Asia Logistics Wrap

Bob Ferrari on Supply Chain's Grand Challenges: Part II

Continuing with Bob Ferrari's series on the 'Seven Grand Challenges for Supply Chain Management', this post will consider the second challenge.

For convenience, I will preface each post in this series with the 6 architectures of high performance supply chains. I want to keep pounding these architectures because I think they are very useful, at a strategic level, in framing any supply chain challenge prior to devising a proper solution.

Physical--the actual movements and flows within and between firms, transportation, service mobilization, delivery movement, storage, and inventories.

Informational--the processes and electronic systems, data movement triggers, access to key information, capture and use of data, enabling processes, and market intelligence.

 

Financial--the flows of cash between organizations, incurrence of expenses, and use of investments for the entire chain/network, settlements, A/R and A/P processes and systems.

 

Relational--the appropriate linkage between a supplier, the organization and its customers for maximum benefit; includes internal supply matter relationships throughout the organization.

 

Innovational--the means by which a firm identifies, prioritizes, and brings new product/service innovation to market.

 

Human--the means by which human resources and talent are deployed, managed and developed across the supply chain for greater performance

 

Challenge #2: True Supply Chain Business Intelligence and Decision-Making Tools

 

Business intelligence, or 'BI', is often used in different ways. I had an MBA course in BI at Thunderbird, and this is the working definition that we used:

"a systematic, targeted, timely and ethical effort to collect, synthesize, and analyze information on the external operating environment in order to produce actionable insight.  When combined with internal company information, it should give an executive as complete a picture as possible of the total decision-making environment."

In this sense, companies use BI for 1) Assessing competitors' strategies, 2) Defining a competitive landscape, 3) Discovering and assessing industry trends, and 4) Targeting opportunities. This is how I want to frame this challenge, but online I notice that BI is most commonly referred to as internal to firms, whereas external BI is referred to as 'competitive intelligence.' With this in mind, let's review how Bob describes BI:

"Think for a moment of the broader possibilities when real-time information related to what’s actually occurring, or about to occur based on previous events, can be applied to more timely and informed decision-making.  Expand your vision to the possibilities of bringing all of this information together, allowing an interaction and query of each of the decision-related dimensions of the total value-chain."

Obviously, it is essential to understand your own firm's supply chain dynamics prior to a concentrated focus on competitors' supply chain dynamics. Thus, what is required is a joint, internal-external BI strategy to improve not only the decisions that will improve a firm's own supply chain performance, but also better position its supply chains against those of its competitors. Overall, this is again a challenge to a company's informational architecture.

Now, the foundational methodology, skill-set, and tools required for such a BI effort will differ depending on whether you are focused on the internal or external environment. Either way, you will need to attack the BI challenge through acquiring both hard and soft information. Hard information comprises of pure data and numbers pulled from the supply chain--inventory levels, total cost breakdowns, employee utilization and turnover, facility and equipment investment, cash flow, etc. across each architecture mentioned above. Soft information comprises of interviews, employee and customer feedback, reports and research published by various organizations, etc. There should be a methodology in place to collect, organize and analyze this information to enhance decision-making within the firm.

In terms of internal BI tools, the deployment of an IT solution specifically for BI is not necessarily required, especially if you operate a smaller business and manage supply chains of low to moderate complexity. Most companies, regardless of size, will have some degree of technology deployed to manage different pieces of their supply chains, even though these pieces might not be strategically integrated. In these scenarios, it would be possible to utilize lower-tech tools to mine this data for the hard information mentioned above, but it may not address collecting soft information.

 

On the other hand, ompanies with highly complex supply chains will likely benefit from the latest supply chain intelligence (SCI) technology to help collect, integrate and analyze several sources of data that may be isolated in multiple locations and multiple countries. Perhaps these data sources are simply not yet effectively translated into actionable intelligence for executive decision-making.

