http://www.odeo.com/channels/7043-China-Business-Blog-and-Podcast KentKedl no Is China a threat or an opportunity for your company? Are there real growth opportunities for you in the world's fastest growing market? Expertise and insight from Technomic Asia China, a market strategy consulting firm with more than 20 years in China. Is China a threat or an opportunity for your company? Are there real growth opportunities for you in the world's fastest growing market? Expertise and insight from Technomic Asia China, a market strategy consulting firm with more than 20 years in China. Is China a threat or an opportunity for your company? Are there real growth opportunities for you in the world's fastest growing market? Expertise and insight from Technomic Asia China, a market strategy consulting firm with more than 20 years in China. en 40 Wed, 11 Nov 2009 16:42:58 -0800 Wed, 11 Nov 2009 16:42:58 -0800 Marketing http://www.odeo.com/episodes/25439189-Safety-in-China Download this podcast Length – 6:43 Download audio file (20091106_safety_in_china.mp3) I was in Los Angeles a couple of weeks ago for a conference.  I flew from Shanghai to LAX, landing there at about 11:00 in the morning.  By noon I was on the road in my rental car.  But it wasn’t until about 12:45, driving 70 mph on the 405, when I remembered that, in the U.S., the lines on the road are more than just mere suggestions … you are expected to stay between them and other drivers get upset when you drift aimlessly.  And some of those other drivers are armed and in a very bad mood too! My inability to cross traffic cultures aside, this raised in my mind an important point about safety in China … and frankly, things are still a bit loose here.  While it is better here in Shanghai than it used to be, cars don’t always stay between the lines, on their side of the street or even off the sidewalk.  If a driver doesn’t know where they are, they stop, wherever they happen to be, to consi... Download this podcast Length – 6:43 Download audio file (20091106_safety_in_china.mp3) I was in Los Angeles a couple of weeks ago for a conference.  I flew from Shanghai to LAX, landing there at about 11:00 in the morning.  By noon I was on the road in my rental car.  But it wasn’t until about 12:45, driving 70 mph on the 405, when I remembered that, in the U.S., the lines on the road are more than just mere suggestions … you are expected to stay between them and other drivers get upset when you drift aimlessly.  And some of those other drivers are armed and in a very bad mood too! My inability to cross traffic cultures aside, this raised in my mind an important point about safety in China … and frankly, things are still a bit loose here.  While it is better here in Shanghai than it used to be, cars don’t always stay between the lines, on their side of the street or even off the sidewalk.  If a driver doesn’t know where they are, they stop, wherever they happen to be, to consider their options.  They will stop in the middle of a street, an intersection or even the elevated highway.  They are not thinking about safety … they just don’t want to be lost.  While I admire their commitment to truth and knowledge, if they are not careful, they will soon know very well where they will end up … on a stainless steel table in the morgue! Pedestrians here will only stop at a crosswalk when there is a traffic cop to shame them into waiting the 12 seconds required for the light to turn.  And if you are on a bicycle, scooter or motorcycle, you can – and will – just go right through any intersection and any light.  Apparently, no traffic rules apply to you and cops, in general, won’t even try to stop you.  Its as if the presence of two wheels under you gives you superpowers of invisibility, Kevlar underwear and a get-out-of-jail-free card. So when I saw a New York Times article a couple of days ago titled “Salute All Cars, Kids. It’s a Rule in China”, I was intrigued.  In a nutshell, the article tells how Chinese education officials are encouraging children in the countryside to, literally, salute all cars on their walks to and from school … the purpose of which is to get these kids to pay attention to traffic and notice when cars are coming and to stay out of the way.  However, what I thought was going to be an article about improving traffic safety in China turned into a diatribe about the ridiculous edicts that come from the government here and the citizen outrage that often accompanies it.  The journalist cited numerous examples of silly government pronouncements – such as forcing people to purchase local cigarettes and liquor to inflate the state-owned enterprise sales figures – and the fact that ordinary Chinese are fighting back.  Fair enough … its good to see that voices are being raised against government silliness, something we’ve known how to do for a long time in the U.S. (however, we haven’t quite figured out how to actually END the government silliness). Unfortunately, what gets lost in article, buried at the very end, is that this edict, no matter how silly it may seem, actually seems to be reducing traffic accidents, at least in the mountainous village where the journalist did their interviews.  