The Curionomist Podcasts | #2: “Cow-dropping” vs Entrepreneurship in the North

It’s been a while since my last podcast, over 2 months ago. In this 2nd podcast, I share some reflections from recent visits to Jaffna, Vavuniya and other parts of the Northern Province.

More needs to be done to support entrepreneurship in the North. I feel that years of donor interventions may have hurt entrepreneurship here. Successive rounds of donor projects have “gifted” assets to people, but paid little attention to help them make productive use of these assets. For instance, some projects have given machinery and training, but not thought about helping with access to markets to sell what they make. Diary projects have similar problems. A colleague I was travelling with jokingly called this the “cow dropping syndrome”. So many donors have given free cows to families and hoped that this would improve livelihoods and incomes. Little attention had been paid to help them become ‘dairy entrepreneurs’ instead.

Listen to the full podcast below, or go to Soundcloud

 

The Global Trend Towards Healthy Diets Can Bring Healthy Profits for Sri Lankan Producers

As the world marks this year’s Consumer Rights Day today on the theme of ‘Healthy Diets’, the global consumer trends around health and natural foods offer lucrative new markets.

The increase in awareness on healthy diets and demand for health and wellness food products globally opens a great opportunity for producers from Sri Lanka. With a heritage of  natural and ayurveda products, we should be well placed to cater to this growing consumer segment. A segment that values authenticity and ‘all-natural’.

 

The global healthy foods market is set to hit $ 1 trillion by 2017. This presents a huge new market opportunity for early movers. According to the ‘Global Health and Wellness Survey’ by market research firm Nielsen, 50% of consumers around the world say they are actively trying to lose weight, and 75% of them said they plan to achieve that goal by changing their diet. Much of the recent growth (2012-2014) in the healthy food category is coming from developing countries; in the Middle East (20% growth), Latin America (16%) and Asia Pacific (15%). Sri Lanka must tap into these markets, and maybe new FTAs with ASEAN in Asia and Brazil in LatAm can help boost this market access.

 

Over the last two years, Nielsen found that foods that are ‘all natural’ (43%), made from fruits/vegetables (40%) and ‘organic’ (33%) were among the most favored preferences among global consumers. Sales of products classified as  “natural” and “organic” grew 24% and 28%, respectively, during this period. The same goes for the rising demand for pharmaceuticals and nutraceuticals that use more natural ingredients and reduce (or eliminate) the use of chemical compounds.

 

Already, new producers are emerging among the SMEs sector, catering to this trend, locally. A great example is The Good Market, operating twice a week in two locations in the city, and now with a outlet store as well. In just 2 years it has become the launching pad for many of Sri Lanka’s small entrepreneurs who embody the natural foods ethos and a marketplace for them to reach out to conscious consumers . Many of the small producers (SMEs) that started off as market stalls have now gone grown up.  Saaraketha, the leading organic foods retailer, recently opened its first physical store. These are examples of new enterprise opportunities for SMEs emerging from the new awareness around healthy diets, and is certainly an area to push even in the global market. Time for institutions like the EDB to embrace these new trends, and help product categories breach international markets, beyond our traditional ones that are struggling to maintain market share and margins.

‘Speakonomics with The Curionomist’ 1: “Game Theory”

For a while now I’ve wanted to have a special segment on this blog that picks out a key jargon-y word or phrase in economics from time to time and help to unpack it, and advance the knowledge on it among non-economists. So, welcome to ‘Speakonomics with The Curionomist’!. You’ll see me posting these from time to time. The first one is on Game Theory. A concept I first learnt in my first year of an economics undergraduate, in a microeconomics module. I later went on to learn a little more about it in the context of decision making around wage setting at the firm level, in Labour Economics. So why did I think of Game Theory this week? This week was a tough week for Greece, as it attempted to play a game with Eurozone authorities and try to postpone its debt commitments in exchange for very weak conditionalities on austerity and other reforms. And interestingly, the new rockstar Greek Finance Minister is a student of Game Theory and has written books on it! While of course he claims that he won’t use such stratagem in his discussions with European authorities and creditors, I’m sure his awareness of game theory-based decision making does come in handy when warding off demands of belt-tightening from one group and demands of cancelling austerity on the other.

