Special Economic Zones

Article published on March 05, 2016 in Parag Khanna and reproduced by courtesy of Parag Khanna

Special Economic Zones (SEZs) are the most rapidly spreading kind of city, having catapulted exports and growth from Mauritius and the Dominican Republic to Shenzhen and Dubai -- and now across Africa. Today more than 4000 SEZs dot the planet, a major indication of our transition towards the "supply chain world" explored in Connectography.

See more maps from Connectography and order the book here.

Author: Parag Khanna / Publisher: SCMO

How Supply Chain drives Competitive Advantage

Article extract from Mark Millar’s new book Global Supply Chain Ecosystems

Supply Chains are the arteries of today’s globalised economy – they enable the international trade flows that empower global commerce. Supply Chains have evolved to reflect the increased complexity of world trade – highly competitive, super connected and changing fast, amidst a volatile global environment.

No wonder that Supply Chain has become an essential topic across all spheres of management and a strategic agenda item in every boardroom.

Twenty-first-century supply chains have transformed into world-wide inter-connected supply-and-demand networks - with profound inter-dependencies and exposed to the vulnerabilities of our uncertain world. This has led to greater deployment of collaborative partnerships, frequently involving outsourcing and off-shoring, creating elongated networks encompassing multiple stakeholders. Consequently, supply chains have morphed into today’s multi-layered, inter-woven distribution networks that enable companies and countries to trade more effectively.

Confirming how these networks enable commerce in an increasingly connected world, the Financial Times’ (FT) lexicon describes how “businesses operate in a broader network of related businesses offering particular products or services - this is known as a business ecosystem”. They further define this as “a network of interlinked companies, such as suppliers and distributors, who interact with each other, primarily complementing or supplying key components of the value propositions within their products or services”.

From the supply chain perspective, Cranfield’s Dr Martin Christopher adopts an end-to-end view, articulating the supply chain as “the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer”.

This notion of networks is particularly important, with Dr Christopher reinforcing the key message that modern supply chains are no longer simply linear chains or processes, “they are complex networks - the products and information flows travel within and between nodes in a variety of networks that link organisations, industries and economies”.

The linear concept of a chain is therefore no longer adequate to describe today’s complex international networks of suppliers, partners, regulators and customers – all collaborating to ensure the efficient and effective movement of products, services, information and funds around the world.

These extended multi-stakeholder networks continue to develop as supply chains have become progressively more global, complex and strategic - we are firmly in the era of Global Supply Chain Ecosystems!

Connected Supply Chains drive Competitive Advantage

In today’s complex connected world, supply chain is more and more recognized as a key source of competitive advantage and differentiation. Companies strive to build powerful supply chains that will enable them to get their products to market faster, more efficiently and more economically than their competition.

For many businesses – particularly those in high tech, consumer electronics, pharmaceutical and fresh produce - time to market and effective distribution channels are critical success factors, and therefore supply chain management competencies and capabilities are what drive competitive advantage.

In that context, there are exciting and evolving synergies between the supply chain and marketing functions, as together they become the principal business drivers for companies in the modern era.  Each of them is both a functional discipline and a profession. Taking the broadest perspective of the two disciplines, these functions together embrace all of the mission-critical business activities of a company, with IT, HR and Finance playing important supporting roles.

With marketing comprising the four P’s of Product, Price, Promotion and Place and supply chain encompassing the five operational activities of Plan, Source, Make, Deliver and Return, then Logistics becomes the point of intersection and convergence - the essential linkage between the Deliver function of supply chain and the Place (distribution) function of marketing.

Together therefore, supply chain and marketing are becoming the primary engines that drive the business – hugely influential in driving business growth, increasing market share and generating revenue and profits. The Chief Marketing Officer (CMO) and the Chief Supply Chain Officer (CSCO) will become the most critical leadership roles to sit alongside the CEO and CFO in the enlightened C-suite of the future.

Supporting this concept that supply chain drives competitive advantage for your business, the FT lexicon explains how “Ecosystems also create strong barriers to entry for new competition, as potential entrants not only have to duplicate or better the core product, but they also have to compete against the entire system of independent complementors and suppliers that form the network”.

Conclusion

Any chain is only as strong as its weakest link – and it’s the same with a supply chain, except that within a supply chain ecosystem the linkages are not consecutive and not linear; there are numerous multi-dimensional connections with profound inter-dependencies.

Nevertheless, the strategy of achieving continuous improvement through consistently and persistently working on strengthening the weakest link(s) still applies, and companies adopting such an approach will leverage their global supply chain ecosystem for competitive advantage in our complex, connected world.

Learn more about the latest supply chain trends and developments in Mark Millar’s new book Global Supply Chain Ecosystems in which he examines several critical elements of a supply chain ecosystem - including visibility, resilience, sustainability and collaboration.

Author: Mark Millar / Publisher: SCMO

Riding the Silk Rooster

China Merchants has a knack for catching themes. China Merchants Holdings has been a decently managed company in the China context, holding decent port assets. But investors, mainland and foreign, always seem to get taken away by some idea of golden returns. In the late ‘00s there was all this fanfare about its Vietnam investment with billions of HK$ market cap added pretty much on the back of the concept. 

Having Shanghai Port Group shares take off in the late ‘00s also helped propel the shares into the stratosphere for a while, as owning a stake in a Shanghai listed company offered investors participation in China rallies. 

Yet, we know what happened to plans for Vietnam development. It was a total dud due to massive overbuilding of port assets. China Merchants let the project die quietly after a few permutations. Sri Lanka port expansion also was not without its controversies.

Ultimately Shanghai Port after 2008 turned out to be a little less exciting for 5 years or more – Until September 2014. Since then shares have doubled.  This is one reason why shares of HK China Merchants Holdings perked up recently. But there is also the fanfare of China going big in global infrastructure as a result of a “new” Economic Silk Road initiative, which was laid out in NDRC in late March 2015 in a paper entitled Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road.

COSCO Pacific has not had it so easy since the late ‘00s. It hasn’t been able to recover from the perception of being a passive patsy for the poorly run COSCO parent and having a few more passive port investments as well as a boring container leasing business (which it sold parts thereof more than once).  But, in its defense, it has always maintained 1) good disclosure, and 2) a good dividend distribution.

Port and infrastructure companies are certainly companies to look at as beneficiaries of the “new” economic silk road.

***

The Silk Road Economic Belt theme and policy statement out this time (see official China announcements and speeches) is different than the 20 year old “through train concept” for Asia to Europe via Central Asia (and not the money and share trading conduit between China and HK…). This was the old version for new trade growth avenues.

Over the last few years China has been backing a number of global infrastructure themes, from ports in Suez and Sri Lanka, to potentially theme parks in Cambodia, and ultimately to road and rail buildouts in SE Asia and new military bases and drilling rigs in disputed waters in the South Pacific. 

China now is wrapping this in a comprehensive plan, seeking to show that the growth in the international strategic footprint is about increasing RMB transactions, and ultimately participating in a Chinese Economic Sphere that will even come with its on multilateral bank, which many countries are now warming up to. 

