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Facebook is the future. This is according to many analysts and Web experts. Jeremiah Owyang, an analyst with Forrester Research, believes in the power of Facebook. Jeremiah tells Marketing Voices’ Jennifer Jones how the site works, and how communities are forming there. Marketers need to understand the opportunities that are ripe on Facebook, and to embrace and extend their network through the site.

Tags: Facebook, Jeremiah Owyang

Kandy Wong

YouTube posting showing Brilliance China (SEHK: 1114)‘s BS6 car crumple like a can in a German crash test in June was a public relations disaster for the mainland’s car industry.”Koreans build better cars. Say no to Chinese cars,” was one comment on the posting, highlighting the ground the industry has to make up if it is to win the trust of consumers outside the mainland.

 There have been some successes. Chery Automobile early last month said it would co-operate with Chrysler to produce cars, becoming the first Chinese carmaker to land in the American market.

Just this month, it cemented a joint-venture deal with Italy’s Fiat to produce and distribute Chery and Fiat cars, paving the way to export its products to the western European market.

But like the Japanese and South Koreans before them, mainland carmakers face a tough battle building respected global car brands. And marketing, as much as engineering, will play a big part in whether they will succeed or fail.

In the 1960s and ’70s, the much-derided Datsuns were labelled “Japanese junk” in the west, with Japan’s exports considered cheap but unreliable. Today, Japanese cars are renowned for engineering excellence, with the industry’s manufacturing techniques copied by competitors.

The big question is whether mainland carmakers can emulate their Japanese and Korean counterparts and whether names such as Brilliance and Chery will be the Toyota and Hyundai of the future.

The mainland, the world’s second-biggest car market, is still a minnow in terms of exports but growing fast. Last year, exports surged 97.2 per cent to 343,500 vehicles and are expected to grow to 510,000 this year. By comparison, Japan exported 5.42 million vehicles last year.

The China Association of Automobile Manufacturers says the country exported 241,200 vehicles in the first half of this year, a 71.3 per cent increase from a year earlier.

For years, the industry has been making cars for the domestic market with foreign partners such as General Motors and Volkswagen. Now the authorities have given them approval to spread their wings globally in a big way. Boosting exports is an integral part of the industry’s 11th Five-Year Programme (2006-2010).

“When local carmakers can successfully enlarge their market share overseas, it will also help their brand recognition at home,” said Tian Yamei, a senior engineer at the association.

The first Chinese commercial vehicle was exported by First Auto Works in 1992 to Tanzania in east Africa. Since then, Chery, Geely Automobile (SEHK: 0175) Group and Great Wall Motor have established footholds in the Middle East, Russia and eastern Europe.

Chery has a joint-venture assembly plant in Uruguay with Argentina’s Socma Group. Its first model off the line will be the Tigo, Chery’s first sport-utility vehicle.

But making inroads into western Europe and the United States is the ultimate prize of these carmakers as they raise brand recognition and improve engineering standards. Slowly but surely, they are laying the groundwork.

Anhui-based Chery earlier last month said it would co-operate with Chrysler to produce small cars, becoming the first mainland carmaker in the US market.

Zhejiang-based Geely is also planning an overseas presence; it joined the Detroit car show last year. Shenyang’s Brilliance China has signed a contract with dealer HSO Motors Europe to export 158,000 cars to Germany by next year.

Industry players say mainland carmakers should not underestimate the difficulty of breaking into US and European showrooms.

Fitch Ratings said Chinese car exports would remain focused on the emerging markets of the Middle East, Latin America and Russia.

“Chinese carmakers will need time to completely meet the safety and emission standards of developed countries,” said car analyst Matthew Kong. “It also will take time to establish distribution and after-sales networks as well as brand recognition in foreign markets.”

The Zhonghua Zunchi M1, known as the BS6 in Europe, failed to pass a benchmark German safety test, the German ADAC car club announced at the end of June. It was the second mainland car to fail the test after the Landwind SUV from Jiangling Motor suffered a similar setback in 2005.

