Share This

Sunday, February 28, 2010

Professional financial planners

 Expert advice, not pushing products, is the key

FINANCIAL planning (FP) should be viewed as a profession where unbiased and independent advice is provided to clients covering all personal financial matters and services.

However, the FP industry in Malaysia, which is still in its infancy stage compared with their counterparts in other advanced countries, is grappling with issues such as wrong public perceptions and lack of product innovation as well as FP tools.
"In short, it involves advice first, products second and services thereafter" ROBERT FOO
According to MyFP Services Sdn Bhd financial planner and managing director Robert Foo, the financial planning model follows a six-step process which involves building a relationship with the client, gathering the client’s personal data as well as financial goals, analysing the data, recommending and implementing solutions besides tracking that the client’s goals are eventually met.

“In short, it involves advice first, products second and services thereafter,” Foo concludes.

However, Foo notes that the Malaysian public tend to view FP practitioners as no more than product salespersons with FP qualifications.

“Hence, there is little trust on the advice given by many of these “professionals” although they are licensed by the Securities Commision (SC) or Bank Negara. They are perceived to be biased. At the back of their (the public) minds, financial planners are perceived to be out to make sales commission from selling as many products as possible,” Foo notes.

When the FP profession started to take root in Malaysia around 2001, the majority who took up FP qualifications were insurance and unit trust agents.

“Many of those qualified are still adopting a multi-level agency sales approach to their business and the emphasis and compensation is solely based on product sales and commission,” Foo adds.

Foo says the problem still exists due to the tied agency system where individual financial planners or analysts can only recommend products from a single provider.
"Their solutions are domestically myopic when the clients they target have already gone global" JEREMY TAN
To mitigate this problem, an institutionalised agency system called Corporate Unit Trust Agent was established where licensed financial planners or analysts can distribute products from multiple providers.
“But if you look at the response to this ‘innovation’, only four entities (product providers) have applied, which is not what individual financial planners want. This, in turn, hinders the development of the FP profession,” Foo adds.

Due to a lack of enforcement, scores of individuals are holding themselves out as financial planners or advisors without a licence.

“Some even have FP qualifications but are not licensed by SC or Bank Negara. Most of these are sales and product agents who want a little credibility with these professional sounding labels,” Foo notes.

Jeremy Tan, a licensed financial adviser with Standard Financial Planner Sdn Bhd, agrees that many equate financial planning with unit trust investment and insurance planning.

In reality, financial planning involves a holistic planning of one’s finances throughout the different stages of one’s life (family inclusive). This is a more wholesome approach and encompasses wealth management, its protection, distribution and wealth accumulation on an independent basis.

“Unit trust investment and insurance are among the vehicles in holistic financial planning, but they are by no means exhaustive,” Tan adds.

Another concern is the lack of accessibility to product innovations and solutions, which are available overseas, but not available to retail clients here. This limits the development of the FP industry.

Many clients recognise the options and opportunities overseas and have actually channelled a large amount of their money abroad for offshore product options.

“How do you expect the Malaysian FP practitioners to prosper? Their solutions are domestically myopic when the clients they target have already gone global?” Foo adds.

The local FP industry also lacks the tools required to provide the necessary comprehensive advice and services irrespective of whether the client’s assets have remained on Malaysian shores or gone global.
“Currently, there are almost no competitively priced and reliable tools available to these growing boutique firms to serve their globally oriented clients,” Foo says.

Coupled with the tied agency system, practitioners do not see the usefulness of such a comprehensive and globally-oriented system, Foo notes.

Financial planners agree that there need to be concerted efforts by the regulators and FP practitioners to have expos and public forums to create awareness.

“The caveat here is that it should be clearly about FP advice and not about products. Otherwise the confusion will persist,” Foo says.

Advisory practice standards should also be set to ensure that the FP practitioners provide their advice professionally. The client’s interest should be placed first.

“But standards set should not stifle the innovation and creativity of the different business models used by FP practitioners,” Foo notes.

More importantly, there is a need to open up the market for greater competition such as in the United States, Britain and Australia; this will benefit the public in the long run.

This includes making available offshore funds and products via various forms of distribution channels on a “willing buyer willing seller” basis.

“Investment and protection are two of the most important financial concerns for Malaysians and the public should get the best advice and options for their financial future,” Foo concludes.


That idyllic home for retirement

RETIREMENT is sometimes defined as the point in life when we stop spending the majority of our time at work and begin living life.

Once our retirement celebration is over, most of us will spend more time staying at home. It will be natural for us to retire in a familiar area close to family, friends, church, neighbours, shopping and other amenities in the neighbourhood. Hence, our dwelling place becomes exceedingly important to us.

During the early stages of retirement, those who can afford to upkeep the house and even hire a maid to take care of it, may not be under financial pressure. But if your retirement savings are depleting year after year and you are not making enough money from investment portfolios, your house can become a financial burden.

Few of us can think objectively about retirement and old age. Any decision to move or to ‘stay-put’, even after a fall or a health problem would precipitate some trauma.

Having to leave a comfortable home and adjust to unfamiliar surroundings – especially when the choice is not ours is frightening. Uprooting would mean “taking away” our sense of belonging and an immediate isolation from family and friends.

There are initiatives overseas in providing appropriate housing for elderly people within community living – a form of ‘lifetime home’ without having it identified as “old-folks’ ghettoes”. In a survey amongst the “new elderly” in Denmark, high priority was given to good housing amenities and the ability to stay in one’s own home as long as possible.

As one poignant respondent commented in the survey: “It is important to move while you still can to a place you choose before other people move you to a place they choose.”

While we wait for such amenities to be available in Malaysia, it is important to be clear minded about our “age in-place” during the golden retirement years.

Choose our dwelling place with a conscious intention of simplifying our life, controlling maintenance costs to accommodate our ageing needs and minimising disruption to our living habits. Unless our adult children can take care of all these, it is safer for us to maintain them within our affordability.

It is wise for you to start thinking about it with the following considerations. Although they may not be comprehensive, they serve as a good guide:

a. Financial Considerations 
·Housing loan obligation – housing loan period should not be stretched into your retirement. It can be financially stressful unless you have investment income to pay for it. Your retirement savings are best conserved for living expenses and not loan repayments.

·A loan-free house is a good idea if you plan to sell it in exchange for a cheaper retirement place. The extra cash from the sale will become useful for your ageing needs.

·Live in a house where cleaning and washing can to be kept at the minimum. You don’t want to be spending your retirement money, time and energy on upkeep instead of enjoying your retirement.

·Live in a house that requires low electricity consumption – energy saving lights and good air circulation can reduce lights and air conditioning. The extra money you save on electricity bills can be used to pay your groceries and important living expenses.