It is a total package, marketed as global business expansion but also comprising a significant geo-political element with military sideshows.  Move over Pax Americana. Here comes the Silk Rooster. It makes perfect sense. And it is not new. It is simply more front burner due to new focus from Xin Jinping.

China Merchants didn’t just invest in a new global footprint ports last month. It’s been growing around the world for a decade or more, as have Shanghai Port and COSCO/ COSCO Pacific. 

What’s more China didn’t just start building military bases in the middle of the South Pacific. It’s been laying down asphalt and train tracks in Laos for awhile. And if it can find financing that is supported by multilateral agencies, like its new Asia Infrastructure Bank, it will be building theme parks/property projects and roads, rail networks, ports, canals across the globe. 

And a new surprise for some may be how substantial its influence in Thailand has become. The PLA and connected Communist Party members have been buying up and producing from jade, precious stones and metals mines in SE Asia for a long time. And one could not have done this without support from the authorities and the military. Recently CITIC (ultimately PLA linked) raised more funding for its re-capitalization from parties including Japanese trading houses and Thai Chinese. The Japanese are another key constituent of Thailand’s industrial base. From a Chinese perspective it is even more important to box in Japan’s influence around the Malacca Straits. 

In some cases, China may have picked the wrong horse, such as Noble Group, which likely expanded too rapidly into commodity asset bases in places such as Brazil toward the top of the commodity cycle. And China has so far missed the boat on acquiring logistics companies rather than simply buying more container ships, bulk vessels and tankers. But it will figure it out.

Because China needs global expansion to replace stagnating China growth, China will pour a lot of resources overseas. And its large state owned companies will benefit immensely. For the moment these companies often don’t get the right cultural mix on international infrastructure projects, and they tend to go into projects in massive waves with too many Chinese workers, while leaving many behind along with support infrastructures. But this is 1) on purpose and 2) may get better regulated in future. 

Imagine 50,000 workers descending on a small economy. The backlashes will eventually force some redirections. But at the same time China will have built a new mainland Chinese diaspora far larger than ex-Communist Party members who fled China with potentially as much as a trillion dollars.

Many countries, not just SE Asia, Japan or the US need to figure out how to integrate into China’s new global political economy. On the one hand investors can participate and benefit, while keeping tight leashes on credit policies. On the other hand, sovereign nations need to quantify and de-limit Chinese incursions into their national territory.

Author: Charles de Trenck / Publisher: SCMO

Passenger numbers to double over the next 20 years

Article published on December 2014 in Legal Eye and reproduced by courtesy of Stephenson Harwood

The International Air Transport Association (IATA) released its first ever 20 year global passenger growth forecast in October 2014, which predicts annual passenger numbers will grow from 3.3 billion this year to 7.3 billion in 2034.

The Global Passenger Forecast Report, put together by the new IATA Passenger Forecasting Service, working in association with Tourism Economics, analyses airline passenger flows across 4,000 country pairs for the next 20 years, using three key demand drivers: living standards, projected population and demographics, and price and availability.

The Report forecasts that China will overtake the US as the world’s largest air passenger market by 2030, and that by 2034, the five fastest increasing markets, in terms of additional passengers per year, will be China, the US, India, Indonesia and Brazil. Eight of the ten fastest growing markets in percentage terms will be in Africa, and the highest growth in terms of country pairs is predicted to be in Asia and South America, reflecting economic and demographic growth in those markets.

The Report highlights the fact that meeting the forecast growth in global air passenger numbers, which represents a 4.1% average annual rate of growth, will require government policies that support the economic benefits that such increased levels of air connectivity will make possible.

Tony Tyler, IATA’s Director General and CEO, said the following:

“Airlines can only fly where there is infrastructure to accommodate them. People can only fly as long as ticket taxes don’t price them out of their seats. And air connectivity can only thrive when nations open their skies and their markets. It’s a virtuous circle. Growing connectivity stimulates economies, and healthy economies demand connectivity.”

Tyler points out that at present, aviation helps sustain 58 million jobs and US$2.4 trillion in economic activity, and that in 20 years time, IATA has projected that aviation will support over 105 million jobs and US$6 trillion in GDP.

IATA’s forecasts for the 10 largest air passenger markets (defined by traffic to from and within) for the next 20 years:

  • The US will remain the largest air passenger market until around 2030, when it will drop to number 2 behind China;
  • India will grow from being the 9th largest market to the 3rd, overtaking the UK around 2031, which will fall to 4th place;
  • Japan will decline from the 4th largest market to the 6th largest by 2033, reflecting a declining and ageing population;
  • Germany and Spain will decline from 5th and 6th positions to be the 8th and 7th largest markets, France will fall from 7th to 10th position and Italy will fall out of the top ten largest markets completely in or around 2019;
  • Brazil will rise from the 10th largest market in 2014 to the 5th largest by 2034; and
  • Indonesia will enter the top ten around 2020 and will attain 6th place by 2029.

The Report recognises that air travel has an environmental impact, and states that in 2009 the industry agreed three targets so as to ensure that aviation plays its part in ensuring a sustainable future:

  • 1.5% annual fuel efficiency improvement by 2020;
  • Capping net emissions through carbon-neutral growth from 2020;
  • A 50% cut in net emissions by 2050, compared to 2005.

In the same week that the Global Forecast Report was published, IATA released the results of its quarterly Business Confidence Survey of CFOs and heads of cargo, which forecasts growth across the airline industry over the next year. Management of airlines are predicting largely positive profit expectations for 2015, notwithstanding some downside risks associated with the weaknesses in the Eurozone economic recovery, the Russia-Ukraine crisis, and some knock on effects from the Ebola crisis.

Eight of the ten fastest growing markets in percentage terms will be in Africa

Author: Paul Phillips (Partner, Head of aviation litigation and regulation with Stephenson Harwood) / Publisher: SCMO

 

The Panama Canal: a brief history

Reproduced from Smits, K. (2013). Cross Culture Work: Practices of Collaboration in the Panama Canal Expansion Program. Delft: Next Generation Infrastructures Foundation by courtesy of Karen Smits

Panama. Bordering with Costa Rica and Colombia, Panama connects Central America with South America (see Picture 1). Due to the geographic location of the Isthmus of Panama, the country has long been coveted as a place where the Atlantic and Pacific oceans should meet, and, with the Panama Canal, they finally do.

Before starting this blog series about cross-cultural collaboration in projects, for which I will use examples from the Panama Canal Expansion Program, I’d like to give you a brief insight into the history of the waterway.

 Picture 1: Think Panama - Source: Flickr

Picture 1: Think Panama - Source: Flickr

History of the Panama Canal

In 1513, when Vasco Nuñez de Balboa discovered the Southern Sea (later known as the Pacific Ocean) and realized how close this ocean is to the Atlantic Ocean, the history of the Panama Canal began. From that moment onwards there had been talks about a shortcut through Central America, but it required certain advances in engineering, among other things, to actually construct this alternate route.

