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Friday, 28 October 2011

The Malaysia's court and the PM’s Department



The court and the PM’s Department

PUTIK LADA By ANDREW YONG

The separation of powers is a central principle woven into the fabric of our Constitution. And it is essential that the judiciary is not only independent, but also seen to be independent of the other branches of Government.

“MAHKAMAH Jabatan Perdana Menteri”. I have to admit to have been slightly taken aback, to say the least, when I saw these words the other day, embroidered in gold on the black cotton jacket of a member of the court staff at the High Court in Penang. I blinked.

Was I at the wrong court? Had the High Court suddenly been subsumed into the Prime Minister’s Depart­ment? Or was it that the Prime Minister’s Department was now a department of the High Court?

Perhaps I should have understood that cashiers, clerks and other administrative staff at the High Court were civil servants appointed by the executive and assigned to the courts to support the administration of justice.

Perhaps I should have appreciated that in the absence of a dedicated Justice Ministry (which was abolished in 1970), it was only natural that such staff members would come under the Prime Minister’s Depart­ment.

And yet, in spite of every rationalisation that I could think of, I knew, deep down, that the words in gold thread looked wrong, and were plainly inappropriate.

They could not possibly be read by a litigant appearing before the courts without giving him the wrong impression about the relationship between the courts and the head of the executive. And yet some staff manager had ordered those jackets.

Some court staff members were plainly wearing them. And there must have been some judges and registrars who saw them being worn on a day-to-day basis without raising any objection.

The separation of powers is a central principle that was woven into the fabric of our Constitution.

The Alliance submission to the Reid Commission, reflecting the unanimous view of all parties in Malaya, stated that “The Judiciary should be completely independent both of the Executive and the Legislature”.

And for the public to have confidence in the judiciary, it is essential that the judiciary is not only independent, but also seen to be independent of the other branches of government.

Our Merdeka Constitution originally contained admirable safeguards of judicial independence.

Until 1960, Supreme Court judges were appointed by the King upon the recommendation of the Judicial and Legal Services Commission, after consulting the Conference of Rulers, with no input from the executive. Only in the appointment of the Chief Justice was the Prime Minister consulted.

The Merdeka Constitution likewise gave the executive no power to suspend or to constitute tribunals for the removal of judges, such powers being vested in the Judicial and Legal Services Commission, which was chaired by the Chief Justice and consisted mainly of judges or retired judges.



History sadly shows that the amendments of 1960, which vested in the executive the right to select, suspend and to commence removal proceedings against judges, ultimately paved the way for the 1988 constitutional crisis, the darkest days of the Malaysian judiciary, during which Lord President Salleh Abas and two other Supreme Court judges were dismissed by the executive.

Yet, even the Merdeka Constitution did not provide for a perfect separation between the executive and the judiciary.

This shortcoming can best be seen in the Judicial and Legal Service (JLS), which supplies magistrates and subordinate court judges as well as government legal officers.

Unlike in India, where the leaders of independence comprised many people imprisoned by the colonial justice system, and where the independence movement therefore campaigned for a strict separation of the judiciary and the prosecution services, in Malaya there has never been any pressure for such a separation.

To this day, it is normal for a JLS officer to alternate between the subordinate judiciary and the government legal services, and for magistrates and Sessions court judges to be junior in the JLS to Senior Federal Counsel who appear before them.

Lawyers will even tell tales of Sessions court judges standing up and addressing senior government lawyers as “Tuan” when the latter enters the judge’s chambers! This state of affairs is plainly unsatisfactory.

Once a judge is appointed to the High Court, he enjoys security of tenure and cannot be removed except for misbehaviour or disability. Nor can the terms of his employment be altered to his disadvantage.

However, that does not prevent him from being given additional benefits by the executive. The most obvious discretionary benefit today is in the conferment of titles.

In England, every High Court judge is knighted, every Court of Appeal judge is made “The Right Honourable” and every Supreme Court judge without exception gets the title of “Lord” or “Lady”.

But in Malaysia, there is no standard system of titles for judges. A judge who is showered with federal titles will naturally be regarded as being a favourite of the executive, whereas if a senior judge retires without any federal title, it will generally be assumed that he has displeased the executive.

The inconsistent awarding of titles within the gift of the executive is detrimental to public confidence in the independence of the judiciary, and has even led to public scandal.

It is high time that the judiciary, the executive and the legislature take concrete action to improve public confidence in the independence of the judiciary.

The setting up of the Judicial Appointments Commission has been one positive step in recent years. It should be followed by further confidence-building reforms.

> The writer is a young lawyer. Putik Lada, or pepper buds in Malay, captures the spirit and intention of this column – a platform for young lawyers to articulate their views and aspirations about the law, justice and a civil society. For more information about the young lawyers, visit www.malaysianbar.org.my.