In my experience in Asia logistics so far, the cultural differences, relatively poor logistics training and lack of sophisticated and integrated IT solutions for many conglomerate businesses requires a strong capability in leveraging soft information for supply chain decision-making. In other words, the numbers may support making a particular decision or devising a certain strategy, but internal politics or lack of skills required to execute the decision may throw up barriers to success. I have seen this first hand in both medium-sized and large-sized 3PLs.

I'll end this with a rough example of the mindset that my professor tried to instill in us when collecting BI on strategy:

It's great if you can identify your firm's or a competitor's strategy (the 'what'); but the next questions are--can that strategy be executed (the 'how')? Who is advocating it? When has it been or will it be implemented? Where has it been or will it be implemented? What are the assumptions and expectations for the future behind this strategy? The answers to these questions (and others like it) should be the product of a constantly innovative and successful BI organization and will result in better executive decision-making.

 

Bob Ferrari on Supply Chain's Grand Challenges: Part I

I have enjoyed reading the Supply Chain Matters blog, maintained by Bob Ferrari. Recently, Bob posted on what he views as the 'Seven Grand Challenges for Supply Chain Management'. To articulate my own thoughts through my personal experience working in Northeast Asia and for Asian firms, I will go through each challenge and attempt to provide some commentary with an Asian bent.

As we go along, I want to frame each challenge within the framework I have often used here--the 5 supply chain architectures as advocated by my former SCM professor, Dr. Cavinato, introduced here. However, for the first time, I want to add a 6th architecture--people. Why? Up until now I have been lumping people into the physical architecture category, but the more I use this framework the more I come to the conclusion that people are too dynamic and too important to analyze in this way. They deserve their own architecture when evaluating supply chains. So, let's review these architectures:

Physical--the actual movements and flows within and between firms, transportation, service mobilization, delivery movement, storage, and inventories.

Informational--the processes and electronic systems, data movement triggers, access to key information, capture and use of data, enabling processes, and market intelligence.

 

Financial--the flows of cash between organizations, incurrence of expenses, and use of investments for the entire chain/network, settlements, A/R and A/P processes and systems.

 

Relational--the appropriate linkage between a supplier, the organization and its customers for maximum benefit; includes internal supply matter relationships throughout the organization.

 

Innovational--the means by which a firm identifies, prioritizes, and brings new product/service innovation to market.

 

Human--the means by which human resources and talent are deployed, managed and developed across the supply chain for greater performance

Challenge #1: Ubiquity of Portable Computing Leading to Real-Time Sensory Networks

Let's start off with the key graph from Bob's commentary regarding his first identified challenge:

"The widespread ubiquity of more cost-affordable portable technologies over the next five to ten years will no doubt provide broader deployment opportunities where any physical sensing of where any item or any asset resides in the value-chain can trigger a series of decision support applications that flag an alert or automatically trigger required action. It has been three years since my initial editorial, and the overall economics of the technology are just beginning to turn positive of certain business cases of wider sensory networks.  I remain convinced that sensory networks will have a profound impact on how manufacturers and consumers directly interact with supply and value chains, and there lies the first grand challenge for our community."

When discussing real-time sensory networks, we are basically talking about supply chain event detection and management; this is clearly a challenge to informational architecture. Supply chain event management (SCEM) is simply defined in Wikipedia:

"consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned."

I have discussed in the past some advanced work being done by Enterra Solutions to enhance real-time sensory networks, particularly as it relates to supply chain security at key nodes in the supply chain--such as airports, seaports, and integrated transit hubs that offer multi-modal support systems and facilities.

Companies today ideally would like a completely integrated and interactive, end-to-end supply chain event monitoring tool, but most have initially invested in deploying these systems to register events at the key hand-off points where goods change hands--end of a manufacturing line, at a warehouse's doors, at a customs check-point, or perhaps a customer's storefront or home. More sophisticated systems can be deployed 'in-process', for example, to: monitor the condition of goods aboard ship, issue reports on the performance of a distribution center, or provide information on the running efficiency of a truck fleet.