Three hundred years later discussions about where a canal ought to go developed into a choice between Nicaragua and Panama. While the debate continued, Colombia allowed a group of entrepreneurs from the United States of America to build a railroad across their province Panama. After their experiences in Panama, however, the railroad builders argued for another location for the canal as, for them,

“Panama was the worst place possible to send men to build anything” [1]

Despite these experiences, an international congress that convened in Paris in May 1879 voted for a sea level canal in Panama. Known as ‘The Great Engineer’, the world-famous Suez Canal engineer Ferdinand de Lesseps took command of the initiative to build a sea level canal in Panama.

The French Attempt

The work in Panama was an immensely larger and more baffling task than Lesseps had performed at the Suez Canal [1]. Different than in Egypt, the climate in Panama was not only hot but with humidity reaching 98 percent at times, suffocating. While digging at Suez had been through a flat level dessert, in Panama the workers encountered mostly hard rock and clay.

Another important difference between Egypt and Panama was the rainfall, in Suez it rained about nine inches a year, while rainfall in Panama was measured in feet ; ten feet or more on the Caribbean slope and five to six feet in Panama City [1]. Due to the heavy rainfall, digging proved to be much more difficult in Panama, and the threat of diseases was very high. Panama appeared to be the most difficult place to construct a canal: the canal builders had to deal with thick jungles full of snakes, mosquitoes that carried malaria or yellow fever, deep swamps, and a heavy mountain range [2].

De Lesseps and his crew spent eight and a half years fighting against the jungle, a battle they lost. An earthquake, fires, floods, the continuous epidemic of yellow fever, a huge amount of corruption and, on top of this, insufficient funds and unfortunate engineering decisions converged into a tragic ending of the French attempt [1-3]. In 1889, De Lessep’s venture fell: more than a billion francs -about US$287 million- had been spent, accidents and diseases had claimed twenty thousand lives and the project organization Compangie Universelle du Canal Interocéanique de Panama went bankrupt [1, 3].

A lesson learned from the French undertaking was that the construction of a canal went beyond the capacity of any purely private enterprise, it had to be a national undertaking, and the United States of America appeared to be the one nation ready to mount such and effort [1].

The American Victory

When Theodore Roosevelt became the President of the United States of Americain 1901, he was determined that a canal was the vital, indispensable path to a global future for the United States [1, 4]. For both commercial as well as military vessels it would significantly improve shipping time, lower shipping costs, and avoid passing through the often-dangerous weather at the tip of South America.

Furthermore, a two-ocean navy would not be necessary when the two coasts would be connected. A canal would demonstrate American power to the world and enhance the nation’s identity as a supreme authority [3]. Despite intensive lobbying and heavy discussions about where this canal had to be built, in Nicaragua or Panama, President Roosevelt finally decided it had to be Panama [1, 3].

There was just one obstacle: Panama was a small province of Colombia and the Colombian constitution prohibited any sovereignty to give away any part of the country, which is exactly what Roosevelt had in mind. He was lucky though. A group of Panamanian elites had plotted a revolution for years, and they were eager to receive United States’ protection to support Panama’s independence [3]. On November 3rd, 1903, a coup gave birth to the Republic of Panama.

Soon after this bloodless revolution Panama and the United States signed the Hay-Bunau-Varilla treaty. This agreement evoked a whirlwind of controversy as it gave astonishing rights to the United States, while it eliminated any independence of the Republic of Panama [1, 3]. The treaty granted the United States effective sovereignty over the ‘Canal Zone’, a ten-mile wide swath that stretched clear across the isthmus and cut the country in two. It gave the United States the right to purchase or control any land or building regarded necessary for the construction of the canal and allowed the United States to intervene anywhere in the republic to restore public order “in case the Republic of Panama should not be, in the judgment of the United States, able to maintain such order” [3]. Later, this treaty became a contentious diplomatic issue between Panama and the United States.

 Picture 2: National Museum of American History - Source: Flickr

Picture 2: National Museum of American History - Source: Flickr

The Panama Canal construction project attracted people from all over the world. It promised the return of prosperity surpassing the French era and there was no doubt it would be completed [1].

Labor agents targeted the Caribbean islands for workers and attracted at least twenty thousand Barbadians and an almost equal amount of West Indians to travel to Panama and sign a contract with the government of the United States [3]. Although the project drew mostly migrants from this region, thousands of others from Mexico, Costa Rica, Colombia, Peru, India, China and Europe also packed their suitcases for the Canal Zone. Even higher numbers of people from the United States were attracted by the prestigious job for the federal government, the adventure and good payment.

Under supervision of army doctor Colonel William Gorgas doctors and sanitary inspectors fought yellow fever and malaria; all streets in Panama were cleaned, pools were drained and waterways oiled to get rid of the disease-carrying mosquitos [2]. As conditions in the isthmus improved, after 1906, more American women packed their bags for Panama so they might work as nurses, secretaries or provide a home for their husbands [3]. Acting as a global magnet, the canal project drew families away from their home countries and set in motion extensive changes concerning migration, labor supply and the allocation of economic wealth and social status.

The construction of the Panama Canal officially took ten years, from May 1904 to August 1914, and overlapped with the tenure of three chief engineers. The first engineer, named John Wallace, only stayed on for the first chaotic year in the isthmus. John Stevens, the second engineer, played a key contribution by pleading for a lock rather than a sea-level canal. He remained on the job for two years. The final engineer, George Washington Goethals, oversaw most of the construction of the Panama Canal and stayed on the job until completion of the project [1-3].

With newer and bigger machinery, like the steam shovel, an enormous international workforce and a solution to fight malaria and yellow fever, the United States constructed the Panama Canal with its three locks (one 1-chamber and one 2-chamber lock at the Pacific side and one 3-chamber lock at the Atlantic side): Gatún, Pedro Miguel and Miraflores, each named after the village where it was built [5]. The design and construction of the locks was the most spectacular aspect of the project [3]. An artificial lake, Gatun Lake, was created so that ships could pass the canal at 26 meters above sea level, through the narrow Gaillard Cut.

The costs of the project had been more than four times what constructing Suez Canal had cost and were enormous for those days; no other construction effort in the history of the United States paid such a price in dollar or in human life [1]. This project took more than 5.000 human lives and totaled $352.000.000 in expenditures, which, taken together with the French expenditure summed up to a cost of $639.000.000 [1]. Six months ahead of schedule, and with a final price that was actually $23.000.000 below what was estimated in 1907, the construction of the Panama Canal was finished [1].

In 1914, nearly 34 years after the first shovel hit the ground, its gates opened for the first vessels to pass [1-3]. This moment was a symbol to Americans, and to the rest of the world, letting them know that the United States had firmly established itself as the most powerful nation on earth.

Ownership of the Canal

After August 15, 1914, when the canal was officially inaugurated with the passage of steamship Ancón (see picture 3), the supervision of the waterway remained under American administration. The opening ceremony celebrated America’s triumph and the capstone project characterizing Panama. It also signaled the beginning of an almost 100-year relationship between Panama and the United States, ranging from intervention and repression to reconciliation and cooperation [6]. Although Panamanians initially embraced the canal construction and hoped to benefit from the American effort, their resentment grew over the years as the promised fruits of the alliance proved sour [3].