And that, I think, should be the point … in Shanghai where I live in MORTAL fear of hitting some kid that runs out into traffic, finding some way … ANY way … of teaching kids to respect traffic is OK in my book. Teaching civil behavior in China has been an issue ever since … well, ever since there was society here.  And China has one of the world’s oldest civilizations so you do the math … but its been awhile. Chinese leaders over the years, from Meng-zi to Mao, have been seen not only as political leaders, but social leaders as well. The big phrase in China over the past couple of years has been an encouragement from President Hu Jin-tao to work together to create a “he2 xie2 she4 hui4”, a “harmonious society.”  They started it leading up to the Olympics when they expected airplane loads of tourists to descend upon China and the leaders wanted to put on their best face … kind of like when you were a kid and were told to “go wash up, Aunt Marge will be here any minute” and you were dreading that dry, moth-bally kiss and the comments on how big you’d grown and isn’t it cute at how they grow up so fast, but really, can’t you do something about that acne and … well, no need to drag you into my adolescent nightmare.  Let’s just say that the Harmonious Society campaign has gone over about as well here. So maybe teaching kids to salute cars isn’t so silly after all.  And c’mon, admit it … isn’t EVERY country’s teaching of civil society a bit ridiculous?  Imagine you are sitting in the pitch meeting for the Woodsy the Owl campaign … “OK, J.R., here is how I see it … we don’t want people to throw garbage on the ground, right?  Makes the place look like a dump, right?  OK … so picture this … a grown man, dressed in a cheesy owl costume … and he says ‘Hoo … Hoo … Give a Hoot, Don’t Pollute!’  Huh?  Huh? Is that great or what??”  Yea … I know I am guy of limited taste and erudition, but I don’t think I would have signed off on that one. I think that China is reaching a tipping point in matters of public safety and I really think that the government should – and CAN – step in and start to move public opinion and behavior.  Private cars are proliferating like bunnies in the dark here, but car seats for children are not and Junior is playing Red Rover between the front and the back seat.  Start putting some pictures at the car dealerships of what happens if Junior goes through the front windshield … guaranteed there will be a lock down pretty fast.  And maybe adults will actually start using their own seatbelts as well instead of just draping them across their laps whenever they drive by a policeman.  Seriously, taxi drivers do this all the time!  And people are still dumping garbage out their windows here.  Sure, there are tons of municipal workers running around with brooms to sweep the streets, but polluting for the sake of fuller employment doesn’t make sense to me. So I say, bring on the saluting if it helps teach kids to respect a ton of speeding death metal on the road.  Heck, get them to bow, curtsey and say “By your leave, m’lord”, I don’t care!  Just keep them from being human speed bumps!  And bring on the animals teaching moral lessons … in the U.S. we had our Woodsy, Smokey and G’ruff, China should have theirs.  Imagine the pitch meeting for that one, “OK … Wang … here’s how I see it.  We want to get people to stop throwing garbage on the ground … so let’s dress up some guy in a cheesy panda costume and have him say, ‘Polluters should be nearly extinct … like me!’  Huh?  Huh??  Is that great or what???” Yea … maybe I will just stick to Podcasting. Thanks again for listening … remember our motto: “In China, everything is possible but nothing is easy.”  We’ll see you next time on the China Business Podcast. Download this podcast Length – 6:43 Download audio file (20091106_safety_in_china.mp3) I was in Los Angeles a couple of weeks ago for a conference.  I flew from Shanghai to LAX, landing there at about 11:00 in the morning.  By noon I was on the road in my rental car.  But it wasn’t until about 12:45, driving 70 mph on the 405, when I remembered that, in the U.S., the lines on the road are more than just mere suggestions … you are expected to stay between them and other drivers get upset when you drift aimlessly.  And some of those other drivers are armed and in a very bad mood too! My inability to cross traffic cultures aside, this raised in my mind an important point about safety in China … and frankly, things are still a bit loose here.  While it is better here in Shanghai than it used to be, cars don’t always stay between the lines, on their side of the street or even off the sidewalk.  If a driver doesn’t know where they are, they stop, wherever they happen to be, to consider their options.  They will stop in the middle of a street, an intersection or even the elevated highway.  They are not thinking about safety … they just don’t want to be lost.  While I admire their commitment to truth and knowledge, if they are not careful, they will soon know very well where they will end up … on a stainless steel table in the morgue! Pedestrians here will only stop at a crosswalk when there is a traffic cop to shame them into waiting the 12 seconds required for the light to turn.  And if you are on a bicycle, scooter or motorcycle, you can – and will – just go right through any intersection and any light.  