David Graeber, the Anti-Leader of Occupy Wall Street



Meet the anthropologist, activist, and anarchist who helped transform a hapless rally into a global protest movement

The Guy Fawkes mask—worn by a ­protester in New York on Oct. 5—has become ­symbolic of the Occupy Wall Street movement 
The Guy Fawkes mask—worn by a ­protester in New York on Oct. 5—has become ­symbolic of the Occupy Wall Street movement Scout Tufankjian/Polaris 
 
By Drake Bennett

David Graeber likes to say that he had three goals for the year: promote his book, learn to drive, and launch a worldwide revolution. The first is going well, the second has proven challenging, and the third is looking up.

Graeber is a 50-year-old anthropologist—among the brightest, some argue, of his generation—who made his name with innovative theories on exchange and value, exploring phenomena such as Iroquois wampum and the Kwakiutl potlatch. An American, he teaches at Goldsmiths, University of London. He’s also an anarchist and radical organizer, a veteran of many of the major left-wing demonstrations of the past decade: Quebec City and Genoa, the Republican National Convention protests in Philadelphia and New York, the World Economic Forum in New York in 2002, the London tuition protests earlier this year. This summer, Graeber was a key member of a small band of activists who quietly planned, then noisily carried out, the occupation of Lower Manhattan’s Zuccotti Park, providing the focal point for what has grown into an amorphous global movement known as Occupy Wall Street.

It would be wrong to call Graeber a leader of the protesters, since their insistently nonhierarchical philosophy makes such a concept heretical. Nor is he a spokesman, since they have refused thus far to outline specific demands. Even in Zuccotti Park, his name isn’t widely known. But he has been one of the group’s most articulate voices, able to frame the movement’s welter of hopes and grievances within a deeper critique of the historical moment. “We are watching the beginnings of the defiant self-assertion of a new generation of Americans, a generation who are looking forward to finishing their education with no jobs, no future, but still saddled with enormous and unforgivable debt,” Graeber wrote in a Sept. 25 editorial published online by the Guardian. “Is it really surprising they would like to have a word with the financial magnates who stole their future?”

Graeber’s politics have been shaped by his experience in global justice protests over the years, but they are also fed by the other half of his life: his work as an anthropologist. Graeber’s latest book, published two months before the start of Occupy Wall Street, is entitled Debt: The First 5,000 Years. It is an alternate history of the rise of money and markets, a sprawling, erudite, provocative work. Looking at societies ranging from the West African Tiv people and ancient Sumer to Medieval Ireland and modern-day America, he explores the ambivalent attitudes people have always had about debt: as obligation and sin, engine of economic growth and tool of oppression. Along the way, he tries to answer questions such as why so many people over the course of history have simultaneously believed that it is a matter of morality to repay debts and that those who lend money for a living are evil.

Graeber’s arguments place him squarely at odds with mainstream economic thought, and the discipline has, for the most part, ignored him. But his timing couldn’t be better to reach a popular audience. His writing provides an intellectual frame and a sort of genealogy for the movement he helped start. The inchoate anger of the Occupy Wall Street protesters tends to cluster around two things. One is the influence of money in politics. The other is debt: mortgages, credit-card debt, student loans, and the difference in how the debts of large financial companies and those of individual borrowers have been treated in the wake of the 2008 financial crisis.

“He is a deep thinker. He’s been a student of movements and revolutions,” says Kalle Lasn, the founder of Adbusters, the Vancouver-based anticorporate magazine. “He’s the sort of guy who can say, ‘Is this thing we’re going through like 1968 or is it like the French Revolution?’ ”

As Graeber explains it, it’s all part of a larger story: Throughout history, debt has served as a way for states to control their subjects and extract resources from them (usually to finance wars). And when enough people got in enough debt, there was usually some kind of revolt.



Graeber is small-framed and fidgety, with a pale boyish face and blue eyes. He dresses like a graduate student and speaks fast, in bursts punctuated by long ums, a ragged laugh, or pauses to catch his breath. He doesn’t make much eye contact. When finishing a thought, he has a habit of ducking his head and arching his eyebrows, as if he has just heard a faint but alarming sound.

For several weeks—since the fourth day of Occupy Wall Street—Graeber has been in Austin, Tex., reuniting with his girlfriend, a fellow anthropologist just back from fieldwork in Mexico. While there he has been peripherally involved with Occupy Austin, a small, fractious offshoot of the original Zuccotti Park occupation, one of many around the world.

Graeber began the summer on sabbatical, moving back to New York from London and frequenting an artists’ space called 16Beaver. It was an intellectual activist salon, located near Wall Street, the sort of place where people would discuss topics like semiotics and hacking and the struggles of indigenous peoples. Like many other American activists, Graeber had been deeply moved by the occupation of Cairo’s Tahrir Square and by the “Indignados” who had taken over central Madrid; in mid-July, he published a short piece in Adbusters asking what it would take to trigger a similar uprising in the West. For much of the summer, the discussions at 16Beaver revolved around exactly that question. When a local group called Operation Empire State Rebellion called for a June 14 occupation of Zuccotti Park, four people showed up.