So, what is Game Theory? A lot of definitions exist, but they all point to the same idea. Its the mathematical study of decision-making, of conflict and strategy in social situations. It’s also been described as an “analysis of strategies for dealing with competitive situations where the outcome of a participant’s choice of action depends critically on the actions of other participants.”

Has Cleaner Petrol Reduced Crime?

Just read this very interesting article which posits that the removal of lead from motor fuels like petrol may have triggered a reduction in crime in the West, stemming from effects that lead has on the human brain. This lead-crime hypothesis interestingly tracks the levels of crime against the the levels of lead exposure in the USA. Is this a case of spurious correlation or is there a plausible scientific/medical explanation?

What’s next for Behavioural Economics?

In a thought-provoking op-ed in the FT recently, Tim Harford (of ‘Undercover Economist’ fame) asks whether the nexus between behavioural economics and public policy is indeed a feasible one and whether this new ‘sexy’ stream of economics is living up to the hype. He asks,

“Is behavioural economics doomed to reflect the limitations of its intellectual parents, psychology and economics? Or can it build on their strengths and offer a powerful set of tools for policy makers and academics alike?”

Read Harford’s full piece here – http://www.ft.com/cms/s/2/9d7d31a4-aea8-11e3-aaa6-00144feab7de.html#axzz2yByZla6k

I would love to run a randomized control trial (RCT) on tax payer compliance to see if some of the tools used by, for instance, the award-winning Behavioural Insights Team of the UK government would work in Sri Lanka. Could rephrasing/rewriting the ‘red notice’ letter by the Inland Revenue Department increase tax compliance?

Is it worrying that more young Sri Lankans are getting ‘picky’ about the type of job they want?

At my village home this weekend I had an interesting conversation with one of our long-time hands, Jinadasa, talking about how his son and daughter need to find jobs after having recently completed higher studies. His son had studied business administration in his degree programme at Ruhunu University, and focussed especially on human resources management. His only wish now is to secure a job at a bank. With his basic credentials, he has been finding this difficult. But he is also not willing to settle for anything else. This wasn’t an isolated case, I was learning fast. I heard of many other young people in the village who had their sights set on landing a “bank job” and were waiting and waiting until they got one. They are naturally attracted by the relative security and higher pay of such a job at a bank. They seem to feel that after getting a qualification, they should be able to walk straight in to such a job. We all know this is far from the reality. Very few young people are willing to start small and work their way up to that ideal job. Jinadasa’s son, for instance, could start out working in the admin division of a local industry and gain more experience in his chosen area of HR. With a couple of years of experience under his belt, he would be far more attractive to an employer (like a bank, for instance). But no – this is not an option he was willing to consider apparently.

 

The aspirations and attitudes of school-leavers and university graduates in Sri Lanka today have shifted markedly. They are willing and able to take a “wait and see” approach in landing their first job – maybe because poverty rates have fallen and household incomes are generally rising (albeit slightly), young people today are more comfortably able to stay on in their parents home, unemployed, for longer? An interesting area to research, no doubt.

According to a weekend news report, there are over 6,000 jobs in the Katunayake Export Processing Zone remaining unfilled. “There are no takers”, said the President of the Free Trade Zone Manufacturer’s Association, Dhammika Fernando. The garment industry, specifically, has lamented previously about not finding enough workers to fill vacancies in its factories and embarked on a massive recruitment drive involving a perceptions-battling campaign (read ‘JAAF intervenes to boost the image of ‘Juki girls’)

This is yet another piece in the growing evidence pointing to a rapid and serious shift in the attitudes and aspirations of the Sri Lankan labour force. An article from 2012 took a first look at this dilemma. It raised some insightful issues that are driving this dilemma and possible ways of tackling it.

I remember on a visit to an industrial estate two years ago, a factory-owner there called it “the food city syndrome” – he argued that his inability to attract workers to fill positions in this factory was mainly because the “new generation” of Sri Lankan would-be-employees were not keen on factory work, but rather want to work on service sector jobs like retail. He said that many of the unemployed youth in his area of Horana told him “apita ath jarawena rakiya epa” – we don’t want jobs where we get our hands dirty. Very revealing indeed. As the country moves towards upper-middle income, and as the middle-class segment widens, this trend can only be expected to grow.

All this has serious implications on the labour structure and demand for jobs in Sri Lanka. The way this dynamic plays out will have serious implications not only on the ‘future of work’ in this newly middle-income economy, but also on the nature and pace of growth of the Sri Lankan economy.