Apparently, no traffic rules apply to you and cops, in general, won’t even try to stop you.  Its as if the presence of two wheels under you gives you superpowers of invisibility, Kevlar underwear and a get-out-of-jail-free card. So when I saw a New York Times article a couple of days ago titled “Salute All Cars, Kids. It’s a Rule in China”, I was intrigued.  In a nutshell, the article tells how Chinese education officials are encouraging children in the countryside to, literally, salute all cars on their walks to and from school … the purpose of which is to get these kids to pay attention to traffic and notice when cars are coming and to stay out of the way.  However, what I thought was going to be an article about improving traffic safety in China turned into a diatribe about the ridiculous edicts that come from the government here and the citizen outrage that often accompanies it.  The journalist cited numerous examples of silly government pronouncements – such as forcing people to purchase local cigarettes and liquor to inflate the state-owned enterprise sales figures – and the fact that ordinary Chinese are fighting back.  Fair enough … its good to see that voices are being raised against government silliness, something we’ve known how to do for a long time in the U.S. (however, we haven’t quite figured out how to actually END the government silliness). Unfortunately, what gets lost in article, buried at the very end, is that this edict, no matter how silly it may seem, actually seems to be reducing traffic accidents, at least in the mountainous village where the journalist did their interviews.  And that, I think, should be the point … in Shanghai where I live in MORTAL fear of hitting some kid that runs out into traffic, finding some way … ANY way … of teaching kids to respect traffic is OK in my book. Teaching civil behavior in China has been an issue ever since … well, ever since there was society here.  And China has one of the world’s oldest civilizations so you do the math … but its been awhile. Chinese leaders over the years, from Meng-zi to Mao, have been seen not only as political leaders, but social leaders as well. The big phrase in China over the past couple of years has been an encouragement from President Hu Jin-tao to work together to create a “he2 xie2 she4 hui4”, a “harmonious society.”  They started it leading up to the Olympics when they expected airplane loads of tourists to descend upon China and the leaders wanted to put on their best face … kind of like when you were a kid and were told to “go wash up, Aunt Marge will be here any minute” and you were dreading that dry, moth-bally kiss and the comments on how big you’d grown and isn’t it cute at how they grow up so fast, but really, can’t you do something about that acne and … well, no need to drag you into my adolescent nightmare.  Let’s just say that the Harmonious Society campaign has gone over about as well here. So maybe teaching kids to salute cars isn’t so silly after all.  And c’mon, admit it … isn’t EVERY country’s teaching of civil society a bit ridiculous?  Imagine you are sitting in the pitch meeting for the Woodsy the Owl campaign … “OK, J.R., here is how I see it … we don’t want people to throw garbage on the ground, right?  Makes the place look like a dump, right?  OK … so picture this … a grown man, dressed in a cheesy owl costume … and he says ‘Hoo … Hoo … Give a Hoot, Don’t Pollute!’  Huh?  Huh? Is that great or what??”  Yea … I know I am guy of limited taste and erudition, but I don’t think I would have signed off on that one. I think that China is reaching a tipping point in matters of public safety and I really think that the government should – and CAN – step in and start to move public opinion and behavior.  Private cars are proliferating like bunnies in the dark here, but car seats for children are not and Junior is playing Red Rover between the front and the back seat.  Start putting some pictures at the car dealerships of what happens if Junior goes through the front windshield … guaranteed there will be a lock down pretty fast.  And maybe adults will actually start using their own seatbelts as well instead of just draping them across their laps whenever they drive by a policeman.  Seriously, taxi drivers do this all the time!  And people are still dumping garbage out their windows here.  Sure, there are tons of municipal workers running around with brooms to sweep the streets, but polluting for the sake of fuller employment doesn’t make sense to me. So I say, bring on the saluting if it helps teach kids to respect a ton of speeding death metal on the road.  Heck, get them to bow, curtsey and say “By your leave, m’lord”, I don’t care!  Just keep them from being human speed bumps!  And bring on the animals teaching moral lessons … in the U.S. we had our Woodsy, Smokey and G’ruff, China should have theirs.  Imagine the pitch meeting for that one, “OK … Wang … here’s how I see it.  We want to get people to stop throwing garbage on the ground … so let’s dress up some guy in a cheesy panda costume and have him say, ‘Polluters should be nearly extinct … like me!’  Huh?  Huh??  Is that great or what???” Yea … maybe I will just stick to Podcasting. Thanks again for listening … remember our motto: “In China, everything is possible but nothing is easy.”  