“The BS6 model received only one out of five possible stars in the crash test under European new car assessment programme regulations,” said ADAC’s Maximilian Maurer. Consumer perceptions of poor quality are familiar territory for Hyundai and could provide lessons for the mainland industry.

After Hyundai entered the US market in 1986, its cars became notorious for shoddy workmanship. That led Hyundai to boost quality and provide a 10-year, 160,000km warranty for every vehicle sold – a marketing move that has made it one of the most favoured brands in the US.

“Patience is a difficult but critical part of brand-building in the US or any other market,” said Hyundai Motor America chief operating officer Steve Wilhite.

“Undoubtedly, Hyundai’s still working on brand building in the US market though we’ve been here for two decades. The Japanese carmakers also took as long to firmly establish their brands in the US.”

Mr Wilhite stressed that quality was the greatest concern for any car buyer, the very factor the BS6 was found lacking in the German safety test.

And it is not only on safety where mainland carmakers have to improve their game. Geely, the mainland’s largest privately owned carmaker, suffered a setback at the Detroit car show last year after its cars – with their simple curves and straight lines that are easy for mainland factories to make – looked starkly utilitarian by western standards.

“It is not surprising that [mainland] carmakers will take a long time to gain the confidence of consumers, just as Volkswagen’s Polo took a long time to secure a firm position in the Chinese market,” said Lawrence Ang Siu-lun, an executive director of Geely.

His assessment was in contrast to the optimism of Geely chairman Li Shufu, who in Detroit predicted sales of its Free Cruiser in the US would reach 100,000 a year.

Mr Li subsequently changed his story, saying: “We’re still studying detailed plans to reach overseas markets, without an exact timetable for delivering the first vehicle to the US.”

He added that the company planned to sell its cars at less than US$10,000 per unit. CSM Worldwide, a US consultancy specialising in the vehicle industry, said passenger cars would be the mainstay of the export business and companies with foreign partners could spearhead the drive.

“About 500,000 passenger cars will be exported from China by 2013,” said Yale Zhang, a director of the consultancy. “The trend is joint-venture companies forming long-term plans to export from China rather than domestic carmakers.”

Honda became the first foreign carmaker to export its Chinese-made cars, saying early last month it planned to ship 42,000 Jazz models from the mainland to Europe this year, up 70.7 per cent from a year earlier.

Guangzhou’s Honda, a 50-50 joint venture between Hong Kong-listed Denway Motors (SEHK: 0203) and Honda, will also invest two billion yuan to develop its own line of vehicles, becoming the first joint-venture carmaker to do so.

Other carmakers are trying to go it alone. Shanghai’s Automotive Industry Corp and Nanjing’s Automobile Group are developing self-branded cars with the ultimate goal of exporting.

SAIC, the largest domestic carmaker by sales, has launched the Roewe 750 using technology and designs it bought from MG Rover in 2004.

Nanjing Auto, which acquired the assets of MG Rover in 2005, hopes to turn around its business by tapping the latter’s established dealership networks in Britain.

However, as the mainland car industry prepares to do battle on the global stage, some analysts are concerned its resources are spread too thinly. They say despite the reforms and restructuring of the past 20 years, the process of sifting out weaker domestic players is unfinished.

Unlike Japan, the US and Korea, which usually have only two or three leading carmakers, the mainland has at least 10 so-called “important” carmakers.

The State-owned Assets Supervision and Administration Commission of the State Council announced in March it planned to consolidate the mainland’s vital industries, including carmaking, with a few “pillar” companies. In other words, laggards would be elbowed out.

“The development of local carmakers to go it alone without a foreign investor has just started … eventually, they should be able to compete with multinational carmakers globally on a level playing field,” said Xu Changming, director of the Information Resources Development Department of the State Information Centre.

Car industry analyst Alison Seng of Standard & Poors said exports could help carmakers boost earnings as they face increasingly crowded domestic markets, but it was not a “cure-all” solution.

