The real U.S. versus Hollywood movies

This article has nothing to do with investment analysis, but outlines some thoughts based on my personal experience when assessing various challenges Reynolds American faces. I once studied in UVA for one semester in 2009 on academic exchange. UVA is located in Charlottesville, a charming city with rich cultural heritage. I also took the opportunity to visit various cities such as Washington DC, New York City, Los Angeles, San Diego, Las Vegas, San Francisco etc. Before I studied there, I learnt about the U.S. culture and lifestyle mainly from Hollywood movies. But there are certain nuances that I only came to realise when living there.

1. Consumer preference and customisation

   Here is the first breakfast I had in the U.S. upon arriving New York City. A meatball marinara from Subway. It was the first time in my life to customise a sandwich. The sandwich artist would ask me what bread/cheese/sauce/vegetables I would like. It was a bit overwhelming for me because I was not used to craft a sandwich this way. I had absolutely no idea what to do, so instead asked the sandwich artist to recommend the most popular item. He/she appeared confused and reluctantly recommended meatball marinara to me, but still asked me to choose the bread (white / wheat etc.). I was kind of frustrated and told him/her, “just whatever please”.

   Back then in HK, when I ordered Big Mac meal from McDonald’s, some staffs wouldn’t even ask me what I would like to drink and assumed I went for Coca Cola, unless I specifically requested another drink.

   

   Meatball Marinara from Subway

2. Honour pledge and no cheating

   At UVA, cheating is an honor offense. On the orientation day, I had to sign an honour pledge, affirming my commitment to academic integrity. Cheating or plagiarism could get me expelled from the college. A similar offence wouldn’t lead to such serious consequence in HK based on my knowledge.

3. College house party

   Quite a number of students at college house party hadn’t turned 21 yet, but it didn’t stop them from drinking alcohol. Underage drinking seems common. I know a few people who would obtain fake ID to enter a bar. Forging fake ID was a serious offence in HK so it quite surprised me that college kids would go that far to enter a bar.

4. Professors encouraged students to speak out in the class

   Professors in HK also encouraged students to ask questions, but what interested me was that certain professors in UVA even encouraged students to challenge their teaching or textbook knowledge. I found it quite fascinating because it did open my mind. Students there were also more confident to speak and present their ideas. I still remember a business case studies which we were asked to calculate the net present value of cashflow from a project using appropriate discount rate, inflation and FX assumptions. The professor later told us it was based on a real busines case. He also told us in reality the project was a failure because the business couldn’t find enough customers for its products. All the assumptions became irrelevant if the business wasn’t properly managed.

5. Customer friendly environment

   In Charlottesville, the return policy in department store was quite customer friendly. Certain merchandise items were allowed to be returned for cash within 3-6 months of purchase. I also heard cases which the customers could sue a laundry shop owner for damages to pants during laundry.

6. Price sensitivity of customers

   Certain fast food restaurants offer free refill of soft drinks, but they still charge different price based on cup size. Indeed some people would still order a large size coke even if free refill is available.

7. Public transportation

   Bus schedule was quite unreliable in Los Angeles. It was okay in Charlottesville but still infrequent. Bus service was quite okay in San Francisco as there’s live update of arrival time on Google Map. Overall speaking, it is quite inconvenient to live without an automobile. By the way, I have seen people jumping over ticket gates in San Francisco train station without paying a fare.

8. Medical cost

   I got a flu and fever just before returning to HK. Unfortunately my travel insurance expired. Due to swine flu outbreak, I had to go to a hospital to diagnose that I had no swine flu before boarding the flight back to HK. This cost me US$1,300 and fortunately my college in HK (HKUST) agreed to reimburse such expense.

9. Mental health

   I have seen quite a number of people with mental health issues on the street, Greyhound bus or public transport.

10. Food is affordable but catering is expensive

    Milk, eggs and other common food items in supermarket are quite affordable. But it is quite expensive to dine out, even in fast food restaurant. For non-fast food restaurants, customers are expected to tip as waiters don’t get much salary and earn their income mostly from tips.

11. People wear shoes in their home

    In HK and many other Asian countries, it is not acceptable to wear shoes at home. We either take off our shoes or wear slippers. However it seems to be more accepted in the U.S.

The above is not intended to be a laundry list of my observation of U.S. culture / lifestyle, but just how my personal experience differed from my expectation. Some of these are totally irrelevant to the challenges that Reynolds American face. What I want to highlight is that, to do business in the U.S., it has to be done the American way and there are so many nuances that people living elsewhere won’t fully comprehend. There’s no one-size-fit-all best practice. Only the most appropriate practice matters. If Altria conducts its business the American way while Reynolds American upholds the “best practice” that the London headquarter and Board of Directors proudly deem fit to the market, then eventually there will be gaps in resource allocation efficiency. Tobacco business is very competitive in the U.S. so one can’t afford any loose end. The same goes for Philip Morris doing business in Japan. They have been doing this by respecting certain Japanese modus operandi. You may want to look at this video to see the thoughts put behind their various initiatives in Japan.

Chris Patten, the last Governor of Hong Kong, once said,

“Hong Kong was like a Rolls-Royce or a Cadillac. All you had to do was to take charge of the ignition key, get in, turn on the engine. And the car would go. And I just think the Chinese had some difficulty understanding that.”

If BAT viewed Reynolds American as a Rolls-Royce or a Cadillac after the acquisition in 2017, Reynolds American could have been on a slightly different path, no?