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INVESTING IN THE WORLD AROUND US & WHY!
By fred | June 3, 2008
Those of you that were subscribers to my Chipping from the rough! – monthly stock research & investment letter will remember me constantly talking about my buddy from the mid 1940′s Eddie S. a good buddy of a lifetime and one hell of a super investor. The following article was sent to me by Ed, it is a bit broken up but should MUST be read by all of us that invest in this world we now live in. The Orient is waking up and this will give you a clue as to why you should research the area for overseas investing.
QUOTE:
Who’s Afraid of
Emerging Markets?
By Chris Mayer
China is the new
Germany.
At the end of the Second World
War, Germany was an “emerging market.” It was industrializing rapidly
and
producing brisk economic growth. Today, Germany is a mature “developed
market”
that grows slowly if it grows at all. Today, China is the new Germany.
The
industrial dynamism that produced Germany’s post-war success is moving
to the
East…piece by piece.
The Ruhr Valley was the heart
of Germany’s industrial might. For more than 200 years, the smokestacks
in this
northwest corner of Germany pounded out the steel and iron that would
form the
backbone of the nation’s industry. And when the war drums rumbled,
these
factories supplied imperial Germany with its field guns, armored tanks
and
shells.Prosperous communities grew up around these old blast furnaces
and mills.
People took pride in the stuff they could make with their hands. Tens
of
thousands found work in the factories of the Ruhr. Generations passed
with the
knowledge that their sons and daughters could make a life here and
carry on the
legacy of such a place. For a long time, that was the way it went.
But the winds of change
patiently grind away at even the most impressive of advantages. In the
early
1990s, the industrious workers of Asia powered the mortar and pestle
that would
crush the Ruhr’s traditional way of life.
It was a slow process, but the
endgame was not hard to see. While the South Koreans became the most
efficient
producers of steel in the world, German workers were agitating for a
35-hour
workweek. While the Chinese worked all day in their mills and new
factories
sprouted up like spring peepers all through China, Germany increased
taxes and
expanded its bloated government programs.
By the turn of the millennium,
no one could ignore the stark reality any longer. The mills and
factories of the
Ruhr started to close – forever. In his terrific book, “China Shakes
the World,”
James Kynge tells the story of ThyssenKrupp’s steel mill in Dortmund,
one of the
largest in Germany. The Germans called it the Phoenix, inspired by its
rise from
the ashes of bombing raids in World War II.
Within a month of ThyssenKrupp
closing the mill, a Chinese company bought it with the idea of
disassembling the
entire mill and taking it to China, near the mouth of the Yangtze
River. Soon
after this Chinese company bought the mill, 1,000 Chinese workers
arrived in
Germany to begin the process of taking the plant apart and bringing it
to
China.The Germans got an up-close lesson in why they could not compete.
The
Chinese worked seven days a week for 12 hours a day. The Germans
started to
complain. So the Chinese, in deference to local law, took one day
off.
In the end, the Chinese
dismantled the mill in less than one year – a full two years ahead of
the time
ThyssenKrupp initially thought it would take.
When the Chinese departed, they
left the makeshift dormitories and kitchens they occupied for a year
neat and
clean. There was, however, a single pair of black boots left in one of
the
dormitories. The boots carried the brand name Phoenix, which was the
same name
of the plant the Chinese just took apart. The boots also carried the
label “Made
in China.” Kynge writes, “Nobody could tell, however, whether the
single pair of
forgotten boots was an oversight or an intentional pun.”
Over 5,000 miles away, the
Chinese rebuilt the steel mill exactly as it was in Germany. As Kynge
writes:
“Altogether, 275,000 tons of equipment had been shipped, along with 44
tons of
documents that explained the intricacies of the reassembly process.”
Doing all
of this was still cheaper – by about 60% – than building a new mill.
Plus, in
China, the demand for steel was such that the mill could start
producing steel
immediately at full capacity.
As recently as 1975, China’s
entire output of steel could not match this one mill in Dortmund. Now,
the
Dortmund plant itself stands in China. And in Germany, you have a dying
industrial city, unemployed steelworkers and the scarred earth where
the mill
once stood. Germany is thinking of turning the site into parkland and
perhaps
creating a lake and marina. But as one burly steelworker says in
Kynge’s book:
“Do we look like yachtsmen to you?”
This remarkable vignette
captures, on many levels, how the game has changed. Comfortable workers
in the
factories and mills of America and Western Europe have no idea what
they are up
against. Even so, the nature of global competition keeps shifting.We
tend to
think of emerging markets, such as China, as occupying a place down on
the food
chain of the global economy. We tend to think of these places as
sources for
cheap labor and natural resources. But more and more, these emerging
markets are
home to world-class companies in all kinds of industries.
This is the thesis of Antoine
van Agtmael, author of a new book called, “The Emerging Markets
Century.”
Agtmael is the man who coined the phrase “emerging markets” to describe
growing,
but less-developed economies such as China, India, Brazil, Argentina,
Mexico,
Thailand and other places. Before him, we called these markets
“third-world” -
which brings to mind many negative associations. To sell the idea,
Agtmael came
up with “emerging markets.”
I saw Agtmael give a
presentation in Washington, D.C., one evening. I’ve also since read his
new
book. Agtmael spent 30 years in these kinds of markets. “I have helped
IranAir
lease airplanes and hire crews in Ethiopia, was involved in financing
Ghana’s
cocoa exports,” he writes, “and grew wise to the ways – many of them
laughably
one-sided – that developed nations interacted with what were in many
cases
recent European colonies.”
Agtmael selected 25 companies
to profile in his book. All of them exemplify best practices and are
widely
recognized as leaders in their industries. All of them call an emerging
market
home.
Agtmael writes about spending
time in High Tech Computer Corp.’s research lab in Taiwan in 2005 and
how
“Suddenly, my BlackBerry looked like a Model T.” He writes about how
the
regional jets we fly are made in Brazil (by Embraer). How computers are
now not
just made in China, but designed there. How Indian and Slovenian labs
produce
proprietary new drugs. And on and on it goes.
The world has changed in a
profound way, but the typical investor probably doesn’t appreciate this
fully.
One more nugget from Agtmael: In 1988, when he started his fund, there
were only
20 emerging market companies with sales of more than $1 billion. Most
of these
were banks or commodity companies. (Overwhelmingly, they were located
in
Taiwan.) Today, there are over 270 companies with over $1 billion in
sales, and
38 with more than $10 billion.
Many of them are high-tech
companies or provide consumer products and services. This bolsters
Agtmael’s
point that many of today’s emerging market stars do not rely on cheap
labor,
abundant natural resources or protective government policies. Instead,
they have
developed competitive advantages in technology, design, logistics and
other
areas.
Agtmael also gives his tips for
investing in emerging markets. The most important of these may simply
be this:
“Don’t be afraid to invest in them.”
UNQUOTE
Comments by all would be appreciated. Uncle Fred
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