Top Companies in Micronesia

on November 1, 2018 | Leave a comment

Small changes make way for big opportunities

By Meghan Hickey

Guam Business Magazine is proud to continue in its 26 year of publishing the Deloitte & Touche ASC Trust list of the Top Companies in Micronesia, this year inclusive of Guam, the Northern Mariana Islands, the Marshall Islands and the Federated States of Micronesia. The list serves to provide a snapshot of the health of the economy in Micronesia, inviting companies in the region with gross revenues totaling more than $1 million to provide company information and participate in the list.

A total of 35 companies opted to share their success with Guam Business this year and provided answers in an anonymous economic confidence survey to describe the health of the company’s bottom line in comparison to one year ago, expectation for the bottom line in the coming year, staffing trends in the past 12 months, expectation for staffing trends in the coming year, reflection on economic expectations for 2018 and economic opportunities foreseen in the coming year.

In total, companies experienced growth at a similar rate as the past two years — 62.9% in 2018, as compared to 63.9% in 2017 and 62.5% in 2016. However, revenue changes were incremental this year, with many of the companies seeing growth or loss within 1% of their 2017 listed revenues.

This may have been what led to the overall optimism trend being slightly lower than last year — those that felt their company’s bottom line had gotten worse increased from 8.33% to 23.1%. However, 61.5% of respondents still believed that their company’s bottom line had continued to grow and become better throughout the last year and 71.2% of respondents expect their business’ bottom line to get better in the next year.

Yet even with the decline of a bottom line, companies were still tending to their workforce, with almost half (46.2%) of respondents reported increasing staff within the last year — two respondents due to the opening of a new branch or location — and similarly (50%) expect to increase staff numbers in the coming year. Only 11.5% reported a decrease in staff, while only 15.4% expect a decrease in staff to occur next year.

In spite of a fluctuating economy due in part to external factors named such as delays in project execution due to environmental compliance requirements and uncertainties, tourism marketing mix changes with the Korean market spending less on hotels and restaurants, an increase in the gross receipts tax to 5% and lower than expected sales, by tending to internal issues where they could, 73.1% of company’s felt that their economic expectations were fulfilled in the last year. Of those that didn’t, one company said that it felt it “needed to better define and maintain alignment of purpose, values and development of our people.”

With a focus on small changes this past year, 69.2% believe the economy will provide specific opportunities for their business in 2019, including

  • more building, more lending and more need for middle market funding;
  • the implementation of a Strategy Execution Team — a group of 30 project managers will commence execution of transformation initiatives;
  • construction contracts both in- and outside the military fence;
  • the Marine relocation and buildup;
  • in the tuna transshipment business;
  • additional work in the defense and government sectors; and
  • in real estate.

Some unrest was noted in relation to the November election, with one respondent saying that change is expected only if there is a new administration in the government so that it can be run as a business enterprise. Regardless, the overwhelming theme from companies was that the opportunities and advancements promised from the military buildup were expected to come to fruition within the next year.

Read on to see the responses from each company on its biggest accomplishment in the past year, an economic assessment by sponsors David J. John of ASC Trust LLC and Joe M. Arnett of Deloitte & Touche LLP and the list of the top revenue-generating companies in the region ranked by gross revenues.

 

What was your biggest corporate accomplishment in the past year?

Editor’s note: Each of the companies participating in this year’s Top Companies survey was asked about its biggest accomplishments during the past year. The following are responses of the head executives.

Ho

“Furthering our commitment to Guam consumers, businesses and the community, this year we announced plans to construct a new West Pacific regional headquarters in Tamuning. The anticipated completion date for the new administrative office and ‘Branch of Tomorrow’ concept is 2020. We’re excited to bring the Guam community a modernized design and digital features in a more centrally located area. Additionally, we continued to give back to the community, which includes our financial literacy efforts throughout the schools, by investing more than 682 hours so far this year. This is our 14th year in supporting financial literacy programs.”

Peter S. Ho
Chairman, president and CEO
Bank of Hawaii

 

Boss

“This year, we renovated the iconic Ben Franklin building and established it as our new company headquarters. We made an important investment: outfitting both the building and our associates with the latest technology, changing the way it feels to work at Docomo Pacific. The employee experience is more mobile and collaborative.”

Roderick Boss
President and CEO
Docomo Pacific Inc.

