, to the U.S. If the yuan is undervalued and exports from China to the U.S. are cheaper, that should suit Li & Fung customers just fine.