These implications aren’t necessarily either good or bad. It’s just clearly a reflection of the changing economic structure of Sri Lanka led by greater service-sector orientation. But isn’t it a little premature to pin all our hopes of growth, jobs, and higher incomes on the service sector?

BreadTalk and New Monis: Dynamics of Competition and Pricing

The dynamics of competition always interests me, and it’s easy to see it everywhere we go. Last week, BreadTalk, the Singaporean bakery chain that has taken Colombo by storm, opened its newest outlet on Thimbirigasyaya Road (Havelock Town). This is interesting, because unlike its other branches on Union Place and Park Street Mews, because it is locating slap-bang in the middle of other bakeries and pastry shops along the same street. Less than 20 metres up the road from the new BreadTalk is SenSaal, another bakery with a growing presence in Colombo and booming suburbs. About 50 metres down the road from the new BreadTalk is the short eats “institution”, The Fab. Thimbirigasyaya Road is now probably the only one in Central colombo where three of the cities top bakeries/short-eats outlets are located in close proximity to each other.

But what I haven’t done yet, and would be interesting to explore, is the comparison on price. Intuitively we know that each of them, The Fab, SenSaal, and BreadTalk, operate on different price points to each other, with the lattermost being at the highest end. (On one day last week though, this pricing dynamic was completely skewed  in favour of BreadTalk – on the 5th of April, BreadTalk offered its customers 50% discount on all items to mark its one year anniversary). Moving forward though it will be interesting on how the competitive dynamics pan out. Will BreadTalk become a true competitor to The Fab and SenSaal? How many customers actively chose one OVER the other? Or have each of them created a niche for themselves, cater to particular consumer preferences and tastes, and there don’t in fact compete directly with other even if price points were to be quite similar?

Brand loyalty of customers and their established preferences will no doubt play a big part in this. Another instance made me think about this yesterday – the competition dynamics at the Canowin Arcade rest area on the Southern Expressway E01. While the Arcade has a variety of eating options, the most popular seems to be the “institution” New Monis (the main branch of which are located at Maggona on the coastal Galle road).

New Monis outlet at Canowin Arcade

Makrin food outlet at Canowin Arcade

With Juiceez, Gihans, Gills, and Mikrans all under-patronized and the staff there mostly idling, Monis was busier than they could handle. In addition to brand loyalty and “established preferences” dynamics, it may also have to do with the ‘price point’ aspect too. Monis has a stripped-down offering – sugary tea and coffee from instant machines, basic yet popular short eats like Maalu Paan, and no fancy displays, LCD screens, etc., to advertise their wares. Compared with the fancier set up at the outlets on either side of it – Gills and Mikrans.

Gihans and Juiceez outlets idling, Canowin Arcade

I must note the caveat in all this though – it was a Monday afternoon. Things would no doubt be different on a weekend or at a different meal time (for instance, I’ve heard that Gihans is highly preferred choice at breakfast time).

Dynamics of competition and price points are an interesting, but often under-explored, area of economics.

The Irk of Bad Service Quality in Sri Lanka: A Case of Weak Competition and Missing Incentives

If I ever receive exceptional customer service at a Sri Lankan establishment, I am surprised, almost shocked. I’ve become quite accustomed to mediocre service at best, with little attention to detail and sometimes with a smile. So when a waiter is actually good and doing his/her job, it feels almost ‘unusual’. But that’s not how it should be.

Expanding Sri Lanka’s services sector, especially exportable services like tourism, is nothing without good service quality. Some may argue that ‘its an Asian thing’ to have mediocre service and ‘its a Western thing’ to have good service. That’s a fallacy. Once on a visit to China (and not on any luxury tour package – just something booked online), I found the service quality to be consistently exceptional.

Duty Free Service at BIA: Magic of Competition?