 

 

Shimizu

“The purchase of a Saipan property for the future MarPac location in Chalan Kiya — four times larger than the present Gualo Rai location. Plans and drawings are almost complete.”

Frank S.N. Shimizu
President
Ambros Inc.

 

 

 

Cornell

“Our greatest accomplishments in 2017 were the successful completion of our second one-year ‘bridging’ BOS Contract in June 2017 and award of a third ‘bridging’ contract in July 2017, as we await the final resolution of a competitor’s dispute, which has been ongoing since September 2014.”

Wayne L. Cornell
President and CEO
DZSP 21 LLC

 

 

Jones

“Completed the Outback renovation, signed a franchise agreement with Red Lobster and started construction on Hertz Guam Rental and Fleet Center.”

Robert H. Jones
Chairman and CEO
Triple J Enterprises Inc.

 

 

Ferguson

“The renovation and expansion of PIC’s main dining room, The Skylight. The expansion of this venue to 700 seats coupled with the addition of an open kitchen concept provide PIC’s customers with a greatly enhanced dining experience.”

Benjamin H. Ferguson
General manager
Pacific Islands Club Guam

 

 

Hammet

“Acquisition of the BMW franchise.”

Alexander W. Hammet
President
Atkins Kroll Inc.

 

 

 

Yasuhara

“This past year we had the opportunity to expand our dining options with the opening of Fisherman’s Express. Fisherman’s Express is our new take-out fresh seafood sandwich shop.”

Makoto “Earnie” Yasuhara
General manager
Hilton Guam Resort & Spa

 

 

Day

“Acquisition of a company headquarters building in Maite, continued growth of

services offered and expansion of operations in Hawaii and American Samoa.”

John Day
President and chief operating officer
Pacific Data Systems Inc.

 

 

Chen

“In November 2017, Marshall Islands Holdings Inc. successfully established a local market, known as MISCo Market, to help the local community of farmers, fishermen, copra and handicraft makers. This market has created a quick and easy payment process for these individuals in exchange for their goods, which in turn helps keep MISCo’s shelves stocked with local food and souvenirs ready to meet the demands of customers. Today, with less than a year of operations, MISCo is one of the islands most popular spots to go to for local items. Additionally, MISCo has already started exporting local goods to Guam, Hawaii and the U.S. mainland.”

Patrick Chen
President and CEO
Bank of Marshall Islands

 

Cook

“In 2017 during our 45th Anniversary, Bank of Guam exhibited its continued devotion to community service and its dedication to financial literacy throughout the Western Pacific region with its programs to Teach Children to Save, to Get Smart About Credit and for teens to participate in our financial literacy simulation exercise to build a foundation in financial decision-making, as well as initiated its new Live. Imagine. Fulfill. Experience, or LIFE program. The Teen Expo attracted nearly 4,000 high school students to a day-long event to learn about life skills they need in preparation for young adulthood.”

Joaquin P. Cook
Interim president, CEO and board member
Bank of Guam

 

Kaae

“In the past year, Black Construction Corporation’s most significant accomplishment was the successful completion of the high risk and professionally challenging Chuuk State Runway Rehabilitation Project.”

Leonard K.
Kaae Sr.
Senior vice president and general manager
Black Construction Corp.

 

 

Baron

“Working with GWA to ensure the startup of the Agat Santa Rita Wastewater Treatment Plant prior to the U.S. EPA imposed deadline.”

Paul K. Baron
Principal
GHD Inc.

 

 

Delinquina

“Coast 360’s single biggest accomplishment was reaching our 55th anniversary milestone staying true to our ‘people helping people’ philosophy and continuing our mission of enriching the lives of our members and being stewards of the environment and community for all generations. The credit union proudly loaned over $115 million to members — of this, $70.9 million was in personal loans; $29.2 million in mortgage loans; and $8.5 million in business loans. We are proud to be able to serve our membership and support their goals — whether it be owning a home, opening a business or finally going on that family vacation.”

Gener F. Deliquina
CEO
Coast360 Federal Credit Union

 

Robertson

“Provided Capital Improvements Project Management for the Guam Visitors Bureau, which included the design for the upgrade to lighting on San Vitores Rd. in Tumon. We managed the procurement of new luminaires, cable and other replacement parts and provided construction management over the installation with Polyphase System Inc. as the installation contractor.”