On July 13, Adbusters put out its own call for a Wall Street occupation, to take place two months later, on Sept. 17. Setting the date and publicizing it was the extent of the magazine’s involvement. A group called New Yorkers Against Budget Cuts—student activists and community leaders from some of the city’s poorer neighborhoods—stepped in to execute the rest. For three weeks in June and July, to protest city budget cuts and layoffs, the group had camped out across the street from City Hall in a tent city they called Bloombergville. They liked the idea of trying a similar approach on Wall Street. After talking to Adbusters, the group began advertising a “People’s General Assembly” to “Oppose Cutbacks And Austerity Of Any Kind” and plan the Sept. 17 occupation.

The assembly was to be held in Bowling Green, the downtown Manhattan park with its famous statue of a charging bull pawing the cobblestones. Graeber had heard about the meeting at 16Beaver, and the afternoon of Aug. 2 he went to Bowling Green with two friends, a Greek artist and anarchist named Georgia Sagri and a Japanese activist named Sabu Kohso (who is also the Japanese translator of Graeber’s books).

A “general assembly” means something specific and special to an anarchist. In a way, it’s the central concept of contemporary anarchist activism, which is premised on the idea that revolutionary movements relying on coercion of any kind only result in repressive societies. A “GA” is a carefully facilitated group discussion through which decisions are made—not by a few leaders, or even by majority rule, but by consensus. Unresolved questions are referred to working groups within the assembly, but eventually everyone has to agree, even in assemblies that swell into the thousands. It can be an arduous process. One of the things Occupy Wall Street has done is introduce the GA to a wider audience, along with the distinctive sign language participants use to raise questions or express support, disapproval, or outright opposition.

When Graeber and his friends showed up on Aug. 2, however, they found out that the event wasn’t, in fact, a general assembly, but a traditional rally, to be followed by a short meeting and a march to Wall Street to deliver a set of predetermined demands (“A massive public-private jobs program” was one, “An end to oppression and war!” was another). In anarchist argot, the event was being run by “verticals”—top-down organizations—rather than “horizontals” such as Graeber and his friends. Sagri and Graeber felt they’d been had, and they were angry.

What happened next sounds like an anarchist parable. Along with Kohso, the two recruited several other people disgruntled with the proceedings, then walked to the south end of the park and began to hold their own GA, getting down to the business of planning the Sept. 17 occupation. The original dozen or so people gradually swelled, despite the efforts of the event’s planners to bring them back to the rally. The tug of war lasted until late in the evening, but eventually all of the 50 or so people remaining at Bowling Green had joined the insurgent general assembly.

“The groups that were organizing the rally, they also came along,” recalls Kohso. “Then everyone stayed very, very late to organize what committees we needed.”

While there were weeks of planning yet to go, the important battle had been won. The show would be run by horizontals, and the choices that would follow—the decision not to have leaders or even designated police liaisons, the daily GAs and myriad working-group meetings that still form the heart of the protests in Zuccotti Park—all flowed from that.

For Graeber the next month and a half was a carousel of meetings. There were the weekly GAs, the first held near the Irish Hunger Memorial in Battery Park City, the rest in Tompkins Square Park in the East Village. He facilitated some of them and spent much of the rest of his time in working group meetings in people’s apartments. (On Aug. 14 he tweeted, “I am so exhausted. My first driving lesson … then had to facilitate an assembly in Tompkins Square Park for like three hours.”) He organized legal and medical training and classes on nonviolent resistance. The group endlessly discussed what demands to make, or whether to have demands at all—a question that months later remains unresolved.

In the Sept. 10 general assembly the group picked the target for their occupation: One Chase Manhattan Plaza. They also picked several backups. So when the police fenced off Chase Plaza the night before the occupation was scheduled to start, the occupiers were prepared. On Sept. 17, barely an hour before the scheduled 3 p.m. start time, the word went out to go to Zuccotti Park instead, and 2,000 people converged on the now famous patch of stone flooring, low benches, and trees. It was a fortunate choice: Zuccotti is a privately owned park, so the city doesn’t have the right to remove the protesters. Graeber helped facilitate the GA that night in which they decided to camp out in the park rather than immediately march on Wall Street. Three days later, when he flew to Austin, the protests were still little more than a local New York story.

Graeber has been an anarchist since the age of 16. He grew up in New York, in a trade-union-sponsored cooperative apartment building in Chelsea suffused with radical politics. A precocious child, he became obsessed at 11 with Mayan hieroglyphics. (The writing had then been only partially deciphered.) He sent some of his original translations to a leading scholar in the field, who was so impressed that he arranged for Graeber to get a scholarship to Phillips Academy in Andover, Mass.

Graeber’s parents were in their 40s when they had him and had come of age in the political left of the 1930s, self-taught working-class intellectuals. Graeber’s mother had been a garment worker and, briefly, a celebrity—the female lead in a musical comedy revue put on by the International Ladies’ Garment Workers’ Union that managed to become a Broadway hit. His father worked as a plate stripper on offset printers. Originally from Kansas, he had fought for the Republicans in the Spanish Civil War. Anarchists made up one part of the fragile Republican coalition, and for a brief period they controlled Barcelona.