The important thing to remember in addressing this challenge is not how many events can be managed simultaneously; rather, supply chain solutions should focus on identifying those events that are key drivers to supply chain performance. Based on this, the company can attach metrics to these events so as to be able to manage overall supply chain improvement in a way that will have positive effects on efficiency, productivity, customer service and, ultimately, financial margins, growth and stability.

In cities like Tokyo and Seoul, there is intense competition to put the latest advances in personal technology in the hands of consumers, probably more than any other cities in the world. A recent example of real-time supply chain technology is in the Tokyo fashion industry.

Due to the widespread use of 3G technology, phones in Japan are able to manage high-graphics displays at high speeds, such as video calling and online TV. They can also be used to register train passes and credit for payment at metro stations and storefronts (amongst a multiple number of other functions). Recently, Tokyo Girls Collection, a regular fashion show event popular amongst young, Japanese women has streamlined and integrated its event with real-time, online shopping. Attendees are able to access the site via their cell phones and immediately purchase clothes they see strutting down the runway. The brand distributors can therefore receive real-time data on what is hot and what is not, allowing them to more quickly make key supply chain decisions on design, production and distribution.

The business and industry you are in will determine what events you need to manage and any technology solution should be mapped to this, while having some built-in scalability options for either expanding supply chain event coverage or plugging in to additional event management modules.

 

What is the Dow Transportation Average telling us?

In the diagram below, I have charted the Dow Jones Transportation Average (blue) and the Nymex Crude Oil tracker (orange). This is stretched over the past year. As can be seen, from October of last year until March, any increase in crude oil reflected as a decrease in Transportation Average. If the primary underlying cost to transportation businesses is gasoline, then it can reasonably be expected that transportation profits, and indirectly stock prices, would decrease as the price of oil increases.

However, it seems through April and May, rising crude prices did not seem to have this correlation suggesting that rising prices sometimes do not have as great an impact as expected. From June, the expected patter returned, with minor gains in the Transportation average as crude prices started a decline in July. Although crude prices have now fallen significantly, the Transportation average has dropped off considerably. This suggests something bigger than crude prices hurting expectations of transportation industry performance--I believe this reflects the overwhelming cloud of the current financial crisis.

If demand drops considerably, no matter how low crude prices are, transportation company performance and growth will suffer. Likewise, in April and May, it could have been that the broader fundamentals in transportation were strong--efficiency, pricing strength, multi-modal utilization, etc--lowering the impact of high crude prices.

 

Of course, I am not a professional analyst, but I think following the Transportation Average trends relative to other index trends provides some additional insight as to what condition the economy is in, what it is telling us.

Economic Slowdown a Key Test for Supply Chains

Up until the second half of this year, the global economy has been relatively strong, even in the face of high oil prices. As a result, most of the investment in supply chains the past few years has been in the context of continuing growth and highly accessible credit markets. In the face of slowing growth and tightening credit markets, have companies positioned their supply chains to respond?

I first mentioned this issue in a post on the current financial crisis and its supply chain impacts, and followed up with a post on why supply chain solutions must be implemented with both upturns and downturns in mind. In the end, this quickly changing environment will clearly illustrate which supply chains are most resilient. Companies will appear in the news and become case studies for both their failures and successes.

I was hoping some other supply chain blogs would take up this topic and I am happy to report that the Supply Chain Matters blog has posted 'Supply Chain Management Challenges in the Post-Financial Crisis Era'. Essentially, the post focuses on two areas to be more concerned about than usual: 1) Flexibility and strength of your supplier network, and 2) Ability to finance inventories--or, what you could also call the ability to manage working capital, which  "...involves managing inventories, accounts receivable and payable and cash."