We’ll see you next time on the China Business Podcast. tag:odeo.com,2009-11-11,25439189 Wed, 11 Nov 2009 16:42:58 -0800 no China Business Blog and Podcast podcast, Culture, Government, Humor, China, automotive, China driving, China humor, China safety http://www.odeo.com/episodes/25419915-China-M-A-%E2%80%93-An-interview-with-Dr-Kim-Woodard-part-3 Download this podcast Length – 16:50 Download audio file (20091106_kim_woodard_pt3.mp3) OK … we are on to Part 3 of our interview with the newest addition to the Technomic Asia team, Kim Woodard.  In this section, we get down into the nitty-gritty of doing deals in China.  Enjoy! Download this podcast Length – 16:50 Download audio file (20091106_kim_woodard_pt3.mp3) OK … we are on to Part 3 of our interview with the newest addition to the Technomic Asia team, Kim Woodard.  In this section, we get down into the nitty-gritty of doing deals in China.  Enjoy! Download this podcast Length – 16:50 Download audio file (20091106_kim_woodard_pt3.mp3) OK … we are on to Part 3 of our interview with the newest addition to the Technomic Asia team, Kim Woodard.  In this section, we get down into the nitty-gritty of doing deals in China.  Enjoy! tag:odeo.com,2009-11-07,25419915 Sat, 07 Nov 2009 17:44:41 -0800 no China Business Blog and Podcast podcast, strategy, Government, China, guanxi, market entry, partnerships, economy, m&a, business risk, Kim Woodard, China M&A, M&A strategy, China risk http://www.odeo.com/episodes/25402654-China-M-A-%E2%80%93-An-interview-with-Dr-Kim-Woodard-part-2 Download this podcast Length – 17:54 Download audio file (20091102_kim_woodard_pt2.mp3) We are in the middle of a Podcast interview with Dr. Kim Woodard, the newest addition to the Technomic Asia team here in Shanghai.  Kim’s background includes setting up A.T. Kearney in the early days of China business and running his own boutique M&A consulting firm.  We brought Kim into Technomic to fill out our ability to provide end-to-end services for our clients doing deals in China.  While we saw a bit slow-down in 2009 for M&A in China (and, in fact, around the world), we see that things are really going to pick up in 2010 as companies are looking for aggressive growth opportunities. In this Podcast, I talk with Kim about the practical do’s and don’ts of doing deals in China … Download this podcast Length – 17:54 Download audio file (20091102_kim_woodard_pt2.mp3) We are in the middle of a Podcast interview with Dr. Kim Woodard, the newest addition to the Technomic Asia team here in Shanghai.  Kim’s background includes setting up A.T. Kearney in the early days of China business and running his own boutique M&A consulting firm.  We brought Kim into Technomic to fill out our ability to provide end-to-end services for our clients doing deals in China.  While we saw a bit slow-down in 2009 for M&A in China (and, in fact, around the world), we see that things are really going to pick up in 2010 as companies are looking for aggressive growth opportunities. In this Podcast, I talk with Kim about the practical do’s and don’ts of doing deals in China … Download this podcast Length – 17:54 Download audio file (20091102_kim_woodard_pt2.mp3) We are in the middle of a Podcast interview with Dr. Kim Woodard, the newest addition to the Technomic Asia team here in Shanghai.  Kim’s background includes setting up A.T. Kearney in the early days of China business and running his own boutique M&A consulting firm.  We brought Kim into Technomic to fill out our ability to provide end-to-end services for our clients doing deals in China.  While we saw a bit slow-down in 2009 for M&A in China (and, in fact, around the world), we see that things are really going to pick up in 2010 as companies are looking for aggressive growth opportunities. In this Podcast, I talk with Kim about the practical do’s and don’ts of doing deals in China … tag:odeo.com,2009-11-02,25402654 Mon, 02 Nov 2009 16:58:56 -0800 no China Business Blog and Podcast podcast, Interview, strategy, Government, China, guanxi, partnerships, economy, m&a, Kim Woodard, China M&A, M&A strategy http://www.odeo.com/episodes/25402655-China-M-A-%E2%80%93-An-Interview-with-Dr-Kim-Woodard-part-1 Download this podcast Length – 17:03 Download audio file (20091028_kim_woodard_pt1.mp3) Unless you have been living in a hole or the dark side of the moon for the past year, your life has somehow been impacted by the global economic slowdown.  You, a friend or a family member have lost a job; your municipal budgets are being cut; heck, your OWN budget is being slashed.  It has not been a fun year, even here in China where things are still moving along at a pretty good clip. Though there are signs that things are getting better, I am not convinced we are totally out of the woods yet.  But just because we have no guarantee of where things might be going, that doesn’t mean we can crawl back into our hole or retreat to the backside of the moon … no, we need to keep moving forward. And at Technomic Asia, that is exactly what we are doing.  For many years, our consulting practice has been involved with foreign companies doing all kinds of alliances in China: from... Download this podcast Length – 17:03 Download audio file (20091028_kim_woodard_pt1.mp3) Unless you have been living in a hole or the dark side of the moon for the past year, your life has somehow been impacted by the global economic slowdown.  