“Most people don’t think anarchism is a bad idea. They think it’s insane,” says Graeber. “Yeah, sure it would be great not to have prisons and police and hierarchical structures of authority, but everybody would just start killing each other. That wouldn’t work, right?” Graeber’s father, however, had seen it work. “So it wasn’t insane. I was never brought up to think it was insane.”

Years later, Graeber was a graduate student at the University of Chicago, and his field research brought him into contact with another, albeit very different, anarchic community. His dissertation was on Betafo, a rural community in Madagascar made up of the descendants of nobles and their slaves. Because of spending cuts mandated by the International Monetary Fund—the sort of structural-adjustment policies Graeber would later protest—the central government had abandoned the area, leaving the inhabitants to fend for themselves. They did, creating an egalitarian society where 10,000 people made decisions more or less by consensus. When necessary, criminal justice was carried out by a mob, but even there a particular sort of consensus pertained: a lynching required permission from the accused’s parents.

Graeber didn’t become an activist until after the massive 1999 World Trade Organization protests in Seattle. At the time an associate professor at Yale, he realized that the sort of movement he had always wanted to join had come into being while he was concentrating on his academic career. “If you’re really dedicated to this stuff, things can happen very quickly,” he says. “The first action you go to, you’re just a total outsider. You don’t know what’s going on. The second one, you know everything. By the third, you’re effectively part of the leadership if you want to be. Anybody can be if you’re willing to put in the time and energy.”

It was a particularly happy period for Graeber. In New Haven he was a scholar, and in New York, where he spent much of his time, he was an anarchist—he had found a new community among the loose coalition of activists, artists, and pranksters who called themselves the Direct Action Network. There were protests but also elaborately choreographed festivities—“reclaim the streets” parties, or nights when everyone converged on a particular subway train and rode it through the city carousing.

It came to an end in 2005, when Yale terminated his contract before he had a chance to come up for tenure. Graeber appealed, and his case became a cause at Yale and in the broader community of academic anthropology. He maintains he was targeted at least in part because of his political activism. Others saw evidence that the modern university was exactly the sort of hierarchical organization that Graeber was philosophically opposed to and temperamentally unsuited for.

“There was an issue about his personal style, whether he was respectful enough to various senior people both in the department and at the university. He’s not someone who is known to be very pliable,” recalls Thomas Blom Hansen, an anthropology professor at Stanford who was a friend and Yale colleague of Graeber’s at the time. “I don’t think anyone doubts that he’s a major figure in his field,” he adds. “But he’s not really interested in the humdrum daily life of administration that constitutes an increasing part of our life in the academic world.”

Everyone involved in the creation of Occupy Wall Street, from Graeber to the editors of Adbusters to New Yorkers Against Budget Cuts, has been astonished by its success. The world of American left-wing activism, populated as it is by an unwieldy mix of progressives and pacifists, civil libertarians and Marxists, idealists and pragmatists, is often riven by disputes and mutual misunderstanding. What’s notable about Occupy Wall Street is that it was born not in spite of that tendency but because of it. For his part, Graeber doesn’t attribute the success of the occupation to its planners but to luck, timing, and the pervasive mood of anger and disillusionment in the country: There are few jobs, the political process has ground to a halt, and as individuals and as a nation, we’re drowning in debt.

Graeber’s problem with debt is not just that having too much of it is bad. More fundamental, he writes in his book, is debt’s perversion of the natural instinct for humans to help each other. Economics textbooks tell a story in which money and markets arise out of the human tendency to “truck and barter,” as Adam Smith put it. Before there was money, Smith argued, people would trade seven chickens for a goat, or a bag of grain for a pair of sandals. Then some enterprising merchant realized it would be easier to just price all of them in a common medium of exchange, like silver or wampum. The problem with this story, anthropologists have been arguing for decades, is that it doesn’t seem ever to have happened. “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money,” writes anthropologist Caroline Humphrey, in a passage Graeber quotes.

People in societies without money don’t barter, not unless they’re dealing with a total stranger or an enemy. Instead they give things to each other, sometimes as a form of tribute, sometimes to get something later in return, and sometimes as an outright gift. Money, therefore, wasn’t created by traders trying to make it easier to barter, it was created by states like ancient Egypt or massive temple bureaucracies in Sumer so that people had a more efficient way of paying taxes, or simply to measure property holdings. In the process, they introduced the concept of price and of an impersonal market, and that ate away at all those organic webs of mutual support that had existed before.

That’s ancient history, literally. So why does it matter? Because money, Graeber argues, turns obligations and responsibilities, which are social things, into debt, which is purely financial. The sense we have that it’s important to repay debts corrupts the impulse to take care of each other: Debts are not sacred, human relationships are.

If we understand the social origins of debt, Graeber says, we become much more willing to renegotiate debts when conditions change, whether those are mortgages, credit-card debts, student loans, or the debts of entire nations. And if the desperate response to the ongoing financial crisis has shown anything, he argues, it’s that we’re willing to forgive debts if the institution that has them is important.