 Picture 3: William Friar - Source: Flickr

Picture 3: William Friar - Source: Flickr

In the decades after the opening of the waterway, tensions between Panama and the United States were often stormy and colored by deep conflicts and violence. Fostered by racial differences, notions of honor, respectability and civilization, the relationship between the countries and their citizens was highly problematic [3]. Frequently, the United States sent troops into the country to suppress protests and, on the other side, the Panamanian police aggressively stood up against canal employees [6]. These frictions illustrated the complex and tense relationship between Panamanians and Americans.

Elite Panamanians perceived the presence of the United States and the canal as necessary, expecting it to be a path to modernity and civilization, yet instead of welfare, the project brought Americans who behaved disorderly and uncivilized [3]. More and more Panamanians claimed a revision of the original terms of the Hay-Bunau-Varilla treaty, and the steady growth of dissatisfaction and frustration, as it reached its limit, was made known in numerous uprisings and demonstrations [3, 6, 7].

Following the riots in 1964, Panama gained sympathy from around the world for more authority over the canal, which became a turning point in the relations between the United States and Panama [3]. Negotiations between the two countries took until 1977, when a new treaty about the Panama Canal was signed. Agreed by Panama’s President Omar Torrijos and U.S. President Jimmy Carter, new treaties promised an end to the United States controlling the waterway, declared the permanent right of the United States to defend the neutrality of the canal, but prohibited the United States from interference in internal affairs in the Republic of Panama [3, 6, 8]. Particularly, the first treaty mandated the elimination of the Canal Zone as of October 1, 1979, and agreed that the United States would run the administration of the canal until December 31, 1999 [3, 6].

Significant changes were implemented: a new organization, the Panama Canal Commission, was established, with a board of five American and four Panamanians members, and as of 1990, a Panamanian would fill the position of Administrator. Furthermore, the treaty called for more skilled Panamanians, as they would gradually play a greater role in the organization, and it prescribed that Panama would receive a higher amount of canal revenue [6]. The second treaty set out the Canal’s permanent neutrality and both countries’ right to defend it [6, 7]. Hence, much of what constituted the special relationship between the United States and Panama no longer existed after 1999, and for the first time in 158 years (since the construction of the railroad), the American military was absent in Panama [9].

At the end of the 1980s, after nine years of dictatorship under military governor Manuel Noriega and despite the agreements, the United States invaded Panama. President George H.W. Bush had realized he could not control Noriega, which seemed problematic now that, following the Torrijos-Carter Treaties, the countries were moving towards a joint administration of the canal [3]. After large and bloody attacks on Panama City, Noriega surrendered on January 3, 1990 [6]. Immediately after the invasion, President Bush declared that he aimed at safeguarding the American citizens in Panama, combating drug trafficking, protecting the integrity of the treaties and the Panama Canal, as the waterway was still under protection of the United States [3, 6].

Panama’s road to recovery began. By means of close cooperation and extensive planning among American and Panamanian members of the Panama Canal Commission, working as one team with one mission, the countries worked towards a “seamless transition” of the canal [9]. In the years towards the transition date, strong criticism regarding Panama’s capability to run the organization of the canal was put forward in American media. Indicating doubt about the local ability it was said that the Panamanians would “dance on the canal’s waters during carnival” and were “never able to run the organization successfully” (Fieldnotes, July 2009).

Disregarding such critiques, the United States and Panama intensively collaborated to handover the canal to Panama. At the end of this process, more than seventy percent of all professionals and managers were Panamanian, as the government of Panama had made provisions for some Americans and other foreign nationals to stay employed with the canal [9]. The canal’s Administrator has been a Panamanian since 1990 and he continued in this role under the new Panama Canal Authority (ACP).

On December 31, 1999, ownership of the Panama Canal was officially transferred from the United States to Panama. A festive public ceremony was held at the Administration Building to mark the start of a new era for the waterway. From this date onwards, the ACP became exclusively in charge of the operation, administration, management, maintenance, protection and innovation of the Panama Canal.

The autonomous agency of the government of Panama oversees the Canal’s activities and services related to legal and constitutional regulations in force so that the Canal may operate in a secure, continued, efficient and profitable manner [8]. Meanwhile, the United States remains in close relation with Panama. Their collaboration is nowadays characterized by extensive counter-narcotic cooperation, support to promote Panama’s economic, political and social development, and plans for a bilateral free trade agreement [10].

References

  1. 1.    McCullough, D., The Path Between the Seas: The Creation of the Panama Canal, 1870-19141977, New York: Simon and Schuster.
  2. 2.    Parker, M., Panama Fever: The epic story of the building of the Panama Canal2009, New York: Anchor Books.
  3. 3.    Greene, J., The Canal Builders: Making American's empire at the Panama Canal2009, New York: Penguin Books.
  4. 4.    Ives, S., TV Documentary on the Panama Canal, in American Experience2010, PBS: USA.
  5. 5.    Del R. Martínez, M., Canal locks: boat lifters, in The Panama Post2009: Panama.
  6. 6.    Harding, R.C., The history of Panama2006, Westport: Greenwood Press.
  7. 7.    Llacer, F.J.M., Panama Canal Management. Marine Policy, 2005. 29: p. 25-37.
  8. 8.    ACP. Autoridad del Canal de Panamá. 2009March 2009]; Available from: http://www.pancanal.com.
  9. 9.    Gillespie Jr., C.A., et al., Panama Canal Transition: The Final Implementation, 1999, The Atlantic Counsil of the United States: Washington, D.C.
  10. 10.    Sullivan, M.P., Panama: Political and Economic Conditions and U.S. Relations, 2011, Congressional Research Service.

Author: Karen Smits / Publisher: SCMO

The Panama Canal Expansion Program - Why?

The locks are the narrowest points of the Panama Canal and form, both in the flow of the amount of vessels per hour as in the size of the vessels, the bottleneck for its capacity. In 2006, the Panama Canal Authority (Autoridad del canal de Panamá, further abbreviated as ACP) therefore published the Proposal for Expansion of the Panama Canal: Third Set of Locks Project. This document neatly describes the background of the Expansion Program.

It elaborates on the history of the plan to further develop the Panama Canal, and states that since the 1930’s, all studies about the widening of the canal agreed that the most effective and efficient alternative to enhance Canal capacity would be the construction of a third set of locks. Lock chambers with bigger dimensions than those of the locks built in 1914 were perceived as the most valuable point for development. In 1939, the United States started the construction of a new set of locks that would allow the transit of larger vessels and warships.

Due to the outbreak of World War II they had to cease the construction works. Personnel of the United States in Panama had to join the army and most construction equipment was assigned to military tasks [1]. By the end of the war, the United States had lost its interest in expanding the waterway. Its fleet was now so vast that the canal’s original purpose -avoiding the support of a two-ocean navy- had been outgrown [2]. Although much use was made for ferrying men and materials for the Korean and Vietnam wars, the Panama Canal had no major upgrades. In the 1980s, according to the proposal document, Panama, Japan and the United States formed a commission that again studied possibilities to further develop the Panama Canal, and again decided that an extra set of locks would be the most appropriate alternative for increasing the Canal’s capacity.