The post attempts to end on a positive note, suggesting this will be an opportunity for many companies to re-tune their supply chains towards becoming more resilient to future crises:

"A longstanding frustration for our community has been an observation that senior management, reacting to relentless Wall Street pressures for short-term results, has lacked the patience and discipline to provide longer-term support for the more difficult supply chain transformation initiatives, such as global expansion, overall agility in processes, and better, more informed decision-making. Previous hastily formed decisions to source supply and production in lower cost regions of the globe, without factoring the impact of localized wage inflation, or high energy and transportation costs, may have fallen prey to this mentality.   Perhaps this new era of post financial crisis that reinforces stability and consistency will bring a more balanced tolerance for allocating more realistic expectations to initiate structural change."

This new environment will definitely test many of the assumptions supply chain executives have made the past few years. As I mentioned before, it will also affect supply chain investment decisions. Thus supply chain technology vendors should also be able to provide solutions that recognize the new realities while maintaining those solutions that are required over the long-term, regardless of upturns or downturns.

North Korea Economy Watch

Via the Asia Business Intelligence Blog, over the weekend I discovered the blog 'North Korea Economy Watch' and have added it to my list of favorite NEA blogs. This blog contains a significant amount of high quality information on North Korea and I recommend making it a first stop when doing research. For example, regarding my recent blog topic--Kaesong--here is a search that brings up a few posts.

Iraqi Military Logistics Revisited

In April 2006, I did a post highlighting the dynamics of military logistics and how the supply chain for support supplies and troops in Iraq stretched as far back as South Korea and Japan. In 2.5 years, Iraqi military logistics have advanced considerably and this has reduced pressure on the US military's own supply chains supporting operations in Iraq.  

These advances will allow the civilian infrastructure and private sector supply chains to flourish as security solidifies, and as I mentioned above reduces pressure on US military supply chains:

""With the truckers we have today, that made a difference of at least 20 soldiers on the road," Titcomb said. "This reduces the dependence on military to get the cargo moved." In addition to providing jobs for Iraqis and reducing soldier exposure on the roads, customer units see other benefits to the service that the ITN provides.

""If they move the low-priority cargo, then we can take the priority cargo that must move in support of missions and combat operations," said Army Maj. Ira Baldwin, 1st Sustainment Brigade support operations transportation officer. "We can now focus more of our trucks on that specific aspect."

"As the Iraqi Transportation Network continues to grow, the goal of a stable Iraqi economy becomes less of an idea and more of a reality. In the first two months of operation, the ITN generated more than $2 million in revenue."

However, the resulting growth in the economy is already overwhelming national resources and infrastructure. Combined with a young government, Iraq is going to require several more years of development and investment. Many companies are making a significant investment already, especially in Kurdistan, and there is a waiting line of private firms ready to pour capital and resources into the country as security concerns gradually recede.

This investment, once it passes through the bureaucratic red tape, will provide needed jobs, needed training, and needed confidence that momentum has been seized in creating a bright future for Iraq. In the meantime, for Iraqis actually living through this process, there will undoubtedly be many highs and lows towards realizing this future.

The past year has been rough for the Dow and Nikkei...

Basically, it was about a year ago when things started to look shakey for investment banking. My wife had just interned at Lehman Brothers in Tokyo over the summer, specifically in Structured Finance (i.e. Mortgage Backed Securities (MBS), etc), and had hoped to be extended an offer. Looking back, we were really disappointed when she wasn't given an offer, but now we feel it was a blessing in disguise as Lehman has disintegrated and the MBS market has tanked. Below is a look at the Dow and Nikkei tracked over the past year:

   

The Nikkei was hammered in January and March and has never really recovered. October has historically never been kind to the stock market, and so far it appears this October will not disappoint. In the above chart, you can see how sensitive the Nikkei is to the Dow, although the Dow seems to track with less overall volatility.

Having just passed the end of the 3rd Quarter, it will be interesting to see how earnings reports look for many companies. If earnings and forecasts are depressed, I can only imagine there will be further erosion in stock prices.

Update: The Kaesong Industrial Complex

   

I haven't written about Kaesong since November 2006, and its been even longer since my case study on the site, so I figured there should be some updates online in regards to its status and progress. Basically, I had the following questions when looking around:

1. Will Kaesong be part of the Korea-US FTA?
2. Have logistics between Kaesong and South Korea improved?
3. Have there been any official policy changes since South Korea's President Lee has taken office?
4. What are the current forecasts/expectations for the next few years?