“Sovereignty does ultimately belong to the people, at least in theory. You gave the bank the right to make up money that is then lent to you,” he argues. “We collectively create this stuff, and so we could do it differently.”

Graeber’s book is getting glowing praise from his fellow anthropologists, and it has gotten attention beyond that world as well. (Though according to Mandy Henk, a librarian from Indiana minding the library that has sprung up in Zuccotti Park, copies of his work there aren’t seeing a lot of use.) Few mainstream economists are familiar with his ideas. Professor Tyler Cowen of George Mason University, who happens to be a widely read blogger, is one of them. “He whacks a bit of sense into people, and I think he’s right and Adam Smith was wrong,” he says. Yet Cowen, himself a libertarian, isn’t won over to Graeber’s politics. He sees little alternative to the modern state. “Look at Somalia. If there’s a vacuum, something has to fill it.”

He might also point to the drummers of Zuccotti Park. The constant beat from drum circles there has provided the occupation’s soundtrack, but it has also elicited a steady flow of noise complaints, trying the patience of an otherwise supportive community board and elected officials. Through weeks of mediation and discussion in the general assembly, a few drummers have steadfastly defied any limits on when they can play, though organizers are hopeful an agreement hashed out on Oct. 25 will finally solve the problem.

At the end of his book, Graeber does make one policy recommendation: a Biblical-style “jubilee,” a forgiveness of all international and consumer debt. Jubilees are rare in the modern world, but in ancient Babylon, Assyria, and Egypt under the Ptolemies they were a regular occurrence. The alternative, rulers learned, was rioting and chaos in years when poor crop yields left lots of peasants in debt. The very first use in a political document of the word freedom was in a Sumerian king’s debt-cancellation edict. “It would be salutary,” Graeber writes, “not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one’s debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything it is the ability to all agree to arrange things in a different way.” —With reporting by Karen Weise

Bennett is a staff writer for Bloomberg Businessweek

Thursday, 27 October 2011

Google's Business Experiment: Nothing but Web



In the cloud: A model uses a Chromebook on an airplane.Google

Google's Business Experiment: Nothing but Web


Computers that do everything in a Web browser are touted as an inexpensive alternative for companies.
  • Thursday, October 27, 2011 By Tom Simonite

Decades of Moore's Law have trained us to expect every new computer to do more than the one before. Google's most ambitious foray into cloud computing, however, has it wooing businesses with computers that do much less.

Those computers are known as Chromebooks. The laptops, officially launched in June, use an operating system called ChromeOS that is little more than a souped-up version of Google's Chrome Web browser. "Chromebooks came from this realization that cloud computing gives an opportunity to rethink what the desktop is," says Rajen Sheth, Google's program manager for Chromebooks. The pitch to businesses is slightly more prosaic: outfitting and supporting workers with Google's Chromebooks costs a lot less than giving them conventional PCs.

Google offers Chromebooks under a subscription model, where each machine costs between $20 and $33 per month. That price includes support and a promise that a replacement will be priority-shipped for any computer that breaks. Gartner research estimates that the total cost of ownership to a business is between $3,300 and $5,800 annually for a regular desktop computer, and more for laptops. The cost of owning a Chromebook, according to Google, is simply 12 times its monthly subscription cost—at most, $396 per year.

In typical Google fashion, Chromebooks were not released as a fully polished product. They first appeared in December 2010, when Google sent a prototype, the Cr-48, to thousands of volunteer testers and journalists (read Technology Review's review of the Cr-48). Feedback from that experiment was used in creating the first Chromebooks available for sale, which appeared this summer and are made by Samsung and Acer.



Despite the low cost, Chromebooks outperform conventional PCs in some respects. They take only eight seconds to boot up and can manage even a long workday on a single battery charge. Yet logging in to find nothing but a browser—no desktop with shortcuts, no conventional applications such as Microsoft Office—is unnerving. Whether you're composing e-mail, creating a presentation, or editing an image, you have to do it using the Web. Without an Internet connection, very few Chromebook apps will work at all.

Sheth says that poses no problem for many workers. "A significant proportion of people in business today just use a browser for everything they do," he says. Many call center workers and traveling sales reps already rely on software accessed through a browser. In fact, before leading Chromebook, Sheth was responsible for much of Google's success in convincing companies to adopt business versions of Web-based apps such as Gmail.

Sheth's most clearly detailed business case for Chromebooks revolves around what the laptops offer to IT staff. There's no need to install and configure security software, because the only software on the computer—the ChromeOS operating system—is updated automatically by Google and encrypts all saved data. What customization tasks remain can be handled using a slick Web-accessible dashboard.

"There's a huge pain point for IT managers around manageability, upgrades, and security," says Frank Gillett, who covers emerging technologies in IT for Forrester Research. "Google has built a back-end service for Chromebooks that takes care of all that very well."

Sheth declined to say how many Chromebooks have shipped, but there are some signs the market for Web-only computers may prove larger than many anticipated. Gillett recently surveyed IT buyers and found that around 16 percent of them said their users could survive with just a Web browser. "I expected to prove they're really skeptical, but they weren't," he says. Even so, Gillett still considers Chromebooks an "experiment" rather than a polished product line.