The expansion of the waterway is estimated at a cost of US$ 5.2 billion and expects to generate approximately 40.000 new jobs during the construction of the third set of locks [1]. The proposal for the Expansion of the Panama Canal (2006) portrays four objectives for expanding the Canal’s capacity:

  1. Achieve long-term sustainability and growth for the Canal’s contributions to the society of Panama through payments to the National Treasury;
  2. Maintain the Canal’s competitiveness and its added value as a maritime route;
  3. Increase the Canal’s capacity to capture the growing tonnage demand with the appropriate service level; and,
  4. Make the Canal a more productive, safe and efficient work environment.

This document formed the foundation for a national referendum and marked the start of ACP’s campaign to vote for the expansion of the Panama Canal. Opposition to the project mostly voiced its opinion through various radio programs, videos, and websites. The website El Centro Informativo Panamá 3000 (The Information Center Panama 3000) led by Roberto Méndez, a Professor of Economics at the University of Panama, published four reasons to reject the proposal:

  1. Negative outcomes for the economy
  2. Lack of confidence in the government and the ACP
  3. Health and education should be national priorities,
  4. Destruction of the environmental and social security

In an interview Professor Mendez concluded that, based on his economic and financial analysis, the Expansion Program makes no sense, and might even be a bad development for the country [4]. Martin Rosales, who studied the conflicts between the Panama Canal Expansion Program and the local communities for his Ph.D. thesis, agreed with this counter argument. He concluded that the ACP denied the complexity and contradictions of the expansion project and underscored that a monopolized decision-making process limited the space for counter rationalities [5]. Despite strong objections from various parties, the intense governmental campaign in favor of canal expansion could not be overruled.

On October 22, 2006, the majority of the voters, 76.8%, voted in favor of the Panama Canal Expansion Program [6, 7]. Although more than sixty percent of the total voters did not participate in the national referendum [5], this outcome gave the ACP a green light for the Expansion Program.

Why did I choose the Panama Canal Expansion Program as a case study?

In search for a case that would allow me to study the practices of collaboration in an infrastructural project organization, I started with an online search. Since I had adopted an interpretive approach and the ethnographic research methodology in particular, only a small number of cases could be studied. One mega project would be sufficient, as it consists of various separate research cases and can deliver an overwhelming set of data. However, the mega project should be under construction during the fieldwork period, between July 2009 and July 2010.

I did not aim to study practices of collaboration in retrospect nor was it my intention to study a project that had not passed its kick-off date yet. Furthermore, I searched for projects that a) contained international partners, b) I could obtain access to and c) allowed a longitudinal study suitable for the research budget. Ten mega projects ended on a short list (see Table 1).


#

Name

Project Description

Location

1.

Galileo

Development of an European navigation satellite

Noordwijk, Netherlands

2.

North/South Line

Construction a new metro line in Amsterdam.

Amsterdam, Netherlands

3.

Maasvlakte 2

A land reclamation project to construct a new port adjoining the
Maasvlakte.

Rotterdam, Netherlands

4.

NUON Energy Station

Construction of a new energy station.

Groningen,
Netherlands

5.

Caofeidian New Coastal City

Development of an ecological coastal city in Northern China

Caofeidian, China

6.

Panama Canal Expansion Program

Expansion of the current Panama Canal with the building of a new set of
locks.

Panama City, Panama

7.

Fehmarn Bridge

Construction of a bridge over the Fehmarn Belt to connect Germany and
Denmark

Germany - Denmark

8.

Palm Islands

Construction of the three largest artificial islands in the world.

Dubai, United Arab Emirates

9.

Sheringham Shoal

Construction of the UK’s fourth largest off shore wind farm.

Norfolk,
United Kingdom

10.

Export Gateway

Deepening the navigation channel to the Port of Melbourne

Melbourne, Australia

Table 3.1: Short-list of mega projects

 

To further the selection of the research case, three principles were taken into account. The first principle was the location of the mega project. My supervisors and I had discussed the possibilities to study a project outside of the Netherlands and I was open to that opportunity. Following Hodgon & Muzio [10], we preferred projects outside of Anglo-Saxon economies, and in a region where mega projects had been insufficiently explored in the literature. Due to this principle, the projects in the Netherlands as well as those executed and studied in the UK, Scandinavia and Australia were erased from the short list.

The second principle in the selection process was of a more practical concern; the spoken language in the mega project should be one that I master or could quickly acquire. Conducting an ethnographic study in an environment where one does not understand the local language well enough to capture verbal communication, such as informal conversations, makes the process of gathering data extremely complicated. As a result, the mega project in China was deleted from the short list.

The third principle involved accessibility and acceptability. Ethnographic studies require that, at least in principle, the researcher is granted access to all actors, meetings and documents. Furthermore, it is important that the researcher can be accepted in the society under study and is allowed to move around freely in the daily project environment. As we could not guarantee this would be the case in Dubai, mainly because we had no contacts there, that project was also erased from the short list.

One of my academic supervisors did have strong connections contact with the Dutch Ministry of Public Works and Water Management (Rijkwaterstaat, further abbreviated as RWS), a company that has a knowledge-sharing relationship with the Autoridád del Canal de Panamá (Panama Canal Authority, further abbreviated as ACP). I visited my supervisor’s contact at RWS and received contact details from his connections working in the Panama Canal Expansion Program. An extensive email exchange on the research topic and the practicalities around this study finally resulted in green light to conduct my research at the Panama Canal Expansion Program. Also, I remained in contact with RWS as they included me in their knowledge-exchange program with the ACP[1].

The Panama Canal Expansion Program met all three principles for the selection of the research case: the project is located outside of the Netherlands and based in an area (Central America) where only few mega projects have been conducted or studied before. The project language is English and my, at the start of the fieldwork, intermediate level of Spanish would be convenient in the Spanish speaking Panamanian society. The ACP had granted access to its actors and documents, and agreed to provide me with a workstation and other facilities needed.

References

1.         ACP. Proposal for the Expansion of the Panama Canal: Third Set of Locks Project. 2006March 2009]; Available from: http://www.pancanal.com/eng/plan/documentos/propuesta/acp-expansion-proposal.pdf.

2.         Parker, M., Panama Fever: The epic story of the building of the Panama Canal. 2009, New York: Anchor Books.

3.         Méndez, R.N. Cuatro razones para decir "no" a la ampliación. 2006November, 2011]; Available from: http://cip3000.tripod.com/zIFax/xIFax18/index.html.

4.         Noriegaville, Panama Canal Expansion: A senseless project, in Available at ACP Library. 2006: ACP Library.

5.         Rosales, M.R., The Panama Canal Expansion Project: Transit Maritime Mega Project Development, Reactions, and Alternatives from Affected People. 2007, University of Florida.