·Location of your house is important. One with affordable cost of living for groceries, shopping and eating out can help stretch your dollar. A place with public transport would provide the convenience, and savings on vehicle costs, petrol and parking fees. Remember that at some point in your retirement you might decide to stop driving.

b. Non-financial considerations like family and friends support, community living with leisure activities and availability of medical-assisted care. You wouldn’t want to be lonely and may prefer assisted-care at home or nearby places.

c. If you want to retire abroad, planning with lots of foresight, research and fact finding from people who have experienced retiring abroad is important. You won’t want to fall into the trap of not being able to afford it or find that you regret it because you miss your family and friends in your home country.

A comfortable house is a great source of happiness for your transition to “ageing in-place”.

If not planned properly, it could be an emotional and expensive affair for you and your family members. It is better to think through all possibilities now for a happy retirement dwelling place later!

BY Carol Yip who is a personal financial coach and also founder and CEO of Abacus for Money

  1. Devon Kemp Says:
    I appreciate your effort and the quality of the information you have provided on you blog. This is very educational. I look forward for more updates. I have your post bookmarked. Thanks!
  2. ANA CONNER Says:
    Hi. This is a nice post you have here. I love reading your blog that’s why I subscribed to your RSS feed.You have a very good stuff. I really love your post. Thanks for sharing.
    A most thought provoking post. Very interesting thoughts and ideas. I have enjoyed reading it immensely. I have book marked your blog and will return often for updates.
  4. Merrill Gross Says:
    I love your post here same as your site. I love the lay out of your template and it compliments with your theme. This is also informative. Your post rocks and I love it.
    I usually spend my free time reading online because I believe reading keeps your memory sharp.I found your post very good and educational. I will come back again and check for more updates. Thanks.
    WOW!I enjoyed reading your post.This is very educational.Even the layout and graphics.I subscribed to your RSS feeds to get updated with your post.Thanks for sharing.
    Internet is one of the most powerful source of information nowadays. I’m glad that I found your post and I am learning a lot from it. I look forward for more updates.Thank you
    Thank you for the post. I really like it. Very educational. This is one of the most comprehensive post I read.Thank you for sharing. More power.
  9. CHRIS DUFFY Says:
    This is one of the best post I’ve read. I love your post here. Content rich and very educational.I can’t wait for the next updates. More power.Thanks!
    Hello. I read your post and I like it.The information are good and every thing was discussed in details. Thumbs up!More please.LOL.Thanks!
    I want more!Hey pal, this is cool stuff you have here.Very informative.I’ll keep asking for more!!! Thumbs up!
    Hey!This is the best post ever!All the information were discussed in details. I love your post.I’ll keep asking for more!!! Thumbs up!

Saturday, February 27, 2010

What I Learned from My Dad

When his youngest son decided to become a musician, Buffett offered moral but not financial support

magazine cover
One of my father's often-quoted tenets is that a parent, if he has the means to do so, should give his children "enough to do anything, but not enough to do nothing." A head start is fine; a free pass is often a crippling disservice. When I turned 19, I received my inheritance—proceeds from the sale of a farm, which my father converted into Berkshire Hathaway (BRK.A) stock. At the time I received them, the shares were worth roughly $90,000. It was understood that I should expect nothing more.

So—what to do with the money? I was a student at Stanford University; there were no strings attached. Fortunately, I'd had the advantage of seeing my older siblings burn through most of their cash; I didn't want to follow down that path. At the other extreme, I might have done absolutely nothing with that stock—just left it in an account and forgotten about it. If I'd picked that option, my shares would now be worth around $72 million. But I didn't make that choice, and I don't regret it for a second. People think I'm either lying or crazy when I say this, but it happens to be true, because I used my nest egg to buy something more valuable than money: I used it to buy time.

My inheritance came to me around the time I was finally committing to the pursuit of a career in music. As a pragmatic Midwesterner with a very limited nest egg, I knew that I would have to find a way to turn my creative impulses into a livelihood. But how did one do that? How would I find an audience, or clients, or a way to sell what I'd written and produced? I didn't have a clue, but it was becoming clear to me that I wasn't going to figure it out by staying in a university.

I decided to leave Stanford and use my inheritance to buy the time it would take to figure out if I could make a go of it in music.

With help from my father, I worked out a budget that would allow me to conserve my capital as long as possible. I moved to San Francisco, where I lived very frugally—small apartment, funky car. My sole extravagance was in expanding my recording equipment. I played the piano, wrote tunes, experimented with electronic sounds. Then I put a classified ad in the San Francisco Chronicle, offering to record all comers in my studio.

And I waited until a very important bit of good luck tracked me down one day in 1981, as I stood at a San Francisco curbside washing my crummy old car. A neighbor with whom I'd had nothing more than a nodding acquaintance happened by and asked what I did for a living. When I told him I was a struggling composer, he suggested I get in touch with his son-in-law, an animator who was always in need of music. I followed up, and the son-in-law did have work for me. He'd been commissioned to create 10-second "intersticials"—quick ads meant to flash a logo and establish a brand ID for a newly conceived cable channel.

I took the work. And the cable channel more than launched; it rocketed to the moon. It was called MTV. Soon many TV outlets wanted to look and sound like MTV. I no longer had to take on unpaid work.

My inheritance was relatively modest, but it was more than most young people receive to get a start in life. Having that money was a privilege, a gift I had not earned. If I'd faced the necessity of making a living from day one, I would not have been able to follow the path I chose.

Would my father have helped me get started if I'd chosen a career on Wall Street? I'm sure he would have. Would he have given me a job at Berkshire Hathaway if I'd asked for one? I suppose so. But in either of those cases, the onus would have been on me to demonstrate that I felt a true vocation for those fields, rather than simply taking the course of least resistance. My father would not have served as an enabler of my taking the easy way out. That would not have been an exercise of privilege, but of diminishment.

Adapted from Life Is What You Make It by Peter Buffett, © 2010 Peter Buffett. Reprinted by permission of Harmony Books, an imprint of the Crown Publishing Group. 

See more links on Worren Buffett:

 1. When CEOs Have Warren Buffett in Their Boardroom 
What's it like to have America's greatest investor as your shareholder? Buffett's biographer talks to CEOs who know 

2. Buffett's winners and losers

 3. Warren Buffett Is No Steve Jobs

4. A Lesson From Warren Buffett: 

5. Buffett: Bailouts not just for CEOs

How Safe Are Your Dollars?

CAMBRIDGE – Chinese officials and private investors around the world have been worrying aloud about whether their dollar investments are safe. Since the Chinese government holds a large part of its $2 trillion of foreign exchange in dollars, they have good reason to focus on the future value of the greenback. And investors with smaller dollar holdings, who can shift to other currencies much more easily than the Chinese, are right to ask themselves whether they should be diversifying into non-dollar assets – or even shunning the dollar completely.