As Google upgrades the ChromeOS operating system, its stripped-down computers are likely to become more capable. Full support was recently added for the business package Citrix, which allows a Chromebook user to log in to a remote desktop and use Windows. Sheth says the important thing for Google is that the Chromebook gain a toehold in the market. "We're really aiming for the future vision of the enterprise. Today is the market entry strategy, not the end point," he says. He predicts that it will be another three to five years before most business tasks are done through a Web browser.

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China's VanceInfo Technologies Tries To Outdo Indian Outsourcers




Ron Gluckman, 10.26.11, 06:00 PM EDT Forbes Asia Magazine dated November 07, 2011

Two tech guys named Chen are trying to answer the question: Can China do IT outsourcing like India?


image

When David Chen met his future business partner, Chris Chen, in 1992, David was a Chinese student struggling to make ends meet in Southern California and Chris was working at a Great Wall computer store. Happy to find a fellow mainlander behind the counter, David put in an order for one of the cheap knockoffs the company sold. "It was all I could afford," he says.

Over the years, whether to fix a mafunctioning keyboard or brainstorm big ideas, they kept in touch. Today the pair, who aren't related, run one of China's fast-growing info-tech outsourcing businesses, VanceInfo Technologies. It's a long way from playing in the same league as the Indian giants--Tata Consultancy Services, Wipro, Infosys and HCL Technologies--but it does list blue chips such as Microsoft, 3M, IBM, Citibank and AirAsia among its customers. VanceInfo collected $212 million in revenue last year and turned in a $30 million net profit. This year consensus estimates call for $276 million in revenue and a $40 million profit. Analysts say revenue could jump to $345 million next year.

Typically, big companies turn to outsourcers such as VanceInfo to handle some part of their operation. The outsourcer supplies the office space, employees and the ability to scale up quickly to fill a need. Last year Hong Kong's Cathay Pacific Airways delegated some of its growing IT and software development workload to VanceInfo, which set up an office across the border in Shenzhen. Cathay's chief information officer, Tomasz Smaczny, says outsourcing an IT operation pays better dividends than buying individual IT services or hiring more staff: "We didn't do this so much for cost savings as for effectiveness and increasing our capabilities. Outsourcing allows us to dial up or dial down as needed."

VanceInfo runs such offices around the country and works with some 25 universities to provide and train staff. Many of the offices are scattered around a huge new computer park on the outskirts of Beijing, though there's no way to tell from the outside--they often sport only the customers' sign. There's a big office for Microsoft, a customer since 1997, where VanceInfo worked on Windows 7.

VanceInfo also keeps its headquarters here. Despite the marquee clients, and stakes that make them both well off--Chris' 8.6% stake is worth $37 million, David's 0.7% stake $3 million--each Chen drives his own car, unusual for Beijing executives, and works out of a nondescript office when he's not traveling. David, 43, the company vice chairman and president, has files piled to the rafters in his. Chris, 48, the chairman and chief executive, sits in the next one, which does boast a window but it looks out at the wall of another IT office. "It's our style to be frugal," he says. "We're in an industry where there aren't big margins. What impresses our customers is good service at good prices."

The austerity is certainly part of the company culture. One example cited by Alicia Yip, a former Citigroup analyst who followed VanceInfo, involves the chief financial officer, who found that his flight to the U.S. had been booked in business class. "He quickly went online and changed the ticket to economy," she says. Another time, at a conference, she remembers that VanceInfo executives checked out of the pricey conference hotel and moved to a nearby budget inn.

Chris Chen grew up in Wuning, a remote village in remote Jiangxi Province that had scant electricity. His mother is illiterate. "She cannot even write her name," he says. Nonetheless, he scored high on the national college test and won a place at Tsinghua University, considered the MIT of China, and graduated in 1986. He didn't know anything about information technology then, so when he started working for Great Wall, then China's biggest computer company, "Some people thought I was useless," he says. "My major was mechanical engineering."



Chris' skills were more suited to an entrepreneurial age that hadn't yet dawned in China. He spent six years with Great Wall and was posted to California, partly to scout new technology. In addition to selling computers to walk-in customers such as David, he was always on the alert for opportunities. One arose when IBM asked Great Wall to translate its operating system software into Chinese. The profit margin didn't interest Great Wall. Chris pounced.

Raising money from friends and relatives, Chris started a business. That morphed into a company called Worksoft, which later changed its name to VanceInfo (see box, p. 38). It quickly enjoyed success in localizing software for China and helping foreign IT firms operate there. "We had no concept of outsourcing," says Chris. "We just did projects, focusing on opportunities to make money. If I knew anything about outsourcing then, we'd be much, much bigger now."

David brings a dab more international expertise to VanceInfo. From Fujian Province, he went to the University of California, Irvine, earning a computer engineering master's in 1994. He moved to Silicon Valley, where he worked as a software engineer at Oracle and a consultant at KPMG. After a decade in the U.S. he returned to China in 2001 and joined Chris. With his Silicon Valley background, David comfortably courts new customers and oversees operations. Chris is more of the strategist, as well as the closer. "Chris has great people skills, and is a good storyteller," says David.

