Trade Wars

OPINION: What’s behind Macau’s trade disaster?

Macau Business | August 2022

Keith Morrison – Author and educator

Business 101. When businesses plan their business models, they generally need to consider, among other things: their products and/or services; request; market(s) and their environment (economic, political, cultural, social); existing, potential and likely competition; start-up and ongoing costs and expenses; emergency funding; marketing and promotion; revenue streams, deferred revenue and earnings; Sales; Distribution; cash flow; profit margins, gross and net; Liabilities; risk analysis, assessment and treatment; constraints and the “what if” factor; flexibility, adaptability and adjustment. They must also be clear about the assumptions they are making, and these must be accurate and operational, i.e. given this, we do this; given that, we do. Nothing new there, you say; this is the first session of an undergraduate business course, or, indeed, Form 6 school. This is all about the business, not the company and individuals involved. Surely it’s time to think differently?

So, I wonder what went wrong to cause the bottom to fall out of Macau’s economy? There are obvious contenders: the pandemic; international conflicts; international protectionism; trade wars and sanctions; American exceptionalism and its efforts to avoid quasi-imperial overwork; insufficient economic diversification as a safety net, etc. But how is it that international experts, analysts and companies in Macau, experienced in predicting the future (in fact, to make sure it happens), who rode the crest of the Chinese economic tsunami, are now being caught with their pants down, with closures, layoffs of staff, empty hotels, abandoned casino tables, daily losses of millions of US dollars, empty malls and no visible end in sight. Their business model and the assumptions behind it were flawed. Their market positioning and risk analysis have not been properly assessed; their adaptability and flexibility have been tightened; their EA was too narrow, myopic and self-serving. Maybe they were only there for short term profit, and now with the cold and indifferent side of business they don’t care for more than a minute about firing people, with monstrous repercussions on families in Macau and abroad. .

Some people would revel in schadenfreude, as international companies that were happy to take the billion dollar profits and revel in the excess, are now caught in a massive downturn. Many casinos have been betting on regular high rollers for their bread and butter, but they’ve been caught off guard now. Look deeper. Behind all this, there is the fragility of economic power and its links with international politics. Is it too much to ask of China not to retaliate, very cleverly, for America’s self-promotion of global dominance, by cutting off mainland casino visitors and funneling them to US dollars? Have international companies got their business model wrong by evaluating Macau’s market environments and underestimating the strength of the resistance that China could put up against the Western geopolitical economy?

What we are seeing is not just that the Macau government is not heeding enough the many warnings about its need to diversify the economy, not just the failure of major international gaming companies in Macau to plan what could go wrong, and why, but the negligence that gambling operators have paid the power of China to flex its muscles and exercise its legitimate concern for self-protection in the face of economic attacks, profanity and the actions of Western countries. Perhaps China is taking steps to reduce the outflow of its currency west through Macao, or to prevent money laundering, or to demonstrate that it will not succumb to America which sees itself as the policeman of the world and the master of the universe. Or, on top of that, maybe China, through Macau, is just trying to reduce gambling, because gambling’s allure of greed, a get-rich-quick and greedy mentality, is not simply not a public or private good.

What do we see now? Gaming companies and consortia are taking the hit in Macau and approaching other parts of Southeast Asia to set up shop. Sad to say, China’s big spenders continue to play, now elsewhere outside of Macau. Does this bode well for opening the door for Macau to consider a more socially acceptable source of income, instead of exploiting the lower nature of human behavior in the game? I wish.