Competition matters to this. A simple example is the duty free stores in the Arrivals section of BIA. Earlier there was just one store – Alpha Orient. Now the rights have been re-granted, and there are two players – Flamingo and Autogrill (a.k.a. World Duty Free). Earlier, when I pass through immigration, walk into the store and asked for a particular type of wine or chocolates, one of the twenty sales assistants (idling and chit-chatting among themselves) would point to the far end of the store and say “anna athana balanna puluwan” (you can look over there). Now when you walk towards either of the new stores, there are girls greeting you with a lovely smile, offering you a shopping basket, and escorting you to help you find what you need. Competition. It went from a monopoly, where there was just one player and a captive consumer base (all arriving passengers must pass through there) and you had no choice but to buy your duty free requirements from that one store, to a duopoly, where you have two players to choose from, and both offering fairly the same product range at similar prices. Service quality then becomes critical.

Sri Lanka: sans Competition, sans Service Quality?

Take restaurants in Colombo as another example. Rarely have I ever been impressed with service quality in a Colombo restaurant sufficient for the occasion to actually be memorable. Of course, I’ve rarely had an experience where I’ve had to wait an hour for food. But I know plenty of others who have.

I was told of a recent experience at Cinnamon Grand’s London Grill – touted as a top fine dining restaurant in the city – where the food took over an hour to arrive and the waiters were totally unattentive. The patron who told me about the incident described the experience as “an absolute fail“. Its rarely a case of being understaffed that causes this though. Sri Lankan establishments are notoriously overstaffed and yet provide terrible service – a classic symptom of Sri Lanka’s lack of productivity. The evidence is everywhere. A bar with half dozen idle waiters, but they’re chatting to each other in a corner rather than being attentive to a customer struggling to get served. A coffee shop where there’s 5 people behind the counter – one to take your order, one to make the coffee, one to put the cap on the cup, and another to hand it to you. Contrast this to the coffee kiosk on the 2nd floor of the UNCC in Bangkok, Thailand, which is handled entirely by one girl. She takes your request, punches it on the PoS, quickly makes your order, serves it, takes the cash, dispenses the change, smiles and greets you a nice day, and warmly welcomes the next customer. Multiple tasks. One efficient person.

I have been frustrated many times. Waiters not listening when you are ordering, taking the order down wrong, and bringing out the wrong items. Not being attentive when you are ordering, and returning multiple times to reconfirm the order. The bill taking nearly twenty minutes to arrive. Water not being served even 10 minutes after first sitting down, or not being replenished when required. Dozens of waiters flitting around, but none actually paying attention to diners’ needs.

And its not about size or cost positioning (there’s equally poor service at Colombo’s top-end and mid-end restaurants), its about whether a place actually cares or not. And again it comes down to competition.

Take the Lewis strip in Negombo – the cluster of bars, cafes, and restaurants. The one place I remember, and keep going back to, is Serendib Restuarant – just next door to Rodeo. And it’s not just because I think they have the best Mojitos in the country, the best coconut-infused curries I’ve tasted and the most generous portions of papadam. It’s also because they are attentive and friendly. They can hardly pronounce the names of their own cocktails (“mojeeto” and “gin pizz”), but are certainly on hand when you need a second one, and always keen to understand what the customer likes and wants. Competition does it. If Serendib offered terrible service, I could just pop over to one of dozens of very similar places on either side of it or across the Lewis strip, with fairly similar prices. A case of near perfect competition. So, what keeps me there throughout the evening, and keeps me coming back? Good service quality.

New York City: Great Competition, Great Service Quality?

Now lets take a foreign city – New York, for instance (or any big city in the US), and the story is very different. Nearly every single restaurant  bar, or cafe you go to offers exceptional service, bar none. Waiters are attentive and alert. They are keen to make the customer happy, willing to be malleable on what the menu offers, genuinely passionate about the food they serve, and most of all – extremely welcoming, friendly, and hospitable. When was the last time you went to a restaurant in Colombo or elsewhere in Sri Lanka and could say all of that about the level of service you received?

I see a couple of reasons for this. First, my earlier argument about competition holds true here too. Its true, all restaurants aren’t exactly identical – the market is of more a monopolistic nature that perfectly competitive – but the basic value proposition is essentially very similar across them and people can exercise tremendous choice.

Hundreds of restaurants to choose from in NYC, all of them serving exceptional food (if they didn’t, they’d quickly lose business, not be able to afford the high rent, and soon shut down), serving exceptional food, and in a broadly similar price range. So, what would make a New Yorker keep patronizing a particular restaurant if the price was right? What would be the defining feature? Excellent service quality. So, ceteris paribus, exceptional service quality is what will set you apart. And so every restaurant, bar, and cafe strives for it. Competition makes service quality a key determinant of success.