But can the Chens propel VanceInfo out of the crowded ranks of midsize Chinese outsourcers and into the global big leagues? It's probably one of the three or four biggest outsourcers now. (Comparisons are tricky--larger companies, such as Insigma, Neusoft and DHC, get some of their revenue from software and product sales and other sources.) Analysts also see VanceInfo as one of the two or three best run and most reputable. Frances Karamouzis, an analyst for Gartner and the coauthor of a report last year on the Chinese outsourcing sector, praises VanceInfo's adoption of Western-style accounting, which led to a New York Stock Exchange listing in 2007; most competitors opt to trade in China.

The comparisons with India are inevitable. Outsourcing has mushroomed into a $70-billion-a-year business in India, while some analysts value the Chinese sector at $20 billion; CLSA predicts that it will reach $30 billion in 2014. "China is almost exactly where India was a decade or so ago," says Pierre Samec, former chief technology officer of U.S. Internet travel company Expedia. "I think it will follow the same rapid growth curve." VanceInfo set up an outsourcing operation for Expedia in Shenzhen.

But times are different, and China is a different country--it may never produce another Infosys. Just as the Chinese industry is today, the Indian industry was once very fragmented, with dozens of small companies vying for business. The industry underwent a rapid consolidation, but in China, where analysts have been predicting the same trend for five years, it's been slow in coming. Karamouzis says that when it does arrive, the key for VanceInfo will be how well it handles the numerous deals and the integration of thousands of added employees. It's done four deals this year, spending almost $9 million to buy three Chinese outsourcers and one in Australia.

A hiccup for VanceInfo over the past six months was the drastic drop in its share price after an accounting scandal at rival Chinese outsourcer Longtop erupted in May (see box, p. 36). With consolidation a key to growth, the lower share price leaves VanceInfo with a weaker currency for buying other companies. Indeed, of its four deals this year, it did the two before May with cash and stock while the two since May were cash only. But David says: "We are actually in good shape. We have a lot of cash on hand ($130 million as of June 30), and are still looking at acquisitions." He added that a lower share price could be an advantage in buying companies, giving the sellers more potential upside.

Another difference from India is that most of the Chinese outsourcing business is in Greater China--with Chinese companies or multinationals operating in China. Indian companies exported most of their work to the West (and have never been able to make many in-roads in China). VanceInfo's headcount numbered 12,542 at the end of the second quarter--up by 25% from a year earlier--but only 200 of those were outside Greater China. The company does seek to grow in Europe and North America by moving into consulting and business solutions, allowing it to travel up the value chain by taking on more lucrative projects.

But despite VanceInfo's digital culture, change can be slow. In fact much of the industry looks inward, because business has been so abundant in China. "This is a very Chinese company," says Samec, noting that there has been much talk of adding foreign expertise to help the company grow and especially to expand overseas, but little action. Says David Chen: "This is something we have talked about and agreed upon, but we have been slow to implement. We really need to step up."

Punished for a Rival's Misdeeds
 
VanceInfo began the year tipped as one of the world's hottest stocks. Then in May a scandal erupted at rival Chinese outsourcer Longtop Financial Technologies, hitting the shares of the entire sector. From around $32 a share, VanceInfo's stock fell to almost $5 early last month before beginning to rebound to around $11. And it didn't help that VanceInfo Chief Financial Officer Sidney Huang served as CFO of Longtop in 2005–06; he has not been connected to the scandal.

Investors were giving the sector's wave of listings increased scrutiny, albeit a bit late. Both Longtop and VanceInfo went public on the New York Stock Exchange in 2007. Choosing the U.S. over markets in China opened the vaults to bigger investments, at the price of more regulation and paperwork. The scandal came to light when its auditor for several years, Deloitte Shanghai, resigned, alleging that financial information had been falsified.

By the time trading in Longtop was halted in August, over $1 billion in value had evaporated. Scores of lawsuits are pending and a U.S. Securities and Exchange Commission investigation guarantees that the matter will remain in the news. "It will take some time to recover," says VanceInfo's David Chen. Yet he downplays any long-term impact. Rising costs and the yuan's continuing strength, he maintains, are bigger concerns that also contributed to the stock drop. Now, with a chance for the sector to feast on Longtop's clients, analysts see VanceInfo becoming a hot stock again, climbing to a $16 to $20 range. --R.G.


The Name Remains The Same
 
VanceInfo's first name was Worksoft, but the company later discovered a U.S. company called Worksoft. When it changed its English name to VanceInfo, it decided it didn't need to change the Chinese name. The first character denotes literature or culture, and the second, contemplation and thinking. In Chinese they sound similar to "vance," so the company chose VanceInfo for the English name. It's a play on "advancing information," says President David Chen. "It is really what we are about, to advance your potential." --R.G.