The fear about the dollar’s future is driven by several different but related concerns. Will the value of the dollar continue its long-term downward trend relative to other currencies? Will the enormous rise of United States government debt that is projected for the coming decade and beyond lead to inflation or even to default? Will the explosive growth of commercial banks’ excess reserves cause rapid inflation as the economy recovers?

But, while there is much to worry about, the bottom line is that these fears are exaggerated. Let’s start with the most likely of the negative developments: a falling exchange rate relative to other currencies. Even after the dollar’s recent rally relative to the euro, the trade-weighted value of the dollar is now 15% lower against a broad basket of major currencies than it was a decade ago, and 30% lower than it was 25 years ago.

Although occasional bouts of nervousness in global financial markets cause the dollar to rise, I expect that the dollar will continue to fall relative to the euro, the Japanese yen, and even the Chinese yuan. That decline in the dollar exchange rate is necessary to shrink the very large trade deficit that the US has with the rest of the world.

Consider what a decline of the dollar relative to the yuan would mean for the Chinese. If the Chinese now hold $1 trillion in their official portfolios, a 10% rise in the yuan-dollar exchange rate would lower the yuan value of those holdings by 10%. That is a big accounting loss, but it doesn’t change the value of the American goods or property investments in the US that the Chinese could buy with their trillion dollars.

The Chinese (or Saudis or Indians or others outside the euro zone) should, of course, be concerned about the dollar’s decline relative to the euro. After all, when that decline resumes, their dollar holdings will buy less in European markets. While it is hard to say how much the decline might be, it would not be surprising to see a fall of 20% over the next several years from the current level of about 1.4 dollars per euro.

But the big risk to any investor is the possibility that inflation will virtually annihilate a currency’s value. That happened in a number of countries in the 1970’s and 1980’s. In Mexico, for example, it took 150 pesos in 1990 to buy what one peso could buy in 1980.

That is not going to happen in the US. Large budget deficits have led to high inflation in countries that are forced to create money to finance those deficits because they cannot sell longer-term government bonds. That is not a risk for the US. The rate of inflation actually fell in the US during the early 1980’s, when the US last experienced large fiscal deficits.

Federal Reserve Chairman Ben Bernanke and his colleagues are determined to keep inflation low as the economy recovers. The Fed has explained that it will sell the large volume of mortgage securities that it now holds on its balance sheet, absorbing liquidity in the process. It will also use its new authority to pay interest on the reserves held by commercial banks at the Fed in order to prevent excessive lending. This is, of course, a formidable task that may have to be accomplished at a time when Congress opposes monetary tightening.
Looking forward, investors can protect themselves against inflation in the US by buying Treasury Inflation-Protected Securities (TIPS), which index interest and principal payments to offset the rise in the consumer price level. The current small difference between the real interest rate on such bonds (2.1% for 30-year bonds) and the nominal interest rate on conventional 30-year Treasury bonds (now 4.6%) implies that the market expects only about 2.5% inflation over the next three decades.

So the good news is that dollar investments are safe. But safe doesn’t mean the investment with the highest safe return. If the dollar is likely to fall against the euro over the next several years, investments in euro-denominated bonds issued by the German or French governments may provide higher safe returns. Even if the dollar is perfectly safe, investors are well advised to diversify their portfolios.

By Martin Feldstein, a professor of economics at Harvard, was chairman of President Ronald Reagan’s Council of Economic Advisors and president of the National Bureau for Economic Research.

The kiss of debt

Ballooning fiscal deficits and rising public debt are raising investor anxiety about sovereign risk in many advanced economies.

SO the world has managed to survive the deepest and longest recession since the Big One in the early 1930s. It did so with extraordinary public policy support – fiscal and financial – the price paid to stop the global economy from falling off the precipice.

Two years on, ballooning fiscal deficits and rising public debt are raising investor anxiety about sovereign risk in many advanced economies.

Ironically, the shoe is traditionally on the other foot coming out of deep recession. Sovereign risk concerns historically reflected profligacy in emerging market economies. In the past, Brazil, Mexico, Russia and Argentina were notable examples of public debt defaults. Many others (Pakistan, Ukraine, Iceland) were forced to restructure under threat of default.

To a large extent, many emerging economies have changed their ways – tightening their fiscal belt, exporting more (some from new commodity resources), lowering debt-to-GDP ratio. Basically, implementing early fiscal consolidation (often times forced on by promises of new credits). This time, severe recession and the recent financial crisis took a high toll on a good number of advanced economies in the eurozone – those with a history of fiscal problems, ignoring reforms in good times.

Today, “biggies” like the United States, the United Kingdom and Japan are made more vulnerable by weak economic (and jobless) recovery and an ageing population – both likely to add to their debt woes, made worse by the monetisation of fiscal deficits (printing money) and ready access to “costless” bank funds via quantitative easing (also printing money).

Unless properly handled, their anaemic economies could fall back into recession (double-dip) and even deflation, with often disastrous impact on their longer-term growth prospects.

PIIGS can’t fly

News over the Chinese New Year holidays was dominated largely by Greece, pressured by the market to bring on early fiscal reform. Together with the other eurozone PIIGS (Portugal, Italy, Ireland, Greece and Spain) – these so-called Club Med members share common traits: weak fiscal and debt positions; weak exports; weak balance of payments; and weak productivity (too high wages) caught in a zone with a strong euro currency, which made them all the more uncompetitive.

What is often not appreciated is that the PIIGS have limited policy options as part of the European Union (EU). For them, their exchange rates are a given. By adopting the euro, they cannot depreciate since they have no currencies of their own. And the European Central Bank (ECB) is not about to weaken the euro for their sake.

They have only one way to go to restore competitiveness – fiscal retrenchment and structural reform. But the PIIGS don’t have a track record of fiscal discipline. Greece, for example, lacks the economic governance of the EU. Yet, it has to make the most of a weak hand at a three-way poker involving the EU, capital markets and potential social unrest at home. If PIIGs fall apart, the European Commission (EC) falls apart.

In my view, they can best do this under an International Moneraty Fund (IMF) programme and not in the shadow of the EC and the ECB without smelling like a bailout. The IMF gives them the best option to re-establish lost policy credibility. Moreover, the euro is not a debt union (Europe is only half-way through creating a viable monetary union); it has yet to have an emergency financial mechanism, if ever.

I must agree with Nobel Laureate Paul Krugman that the euro was adopted ahead of the readiness of all the constituent parts to effectively engage. Harvard’s Feldstein had cautioned early in 1999 that divergent economies can’t work under a single EU roof. Germany had demanded too much: (i) German aversion of debt, and (ii) an authoritarian central bank (ECB) whose excessively tight policies have since aggravated the plight of the PIIGS.