Here is the official Korean site, and the English site.

Korea-US FTA

First, the Korea-US FTA Blog has a collection of posts on Kaesong's part in the development of the FTA. It points to a document here, titled "The Kaesong North-South Industrial Complex", updated in February of this year describing Kaesong and how it is to be treated by the FTA. Below is the section on its treatment:

"The text of the Korea-U.S. Free Trade Agreement (signed by representatives of each government but not yet approved by Congress) does not provide for duty-free entry into the United States for products made in the Kaesong Industrial Complex.

"Annex 22-B to the proposed FTA, however, provides for a Committee on Outward Processing Zones (OPZ) on the Korean Peninsula to be formed and to “identify geographic areas that may be designated outward processing zones,” determine whether any such zone “has met the criteria established by the Committee,” and recommend them to the respective governments, which “shall be responsible for seeking legislative approval for any amendments to the Agreement with respect to outward processing zones.” The Committee also is to “establish a maximum threshold for the value of the total input of the originating final good that may be added within the geographical area of the outward processing zone.” Decisions of the Committee would require unified consent (this arguably provides the U.S. side with veto power over any recommendation of the committee).

"The criteria to be met include but are not limited to “progress toward denuclearization of the Korean Peninsula; the impact of the outward processing zones on intra-Korean relations; and
the environmental standards, labor standards and practices, wage practices and business and management practices prevailing in the outward processing zone, with due reference to the situation prevailing elsewhere in the local economy and the relevant international norms.” The OPZ committee is to meet at least annually beginning a year after the agreement goes into effect."

The rest of the section goes on to site concerns over labor standards and final goods from South Korea that use smaller components from Kaesong.

Kaesong Logistics

The report reminds us of aspects of logistics that I have mentioned in my previous posts and case study on Kaesong:

"South Korea also aims to become a hub of East Asia. In order to accomplish this, it would like to be connected to China, Russia, and to Europe via railways that pass through North Korea. As part of the KIC project, North and South Korea have reconnected a railroad line connecting the north and south and have conducted a test run on it. (A second line on the opposite side of the peninsula also was connected.) In terms of logistics, a shipment by rail from South Korea via Kaesong to Hamburg, Germany would take about 27 days by ship, 10 days via the Trans-Siberian Railway, and 7 days via the Trans-China Railway."

Below are some diagrams I had created sometime ago--they are still relevant now when considering the logistics and supply chain positioning: 

 

The second diagram:

Moving on, the report also very nicely provides an example of where trade advantages might occur, mentioning a lower total logistics cost:

"The experience of some of the early investors in Kaesong may be indicative of the economic viability of the project. ShinWon (clothing) established operations in the KIC to take advantage of the dexterity and lower cost of North Korean workers, favorable logistics, and to avoid nontariff barriers in China and Southeast Asia. By manufacturing about 16% of five of its clothing lines there, it expects to accrue considerable savings in production costs. It considers its Kaesong factory to be optimal when compared with those it has in China, Indonesia, Vietnam, and Guatemala."

Obviously, for South Korean companies, Kaesong is closer, has equally lower costs of labor and lacks any language barriers as compared with the above typically mentioned low cost countries for manufactured garments. Basically, this has to be measured against the risk factor of sourcing from the DPRK. I think manufacturing a percentage of their total sourcing volume there is reasonable given there are multiple companies invested into Kaesong at this point.

One of the significant steps forward in terms of logistics is the opening of a shared rail link between North and South Korea. The Economist Intelligence Unit discusses this link in detail in an article from December 2007 titled, "The two Koreas once again share a rail link" and considers what Kaesong may gain from this:

"In purely economic terms, the new freight service is likely to provide a modest boost to the Kaesong industrial complex. The zone already has an output worth more than US$200m—ranging from wrist-watches, shoes and die-cast models to liquid-crystal-display monitors—much of which is exported to non-Korean markets. The new, daily service will to some extent obviate the need for firms operating in Kaesong to truck supplies across the border, reducing delivery times and logistics costs. This, in turn, may attract further South Korean investment into the complex, which is only a few miles north of the demilitarised zone.