John M. Robertson
President and principal engineer
AmOrient Engineering

 

 

Ewart

“I am most privileged to be a part of the only United States-owned company reliably supplying fuel needs not just to Guam, but throughout Micronesia. We continue to invest in the region, as part of the ExxonMobil’s commitment to pump in $35 billion in the U.S. over the next five years. This includes investments in our terminals, fleet and at our service stations, upgrading our underground tanks to the latest environmentally friendly technology and our fuel so that our customers can go further on every gallon.”

Charles E. Ewart
President
Mobil Oil Guam Inc., Mobil Oil Micronesia Inc. and Mobil Oil Mariana Islands Inc.

 

Harrison

“First Hawaiian Bank was the number one bank in terms of loans in both Guam and Saipan throughout 2017 and the number one bank in deposits for Guam.”

Robert S. Harrison
Chairman and CEO
First Hawaiian Bank

 

 

Jones

“Completion of our automated Warehouse Management System initiative for our wholesale operations … is our company’s single biggest accomplishment during the past year.”

Elaine C. Jones
President and chairwoman
Jones & Guerrero Co. Inc.

 

 

Stewart

“The company’s biggest accomplishment was securing work for the group of companies for 2018. On Guam this included a contract to build 50 apartment units for Ironwood and two sizable projects on Saipan — Isa Villas and the Imperial Pacific Resort.”

Keith J. Stewart
President
Pacific Rim Group of Companies

 

 

Radonich

“Smithbridge has made an investment into acquiring the assets of Nippo USA Inc., which is a significant adjacent land parcel and includes all stock and equipment. Smithbridge anticipates to be in asphalt paving operation by 2019. Smithbridge has recently executed an operating lease with JPlanning Guam Corp. to operate their ready-mix concrete plant.”

Stevyn J. Radonich
Vice president and general manager
Smithbridge Guam Inc.

 

Certeza

“Huntsman Family Investments acquired GTA in July 2017 and brought on local investors that include the Ada family, the Moylan family, Phil Flores, Dr. Nathaniel and Melissa Berg, Michael Ysrael and the Tenorio family of Saipan.

GTA improved the wireless network to deliver an improved customer experience which includes increasing capacity at more than two-thirds of our wireless cell sites.

We signed a lease to create a new flagship store at the Camacho Landmark Center set to open in 2019. The store introduces a brand-new retail concept focusing on inspiring customers with the latest technology.

We expanded Fiber to the neighborhood. New areas include Agana Heights, Sinajana, Mangilao, Barrigada and Harmon.

GTA expanded GTA cable landing station activities: two new cables have been announced — Hong Kong Guam and Japan-Guam-Australia undersea fiber optic cables expected to be in service by the end of 2019.”

Roland Certeza
President and CEO
GTA Teleguam

 

Schaumann

“Our single biggest accomplishment changes every day with each new loan that helps a family into a new home or support a business to grow. We feel a satisfying sense of purpose and accomplishment when we listen to our customers and provide the right financial solution to help our community thrive.”

Clarke Schaumann
CEO
ANZ Guam Inc.

 

 

Morris

“The development and launch of the Vital Group 10-Year Balanced Scorecard Institute Strategic Framework — Voyaging Together 2025 — identifying the 17 strategy objectives and organizational drivers of the company. The resulting development of the company’s internal Strategy Execution Framework helped charter the Vital Group Strategy Execution Team and the Committee on Resource Effectiveness. Together, these accomplishments have established a roadmap and action plan to continue the lowering of costs, at the same time increasing revenue diversity and enhancing the commercial viability of the Vital Group of companies for the long-term.”

Jared C. Morris
CEO
The Vital Group of Companies

 

Alcorn

“Revenues were just under $28 million, however next year we project $48 million. We’re really excited about our U.S. contracts — USMC with Sodexo. GFS is happy that we’re back working in the states.”

Lucy M. Alcorn
CEO
GFS Group

 

 

Kramer

“PII became the exclusive distributor (Midpac) of Liquor, Wines and Spirits in Majuro, Marshall Islands. We also opened our purse seine net yard facility.”

Joseph “Jerry” Kramer
President and CEO
Pacific International Inc.