Criticisms aside, mainland carmakers are expected to use traditional pricing tactics to make inroads into foreign markets.

“Chery and Chrysler plan to offer made-in-China cars in the US next year for about half the price of the US company’s cheapest model,” Chery chairman Yin Tongyou said.

Chrysler’s least expensive US model, the Dodge Caliber, sells for US$13,850, according to car sales website Edmunds.com.

As mainland carmakers face the trials of going global, they could do no better than take note of Korean carmakers.

Market research firm Strategic Vision found Hyundai tied for first place with Nissan in a customer satisfaction survey of 27,000 Americans last year. That is a long way from its position in the 80s as a market pariah.

John Bonnell, director of market intelligence in Asia-Pacific at Automotive Resources Asia, said the Hyundai warranty programme was key to turning consumer perceptions around. But more importantly, Hyundai built success at home before attempting global expansion.

“Hyundai has got good fundamentals, a stable market position in its home country which it focused on before expanding overseas,” he said.

Mainland carmakers are trying it the other way around – banking on export success to lift their image at home to improve sales. It remains to be seen whether that will lead to global triumph.

“Nothing happened for six or seven years,” said Frank Slootman, chief executive of Data Domain (NASDAQ:DDUP) DDUP, a software storage company that went public in June. “What you see now are companies that have been in the making for years. They are just breaking the surface.”

Data storage firms are emerging because even midsize companies are grappling with an exploding amount of digital information. Using fresh technologies, these young storage companies are helping customers more efficiently, and simply store and retrieve data, analysts say. They’re giving the big longtime players such as EMC EMC and Network Appliance NTAP fresh competition, and throwing a jolt of energy into the IPO market.

‘Definitely Demand’
The IPOs “are a validation of the market,” said Kaushik Roy, an analyst with Pacific Growth Equities. “There’s definitely a need and demand for these products.”

Large storage companies have done an ample job of helping clients build modern networked storage, says Brad Nisbet, an analyst with research firm IDC. Now, customers need better and cheaper ways to get and use their data, he says.

“It’s not that they don’t have enough (data storage) space, it’s that they are drowning in the management of all that information,” he said.

The four pending IPO storage companies combined aim to raise nearly $400 million. None have set an expected price range.

The companies are:
3Par, of Fremont, Calif., one of the first to offer a feature called “thin provisioning,” which helps companies save money on hardware for storage.

BlueArc, of San Jose, Calif., which specializes in products that help manage the storage of different types of files quickly and efficiently on networks.

EqualLogic, a Nashua, N.H., company that targets midsize companies with simple-to-use storage gear that can cost less than other storage systems.

Compellent Technologies, of Eden Prairie, Minn., which offers customers easy upgrades and efficient storage tools.
They all name EMC and Network Appliance as rivals, along with Hewlett-Packard (NYSE:HPQ) HPQ, IBM (NYSE:IBM) IBM and others, in their regulatory filings.

Underwriters include heavy-hitters such as Goldman Sachs (NYSE:GS) GS and Morgan Stanley (NYSE:MS) (NASDAQ:MNDX) MS.
“There’s been a lot of interest on the part of investors,” Paul Bard of Renaissance Capital’s IPOhome.com.com. “Many of the companies are growing very quickly. Many of these smaller and quite frankly more nimble companies are coming out with products with next-generation architectures.”

Their growth rates are healthy. In the quarter ended June 30, 3Par posted sales growth of 60% from the year-ago quarter to $23.8 million. In the first quarter, EqualLogic’s sales nearly doubled to $23.8 million. Compellent’s sales more than doubled to $8.7 million in the first quarter. BlueArc more than doubled sales to $15.3 million in the first quarter.

IDC says disk storage revenue overall rose 6% in the second quarter, so the little guys are far outpacing the market.
It’s not just their growth that’s getting them to the market. Venture capital firms that invested in these companies want a payoff.

Stock market investors have also been friendly to most recent storage IPOs.
Shares of Data Domain, which helps companies efficiently store more data to reduce hardware costs, have risen 15% since its IPO, after climbing 66% on their first day of trading. The company raised $109 million in the IPO.

Double-Take Software DBTK, which makes replication software, has seen its stock gain about 30%.
On the other side, Isilon Systems (NASDAQ:ISLN) ISLN has slipped more than 60%. It makes storage systems targeted to the entertainment industry, but it has missed analysts’ sales and profit estimates.

Lots Of Red
Roy says the new players are hardly guaranteed a warm welcome.
“The question is at what price these bankers take them to market,” Roy said.
Then there’s all the red, which investors hate to see since the dot-com collapse. None of the four companies have made a profit. EqualLogic’s operating losses widened to $1.2 million in the first quarter from $730,000 a year earlier. 3Par’s operating losses roughly doubled in the second quarter.

“Investors want to see that path profitability in the next two to three quarters,” Bard said.
It worked for Data Domain. It went public in the red. It posted a net loss of $1.2 million in the second quarter, vs. a loss of $1.5 million in the first quarter. But excluding stock-based compensation costs, it made money last quarter.

Data Domain’s Slootman says one challenge is that small storage companies must invest big amounts of money to take on the larger players. The payoff can be handsome, he says, “but you have a relatively small amount of time … to get the mass you need to sustain your growth. The companies you’re competing against measure their market caps in the billions of dollars.”

Gordon Tse,
Jun 20, 2007

Is property an asset or a liability? The answer depends on when the question is asked. Before 1997, property had long been the most popular asset class in Hong Kong. But when negative equity emerged during the downturn, property was regarded as a liability. Such changes in perception, clearly, are a result of the boom and bust cycle.

In essence, the way that one treats property reflects one’s confidence level in the housing market. On the 10th anniversary of the handover, perhaps it is perfect timing to turn back the clock and see how buyers’ confidence has swung from one extreme to the other in the past 10 years.

Before 1997, everybody loved property because of the common belief that prices were destined to rise. In fact, home values were so high in 1997 that an average first-time buyer needed to spend more than 90 per cent of his or her income on mortgage instalment. Needless to say, not many people could afford to own a flat.

In the meantime, however, the property market was red hot. After a sharp gain of 27.5 per cent in 1996, home values rose 34.4 per cent in the first six months of 1997.

Despite the skyrocketing prices, property transaction volume reached its peak and almost one out of six resale units changed hands in the year of the handover. And this divergence between affordability and demand could be attributed to the false hope for further asset appreciation.

Worse, rising home values created a wealth illusion, encouraging Hong Kong people to gear up or to refinance their properties.

At the peak of the market, some property owners decided to trade up prematurely, while some even pulled equity out of their homes to participate in speculation. In the second quarter of 1997, short-term speculation, measured by the number of confirmor transactions, accounted for almost 10 per cent of resale activities. Of course, this was not sustainable. Then the market crashed and so did buyers’ confidence.

From 1997 to mid-2003, the toxic combination of a poor economy and ample housing supply sent property prices down 70 per cent from its peak.

For a start, property owners who suffered pay cuts or even job losses were saddled with mortgages they could not afford. Of course, borrowers could have just sold their homes if the resale market had been active. But this path was blocked as developers undercut the secondary market.

In the wake of the government’s pledge to build 85,000 units a year, home supply continued to grow despite deteriorating economic conditions. New units were hard to sell. From March 1999 to March 2003, the number of unsold units more than tripled from 6,502 to 22,591.

In response, developers adopted discount pricing strategies and as a result the price gap between new and old units fell from 1997 to 2000, making secondary properties less attractive. During the downturn, the resale market continued to shrink. In 2003, secondary home sales fell to 46,131 units, just a third of that in 1997.

Meanwhile, properties were losing value, making some homes worth less than their outstanding mortgage. In mid-2003, 10.5 per cent of all homeowners had negative equity. And when property became a liability rather than an asset, love turned to hate. Consequently, many potential homebuyers turned their back on the market.

Fortunately, confidence returned after Sars. With the change in housing policies, property prices hit rock bottom in mid-2003 and increased 28.6 per cent in 2004.

And new homes were being sold at a premium over secondary homes, invigorating resale activities. From 2004 to 2006, 235,214 secondary units changed hands, 62 per cent higher than during 2001 to 2003.

A more encouraging sign is the revival of the low-end market. According to our own tally, transaction volume of properties valued at below HK$2 million registered strong growth of 26.3 per cent in the first five months of the year. The low-end sector has long lagged behind and its recent strong showing indicates the confidence of the working class has re-emerged.

In our view, the steady increase in small-unit transactions bodes well for the market. Another favourable factor is that rents are rising. Rents have risen 17.6 per cent since 2005, restoring the confidence of the buy-to-let investors.

So far, home prices have increased 4 per cent this year. If the upward trend continues, the 6,679 home units still in negative equity will be an asset again by the end of the year. By then, confidence would have been restored and the question of whether property is an asset or a liability will become irrelevant.

Gordon Tse is corporate development director of Midland Realty

By Kelvin Wong
Bloomberg News

Wednesday, May 23, 2007 HONG KONG: Oaktree Capital Management, a Los Angeles-based investment firm with $40 billion in assets, will join a Hong Kong developer to build apartment towers in Macao, the world’s biggest gambling hub.

The project will cost between 2.5 billion to 3 billion Hong Kong dollars, or $320 million to $383 million, said Patrick Wong, chief executive officer of Tenacity Real Estate, in an interview Tuesday. Wong declined to specify how much each partner would invest.

Macao’s property prices are climbing as soaring gaming revenue and rising tourism bolster the economy. Foreign investors are staking at least $25 billion on Macao, the only place in China where casinos are legal.

“Macao’s property market is still vastly undervalued,” said Wong, who worked as a fund manager at Los Angeles-based Trust Company of the West before founding Tenacity in 2005. “The city has developed from a derivative of Hong Kong into a truly international city in a very short time.”

The investment would be the second in Macao by Oaktree Capital. While Oaktree confirmed the partnership, it declined a request for an interview.

The company is among U.S. investors that hold a stake in Macau Studio City, a project consisting of theater, television and film production facilities on the city’s Cotai Strip. Other investors include Singapore’s CapitaLand and the Hong Kong developer eSun Holdings.

The project between Oaktree and Tenacity consists of two apartment towers to be built near Nam Van Lake on the Macao Peninsula, including 300 luxury units. Sales will begin next year, with completion scheduled for 2009, Wong said.

Real estate in Macao last year sold for an average 1,519 patacas, or $188.60, per square foot, more than doubling from 2002, according to statistics gathered by Midland Realty, a Hong Kong-based property agency.

Macao’s gaming revenue jumped 22 percent to $6.94 billion last year, surpassing the Las Vegas Strip’s $6.69 billion.

Property sales in the first quarter reached 14 billion patacas, more than tripling from a year earlier. The number of units changing hands more than doubled to 10,324.

“The number of people, whether they’re local Macanese, Hong Kong investors or expatriates working here, who have shown interest in buying luxury properties is still on the rise,” Wong said.

Last year, Shun Tak Holdings and Hongkong Land sold all 800 apartments at One Central Residence, a luxury real estate project on Macao Peninsula, at an average price of about 5,000 dollars per square foot. The apartments are scheduled to be finished in 2009.

Tenacity is also a partner with another U.S. investment fund in an $800 million project to redevelop an office and retail building in Macao’s central business district, Wong said.

The two Macao properties are the first projects by Tenacity. With a staff of about 30, Tenacity is also looking into projects in Hong Kong and cities in mainland China, including Shanghai, Guangzhou, Hangzhou and Chengdu, Wong said. “Macao has all the right conditions to become a base for businesses aiming to develop in southern China,” Wong said. “Many people have overlooked this potential.”