"By adding to the industrial park's attractions, the rail link is another step towards South Korea's vision of Kaesong as a regional hub for manufacturing goods for export and for attracting foreign investment—similar to the city of Shenzhen in China's Guangdong province—with industrial, commercial and residential infrastructure."

There is some additional speculation on expansion, but I expect this to come quite slowly:

"With this goal in mind, the modest economic impact of the new 25-km service could eventually be multiplied many times over by planned expansions of the rail network. The two Koreas are set to discuss repairs of the Kaesong-Sinuiju railway and Kaesong-Pyongyang expressway for their joint use. Sinuiju in north-west North Korea abuts Dandong, in China, so this raises hopes of recreating a unified transport grid not only on the peninsula, but also in wider north-east Asia. The rail infrastructure that is being built could also, in theory, carry passengers as well as goods—fostering closer ties between the two sides."

As shown in my diagrams above illustrating the Incheon sea port's role in an overall logistical advantage for Kaesong development, I can believe additional port development on the North Korean side in conjunction with Kaesong being within the immediate future, and The Economist mentions this within the agreement rendered at the time:

"The new railway is also only the first step in what is by far the most detailed agreement ever between the two Koreas, which was endorsed at the prime ministers' meeting. The agreement involves upgrading institutions and infrastructure, creating several new committees, and, crucially, setting dates or deadlines for two dozen separate future meetings or activities in a host of fields, mainly practical economic co-operation. This includes upgrading the North’s roads and railways, shipbuilding, a joint fishing area, and a new special economic zone in the North Korean port of Haeju, in effect extending the Kaesong zone. Such a range and depth of activity is unprecedented, implying that at long last North Korea is ready for serious and sustained partnership with the South."

Current Policy Stance

The most recent article I have found so far on Kaesong is a nice update from August 24 of this year provided by Martin Fackler, journalist with the Business Scotsman. The article is titled, "Global Monitor: South's park aims to bring capitalism to Stalinist North" and was written from Kaesong in North Korea:

"The US eased sanctions against North Korea earlier this summer, after the country destroyed the cooling tower at nuclear facilities in Yongbyon, but import restrictions remain, making the Kaesong park less appealing to large South Korean and foreign companies. Indeed, South Korea's own conservative president, Lee Myung-bak, initially suggested he would not honour his predecessor's agreements to expand economic cooperation.

"Despite all that, 72 smaller South Korean companies have built factories here, looking to tap the North's supply of low-cost, Korean-speaking labour. So far, only one foreign company has come."

It is probably good small businesses are the majority in Kaesong as they can provide a solid foundation for the incubator-like economy there.

On October 1, the first North-South military level meetings were supposedly held since President Lee took office. But the North's sensitivity to even the most indirect and subtle announcements or words used by South Korean leaders, combined with the recent event of a South Korean woman being shot at Mt. Kumgang by a North Korean soldier, illustrates how fragile the relationship still is despite Kaesong's dramatic and dynamic growth in such a harsh business environment. There is a great article titled "Will Inter-Korean Project in Gaesong Survie?" in the Korea Times that highlights many of the challenges that remain. See here for more articles on Gaesong from the Korea Times.

Current Forecasts/Expectations

Mr. Hackler goes further by delving into the site's aspirations for the future:

"Despite its prison-like feel, Kaesong Industrial Park is booming. The park's operator, South Korean developer Hyundai Asan, hopes to expand it into a mini-city in the next 12 years, with high-rise flats and hotels, a lake and three golf courses.