You, a friend or a family member have lost a job; your municipal budgets are being cut; heck, your OWN budget is being slashed.  It has not been a fun year, even here in China where things are still moving along at a pretty good clip. Though there are signs that things are getting better, I am not convinced we are totally out of the woods yet.  But just because we have no guarantee of where things might be going, that doesn’t mean we can crawl back into our hole or retreat to the backside of the moon … no, we need to keep moving forward. And at Technomic Asia, that is exactly what we are doing.  For many years, our consulting practice has been involved with foreign companies doing all kinds of alliances in China: from joint ventures to licensing to distribution to acquisitions, we have helped our clients put their alliance strategy together and then execute it.  Up until about a year ago, we had been seeing a real upturn in acquisitions in China: the government rules for acquiring companies were loosening up and foreign companies were looking to China for new growth opportunities.  Then the bottom fell out of the economy and companies put all that activity on hold. However, as things settle around the globe, multinational companies are looking for ways to grow and China seems a very good place to look for that growth.  And one of the methods they are returning to is growth through acquisition. To capture this wave, we have brought in a new team member to Technomic Asia: Dr. Kim Woodard.  Kim has had over 30 years of experience in China, first coming here in the 70s in the earliest stages of China’s opening to the West following Nixon’s “Ping Pong Diplomacy”.  Armed with a Ph.D. from Stanford, Kim was soon a respected leader of foreign companies’ earliest advances into China.  Kim helped establish A.T. Kearney’s China practice and then went on to help big names such as John Deere and AMP establish their China operations. Most recently, Kim had his own firm, Javelin Investments, to assist Western multinationals with acquisitions in China.  We wanted to bring Kim in to Technomic Asia to give us the ability to provide a complete M&A advisory practice – from initial strategy development all the way through to negotiation, closing and integration. Given the returning importance of M&A in China, I wanted to have a series of conversations with Kim about M&A and, in his experience, what makes for a successful acquisition in China.  Attached is the first in a series that we will roll out in the coming weeks.  I hope you enjoy it! Download this podcast Length – 17:03 Download audio file (20091028_kim_woodard_pt1.mp3) Unless you have been living in a hole or the dark side of the moon for the past year, your life has somehow been impacted by the global economic slowdown.  You, a friend or a family member have lost a job; your municipal budgets are being cut; heck, your OWN budget is being slashed.  It has not been a fun year, even here in China where things are still moving along at a pretty good clip. Though there are signs that things are getting better, I am not convinced we are totally out of the woods yet.  But just because we have no guarantee of where things might be going, that doesn’t mean we can crawl back into our hole or retreat to the backside of the moon … no, we need to keep moving forward. And at Technomic Asia, that is exactly what we are doing.  For many years, our consulting practice has been involved with foreign companies doing all kinds of alliances in China: from joint ventures to licensing to distribution to acquisitions, we have helped our clients put their alliance strategy together and then execute it.  Up until about a year ago, we had been seeing a real upturn in acquisitions in China: the government rules for acquiring companies were loosening up and foreign companies were looking to China for new growth opportunities.  Then the bottom fell out of the economy and companies put all that activity on hold. However, as things settle around the globe, multinational companies are looking for ways to grow and China seems a very good place to look for that growth.  And one of the methods they are returning to is growth through acquisition. To capture this wave, we have brought in a new team member to Technomic Asia: Dr. Kim Woodard.  Kim has had over 30 years of experience in China, first coming here in the 70s in the earliest stages of China’s opening to the West following Nixon’s “Ping Pong Diplomacy”.  Armed with a Ph.D. from Stanford, Kim was soon a respected leader of foreign companies’ earliest advances into China.  Kim helped establish A.T. Kearney’s China practice and then went on to help big names such as John Deere and AMP establish their China operations. Most recently, Kim had his own firm, Javelin Investments, to assist Western multinationals with acquisitions in China.  We wanted to bring Kim in to Technomic Asia to give us the ability to provide a complete M&A advisory practice – from initial strategy development all the way through to negotiation, closing and integration. Given the returning importance of M&A in China, I wanted to have a series of conversations with Kim about M&A and, in his experience, what makes for a successful acquisition in China.  