Thank you Bismah for your insightful comments! I mostly agree with your points.
Lotte has indeed a wide range of businesses as one of the largest conglomerates in Korea. I would caveat, however, that many of its other businesses are targeting China as well. Their construction business, for example, is significant in China where the government’s permit is critical. This latest article says that Lotte fortunately received the approval to establish a huge property in China, which is a hopeful sign, but Lotte’s another property project in Shenyang is still suspended.  In terms of geographic diversification, I think Lotte is right about expanding into India as you mentioned. However, there are no other alternative markets that can match China’s market size. Its home market in Korea is not the answer either, with its no meaningful growth. Finally, when we look at the broader picture, there are many other Korean companies that are at even higher risk. Lotte survived the crisis, but 90 percent of Korea’s 160 tour agencies specializing in inbound Chinese tourism have closed due to China’s action. So, the question is still there whether these companies are at the mercy of Beijing and what should they do about it?
Good question, Cindy! Lotte is known to be employing over 20,000 local employees in China, which I did not mention in my essay. However, it did not stop the government from closing the hypermarkets. Yet I agree with your thinking that the more Lotte is integrated into China’s local economy and supply chain, the more likely that Lotte would survive the government conflicts.
Thank you for this excellent article. I very much like Chi’s idea to arrange the trade such that the American chicken feet can be re-processed in another country nearby and the intermediary country can export the volume to China. I would be very curious to see if such an arrangement is feasible.
One question comes to my mind: is there a way for the U.S to collectively share the cost now placed on Georgia? Supposedly there would be states that benefit from this trade war between Trump and Beijing, whether they are the manufacturing-heavy Rust Belt states or mid-west states that competed against Chinese agriculture products. If Washington can somehow arrange a tax mechanism where the winner states subsidize Georgia, this might be more equitable and help Georgia withstand this challenging period.
Another minor solution for Georgia is to export the feet to other countries for the time being. No other country will match the China market in terms of import volume, but China is certainly not the only country enjoying the taste of chicken feet. Chicken feet is one of the most popular snacks that people pair with alcohol in my home country Korea. (It is also known to be good for your skin, believe it or not!) It looks like a number of other Asian countries nearby consume chicken feet, so Georgia could potentially channel some of its volume to those markets to minimize the loss.
This is a very interesting and informative article touching on the intersection between private and public sectors. I agree with Justine that consumers may react poorly to the government’s policy banning imports, which can severely damage the policy’s effectiveness. I think one tactic the government can use is to publicize how serious the current situation is to the economy and nudge the consumers to change their behaviors. The consumers should perceive the import ban not as something inconvenient but a movement that is beneficial to them in the long run. I see a parallel here with South Korea when its economy lacked foreign currency right after the Korean War and during the Asian Financial Crisis. The government leaders and media talked about the scarcity of foreign currency all the time. The Korean population learned that foreign currency is expensive, and they voluntarily started purchasing domestically produced goods. A stigma was newly formed and attached to purchasing foreign goods. It not only helped the government to maintain the balance of foreign currency but also helped the domestic manufacturers to grow quickly and start exporting to other markets, which is what Nigeria is now aiming to do. The key is to communicate the purpose and goal of its policy to the public.
I also enjoyed the parallels to the IKEA sustainability case, as Oswald mentioned above. While I agree with him that Mcdonald’s is less likely to alter its business model compared to IKEA, I think a bigger hurdle lies with the lack of consumer awareness. Most of the consumers can easily associate the IKEA furniture with trees; they understand that the company cuts down trees to make the wood furniture, damaging the environment. With McDonald’s, the link between beef and climate change is not as obvious. I don’t think most of McDonald’s consumers would know how harmful the methane emitted from cows is to the environment. They wouldn’t necessarily think of beans and the supply chain when they look at beef burgers. This would be worse in many developing countries, where the consumer awareness of sustainability is not as widespread. Thus, I think McDonald’s is under less pressure to be proactive on the sustainability front. I agree with Eliza that, ideally, McDonald’s should educate consumers, but they lack incentives. I think the governments should provide incentive, whether through a tax break or subsidy, so that they can also meet their commitments to fight climate change.
I agree with Thomas that the government institutions should lead the initiatives here. A few examples of regulatory initiatives come to my mind. First, when I worked at the World Bank IFC investing in real estate projects, we closely assessed whether they were environmentally sustainable or not, and we looked at whether they were LEED-certified.. LEED is a U.S and global sustainability standard in the real estate industry and the certification incentivizes companies to adopt higher standards. I’m not sure if agriculture industry has a similar standard in place, but if not, either the government or a non-profit consortium can establish a sustainability standard that applies to the farms in California. The government can reward the certified farms through tax break or subsidy.