"By that time, the company hopes there will be about 2,000 factories employing 350,000 North Koreans and producing $20bn (£11bn) worth of goods a year. That compares with an output of only $366m in the first half of this year, according to South Korea's unification ministry. In the six months to June, the flow of goods in and out of the industrial park accounted for 42% of the $881m in trade between the two Koreas, the ministry said."

It's always easier to understand Kaesong's impact when there are existing case studies to learn from, as Hackler describes below:

"This piecemeal brand of change is seen in the experience of SJ Tech, a South Korean maker of car and cellphone parts, which built a $4m factory here four years ago. The company's first North Korean employees had never even seen a keyboard, much less a computer, said SJ Tech president Yoo Chang-geun. Yoo jokingly calls his factory "North Korea's first business school". But now, SJ Tech's 430 North Korean employees can run the factory without South Korean supervisors. They have even cut their hair to look more South Korean. "The North Koreans are like sponges," Yoo said."

The pro-business, South Korean government has realized how important the site has become if there is any hope in successfully engaging the North and easing it towards a market economy:

"This is exactly the sort of result the South Korean government is hoping for. Even Lee, elected in December, has lately indicated he will back economic cooperation. Supporters of engagement in Seoul say their long-term aim is to prepare the North for unification with the wealthier South. For the North, the economic links mean hard currency for a moribund economy that cannot feed its 23 million people."

But The Economist highlights the difficulties involved:

"...the task ahead remains extremely daunting in purely economic terms. There are few reliable statistics on North Korea's economy, but the best available estimates suggest that it is tiny and exceptionally backward. According to the Bank of Korea, South Korea's central bank, North Korea's nominal gross national income was equivalent to less than 3% of South Korea's in 2006. On other measures, such as trade and infrastructure, a similarly huge disparity exists.

"Closing this massive economic gap is a project that could take decades. Creaky railroads, dilapidated roads and threadbare power lines are not the only woes afflicting North Korea. There are no mass consumer markets operating under market forces in North Korea, other than local farmers' markets and neighbourhood black markets. The basic means of communication in a modern-day economy, such as mobile phones and the Internet, are virtually non-existent and practically prohibited as part of the totalitarian state control. North Korea has pledged to allow Internet and mobile-phone facilities in Kaesong as part of the agreement that has led to the new rail connection. That this small move would be a huge step forwards for the North Korean regime shows the importance of the Kaesong experiment. But it also provides a glimpse into the enormous remaining challenges of the two countries' unification."

Obviously, from a business perspective, the above represents significant opportunities for new projects and investment and would result in a significant increase in employment for North Korean labor, assuming a peaceful reunification or cooperation agreement. Of course, it would be exciting to someday be part of the first major supply chain projects in the North. But any project should be to ultimately benefit the people of North Korea and as long as Kim Jong-Il, his family, or his surrogates are in power, there is a greater certainty that any benefit will remain only for a select few, including the select few that actually are working in Kaesong. In the meantime, the Kaesong project should not be underestimated in terms of importance, and I believe it should be viewed as one of the "fronts" from which to integrate North Korea into the systems and practices of the modern, global economy.

 

 

 

PM Aso: Budget first, elections later

With uncertainty and heightened volatility in the US markets, PM Aso announced his coalition's intention to deliberate on and pass a budget prior to dissolving the Lower House for national elections later this year. Rather than elections happening on November 2nd (Japan typically votes on weekends), they would be postponed to ensure representatives are not campaigning at this time of uncertainty.

This means the elections will almost certainly occur after the US elections. I think this is a good move and will provide a window on the fiscal positions of representatives who will run for election.

Foreign Trade Positions in US Congressional Races

Custom House, maintained by Ben Muse of Alaska, has been doing a nice series of posts on the trade positions of candidates in multiple (mostly Senatorial) congressional races in the US. It is worth taking a glance if you are interested where candidates in some of the key races stand. For the US presidential candidates' positions on trade with Northeast Asia, please refer back to my recent post on this topic.

Also, don't miss out on Ben's Korea-US FTA blog as well. It is a great one-stop-shop of information on this FTA and its developments.