Missing Incentives: The Magic of Tips

The second, in my view, is all about incentives. And in the food and hospitality service industry –  the incentive to serve your customer better and earn a better tip. But in Sri Lanka there is rarely the incentive for that. Why? A thundering service charge is already built in to your bill, and it’s high. Service charge has risen, yet service quality standards have not. Not surprising, though, because neither the customer not the management determine the service charge based on performance of a particular waiter. The customer has to pay service charge on the bill regardless of the quality of service offered. And because it’s a flat charge across all staff, the management cannot discriminate between staff who perform better than others.

Some people feel you must leave a tip, out of obligation. Earlier I used to leave a modest cash tip. Now I rarely, if ever, do. I’m annoyed by the high service charge built in. If a particular staff member has been exceptionally good, I make it a point to slip him/her the tip in person before leaving, rather than leave it in the case containing the bill. But in a country like America, a waiter must work for his/her tips. The better your service, the happier the customer, the larger the tip (in theory, but of course wealthier customers are likely to tip higher anyway). The incentive to perform better and provide a good service is present. Whereas in Sri Lanka, it rarely is. You know that at the end of the month, all the staff are going to get a divided-up share of the service charge that customers have been charged on their bill. So why bother being particularly hospitable and attentive to customers, more than the minimum level that will be sufficient to keep your job?

Tourists’ Irk: Bad Service, High Prices

And this opinion is not just mine. It seems tourists are pretty tired of it too. At a session organised by the European Chamber of Commerce in Colombo last week, European tourists voiced their grievances on the tourism “product offering” in Sri Lanka. In addition to the critical issue of sexual harassment of tourists that came up, the second most cited issues was that service quality was not commensurate with prices charged. An official of the Chamber, Delaney, said that in a survey conducted by them on a cross section of European visitors in Sri Lanka, many pointed out to poor service standards even in 5 star hotels.  “One complaint received was of having to wait for 45 minutes before the meal was served and another half-an-hour for the bill, she said”. One tourist had complained of “high prices charged by some 5 star properties where the service provided didn’t warrant for the US$ ($) 200-300 charged by such hotels. […]  The inability of hotel staff to communicate in English was also an issue. Voicing similar sentiments, Dominique Tanghe of the Belgium Consulate in Sri Lanka said that he doesn’t mind experiencing such a service if he was paying $ 20-30 for a room, but not when the charges are as high as $ 200-300. Worse is when the food served is not what one ordered for…”. “Service is not equal to the price in many hotels in Sri Lanka,” said another.

Poor service quality is not easily forgotten, and for a country that prides itself on great hospitality and a warm smile, a very poor standard of service quality in our shops and restaurants (lets not even get to government service offices) is something we should be ashamed of.

Finally, I also believe its something about our work ethic – about not caring, not wanting to go the extra distance but rather taking the ‘path of least resistance’. Last evening I wanted to order some Chinese wet noodles from Flower Drum. Just the day before, a friend of mine had ordered it and advised me to ask for the crispy noodle and the soup to be packed separately. So when giving the order over the phone, I made this request. I was quickly denied and dismissed. The conversation went a little bit like this:

Me: Can you please ask them to pack the noodle and the soup separately so that it doesn’t get soggy? 

Man taking order: No we can’t do that.

Me: Why not?

Man: Because we don’t.

Me: But just yesterday a friend of mine ordered the same thing and they packed it separately for her and delivered. Can you please find out?

Man: Let me ask my manager.

(less than 3 seconds go by – surely not enough enough time to actually verify this from someone?!)

Man: No we can’t do it. we pack it all together.

Me: But like I said, you did it yesterday for someone else who ordered the same thing – why can’t you just do that for this order also?

Man: Maybe yesterday sir, but can’t do today.

Me: Nevermind. Thanks. *Click*.

That’s the story of Sri Lankan service standards. A case of insufficient competition, skewed incentives, and terrible ‘service’ ethic. And this is just in the hospitality industry. I bet its no better in many other service sectors – but getting it right in hospitality matters most for an exportable service like tourism – the sector that the country seems most obsessed about at the moment.

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(PS: Later on I ended up ordering from 88 on Havelock Road. They readily obliged with my request – “of course sir” – no questions asked. That’s why I keep going back there.)