Of course, Germany benefited greatly from the euro. At the same time, Greece and the other PIIGS enjoyed a free lunch as German interest rates pulled down everyone else’s within the euro bloc. Now is payback time. Greece’s ratio of debt to GDP is nearly twice of Germany’s and is projected to hit 120% this year. Its moment of truth came for concealing a 13% budget deficit.

Overall, even the EU is not out of the woods. According to the EC, its public debt ratio could rise above 100% by 2014, i.e. costing an entire year’s output, unless firm action is taken to restore fiscal discipline. This ratio is expected at 84% this year (only 66% in 2007) and rise to 89% in 2011. Ironically, nations aspiring to be members must meet a maximum 60% target!

US and its Aaa rating

Very much like Europe, the United States is not out of the woods either. The deep recession and financial crisis have devastated the state of its public finances. Indeed, the question on most observers mind: Is the United States at (or approaching) a tipping point with global investors? It’s an issue that has become more burning with Obama’s 2010 federal budget envisaging a deficit of US$1.6 trillion, or 10.6% of GDP.

By the end of 2009, public debt had reached US$5.8 trillion or 53% of GDP. This ratio is projected to reach 72% in 2013, unprecedented in US history except when at war. Markets do have a cause to worry. So do we, especially China with very large US dollar reserves.

But for Krugman, the reality isn’t as bad as it sounds. First, the large deficit reflected counter-cyclical expansionary spending (not “runaway spending growth”) to offset the impact of the worst recession in 80 years. It’s already stimulating growth and supporting job creation.

Second, sure there is a longer-term fiscal problem. But once sustainable growth returns, the administration needs to tackle the difficult task of budget reform.

Third, there is no reason for panic. For him, what’s the big deal with projections of interest payments on debt of 3.5% of GDP? That’s what the United States paid under the elder Bush.

And fourth, the “scare tactics” are all politics.

To me, the real concern is whether the United States can stay the course and do what it takes to firmly establish a sustainable recovery, with priority centered on licking mass unemployment. This could even mean facing larger deficits now.

Nevertheless, there is no denying the United States has structural fiscal problems. Serious enough for Moody’s Investors Service to state following the Feb 1 budget release: “Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented…will at some point put pressure on the Aaa government bond rating.”

Quite obviously, this raises fresh concerns. To be fair, under the Democrats in 2007, the public debt ratio was 36% and rose to 40% within a year. It’s expected at 64% this year, 69% in 2011, and go above 70% later this decade.

Let’s not forget Moody’s ratings care more about balancing the budget. It seems to me that growth and job creation matter more, just as how nations do the balancing count. But, frankly, a rating downgrade would not be cataclysmic for the United States. In practice, borrowing costs will rise for all. This simply means more pressure on the deficit and debt.

Japan was marked down in 1998 when its debt ratio hit 115%. Stabilising debt requires some combination of faster growth, higher taxes and lower spending. The trouble is Americans want lower taxes, more lavish social safety net, and the world’s best-funded military machine – by simply piling-on debt.

Till debt do us part

Within the G-7, there is a tacit understanding to resolving the dilemma of high employment and worsening public debt: To persevere in support of growth and job creation now (even at the expense of higher deficits); and then get the budget deficit down real hard as recovery gets firmly established.

As I see it, the growth now economists point to the growing weight of evidence for first priority on the restoration of robust growth. This makes sense given the current high unemployment, debt not being out of control, and more private savings mobilised to finance the deficit (as in Japan). Moreover, an immediate accelerated fiscal cutback now would not produce offsetting private demand to “make a sustainable recovery more likely.”

Indeed, any sharp “reversal” shock can prove damaging to early firm recovery. For them, history is “littered with examples of premature withdrawal of government stimulus” gone wrong (the United States in 1937 and Japan in 1997).

No such dilemma in Asia

With the exception of Japan, most Asian economies (from India to China to South Korea) approach the piling-up of public debt with less hubris.

Even China, with one of the world’s largest stimulus programmes (up to 12% of GDP in 2009), recorded a fiscal deficit of less than 5% of GDP in 2009; its debt ratio was less than 20%. Similarly, India’s ratios were 6% and 22% respectively. Malaysia’s record is quite exemplary, with a fiscal deficit of 4.8% in 2008 and 7.4% in 2009 (expected to fall to 5.6% in 2010) in the face of substantial prime-pumping (up to 8% of GNP); its public debt ratio was 52% (foreign debt of 2%) in 2009.

Japan’s case is rather curious. In 2009, its budget deficit was 10.5% of GDP; its public debt, 200% – twice the size of the economy. This huge debt reflected years of slow growth, numerous stimulus plans, an ageing society and the impact of the global recession. Experts expect it to rise to 300% by 2020. Yet, it manages rather well. Japanese investors, including households, absorb 95% of this debt. Its long-bonds yield was 7.1% in 1990; it’s now 1.4%. The trick, I think, is high private savings in Japan.

Unlike Japan, a significant part of the US debt is financed by foreign savings from China, Japan, Europe and most of Asia. The inconvenient truth is this: the United States can easily and readily borrow as much as it wants until confidence evaporates – not unlike the US dollar.

Much of Asia’s confidence lies in its high rate of domestic savings. Malaysians’ savings are about one-third of the national income. Private savings in United States until the crisis in 2007 was zero; it now saves 6%–7%. Based on this confidence, Malaysia for example can rely on a sustainable stream of non-inflationary finance. So long as development strategies for growth are creditably conceived and designed, the domestic savings will be there to fund such public programmes to build capacity and generate sustainable growth.

Indeed, it is legitimate to ask: Why are excess Malaysian savings used (through investment in US Treasuries) to fund US spending? More so when rates are so miserably low today.

Surely, we do have worthwhile much higher return investments that warrant the use of these excess savings domestically (beyond what’s prudently needed to be set aside for the rainy day) to promote the public good. The efficient allocation of scarce financial resources must form an integral part of the New Economic Model.

 ● By Former banker Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time promoting the public interest. Feedback is most welcome; email:

Expert answers to the global meltdown

Freefall: America, free markets and the sinking of the world economy
Author: Joseph E. Stiglitz
Publisher: Allen Lane
WHAT would the late Ayn Rand, author of Atlas Shrugged, have said about the recent financial crisis and the US government’s massive bailouts of banks and financial institutions?
Rand, a strong advocate of laissez-faire capitalism, believed that the government’s role in an economy was to protect individual rights without intervening in the conduct of free market.

To the dismay of Rand and her cult believers, the US government, in its efforts to subdue the crisis, has done everything that violates her definition of capitalism.

The government has done little to protect individual homeowners from foreclosures but has done a lot for banks. It has sustained them by giving them massive amounts of taxpayers’ money, despite reckless wrong doings.

Worse yet, some of these crooks and undeserving bankers have shamelessly paid themselves fat bonuses with the handouts and continue to serve as executives.

While Rand is no longer present to condemn the mess, Joseph Stiglitz is. In his new book, Freefall: America, free markets and the sinking of the world economy, Stiglitz outlines the crisis, identifies the causes, delineates the impact, fires salvos at bankers, criticises regulators and policy makers, and puts forth solutions for a better future.

Most importantly, he debunks economic theories and provides a historic background of the financial market.

This gives the reader a thorough understanding of the crisis and the economic forces at play.

Stiglitz’s account brings us back to the 1980s when deregulation and privatisation were Ronald Reagan’s top priority. This period also saw the replacement of Paul Volcker by Alan Greenspan as chairman of the Federal Reserve Board.

The formation of this duo, along with Treasury Secretary Robert Rubin, set the stage for rapid deregulation and low interest rates, encouraging banks to engage in risky activities and allowing consumers to spend beyond their means. Hence, the recent crisis did not just happen as bankers claim. “It was created,” says Stiglitz.

Much has been said about the crisis. Written in different formats, from diverse angles, by many people and for different objectives, the crisis has been put under a magnifying glass, analysed and, hopefully, its lessons learned.

But nobody does a more comprehensive job than Stiglitz. Although the material is difficult at times, Stiglitz manages to put things into perspective in a succinct and intuitive manner.

For instance, credit default swap, a type of credit derivative that can put banks and financial institutions in trouble, is cleverly defined in AIG’s context, as the “insurance” that AIG and investment bankers sell to insure investors against the collapse of banks.

But Stiglitz’s full ammunition is aimed mostly at bankers, calling their wheeling and dealings the greatest scam of the century.

Encouraged by lax regulation and tempted by the kind of quick profits that investment banks were making, commercial banks abandoned the conventional role of lending.

They began to make extremely risky loans and engage in securitisation, a process wherein subprime mortgages are bundled up, repackaged and converted into securities to be sold to investors.

As these banks became bigger and bigger, they became confident that the government would rescue them because they were simply to big to fail. And they were right.

Not only did the regulators not pop the asset bubble, they grew it. Alan Greenspan had fuelled the heat of risky trading by continuing to lower interest rates, Ben Bernanke allowed the issuance of subprime mortgages, and Henry Paulson, as a CEO before becoming the Treasury Secretary, led Goldman Sachs to new heights of leverage.

Stiglitz describes them as schizophrenic for refusing to acknowledge the danger looming ahead, let alone taking action to prevent it.

A Nobel laureate professor with stellar practical experience serving the World Bank and former US President Bill Clinton, Stiglitz’s passion in global economics and his decade-long warning on an impending crisis have made him the person the United Nations turned to as chairman of a panel of experts on the global meltdown’s causes.

The answers are in this book; all except Stiglitz’s confidence in President Barack Obama. Stigllitz is evidently doubtful of Obama’s ability to overcome the challenge as he has not taken firm action to restructure the banking behemoth as promised.

Moving forward, Stiglitz thinks economies need a balance between the role of markets and governments. Though that may seem very true in the wake of what we have just experienced, Stiglitz alone will not be able to convince the formidable-looking Rand, I reckon.

Note: Readers interested in Ayn Rand’s view on capitalism can check out her book titled Capitalism: The Unknown Ideal.

Friday, February 26, 2010

Cloud Computing: 10 Web Companies That Microsoft Should Fear Most

When it comes time to discuss Microsoft’s intentions on the Web, that discussion always turns to Google. How will Microsoft compete against the search juggernaut? What can it do to stop Google’s rise in Web advertising? They are valid questions that, so far, Microsoft hasn’t been able to adequately address. But there is more to fear on the Web than just Google.

  Microsoft is slowly, but surely, realizing that the Web is the future of its operation. More and more applications are moving to the Internet. Consumers are even going to the Web. At this point, the company has no choice but to compete online in every space it can to ensure that, going forward, it isn’t left behind by Web powerhouses. But as it engages the Web, it’s also faced with more competition. And the idea that Google is the only online company that Microsoft needs to worry about is quickly forgotten.

Here are 10 Web companies that Microsoft needs to fear most as it continues to move its services online.

Google's 'post holiday' Caffeine shot still brewing

Worldwide roll-out in 'coming months'

The web is still waiting for the worldwide roll-out of Google's next-generation search infrastructure, the mysterious indexing system overhaul known as "Caffeine."

A recent Wiredprofile of Google's search team indicates that Caffeine has already been deployed. But it seems the technology is still limited to a single data center, and though Google had planned to roll it out to other facilities after the New Year, this has yet to happen.

According to Search Engine Land, a Google spokesperson says that Caffeine will roll out across the company's global network of data centers "over the coming months." Previously, über-Googler Matt Cutts had indicated that Caffeine would be rolled out to multiple data centers "after the holidays," meaning after first of the year. And we're now two months on from January 1.

In early November, after testing Caffeine in a public sandbox for several weeks, Cutts indicated the platform would soon be rolled out to a single data center for use on the company's live search engine and that the company would follow suit with other data centers in a matter of weeks.

"Caffeine will go live at one data center so that we can continue to collect data and improve the technology, but I don’t expect Caffeine to go live at additional data centers until after the holidays are over," Cutts wrote on November 10. "Most searchers wouldn’t immediately notice any changes with Caffeine, but going slowly not only gives us time to collect feedback and improve, but will also minimize the stress on webmasters during the holidays."

Google did not immediately respond to our requests for comment. But that Google spokesperson tells Search Engine Land that the company expects to "roll [Caffeine] out to all data centers over the coming months." The company operates roughly 36 custom-built data centers across the globe.

"We run lots of tests with this big a change [sic] to our infrastructure,” the spokesperson says. “We want the new system to meet or exceed the abilities of our current system, and it can take time to ensure that everything looks good.”

It should be noted that Cutts never gave an exact date for the roll-out. He merely said it would not happen until after the holidays and - subsequently - "until at least January."

Caffeine continues to run in that single data center. In late November, according to Search Engine Roundtable, Cutts said that the the Google IP address was hitting that single Caffeinated data center 50 per cent of the time, and it appears Google search-engine IPs are still mapping to the same data center.

"The data center remains the same,” the Google spokesperson tells Search Engine Land, “but different IP addresses can map to different data centers at different times due to how Google manages its traffic. Because of how Google employs custom load-balancing, there is not a single IP address that will always reach the Caffeine data center.”

Cutts first unveiled Caffeine - at least partially - in August with a post to the official Google Webmaster Central blog, calling it a "secret project" to build the "next-generation architecture for Google's web search," before pointing users to a sandbox where they could test it. Speaking with The Reg days later, he called it "a fundamental re-architecting" of Google's search indexing system.

"It's larger than a revamp," he told us. "It's more along the lines of a rewrite. And it's really great. It gives us a lot more flexibility, a lot more power. The ability to index more documents. Indexing speeds - that is, how quickly you can put a document through our indexing system and make it searchable - is much, much better."
This is not a change to Google's search philosophy. It's not a change to its famous search algorithms. It's a change to the way the company builds its index of all known websites and the metadata needed to describe them - the index that the algorithms rely on. "The new infrastructure sits 'under the hood' of Google's search engine," read Cutts' original blog post, "which means that most users won't notice a difference in search results."

After interviews with Google's search team, Wired's Steve Levy described Caffeine as something that makes it even easier for engineers to add "signals" - i.e. "contextual clues that help the search engine rank the millions of possible results to any query, ensuring that the most useful ones float to the top."

Cutts confirmed with The Reg that as we had reported earlier, Caffeine includes an overhaul of the company's distributed Google File System, or GFS. A technology two years in the making, the so-called GFS2 is a significant departure from the original Google File System that debuted almost ten years ago and now drives services across the Google empire.

With GFS, a master node oversees data that's spread across a series of distributed chunkservers, - architecture that's no exactly suited to apps that require low latency, such as YouTube and Gmail. That lone master is a single point of failure. To solve this problem, GFS2 uses not only distributed slaves, but distributed masters as well.

Cutts also said that Caffeine uses other back-end technologies recently developed by the company, but he declined to name them. He indicated that these did not include updates to MapReduce, Google's distributed number crunching platform, or BigTable, its distributed database.

Whatever new infrastructure technologies underpin Caffeine, they have not been deployed across other Google services. But Cutts indicated that Google hopes to do so with at least some of them. Google's distributed global infrastructure is designed to operate a like a single machine, running all its online services. Certainly, GFS2 will be deployed across the Googlenet. ®


Toyoda 'deeply sorry' for safety flaws

Akio Toyoda, the mysterious scion of the Toyota empire, apologized yesterday before a House committee investigating deadly flaws that sparked the recall of 8.5 million cars.

Toyoda, the automaker's chief executive, accepted "full responsibility" for the halting steps that led to the recall. He said the company grew too fast to keep up with safety controls.

"We pursued growth over the speed at which we were able to develop our people and our organization," Toyoda said in testimony prepared for delivery after press time last night (Beijing time).

"I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced."

Toyoda's statement departs somewhat from Japanese formality. In it, Toyoda made a personal appeal for credibility. He offered his condolences over the deaths of four San Diego, California, family members in a crash of their Toyota in late August.

"I will do everything in my power to ensure that such a tragedy never happens again," Toyoda was due to tell the House Oversight and Government Reform Committee. "My name is on every car. You have my personal commitment that Toyota will work vigorously and unceasingly to restore the trust of our customers."

But an apology won't be enough for the feisty panel of lawmakers on the House panel in a year in which every one faces re-election. Nor will any culture gap; Japanese CEOs typically serve symbolic roles akin to figureheads without much power to control operations.

Toyoda at first declined to appear before the panel but acquiesced last week when he was officially invited.

"I'm naive enough to believe that a global CEO is a global CEO," said Democratic Representative Paul Kanjorski of Pennsylvania, a member of the committee. "He's going to have to say more than that."

In Japan, company chiefs are usually picked to cheerlead the rank and file. As the grandson of the company's founder, Toyoda was groomed to play that role.

The firm was called "Toyota" because its eight strokes were considered luckier than the 10 for "Toyoda".

Japanese corporate royalty or no, Toyoda is familiar with the United States and its corporate culture.

He received his MBA in 1982 at Babson College in Massachusetts. He spent time in California as vice-president of a joint venture between Toyota Motor Corp and General Motors Corp.

Source: China Daily

Thursday, February 25, 2010

Does Italy’s Google Conviction Portend More Censorship?

googleitaliaOnline rights activists are divided Wednesday over an Italian court’s guilty verdicts against Google executives who were convicted on privacy charges for not blocking a video that made fun of a child with Down syndrome. All agree the controversial ruling runs counter to longstanding U.S. and E.U. “safe harbor” laws immunizing online service providers for what users do — but the activists are mixed over what the decision means and how much importance should be place on it.

Leslie Harris, the president of the influential Washington, D.C.-based Center for Democracy and Technology, argued the ruling would be used by authoritarian regimes to justify their own web censorship.

“Today’s stunning verdict sets an extremely dangerous precedent that threatens free expression and chills innovation on the global internet,” Harris said in an e-mail statement. “If the conviction is allowed to stand, it will chill the provision of Web 2.0 services that provide user-generated content platforms in Italy, and Italian internet users will find themselves without a powerful forum for free expression.

“Most troubling, what happened in Italy is unlikely to stay in Italy. The Italian court’s actions today will surely embolden authoritarian regimes and be used to justify their own efforts to suppress internet freedom.”
Chief among the concerns is that nations might turn to using criminal laws or threats of criminal prosecutions to force companies to bend to the their political will.

Electronic Frontier Foundation attorney Lee Tien of the San Francisco-based Electronic Frontier Foundation shares Harris’ concern for online rights.

“The threat to internet free speech from nations around the world that don’t have the same laws and attitudes about free speech is absolutely a constant problem and is getting worse,” Tien said.

But he warned against placing too much emphasis on this case, which many see as thinly veiled machinations against Google by Italy’s Prime Minister Silvio Berlusconi, who has nearly monopoly control over Italy’s mainstream media. Italy’s parliament is currently considering a law that would put online video services under the same rules imposed on broadcast stations — legislation intended to stifle online speech.

But the Google case will drag on in appeals for years and it’s not clear it will be anything more than a legal anomaly.

Meanwhile, there are plenty of real and sticky issues around hate speech and pornography — where people have legitimate issues and real public policy has to be worked out, according to Tien.

“I’d prefer people to think about those cases and not focus on show cases,” he said.

Google, for one, called the decision “astonishing.”

“It attacks the very principles of freedom on which the internet is built,” Google lawyer Matt Sucherman wrote on Google’s blog. “If that ’safe harbor’ principle is swept aside and sites like Blogger, YouTube and indeed every social network and any community bulletin board, are held responsible for vetting every single piece of content that is uploaded to them — every piece of text, every photo, every file, every video — then the web as we know it will cease to exist, and many of the economic, social, political and technological benefits it brings could disappear.”

And while it might be tempting for some to dismiss the suit as the work of a crazy Italian justice system, the United States is no stranger to politically motivated legal attacks on free speech and internet freedom.

The U.S. attorney’s office in Los Angeles prosecuted and convicted a Missouri woman on hacking charges for helping put up a fake MySpace profile to harass a neighbor’s teenage daughter, who later committed suicide. The judge in the case overturned Lori Drew’s conviction. He found the government’s contention that violating a website’s terms of service was the same as hacking “unconstitutional.”

And in South Carolina, the Attorney General Henry McMaster threatened to criminally prosecute Craigslist management if the classified listings site didn’t remove its erotic listings category, saying the site was promoting prostitution. A federal judge had to order McMaster to stop his threats.

The Italy decision won’t be published in full for several weeks and will likely be on appeal for years. None of those convicted will likely ever serve their six months of jail time, in no small part since they all live outside of Italy. The video at issue appeared in 2006, on Google Video, a service now replaced by YouTube.

University of Virgina media studies and law professor Siva Vaidhyanathan, meanwhile, sees the Italian case as a very local issue rooted in Italian politics and a sign that Google’s culture of audacious enterprises isn’t as welcome outside the Unite States as it hoped it would be.

“The government in Italy wants to hold Google down in Italy until it says ‘uncle’ for a while,” Vaidhyanathan said. “But it does say a lot about the fact that the globalization of Google is not going well. The ruling comes as cyberliberties are in flux globally and Google is trying to maintain revenues in countries like Egypt and Russia.”

Vaidhyanathan, whose upcoming book The Googlization of Everything tackles the subject of Google as a worldwide cultural force, says that the net’s and Google’s method of doing things first and letting people opt out later is proving to be not a hit everywhere around the globe.

“Google is finding that getting beyond America is difficult,” sad Vaidhyanathan, referring to Google’s hacking showdown in China, privacy issues with its Street View mapping cameras in Germany, and the censorship demands placed on it by China, Turkey, Thailand, Argentina and India.

“I can see the general objection to Google’s way of doing things,” said Vaidhyanathan. “It’s default setting is that it can do whatever it wants and if you have a problem, just let them know, and that opt-out model is not applicable in every case.”

To others, like Tien, the ruling is simply baffling. Clearly, Italy doesn’t want its own service providers to have to meet the burden of approving every forum posting, blog comment or uploaded video — and punishing executives when their companies miss the mark — as was the case of the Google executives in Italy.

That’s akin to making automobile executives personally liable in any automobile accident related to the company’s sticky pedal woes.

Tien said that would be a “massive extension of liability.”


Tuesday, February 23, 2010

Global Crisis Leads I.M.F. Experts to Rethink Long-Held Ideas

WASHINGTON — The International Monetary Fund has long preached the virtues of keeping inflation low and allowing money to flow freely across international boundaries. But two recent research papers by economists at the fund have questioned the soundness of that advice, arguing that slightly higher inflation and restrictions on capital flows can sometimes help buffer countries from financial turmoil.
One paper has received particular attention for suggesting that central banks should set their target inflation rate much higher — at 4 percent, rather than the 2 percent that is the most widely held standard. As aggregate demand fell across the world in 2008, central banks, including the Federal Reserve, lowered short-term interest rates to nearly zero, where they have largely remained.

While the two papers do not represent a formal shift in the fund’s positions, they suggest that the I.M.F. is re-examining some of its long-established orthodoxies as part of its response to the global economic crisis that began in 2007.

The significant drop in the volatility of output and inflation since the mid-1980s — a period known as the Great Moderation — helped lull “macroeconomists and policy makers alike in the belief that we knew how to conduct macroeconomic policy,” the fund’s chief economist, Olivier Blanchard, wrote in one of the papers. “The crisis clearly forces us to question that assessment.”

That paper examines how, in hindsight, higher rates would have helped in the current crisis.

“Higher average inflation, and thus higher nominal interest rates to start with, would have made it possible to cut interest rates more, thereby probably reducing the drop in output and the deterioration of fiscal positions,” Mr. Blanchard and two other authors wrote in the paper, released Feb. 12.

The other paper, released Friday, said that in the aftermath of the crisis, officials were “reconsidering the view that unfettered capital flows are a fundamentally benign phenomenon.”

“Concerns that foreign investors may be subject to herd behavior, and suffer from excessive optimism, have grown stronger; and even when flows are fundamentally sound, it is recognized that they may contribute to collateral damage, including bubbles and asset booms and busts,” the fund’s deputy director of research, Jonathan D. Ostry, wrote, along with five other authors.

Both papers contained important caveats.

Mr. Blanchard’s said that fiscal policy — like decisions to tax, spend and borrow — had been as important in responding to the crisis as monetary policy, or control of the supply of credit. It argued that governments that had relatively lower debts to begin with had more flexibility to respond to the crisis.

And it asserted that regulatory measures — like requiring higher capital and liquidity ratios, lower loan-to-value ratios for home mortgages, and increased margin requirements for stock purchases — would be more effective than higher inflation targets in curbing excessive risk-taking.

Similarly, Mr. Ostry’s report said capital controls would be effective only if the flows “are likely to be transitory” and the economy is already operating near potential, with reserves at an adequate level and an exchange rate that is not undervalued.

The report also found that “the jury is still out” on whether capital controls had worked in practice. Evidence from countries like Chile and Colombia, it said, suggests that controls have been more effective at curbing exchange-rate pressures and the risk associated with capital inflows than in reducing the net influx of money.

In separate interviews, three former I.M.F. chief economists said the recommendations were significant but raised questions about the feasibility of carrying them out in today’s situation.

Raghuram G. Rajan, of the Booth School of Business at the University of Chicago, said the I.M.F.’s suggestion for allowing higher inflation might not be well received. “With bond markets worried that governments may inflate their way out of their debt obligations, this is probably not a good time for central banks to start debating their inflation targets,” he said.

Mr. Rajan said he was concerned that the nuances regarding capital controls would be overlooked. “The pressure within emerging markets to set up capital controls, with many countries not meeting the careful conditions laid out by the fund’s paper, will increase,” he predicted.

Kenneth S. Rogoff of Harvard noted that he had urged that the Fed and the European Central Bank consider slightly higher inflation targets after the 2001 recession in the United States. But he added, “Having spent the past two decades convincing the public that 2 percent inflation was magical, it might be both difficult and confusing for central banks to suddenly announce they have changed their minds.”

He said Mr. Ostry’s report was only the latest step in the fund’s reassessment of its “dogma on capital controls” that began with the Asian financial crisis in the late 1990s. “Today, it is patently obvious that the U.S. and Europe’s near-zero-policy interest rates are fueling a surge of international capital into Asia and Latin America that will end in tears if not properly managed.”

Simon Johnson, of the Sloan School of Management at M.I.T., said it would be “a very hard sell” to persuade central banks to raise their inflation targets “just because the financial sector is badly run and hard to reform.”
But he praised the emphasis on regulation. “The I.M.F. is trying to redefine what is and what is not responsible financial policy after the crisis,” he said. “They are commendably aware of the need for greater regulation and the ways to synchronize that around the world.”

Published: February 21, 2010

What can we do to help Malaysia?

THE most difficult part of solving problems is not coming out with solutions; it is recognising and then identifying the problem.

Acknowledging there is a problem is always tough, especially if one is part of the problem; denial is a common human trait.

Even more challenging is the unwillingness to speaking out openly, even if one knows the real problems. Often, it is easier to point a finger at others – so the “blame game” ensues but naturally the real problem gets bigger.

That line of thought crossed my mind during the recent 1Malaysia Economic Conference organised by the Associated Chinese Chambers of Commerce and Industry Malaysia.

Many prominent speakers spoke openly during the conference, acknowledging and identifying many of the problems Malaysia face today. Some of the challenges I’d like to give prominence are:

·Middle-income trap: According to a World Bank survey, Malaysia has been a middle-income economy for over three decades whereas Hong Kong and Singapore have vaulted into high-income economies since the 1990s.

We are trapped in a low-cost, low-value economic structure; persistent low wages too are not attracting and retaining domestic and foreign talents, making it more difficult to move up the value chain.

·Malaysia’s education system: Substantial investment in education has not led to improvement in quality.

For example, Malaysia spends an average 5.9% of gross domestic product (GDP) annually on public education, substantially higher than Japan (3.9%), South Korea (3.9%) or Singapore (3.5%).

And yet, according to a Trends in International Mathematics and Sciences Score 2003-2007 survey, our secondary students’ maths scores had deteriorated (from 508 to 474 points) while Japan, South Korea and Singapore were able to maintain or improve on their performance (ranging from 570 to 605 points).

Unfortunately, our human capital is now lagging in global competitive skills where we used to excel, such as in language, math and general knowledge.

·Bad habits: We are too dependent on cheap foreign labour (19% of employment in 2008 compared with 9% in 2000), subsidies (over RM20bil annually to maintain price controls), oil as major source of revenue (about 40% of Government revenue in 2009) and energy. Can we wean ourselves of these addictions for a better future?

The Prime Minister, in his opening address, said if Malaysians do not recognise that time for change has come, we will be left behind.

He spoke about social capital, recreating a cohesive society and “no one should be marginalised” in a 1Malaysia society.

Tun Musa Hitam (former deputy prime minister) and Datuk Nicholas Zeffreys (president of American Malaysian Chamber of Commerce) pointed out that the rakyat are part of the problem because the present state of our nation is what we collectively did or failed to do over the years.

For instance, if we detest corruption, we should discourage it strongly. If we find there are fewer business opportunities in Malaysia, then compete around the world; if we find our politicians not up to standard, then exercise our votes diligently.

So, instead of assigning blame, we should be asking – what can we do to help our nation move to a progressive society and an economically vibrant country for our children?

There are many ways the rakyat can contribute. For a start, ponder on the few points below:

·Understand the real problem: First, stop the blame game and excuses; get on with how and what we, the rakyat, can do to contribute to a better civil society.

·Continuous improvements: All of us should think about improving ourselves, whether it is in technical education and training, moral and ethical education or the arts and so forth.

In commerce, we should all work harder to increase Malaysia’s efficiency and productivity and be globally competitive.

·Speak out: Do so peacefully, so that politicians and government officials recognise and hear the voices of the rakyat; and not the 10% or less of rent-seeking people with self interests, who are speaking louder than anyone else.

·Vote: Exercise your voting rights – there are an estimated five million unregistered voters today. If you do not exercise your rights to vote, we have lost your say on how to build a better society.

·Work with your fellow Malaysian of all races: Similarly, we should welcome talented people from all over the world regardless of race to work here. Living in a globalised world, we cannot afford to be narrow-minded and think along racial lines.

I am sure the vast majority of intelligent and sensible rakyat are more than willing to contribute and work hard for a progressive and civil Malaysia.

By Teoh Kok Pin ·The writer is the founder and chief investment officer of Singular Asset Management Sdn Bhd.

Business Culture Steers Flow of Ideas, Study Says

ScienceDaily (Feb. 23, 2010) — The business culture that companies emphasize has an effect on new product ideas that bubble back up from the workforce, a University of Illinois marketing study found.

Groundbreaking ideas spring most from companies that stress technology, rather than customer needs or staying ahead of competitors, according to research that will appear in the Journal of Product Innovation Management.

Firms that focus on their competitors or customers generate more new product suggestions than technology-based companies, the study found. But the ideas typically net only subtle advances, such as the slow evolution of wireless reading devices, rather than breakthroughs similar to the shift from compact discs to music downloads.

"Customer- and competitor-oriented companies are more likely to come up with variations of existing products because they watch their markets closely and react to demands rather than building on breakthrough technology," said William Qualls, a U. of I. marketing professor who co-wrote the study.

He says the findings suggest that firms are best served by a balanced philosophy that includes all three cultures. While an emphasis on technology bolsters innovation, he said, market-driven firms are more attuned to what consumers want, giving them an edge in commercializing new products.

History is littered with technological leaps that sputtered for lack of effective marketing, said Qualls, who co-wrote the study with Jelena Spanjol, then a U. of I. doctoral student and now a marketing professor at the University of Illinois at Chicago, and Jose Antonio Rosa, a former U. of I. marketing professor who is now at the University of Wyoming.

AT&T developed its Picturephone in the 1960s, but not a market for it, Qualls said. Motorola is behind many advances in cell-phone technology, but failed to become an industry leader because the company focused on innovation at the expense of marketing.

"If innovation and marketing don't get equal attention, good ideas might never reach the marketplace or firms could sink millions of dollars into innovations that will ultimately have no appeal to consumers," he said.
The study is unique because past research has focused largely on the link between business culture and the success of launched products, rather than probing the idea stage, said Qualls, the interim head of the department of business administration.

Findings are based on an analysis of survey responses from nearly 200 marketing and research managers who work for companies that make household and personal products, from appliances to skin cream.
"Without good ideas, you can't come up with innovative new products," Qualls said. "Firms need to know how to generate as many new ideas as possible, and how to screen them so they have the best chance for success."

He says the findings lend support for a budding business theory known as open innovation, which encourages firms to use external as well as internal input to develop and launch new products.

Companies that lack resources to generate more ideas by instilling new technology or market-based cultures can instead partner with outside organizations, universities or even solicit suggestions from consumers, Qualls said.

Intel Corp. and Proctor & Gamble Co. are among firms that have bolstered product development through outside alliances, he said. Others are pulling consumers into the mix, including Netflix, which offered $1 million to anyone who comes up with a better system for delivering movies.

"The whole idea of open innovation is that firms need to be able to absorb knowledge from any source, and not just rely on the knowledge it has internally," Qualls said. "And the more ideas they get, the better the chance that one will click."

He says the study shows firms that fail to broaden their cultures or seek outside input will lag behind companies that do.

"It's not impossible, but companies are tying their hands behind their backs if they don't change," Qualls said. "Innovation can happen by accident. Post-It Notes and Velcro were accidents. But you can't run a company hoping for potentially successful accidents."