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Wednesday, 26 October 2011

Investing during turbulent times

Coins and banknotes

Tips on how to invest during turbulent times


STOCK markets around the world lately gave investors that sinking feeling again, weighed down by deepening woes of Europe's sovereign debts, an anemic US economy and new fears of a sharp economic slowdown in China.

Many investors sold shares to hold more cash, despite cash earning very little interest. In Singapore for example, six months USD fixed deposits of less than US$1mil earns zero interest in some banks.

In the United States, 10-year Treasury bonds are yielding 2.1% per annum; despite misery returns, many investors prefer the safety of US Treasuries during crisis times, while waiting for policymakers to act boldly and markets to stabilise.

At the same time, we see many economists and other pundits offer a whole host of predictions about today's global financial predicaments. The many predictions range from the slightly hopeful to the pessimistic, right down to the disastrous and absurd.

Does it sound familiar? Did we not hear many such predictions during the 2008/2009 global financial crisis? Who should we listen to? What should one do?

No doubt in hindsight, a few forecasts will be correct; and as the dust settles, many extreme predictions will also likely be forgotten. Yet for investors today, separating much of the “noise” from facts is one of the more tricky parts of steering through these very challenging times.



Fundamentals and valuation takes a back seat during a crisis

Volatile stock markets today are driven by latest positive or negative news flow affecting sentiment. Uncertainties during a crisis causes investment risks to spike, stock investors tend to sell first and ask questions later; fundamentals and stock valuation typically takes a back seat in the short term.

No doubt many investors worry about negative impact to a company's fundamentals in difficult times. For example, a manufacturing company's stock with a present price earning (PE) multiple of six times can change drastically to 60 times PE if earnings were to collapse 90% because of a global financial crisis.

Similarly, a property company's price to book value discount of 60% can easily drop to 30% if asset value is marked down by half in troubled times. Monitoring, reassessments and analysis of a company's financial progress is obviously important during tumultuous times.

Share prices of companies (even those with good fundamentals) may continue to fall indiscriminately, due to many reasons such as panic selling, fund redemption and repatriation. Investors should tread cautiously, even if stock prices may appear to be at very attractive levels.

I relate a challenging experience from the last global stock market plunge. In 2008, I invested in the largest luxury watch distributor and retailer in China (at that time 210 stores and sales amounting to 5.5 billion yuan a year or about 30% market share).

This Hong Kong listed Chinese company sells luxury watches (such as Omega, Longines, Bvlgari) from global brand owners Swatch group of Switzerland and LVMH of France (both by the way are also 9.1% and 6.3% shareholders of this Chinese company respectively).

As the US sub-prime mortgage crisis deepens by end-July 2008, many stocks around the world plunged. This company's shares similarly dropped from HK$2 to HK$1.50 in a matter of weeks.

We vigorously reassessed the company's fundamentals, including visits to retail outlets in China and Hong Kong. The result was an affirmation of our conviction to invest in the company for the long-term, despite short-term price weakness.

By late September 2008, we decided to purchase more shares when valuation proved so attractive at HK$1.15 per share (at a PE multiple of eight times).

Unfortunately, as the global financial crisis worsened, the company's shares continued to plunge and bottomed to a low of HK$0.51 by Nov 26, 2008.

This stock eventually recovered back to HK$2 per share (by June 1, 2009) and went on to exceed HK$5 per share by late 2010. The company's share prices recovered partly because Asian equities rebounded quickly in 2009, but also reached new highs because the company's fundamentals continue to improve with strong sales (+49%), profitability (+26%) and expansions (+140 stores to 350 stores) from 2008 to 2010.

A lesson if you will that during a crisis, one should be prepared for short-term (weeks and months) stock market volatility.

It is essential for bargain hunters to have long-term holding power, good understanding of company fundamentals and strong conviction on a company's prospect. In the long-term, we know fundamentals and valuation does matter.

How does one invest during a time of crisis?

My approaches to investing in turbulent times are:
  • Search for and invest (when valuations are attractive) in well managed companies that will not only survive but emerge stronger from crisis times;
  • Be prepared to stomach stock market volatility in the months ahead;
  • Have a longer term investment horizon (perhaps two to three years); once this crisis dissipates, reap the rewards as stock markets recover.
In Asia, macroeconomic fundamentals likely will remain resilient as many Asian economies have strong foreign currency reserves, coupled with more fiscal and monetary policy options to support growth.

China is also likely to withstand any fallout from Europe better than most would think. China's economy is still growing at a strong 9.1% gross domestic product growth for the third quarter of 2011; speculations about China's economy crashing may be somewhat premature at this stage.

Similarly, I think many established Asian companies have sufficient resources be it cash, borrowing powers or human capital, to emerge out of these turbulent times faster and stronger than before.

I believe with increasingly attractive valuation, the investing risk-reward equation (potential downside risk versus long term return prospects) favors Asian equities in the long run. I have confidence investing in Asia's fundamentals and Asian companies for many more years ahead.

Teoh Kok Lin is the founder and chief investment officer of Singular Asset Management Sdn Bhd