 

 

Sgro

“PDC Wholesale, the distribution arm of Pay-Less Markets, was established to service other retailers, hotels and restaurant operations. PDC is a 50,000 square-foot warehouse in Harmon with a state-of-the-art banana ripening chamber and a USDA certified meat facility. Pay-Less Logistics is a produce wholesale company located in the SFO Produce Market which supplies to Guam businesses and institutions. The construction of a new Maite Pay-Less Markets has started, with a scheduled completion date of April 2019.

Katherine C. Calvo-Sgro
Vice president and secretary
PMC Investments Inc.

 

Harris

“Strong, cohesive leadership and empowered, engaged employee-owners have continued to create mutual benefit and value with our clients and communities in what has been a banner year for Stanley Consultants.”

Kate C.E. Harris
President and CEO
Stanley Consultants Inc.

 

 

Government interference in labor market holding back economy

By David J. John

While down approximately 2% over fiscal 2017, tourism arrivals on Guam remain strong and more seat capacity is coming on line in the fourth quarter. After several stops and starts, the long-awaited military buildup is officially underway, with current projects centered on infrastructure improvements such as the $44 million Route 3 expansion. Further, awards will keep contractors inside the fence busy for years to come. Guam’s economy should be humming. But it is not. 

Why? There are several reasons the economy is stalled — ranging from a dramatic change in tourist spending habits to the local government’s threats for mass layoffs of their workers due to the effects of the new Trump tax policies on Guam’s Treasury. However, these issues pale in comparison to the 10,000-pound elephant in the room — the federal government’s policy change in its approval process for H-2B visas for Guam’s construction industry. 

For those who are not following the situation, the federal government has historically allowed H-2B workers for construction projects on Guam. By statute, these workers are supposed to be temporary in nature and with skills that cannot be found locally. 

Guam used to have an average of 1,500 H-2B workers on island at any one time and approvals of request for these workers were near 100%. Further, as part of the commitment to making sure the military buildup minimized negative consequences such as inflation and housing shortages, Guam was promised continued support to bring in these workers. Not only did the numbers fail to increase as promised, but without notice in the final year of the Obama administration approvals dropped to almost zero.

While I have never seen a clear response from the federal government as to why the big change in processing, it is my understanding that when the Obama administration began denying H-2B visa requests, they said there was no change in policy, just that the policy was being more closely enforced. 

H-2B workers are supposed to be temporary in nature. For example, when a large hotel is being built, there is an out-of-the-ordinary demand for labor. Once the hotel is built, the workers are supposed to be sent home. But certain contractors carried workers over from one “temporary” project to the next, even though the demand for labor was within normal capacity. 

These H-2Bs should not have been approved, but they were. While the contractors that were following this policy share some of the blame, the Feds should get more as they continued to grant access to this labor without criticism or guidance until one day they stopped approving visas without any warning.

The industry thought the election of Donald Trump as president might help change the policy as the Trump Administration is more pro-business, but the Trump Administration has not been any better under the guise of saving/creating U.S. jobs. While I can appreciate this effort to employ American workers over foreign labor, especially in regards to military projects, it is extremely tough to get American workers to come to Guam for temporary work in normal times. However, due to the success of the Trump Administration’s pro-business policies, the unemployment rate dropped to 3.7% in September of this year. There are currently more than seven million job openings in the United States with six million unemployed workers. These numbers do not bode well for workers coming to Guam.

The Guam Contractors Association and nearly a dozen other businesses sued the federal government over these denials. The good news is the National Defense Authorization Act approved up to 4,000 H-2B workers for military realignment projects. However, while the act authorized H-2B workers for projects directly related to the buildup, applications for H-2B workers for non-buildup projects continue to be denied, placing stress directly or indirectly on almost every industry on Guam.

 

Construction
While it is easy to understand how the restrictive H-2B policy has hurt contractors up until now, it is a bit more difficult to understand why the industry that typically averages 1,500 H-2B workers would be constrained when the recently passed NDA authorized 4,000 H-2B workers for direct build up projects. The answer lies in the fact that not all construction companies and projects are the same.

The large contractors with access to base projects are set to thrive, with one contractor anticipating more than $200 million in business in a few years. But the small to mid-sized companies focused on projects outside the base are competing for labor with federal contract wages and benefits and are coming up short. The result is that project after project is on hold, to include hotels, office space and housing.