6.         ACP. Autoridad del Canal de Panamá. 2009March 2009]; Available from: http://www.pancanal.com.

7.         Jaén Suárez, O., Diez años de administración panameña del Canal. 2011, Panamá: Autoridad de Canal de Panamá.

8.         Alverca, J. Panama Canal Expansion Program: Overview. 2012.

9.         ACP, Panama Canal Expansion Program Brochure. 2010, Autoridad del Canal de Panamá: Panamá.

10.       Hodgson, D. and D. Muzio, Prospects for professionalism in project management, in The Oxford Handbook of Project Management, P.W.G. Morris, J.K. Pinto, and J. Söderlund, Editors. 2011, Oxford University Press: Oxford. p. 105-130.

 

[1] Besides their support for obtaining access in project organization, RWS was not involved in the research nor did RWS play a financial role in this study.

Author: Karen Smits / Publisher: SCMO

What Hong Kong must do to stay competitive in the maritime sector code

Hong Kong’s maritime industry extends significantly beyond the purely physical movement of cargo at ports.  Steeped in a rich history of international trade, it is home to a vibrant community of shipowners, shipmanagers and number of other maritime service providers along the value chain. Hong Kong’s International Maritime Centre (IMC) is also a major contributor to direct economic output as well as to other sectors of the economy – particularly import/export, wholesale and retail trades.

But, as we have witnessed, neighbouring cities have made substantial developments in their maritime hubs and this has and continues to pose a threat to Hong Kong’s vital IMC.   Most notably, Singapore and Shanghai have enhanced their service offer and have been very aggressive in contesting for and attracting maritime companies throughout the past decade.

To compete and expand its IMC, Hong Kong needs to take wise decisions and appropriate actions which focus on both supply and demand.  A critical mass of commercial principals (such as shipowners, ship management companies etc.) must be sustained in order to generate sufficient demand for services, while comprehensive support must be available to supply their needs.

But – how do we get there?

BMT recently completed a study on behalf of the Hong Kong Transport and Housing Bureau (HKTHB), which – combining rigorous analysis with stakeholder participation – set to define achievable objectives for enhancing Hong Kong’s IMC.  A well-planned development roadmap would enable Hong Kong to retain a sizable maritime service cluster, and remain the place from which maritime services are sought by the local and international shipping industry.

Careful attention has been paid to understanding the constraints and opportunities facing Hong Kong, both from industry and government perspectives. In particular, implementation issues have received careful attention during the formulation of recommendations.

Let’s look at the broad strokes of this study through a series of diagrams and charts:

Methodology

Benchmarking

Current Position vs Where we want to be (and can be, realistically)

Opportunities & Threats….

Hong Kong's “contestable” maritime cluster and service areas are weakening. If no action is taken, there will be a negative impact on Hong Kong's strengths and competitiveness…

Creating the Strategy: Structured approach, clearly defined goals

Revisiting the Target Scenario

  • Local: many commercial principals - ship managers, owners, operators and traders; enhance high value-added services - ship finance, insurance, law and arbitration.
  • Regional / National: the preferred location of global (and in particular Mainland) commercial principals sourcing intermediary services.
  • Global: differentiate as ‘springboard’ that facilitates Mainland shipping companies to operate internationally, and foreign companies to expand into the Mainland market.

A Roadmap to get there

BMT put forth a total of 24 recommended initiatives under 4 themes; relating to policy and people issues. Read more on the recommendations on this link.

Author: Richard Colwill - BMT Asia Pacific / Publisher: SCMO

Single European Sky – can the vested interests be overcome

Article published on February 2014 in Legal Eye and reproduced by courtesy of Stephenson Harwood

Following the failure of the first Single European Sky initiative (called SES I, launched in 2004), the European Commission launched a second package of legislation in 2009 called SES II, which was designed to remove the fragmentation caused by the inefficient use of 27 national airspaces, through the introduction of what are called "Functional Airspace Blocks" or FABs. These nine designated FABs were supposed to be operational by the end of 2012, but EU Member States have delayed dismantling their domestic air traffic monopolies in order to form these regional blocks, for political reasons. In early 2012, the EU Transport Commissioner Siim Kallas announced further new legislation proposals which he called "SES II plus", with the objective of accelerating implementation of the SES II reforms, and enabling enforcement measures to be taken against non-compliant EU Member States. Then, in June 2013 the European Commission laid out its proposals to update the four regulations creating the Single European Sky. The key proposals are as follows:

The Commission's June 2013 updated proposals

Better safety and oversight

The Commission is proposing full organisational and budgetary separation of national supervising authorities from the air traffic control organisations they oversee, in order to improve oversight and safety. Many supervisory authorities are currently under-resourced and dependent on the support of the entities they are supposed to oversee. Airlines will also have a new role in signing off air traffic control organisations' investment plans to ensure they are better focused in meeting customer needs.

Better air traffic management performance

The reform of Europe's air traffic management is driven by four key performance targets: safety, cost-efficiency, capacity and environment. Under the current system EU Member States can set their own performance targets and decide which corrective measures to apply if targets are not met. The Commission is proposing to strengthen the performance scheme by making the target-setting more independent, transparent and enforceable, by strengthening their own role in setting more ambitious targets and increasing the independence of the Performance Review Body as the key technical advisor, so as to enable sanctions to be applied when the performance targets are not met by Member States.

New business opportunities in support services

The Commission is proposing to open up business opportunities for more companies to provide support services to air traffic control organisations. Support services such as meteorology, aeronautical information, communication, navigation and surveillance services will have to be separated out under the new draft regulations, so they can be put out to competitive tender in an open and transparent way in accordance with normal EU procurement rules. Support services are the biggest driver of cost in air traffic management and these costs could be cut by 20% if they are put out to competitive tender.

Enabling industry partnerships

None of the nine Functional Airspace Blocks or FABs are fully operational, in spite of a deadline set in December 2012 for EU Member States to establish them. The Commission is currently examining infringement cases against all Member States, particularly where no progress towards reform is made in the next few months. However the Commission has recognised that the FABs are rather inflexible political constructs, so is proposing that service providers co-operate more flexibly by allowing the creation of "industry partnerships" – which will allow service providers to participate in more than one FAB.

Strengthening the role of the Network Manager

The proposed regulations seek to strengthen the role of the Network Manager, Eurocontrol, to ensure that co-ordination of air traffic flows between the national service provider, and tasks such as route design and co-ordination of radio frequencies are carried out more centrally. The proposals could also see the provision of a wider range of services by the Network Manager to air traffic control organisations, such as information networks, monitoring of technical systems, and airspace design. These services could be provided centrally or outsourced by the Network Manager.

The Commission's proposals to update the four regulations creating the Single European Sky will have to be approved by Member States and Parliament before they are passed into law, which could prove to be yet another stumbling block for the progress of these measures.

There has been considerable resistance to some of the measures proposed in the "SES II plus" package from some EU Member States, particularly France and Germany. The European Transport Workers Federation, which represents most of the air traffic controllers and air traffic management workers in Europe has rejected the "SES II plus" package, on the basis that it will only have negative effects on jobs and working conditions for their union members. French air traffic controllers went on strike at the beginning of October in protest at the proposed "SES II plus" package because they are concerned about losing their jobs if the Commission's proposals to deregulate the profession are passed into law. The Air Traffic Controllers European Unions' Co-ordination (ATCEUC) also called for a strike at the beginning of October across 26 European countries – the industrial action was only called off when the European Commission assured them they would take ATCEUC's views into consideration.

