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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

DECEMBER 3, 1999 VOL. 25 NO. 48

The Maverick vs. The Establishment
Page 2: A War of Attrition

Make no mistake. Jimmy Lai is deeply aware of the fix he is in. "I'm in deep shit," he confides. "Maybe it's a conspiracy. But not in the sense that it's secret. It's not. They're out to crush me." They, in this case, are the mostly self-made overlords of the business establishment. Lai adds: "It is like I'm trespassing. In Hong Kong, you just don't do that. I guess that's why this feels like a personal vendetta."

Until now, Lai has been reluctant to publicly name names. But one individual in particular has long been the perceived antagonist in an escalating war of attrition against adMart. Lai alleges that man is Li Ka-shing, chief of the Cheung Kong and Hutchison Whampoa groups. "You can call Li names; he does nothing," says a prominent media person. "But you put your finger in his pocket and he'll crush you. Jimmy is just in Li's territory, and Li will crush him."

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Lai's adMart is no more than a little finger poking into Li's empire. His Hutchison owns huge retailers with which Lai's upstart is directly competing. Among them: Park'n Shop, a grocery chain with 183 stores in Hong Kong, and Fortress, a chain that sells appliances from televisions and compact disc players to toaster ovens and space heaters. Not that Hutchison is the only corporation with an interest in seeing adMart fail. Dairy Farm, owned by Jardine Matheson, the venerable British hong, is also in direct competition, specifically with its 228 Wellcome supermarkets.

Lai claims that both Dairy Farm and Hutchison are waging war on adMart by ordering their subsidiaries to pull advertisements from his Apple Daily newspaper and Next magazine. "This is really dirty pool," says an analyst, who requested anonymity. But, he adds: "Jimmy started it by using his newspaper to push adMart. Don't forget, it's only adMart in English. The Chinese call it Apple Delivery. So the borders were blurred from the beginning."

Moreover, while Park'n Shop and Wellcome ads have indeed disappeared from Lai publications, the real impact of this on his business has been exaggerated. Neither Park'n Shop nor Wellcome were big Apple Daily advertisers in the first place; they favored the Oriental Daily News with their business. Representatives from both chains deny the disappearance of their ads from Apple has anything to do with adMart. But they acknowledge doubling their advertising budgets to counter Lai's online retailer. Between them, the two chains are spending about $1 million a week - that's some 60 pages of ads - in Oriental Daily News, Apple's fiercest rival.

More damaging to Lai by far has been the exodus of lucrative property ads from the pages of Next and Apple. Apple advertising manager Peter Kuo claims eight property developers, including industry giants Henderson, Sun Hung Kai and Sino Land, pulled their ads for three months, starting in August. "It really seems like they made this agreement to hold out advertising from us for three months," he says. Now, however, they are coming back.

"Most of these people are not even friends of this powerful man," says Kuo. "That's why we think he's orchestrating this whole thing through intermediaries." Either way, Kuo reckons the mysterious exodus cost Next Media up to $2 million a month, 75% of it at Apple. Kuo figures the media group lost a further 1% to 2% of its revenues when subsidiaries of Swire, another well-diversified conglomerate, also pulled ads. Swire isn't involved in the supermarket war, but it bottles Coke and does not sell it to adMart.

For the most part, the big squeeze seems to be going on behind the scenes. This, says Lai, is where the cartels come into play. Analysts familiar with how things work in Hong Kong speculate that Lai is probably being blacklisted by distributors of food and electronics. No proof of this exists but there are questionable circumstances. Why, for example, did adMart have so much difficulty convincing Japanese electronics suppliers to sell it appliances? Why are the grocery and electronics sectors most affected? "We don't have any problems with office supplies and mobile phones," Lai says. "There is no cartel in those areas."

There is nothing illegal about the way biggies like Hutchison and Jardine operate in Hong Kong. They have been doing so unmolested virtually since the city was founded. Both groups are classic vertically integrated conglomerates with a presence through the entire grocery supply chain. Jardine's Dairy Farm, which dominates the market in milk products, owns Mannings, a chain of drug and household goods stores, and operates local 7-Eleven stores. Add in its Wellcome supermarkets and this is a formidable group with commensurate powers of persuasion.

For its part, Li's A.S. Watson and Co. division includes an enormous operation centered around three of Hong Kong's largest retail chains: Watson's drug and variety stores, Fortress electronics and household appliance stores and the market-leading Park'n Shop supermarkets. This powerful chain not only can dictate terms to distributors, but itself controls crucial product lines. Its beverage division is Hong Kong's largest water bottler and a major producer of juices and soft drinks. It also holds licenses to bottle such international brands as Sunkist, Pepsi and 7-Up, leaving little toehold for potential challengers.

Page 3: A Mellower and Wiser Jimmy >>

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