 

Tourism
Guam’s tourism industry is a mixed bag. Depending on who you talk to in the industry, they are either printing money or on life support. Much of this has to do with the change in country of visitor arrivals. 

Arrivals have been strong in recent years and the outlook continues to be solid, however the country of origin has switched from an almost exclusive Japanese tourist market to a market where Korean arrivals currently out number Japanese arrivals.

A diversified market is a good long-term trend as it creates more market diversification.  However, the spending habits and marketing strategies necessary to reach this new demographic are significantly different and companies who have not updated their business plan to reflect this new paradigm are experiencing a lot of issues. I am confident in the entrepreneurial spirit of Guam and that the industry as a whole will figure out a successful strategy to succeed in this new diversified market.

The positive news is that arrival numbers are strong and lift capacity out of Japan is set to grow over the next couple of months as United Airlines shifts back to wide bodies on some of its routes and Ken Corp. adds its charter flights in conjunction with Jeju airlines.

The negative is that while the arrivals look strong for the foreseeable future, a successful tourism economy requires continuous capital investment in both new facilities and upgrades to current facilities.

Currently, the 340-room Tsubaki Tower is under construction in Tumon and several new restaurants are slated to open in Tumon Sands and the Plaza areas, but besides this there is not a lot of improvements underway. This is not the case of no demand. The island needs between 500 and 1,000 new rooms and there are at least three hotels that are looking to build but are unable to start due to the H-2B issue. 

There is also some good news on the horizon for hotel construction and room improvements.  According to officials at the Guam Economic Development Authority, the Department of Defense has granted the designation of hotel construction and room improvements as being directly connected to or associated with the military realignment on Guam. If this holds up, H-2B workers may become available for hotel construction and renovation in the very near future. 

 

Housing
If something is not done similar to the Department of Defense designation of additional hotel rooms as being directly connected to the build up, the island could be in a world of hurt for housing within the next few years.  Guam is already feeling the pinch for lower rent apartments, as construction companies have been buying entire apartment buildings for their soon-to-arrive H-2B workers. In doing so, they are pushing out tenants in a market already short of rooms.

If nothing is done soon, middle class housing will be next. This initial group of workers coming in for the buildup will be H-2B construction workers. They will live in barracks or company apartments.  However, the next wave of workers arriving will be the skilled workers tasked with running the new facilities. These workers are going to bring their families with them and will require houses and larger apartments.

The majority of Guam housing stock is comprised of projects consisting of one to six homes built on small family parcels. Workers in this market are almost impossible to get. If additional housing is not built soon, Guam will begin to see a huge shortage in housing stock compared to the new demand. This will drive up the price of housing and rent and the new workers who have federal jobs on base will be in a position to out bid employees in the local economy. If this happens, Guam could be in for major social economic problems.

 

Auto industry
If one wants a quick and easy measurement of consumer sentiment on Guam, you only need to look at auto sales. When consumers have a steady job and are confident of their economic future, they are more likely to purchase vehicles. If they are uncertain they hold back on big ticket items. 

Unfortunately, auto sales on Guam are off double digits in year-over-year sales year to date. One would think that if the contractors were gearing up for work on base that at least truck sales would be picking up. However, the dealers are finding that most of the contractors with on base projects are bringing in their own fleets from the states.

Meanwhile, earlier in the year the local government calculated that the Trump tax plan was going to heavily effect Guam’s tax collections.  Based on this the Guam legislature and the executive branch started floating around ideas on how to best increase tax revenues. They eventually settled on increasing the business priveledge tax from 4% to 5%. However, before they were able to come up with a new policy, there was major infighting which consisted of threats of mass layoffs. Those in the industry we spoke with believe this was enough of an uncertainty to cause individuals to delay the purchase of a new car.

 

Banking
The banks on island finance housing, autos and small to medium sized commercial activity. They typically do not participate in financing for large hotels and projects on base that are being performed by large off island companies. With auto sales off double digits, fleets being brought in by contractors and projects being financed on base by the Japanese and U.S. governments, banking activity is extremely slow. Adding to this, financial uncertainty is causing consumers to save additional funds for a rainy day. 

While banks require deposits to make loans, deposits are a liability on a banks’ balance sheet.  Too many deposits without loan activity causes a problem for a banks’ reserve requirements. This is the current case for local banks and the outlook is for this trend to continue until the middle to small sized contractors receive access to workers for local projects.