Although perhaps not the most exciting package of legislation being debated in Europe at the moment, it is nonetheless critically important for the industry. There are some nine million flights across European airspace annually, and EuroControl is forecasting a further 50% increase in flights over the next 10-20 years. The Commission has estimated that the EU's air traffic management inefficiencies caused by national airspace fragmentation add 42km to the average flight, waste fuel, increase emissions, and cost €4.6 billion per annum. The intransigence of EU Member States, which is rooted in the vested interests of labour protection, the revenue streams generated by national air traffic management bodies, and misplaced concerns over the protection of sovereignty over national airspace, is delaying critical progress in reforming what is a seriously inefficient system. The US controls a similar amount of airspace as Europe, with more traffic, at half the cost, and if and when the "SES II plus" measures are implemented, the European Commission says that safety will be improved by a factor of ten, airspace capacity will be tripled, the cost of air traffic management will be halved, and the impact on the environment of carbon emissions reduced by 10%.

IATA's Director General, Tony Tyler, said earlier this year that progress in the implementation of the "SES II plus" package of measures is critical to the competitiveness of the European aviation industry:

"The European Commission shares the industry's frustration with the failure of European states to progress the SES. Every year that SES languishes in limbo is a €5 billion knock to European competitiveness and costs the environment 8.1 million tonnes of wasted carbon emissions."

Author: Paul Phillips (Partner, Head of aviation litigation and regulation with Stephenson Harwood) / Publisher: SCMO

Visiting the Panama Canal

Wow! The massive and large entrance of the Centro de Visitantes de Miraflores (Miraflores Visitors Center) blows me away (see picture 1).

Seen from far away, this grotesque building marks the importance of the Panama Canal for Panama. I have been in Panama for two days now and I have seen ships passing through the country as if they are big trucks driving slowly on a jungle road. Just like any other tourist in Panama, I visit the museum that is built around the Panama Canal locks and located close to the city: Miraflores Locks.

 Picture 1: Source - Karen Smits

Picture 1: Source - Karen Smits

Long, steep stairs, or an escalator, lead towards the entrance of the building where the ticket officer charges me eight Balboa (or US dollar, these currencies are equal) for a full entrance ticket for foreigners. Upon entrance of the building a cold air gives me goose bumps while the security guard guides me through a detector and checks my purse. A guide is waiting for me, or so it seems, to explain the route in the museum. With a thick American accent she urges me to go to the observation deck immediately, because a ship is passing through the locks right now. I can see the rest of the museum, four exhibitions and a documentary, later.

Following her advice, and many other tourists, I take an elevator up to the fourth floor. When I step outside, a blanket of moist air embraces me. The temperature and humidity are high. The sun is burning on my face. The observation deck is filled with people, all leaning over the banisters to see as much as possible of the canal and the ship passing through. The view is incredible. The Panama Canal is right in front of me. I can see the Pacific entrance to the canal on my left hand side and on my right hand side, far away, I recognize the Pedro Miguel Locks. In front of me, and in between two water lanes, and odd looking, seemingly small, white building reveals that these locks were built in 1913. Constructed such a long time ago; it still appears to be in perfect state!

Through speakers I hear the voice of a guide named ‘Kennedy’, giving information about the ship that is passing through the lock gates at the moment. I notice he speaks in American English first and then pronounces the same information in Spanish. The vessel entering the locks at the moment is called Petrel Arrow Naussau and carries the flag of the Bahamas (see picture 2). The cargo ship came from the Atlantic Ocean and is passing through the canal to reach the Pacific Ocean.

 Picture 2: Source - Sangrin

Picture 2: Source - Sangrin

While the boat enters the second lock gate, Kennedy explains that, with an average of 35 to 40 vessels a day, it is mostly container vessels that pass through the Panama Canal. “Apart from the administrative process beforehand, a transit through the Panama Canal takes about 8 to 10 hours,” he states. Kennedy needs to interrupt his story to announce that a documentary video will be shown in English in a few minutes, if you have a full entrance pass, you can go to the theater on the ground floor. Like most tourists on the observation deck, I decide to stay.

Quickly, Kennedy continues by informing that, with each vessel passage approximately 52 gallons (that’s about 197 liters) of fresh water goes in the ocean. This water comes from three different lakes that store Panama’s rainwater. None of the water is recycled, because during the nine months of the rainy season sufficient water remains in the lakes to operate the Canal year-round.

The vessel is connected to what Kennedy calls ‘mules’, little locomotives. “These are not here to pull the ship, just to make sure it is centered,” assures Kennedy. He also explains that each locomotive weighs about fifty tons, costs about 2 million US dollars, runs on electricity and is designed by the Mitsubishi company. Kennedy gives further detailed information, but my attention is drawn to the operation of the locks. The lock releases its water and the vessel slowly moves further down in the lock. It is a funny sight: it seems like the vessel disappears in the ground. When the boat is at the lowest level, a bell rings to signal that the lock gates will be opened. Gradually, both doors open. They look very heavy and strong, which they must be if they can hold 52 gallons of water and carry the weight of a full cargo ship. Using its own power, the vessel moves to the next lock gate, where, applying the same routine, the ship is lowered to ocean level and released to continue his journey in the Pacific Ocean.

While Petrel Arrow Nassau leaves this highly traveled waterway behind, I’m still standing on the observation deck. Amazed by all there is to see: the waters of the Panama Canal, the hundred year old locks that still function perfectly and the immense size of the vessel, I can only imagine how many people are directly connected with the operations of the Panama Canal on a daily basis. Also, it strikes me that English and Spanish are strongly interwoven in the Panama Canal. The guide spoke in English before translating his text to Spanish, Panama’s mother tongue, all signs were both in English and in Spanish and the American currency and measurement units were used to indicate an amount or size. Of course, this is a tourist location in Panama, but American heritage is highly visible. Now the water lanes are empty, I notice that construction is going on at the other side of the canal: the Panama Canal is going to be expanded! (Fieldnotes, July 2009)

This fragment, derived from my research journal, marks the beginning of the fieldwork period for my Ph.D study on cross-cultural collaboration in mega projects. A visit to the Miraflores Locks is a must-see when in Panama, and for me it was the first introduction to what was going to be my daily workplace for the year to come. Today, I use this fragment to introduce another undertaking: a series of blog about how cross-cultural collaboration came about in the Panama Canal Expansion Program. In the blog I will, similar to the passage portrayed about, use fragments from observations and quotes from interviews to portray the everyday work life of project participants.

For an entire year, from July 2009 to July 2010, I was present in the daily operations of the Panama Canal Expansion Program. This period marks the first year of collaboration in the Third Set of Locks Project, the specific part of the Expansion Program under study. I had the opportunity to gather the data for this study by observing numerous work activities, interviewing many employees and participating in a wide variety of events. The aim of the research was to understand how actors make sense of collaboration when operating in a culturally complex project organization.