Another example is the Community Reinvestment Act by the U.S government, where the government incentives major banks to invest in under-developed urban areas. Goldman Sachs, for example, actively invests in the properties in the inner cities through its Urban Investment Group; in return, the government loosens certain asset requirements for Goldman Sachs so that the bank can boost its profitability. Likewise, I’m wondering if the government can incentivize the finance industry to actively invest in the areas vulnerable to climate change so that the adverse impact of climate change can be mitigated.
I also encourage you to check out the HBS case on the Songdo city! (http://www.hbs.edu/faculty/Pages/item.aspx?num=32675)
A very informative and well written article, Bismah! I think other people already touched upon important topics, so I just wanted to provide a bit more color for our section as one of the Seoulites born and raised in the city.
People asked how Seoul could build its smart transportation structure so well. As you pointed out, its existing strong IT infrastructure definitely plays a big role, and here are a few more drivers I see:
– Culture: Korean people use the phrase “bbali, bbali!” a lot, which means “hurry up, hurry up!”. They tend to be impatient when things are slow, whether it’s internet speed or the food service in the restaurant. Thus it’s no surprise that speed and punctuality are the most important when it comes to transportation. The digitalization allows for faster transportation and reduces the perceived waiting time (the system shows you exactly how long they should wait for each bus / subway line.)
– Politics: The mayor of Seoul is traditionally one of the most powerful in the country, typically holding higher offices afterwards. It means the mayor has the political capital to push his/her agenda and make big changes. It also means that the mayor would do things that appeal to the mass public so that he/she can win the re-election or become the next president. Improving transportation has been one of the top agendas for the mayor, since people in such a densely populated city love faster public transportation. One of the former Seoul mayors, Lee Myung-Bak, also prioritized transportation as his top agenda and reformed the bus system. The reform was well received by the public. (After his term is over, he got elected as the next president of South Korea.)
– Building from scratch: When compared to New York or other major cities in the U.S/Europe that others mentioned earlier, I think many cities in Asia enjoy the benefit of starting from scratch. I also spent two years in Hong Kong, and the public transportation there was very modern, fast and effective. I would assume the same for Singapore and others. It would be a bit more expensive for New York to change its old system significantly. The new Songdo city that Bismah mentioned is another good example. It was built on a completely empty land near Incheon and the government was able to build a brand new IT infrastructure.
Thank you Boaty for sharing such a fascinating article. The potential of blockchain technology applied to other industries is indeed enormous and I’m excited to see how it will go.
That being said, it is unclear to me how the blockchain technology will actually play out in the auditing space, based on my reading. I still think that the technology will not replace the core function of auditors for a few reasons different from other people’s comments. As you also mentioned, the main value proposition of the blockchain is that 1) data entries are decentralized and 2) manipulating data is practically impossible from a mathematical standpoint. When I apply the Bitcoin world to the auditing world and imagine how it would look like, the companies will submit their accounting journal entries into the virtual platform and the entries will be verified by other participants (or “miners”) and get finally recorded. In this world, companies cannot manipulate their prior entries, just like how Bitcoin users cannot manipulate their transactions, and every participant shares and looks at the collective ledger. This is consistent with the blockchain’s value proposition. However, companies can still “correctly” enter fraudulent numbers into the system and pass the verification. The Noble group from our earlier FRC class, for example, can correctly enter their controversial unrealized gains and losses from their commodities into the blockchain system. (As we know, they actually did it and still complied with the accounting rules!) The blockchain miners can only verify if the entries were real and correctly entered from a technological standpoint, but they need to take a step further and understand the meaning behind the numbers, which is more art than science and beyond what the current blockchain technology can offer. In short, I can see why the blockchain can be used as a more advanced version of the CAATs that Messi mentioned above, which will greatly improve the efficiency of auditing, and I do think that system errors will be very unlikely, but I don’t see how it can replace the core function of auditors, which is exercising judgment.
Then it brings me to the next question – who will be the blockchain miners in this auditing space? We would need extremely skilled people who are both technologically sophisticated and well versed in accounting. Even if we could find such talents, how would we incentivize them to do their job? Bitcoin naturally solves this problem by rewarding the miners with new bitcoins. On the other hand, auditing firms would need to hire their miners separately and pay them to do the job. It is then essentially creating a new group of auditors, as opposed to replacing them.
I would love to learn more how these issues will be addressed. (I might be misunderstanding something about the technology!)