 

Summary
The build up has begun, tourism numbers are strong and the economy is flat due to the inaccessibility of H-2B construction workers. There is some relief on the horizon in the form of up to 4,000 H-2B workers for direct military construction and allowing H-2B workers to work on hotels as part of the buildup.

If Guam and the region are going to properly benefit from the military realignment, island leaders to include the executive branch, the legislature and the private sector need to come together after the election with a single voice to get the federal government to allow contractors access to the workers they need to complete the communities projects “outside the fence,” so that the island properly benefits from the buildup.

The good news is, with one waive of a pen by some mid-tiered bureaucrat in D.C., a lot of these problems can go away.

David J. John
President
ASC Trust LLC

 

 

The road ahead to economic prosperity continues to have roadblocks that can slow traffic

By Joe M. Arnett

While Guam’s future looks bright, the island’s economy still faces notable challenges. This year has seen significant moves and projects towards the military buildup and the island’s tourism numbers have remained high. However, both the pillars of Guam’s economy will require careful management if the potential for growth is to be fulfilled.

Guam’s civic organizations have maintained pressure and contact wherever possible to improve the challenges to the island’s workforce. Most recently, the Guam Chamber, its Armed Forces Committee and the island’s political leadership met with the delegation of Secretary of the Interior Ryan Zinke to explain the challenges that face Guam — the effect of U.S. tax cuts, the lack of matching Medicare funds for the island’s hospital, the slow pace of workforce development and more.

Whether those talks will result in the necessary federal action is another matter.

 

Construction
The island’s contracting community continues to be awarded a significant amount of work.

Recent awards for federally funded projects signify the progress of the military buildup in the region. These include the awards to Black Construction Corp. for the widening of Rte. 3 and the construction of the aircraft maintenance facility at Andersen Air Force Base, and to Hawaiian Rock to repair the Northwest Field North Runway at Andersen.

However, without relief from the federal authorities, the lack of labor will challenge even the most prepared of Guam’s companies as locally-hired skilled personnel and community workforce development initiatives cannot meet the demand these and future projects will require. The shortage of skilled workers and the reluctance of potential local candidates is driving the cost of construction to record levels.

If there is a bright spot, it is that the Naval Facilities offices in Guam and Hawaii have shown understanding that hotel and resort development in Guam needs to proceed to house not only those military personnel that will visit the island, but civilian contractors and experts also.  So while progress on the islands new hotel facilities has been slow, there is still progress.

More worrying is the slow pace of smaller commercial developments as our medium-sized contractors are stretched to complete the island’s projects. Successful projects like Coretech’s Summer Towers at Oka Point are also not enough to satisfy the growing demand for residential leased housing.

 

Tourism
The increased flights and growth of the Korean market has kept Guam’s tourism numbers buoyant. Efforts by the Guam Visitors Bureau through marketing and monetary incentives to United Airlines and by Ken Corp. through its own charters are keeping the Japan market as a significant sector of the island’s visitor industry.

However, the island does lack the room numbers it requires to progress, and new projects will be welcome as they come on-line.

 

Government
The contentious atmosphere recently and as Guam approaches the Nov. 6 election has caused uncertainty not only in the business community, but in the government of Guam’s own population, due to talk of job cuts.

Similarly, a hike in the business privilege tax from 4% to 5% has increased the cost of doing business and the cost of living. The increase in taxes and government fees are causing inflationary pressures on the economy.

Though tax refunds have flowed freely from the administration, businesses and residents are taking a cautious position and spending sparely.

The flat gross island product in the last eight or so years is partially responsible for the huge debt the government has built up.  

 

Conclusion
In a perfect world, the issues of the rising cost of doing business and the lack of skilled labor on Guam would be righted immediately.

But despite its challenges, Guam has the firm potential for investment and development in a region that offers the security of a U.S. business environment. Such an environment is backed by a fully developed banking community, a sophisticated telecom structure and an island that is a shipping and transport hub in Micronesia.

In closing, I estimate that work associated with the military buildup in Guam and the Northern Mariana Islands can continue for the next 15 years, providing the opportunity for the economy to grow and remain steady and contributing to the government’s tax base.

 

 

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