In this blog I will shed light on the practices of collaboration that occur when actors with a multiplicity of cultural backgrounds, interests and experiences come together and interact. Besides that this is entertaining, I hope it inspires you to focus on intercultural collaboration at work.

Author: Karen Smits / Publisher: SCMO

China’s Infrastructure Made Alibaba’s IPO Possible

Article published on September 25, 2015 in Quartz and reproduced by courtesy of Parag Khanna

Alibaba’s recent IPO and early market capitalization of US$230 billion brought repeated reminders that its value has catapulted ahead of that of Amazon. and eBay combined. What has allowed the Chinese e-commerce giant to grow so massively is the confluence of urbanization, infrastructure investment and digital connectivity, together providing the foundation for an efficient network across hundreds of first-, second- and third-tier cities.

Over the past decade, both of us have traveled extensively in all corners of China and witnessed this “next China” emerging. Visiting China’s next urban tier scattered about the country reveals the flaws in the Western economic critique of China. While prominent economists continue to deride China’s over-investment in infrastructure, it is precisely what makes rags to riches stories like Alibaba possible. As the World Bank demonstrated in a report published in 2013, high-speed rail, for example, has been a crucial factor in promoting geographic and thus social mobility in the aftermath of the financial crisis when many export-dependent jobs suddenly evaporated.

One should think of China not as a monolithic empire but a lattice of cities whose increasingly dense ties follow Metcalfe’s Law: the value of a network increases exponentially as the number of connections grows. Alibaba’s investors certainly see it that way.

Currently, according to research by McKinsey, 600 urban centers represent 60% of the world’s GDP. By 2025, 100 of the world’s top 600 economic cities are projected to be in China. While this is proportionate to China’s share of the world population, the urban base means a significantly accelerated capacity for economic growth, which occurs much faster in cities — and particularly in connected cities. Importantly, China has 200 cities with a population of at least one million, the minimum population required for sustained economic diversification.

Given China’s massive urbanization campaign, there is much more still to build. Yet visiting China’s thriving interior second-tier cities reminds of how quickly the image of China as the world’s factory floor is being superseded. While millions of poor migrants still sweat long hours on assembly lines producing cheap goods, new industries in the technology and services sectors are rapidly replacing traditional manufacturing as the driver of employment and wage growth. Just think of PC-maker Lenovo and telecoms giant Huawei.

It has surprised many foreigners that China’s new vanguard of global companies are not even based in Beijing or Shanghai. Alibaba was founded and remains headquartered in Hangzhou, while Tencent (which operates the popular WeChat messaging service) is based in Shenzhen, as is Huawei. SunTech Power, the world’s largest solar panel producer, is located in Wuxi, which has become a hub for China’s renewable energy industry.

Companies fall into a spectrum in their dealings with China. Some are already deeply embedded, with significant product development, manufacturing, and sales in China — examples include Siemens, Hewlett-Packard, Coca-Cola and others. Some are limiting their exposure to China and seeking alternative production centers. Taiwan’s FoxConn, for example, is building new assembly plants for iPads and other electronics in Indonesia and even the US (but aims to staff them with robots, not humans). A very large swath of multinationals, however, is just now in the research phase about where to build (or build out) their footprint on the mainland. For these companies, a whole new urban geographic vocabulary awaits.

Indeed, even as net foreign investment into China decreases as multinationals seek lower-wage production elsewhere in Asia, multinationals are also flocking into China to expand sales into the emerging urban middle class. Expats moving to China to promote exports and sales will increasingly find themselves, in addition to the aforementioned cities, living in Tianjin, Guangzhou, Chongqing, Nanjing, Wuhan, Shenyang, Suzhou, Foshan, Dalian and other currently second-tier urban centers whose populations and economic gravity are steadily rising on the back of multi-industry cluster strategies.

These cities have also launched intensive campaigns to attract domestic and foreign talent. While Shanghai has no trouble recruiting the best and brightest, Foshan, a manufacturing hub in southern Guangdong province, has just hired five foreigners to work in the government exclusively on luring fresh FDI and residents. Bear in mind that as China’s industry cleans up, southern China will get a fresh look. Fuzhou, for example, in Fujian province, is the ancestral home of many overseas Chinese diaspora in Southeast Asia looking for a foothold back on the mainland, and is also ranked one of the most livable cities in China.

Upon his election as the new Indian prime minister, Narendra Modi immediately announced plans to construct 100 new cities from mixed-use developments to special economic zones to stimulate Indian urbanization, job creation and growth. If America was home to the “consumer of last resort” in the twentieth century, in the twenty-first century it will be urban Asia whose consumption propels world economic growth.

Authors: Parag Khanna and JT Singh / Publisher: SCMO

 

 

 

Ship-to-ship transfer – whether reasonable to refuse permission

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

The parties entered into a voyage charter of the Falkonera, a VLCC, on BPVOY4 with amendments, which included:

"Charterers shall have the option of transferring the whole or part of the cargo … to or from any other vessel including, but not limited to, an ocean-going vessel, barge and/or lighter …

if charterers require a ship-to-ship transfer operation or lightening by lightering barges to be performed then all tankers and/or lightering barges to be used in the transhipment shall be subject to prior approval of owners, which not to be unreasonably withheld, and all relevant certificates must be valid"

The Falkonera loaded oil in Yemen. Charterers asked owners to approve STS transfers into three vessels (Kythira, Front Queen and Front Ace). Kythira was smaller than Falkonera, while Front Queen and Front Ace were both VLCCs, the same size as Falkonera. Owners approved transfer to Kythira, but refused to allow transfer from the Falkonera into either the Front Queen or the Front Ace, in spite of a number of efforts to deal with owners' safety concerns. Charterers then proposed an alternative vessel, True, and eventually permission for discharge into True was given, and the cargo was transferred into True and Kythira.

Charterers claimed that implementing the plan of bringing in the True involved significant delay and increased cost which were for owners' account. They argued that owners had unreasonably refused permission for the proposed STS transfers, as their opposition was based on aversion to any VLCC-VLCC transfer, rather than to the characteristics of a particular vessel.

Charterers' claim succeeded, and owners appealed:

Held:
 
The appeal was dismissed.
 
1     It was for charterers to prove that owners had acted unreasonably. In order to entitle owners to withold approval it was not necessary that their conduct was correct or their conclusions right. They would only be in breach if no reasonable shipowner could have regarded their concerns as sufficient reason to decline approval.

2     The right to transfer was "to … any other vessel", including a VLCC. The fact that transfer VLCC to VLCC could be regarded as non-standard was not of itself reasonable ground for refusal. Owners were taken to have agreed in the contract to have accepted such risks as were inevitably attendant on a VLCC-VLCC transfer. It was necessary for there to be some other basis on which the withholding of approval could be said to be unreasonable.

3     The issue was not whether owners were satisfied with the planning of the STS transfer, but whether there was some characteristic of the receiving vessel which meant that the STS would be unsafe.

4     The judge's conclusion was one of fact, reached after extensive consideration of expert evidence. He had applied the correct legal test.

(Falkonera Shipping v Arcadia Energy [ 2014 ] EWCA Civ 713)

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO