Lots of American companies don’t stand a chance against their Asian competition. The primary reason: Their employees are not willing to work nearly as hard.
Consider where these people are coming from: U.S. college campuses, where, most of the time, an anti-work ethic is being cultivated.
This past spring, I went to visit my son at Texas A&M.
As soon as we pulled up to the campus, we saw pretty coeds tanning on the grass … young men tossing a football on the main campus courtyard … lots of other students sleeping in the sun.
Everywhere, students were having fun in the sun.
This is what you’d expect to see on any college campus when the weather turns nice, right?
Not exactly. In fact, it’s precisely the opposite of what you see at National Tsing Hua University and National Chiao Tung University, both in Hsinchu City, Taiwan.
The two schools are smack dab in the middle of the “Silicon Valley of Asia,†near the Taiwan Industrial Technology Research Institute, the National Center for High-Performance Computing, and the Hsinchu Science Park — home to 400 of the world’s fastest growing technology companies.
And they offer two of the very best engineering and science educations in the world. Here’s what I saw when I visited their campuses on a sunny spring day:
The lakeside benches were inviting … the soccer and baseball fields, perfectly manicured … the parks, beautifully maintained. But they were deserted. No students. No frisbees. No kissing co-eds. It was almost as if the college was closed.
Later, at a Starbucks across the street, I found out why. Three electrical engineering students told me it’s all about the concept of chiku nailao. Essentially, it means endurance or relentlessness.
The students told me they would never waste precious educational time on recreational pursuits.
My son Ryan, who was traveling with me, asked a young college student for a date. Her answer: “No, I have to work from eight in the morning until midnight every Saturday and Sunday at my family’s pearl store. No dating until after graduation!â€
Similarly, the concierge at my hotel said he works two eight-hour shifts — one at the hotel and another at his family’s street market stall each evening. I asked him if he was working those massive hours because he was saving for something special. “No,†he said a bit perplexed. “That’s what everyone does.â€
We all know about these cultural differences. But never before have I seen such a stark contrast, and never before has it had such far-reaching repercussions, especially in science and engineering!
In Taiwan, a fresh graduate with an electrical engineering degree might make as little as $14,400 a year. Even a middle-level chip programmer with several years of experience rarely makes more than $25,000.
Meanwhile, American companies are just getting fatter, lazier, and … alas … sometimes corrupt.
One of the Taiwanese students I spoke to put it this way:
“Taiwanese companies work you to death, pay very low, and give out stock options with a small teacup. American companies expect less work and hand out stock options like a drunken gambler.â€
The Consequences Are
Hitting Right Here and Now
This is not just something you tuck away in the back of your mind for future reference. It’s a major factor that’s having a big impact right now!
I’ve been talking about this for some time now. And it’s only getting worse. Just in the last couple weeks, we’ve learned that:
- Home Depot CEO Robert Nardelli was paid $245 million over the last five years.
- Yahoo CEO Terry Semel was paid $56.8 million in 2005 and $131.2 million in 2004.
- Barry Diller, CEO of IAC/InterActiveCorp took home $295 million last year.
- Sun Microsystems’ Scott McNealy was paid an average of $13.3 million over the last six years, even though his company’s stock fell by an annual average of 31.5% over the same time.
And as I tell you in Three Tech Stocks I Hate, there’s even more to worry about when it comes to corporate abuse of options — just another way that corporate executives have been robbing their companies.
Heck, just yesterday, Monster Worldwide (Nasdaq: MNST), the parent company of the help-wanted website Monster.com, announced that it’s launching an internal probe into the timing of its options grants. This comes on the heels of an investigative story published by the Wall Street Journal.
I think Monster’s story is just one of many coming to newspapers near you. And it’s validated by lots of my friends in the tech business — they tell me that the practice of backdating stock options is common.
When these facts come out, it will translate into serious losses for a number of U.S. tech shares, while foreign tech stocks recover and surge.
And while you’re looking at some of the foreign tech companies I’ve been telling you about, don’t forget to diversify …
Getting Schooled
Over a Cup of Joe
Here in the U.S., we’re all used to waiting in long lines at Starbucks. And if you’ve ever ordered anything at Starbucks, you also know that the place isn’t cheap.
Considering that the average Taiwanese worker makes only $1,200 a month, I didn’t expect to find a crowd at a Starbucks in Taiwan.
Boy, was I surprised! The Starbucks across the street from Tsing Hua was packed!
The lesson here is that Asians love all things Western. And they don’t mind spending what it takes to get the goods.
Throughout Asia — in Japan, Hong Kong, and Taiwan — I’ve seen thousands of Asians wearing Levi jeans, Nike shoes, Tommy Hilfiger shirts, and Harley Davidson jackets. They love eating McDonalds… drinking Jack Daniels … smoking Marlboros.
And when it comes to luxury goods, there’s a burgeoning Asian middle class that’s more than willing to spend freely.
A perfect example was last week’s Shanghai Extravaganza 2006, a trade show that offers Cuban cigars, luxury apartments in Monaco and Dubai, Mediterranean yacht charters, golfing holidays, and expensive cars.
According to a Land Rover dealer at the show, the company sold 300 Range Rovers in Shanghai alone last year. The price? About $173,000 each!
So skip investing in Wal-Mart, Best Buy, or Coach. Instead, look at companies based in Asia.
Example: Shanghai Bailian Group. The company is China’s largest retailer by volume, with 6,350 department stores and supermarkets. It’s cashing in on those eager-to-spend Asians and making money hand over fist. And the stock trades on the Shanghai Stock Exchange.
I even have a twist on Starbucks for you …
Sure, we see Starbucks all over the place in the U.S. While I knew that Starbucks was expanding overseas, I was very surprised at how many are in Asia. Taiwan has a total of 174 stores and the one I was sitting at was one of nine in Hsinchu City.
This is probably why many of my peers recommend Starbucks as a way to indirectly invest in Asia. That’s not a bad idea, but …
If you really believe in the Starbucks story in Asia, the best vehicle to participate in that growth is not in Starbucks’ U.S. shares (Nasdaq: SBUX). It’s a separate company called Starbucks Coffee Japan.
Starbucks Coffee Japan is 40% owned by Starbucks, but its shares are traded in Osaka (Ticker: 2712.JP). And the company is doing phenomenally well:
- It has 675 stores in one of the wealthiest countries in the world …
- It recently reported a staggering 51.4% jump in first-quarter profits …
- It increased its dividend by 50%, and …
- It plans on opening another 75 new stores this year.
The lesson:
Scratch below the surface. You just might find that U.S. companies have faster growing foreign subsidiaries trading on foreign markets.
These are among the companies that are recruiting most of the graduates from Asian universities, including tech schools like National Tsing Hua University or National Chiao Tung University in Taiwan. And these are among the companies that are going to be the winners.
Best wishes,
Tony
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About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Colleen Collins, Amber Dakar, Ekaterina Evseeva, Monica Lewman-Garcia, Wendy Montes de Oca, Jennifer Moran, Red Morgan, and Julie Trudeau.
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