Attached is the first in a series that we will roll out in the coming weeks.  I hope you enjoy it! tag:odeo.com,2009-10-28,25402655 Wed, 28 Oct 2009 15:24:09 -0700 no China Business Blog and Podcast podcast, strategy, Government, China, manufacturing, economy, m&a, Kim Woodard, China M&A, China M&A risks, China risk http://www.odeo.com/episodes/25366410-Life-in-China-IS-Reality-TV Download this podcast Length – 6:14 Download audio file (20091025_china_reality_show.mp3) I woke up this morning with two words running through my head: “Reality TV”.  Kind of a scary thought, huh?  But what got me thinking about Reality TV is not the content, per se, but the business model: find a bunch of people, average schlubs, and film them acting as such; edit the content to highlight the schlub-iest moments and then put it on prime time television. Violà… instant ratings. Like all great ideas, I am kicking myself that I did not think of it first. Why, you might ask, should I consider myself so forward-looking as to think I should/could come up with that idea? Well, because what they call “Reality Television” I call “the average day in China.” China is a country of “watchers”: people sitting around and simply studying other people being…well…people!?! One of the things that foreigners have to get used to here is what we would call “staring” … many here would call, simply... Download this podcast Length – 6:14 Download audio file (20091025_china_reality_show.mp3) I woke up this morning with two words running through my head: “Reality TV”.  Kind of a scary thought, huh?  But what got me thinking about Reality TV is not the content, per se, but the business model: find a bunch of people, average schlubs, and film them acting as such; edit the content to highlight the schlub-iest moments and then put it on prime time television. Violà… instant ratings. Like all great ideas, I am kicking myself that I did not think of it first. Why, you might ask, should I consider myself so forward-looking as to think I should/could come up with that idea? Well, because what they call “Reality Television” I call “the average day in China.” China is a country of “watchers”: people sitting around and simply studying other people being…well…people!?! One of the things that foreigners have to get used to here is what we would call “staring” … many here would call, simply, “observing the behavior of those around them.”  I suppose that makes sense … there are so many people there that free content is always available.  Several decades ago, just being a foreigner in China attracted attention. Go to the market, let a couple of Chinese words slip out of your mouth and you gained such a crowd on interested onlookers that you could put up a tent and charge admission. Now, certainly, things have changed over the years.  But many years ago, I was a spectacle, even in a big city like Shanghai where foreigners were not very common.  I once asked a Chinese friend why everyone stared at me and he said, “Well, for thousands of years, all we’ve had to look at is other people who look like us … you are REALLY different, so we want to have a look!”  That was tough to argue with, I must admit. So I have spent countless hours entertaining local residents here over the years. I should have had an agent negotiate a contract for me, thusly: “Mr. Kedl is willing to shop for vegetables every Tuesday and Thursday and to mispronounce a minimum of 17 Chinese words while doing so. The neighborhood will provide no less than 83 gawkers, at least 11 of whom will attempt to help Mr. Kedl negotiate the transaction and another 6 will comment on the proceedings. Mr. Kedl will receive 10% of the front end and two points on the gross plus all residuals on local TV news footage.” Not much has changed over the years in terms of the spectacle I create when shopping. The modern hypermarket has made for some great leaps in shopping convenience: too many choices are jammed into too little space at too high prices and NO room to negotiate. The beauty about shopping in China is that total strangers will feel very free to look into your cart and check out what you are buying. Many of them will feel even freer to comment on your purchases, particularly if they don’t think you can speak Chinese: “Hmmm….look at that foreigner…what in the world would he need with a toaster oven, a pile of hangers and three apples?? And he should get himself a real nose instead of that two-car garage he has holding up his glasses now!” I was at my local hypermarket recently when one elderly lady tried to convince me – in animated sign language reminiscent of Helen Keller doing liturgical dance – that the milk I was purchasing was NOT the right milk and that, if I bought the one she was buying, I could get 2-for-1. I explained to her that my kids preferred this type of milk, but thanks for the advice. She walked away a bit confused, mumbling to her shopping companion “Why in the world wouldn’t he by the cheapest kind…and it almost sounded like he spoke Chinese!!” But having a foreigner as the center of attraction is not necessary. Almost any activity on the street will garner attention from passers-by. The other day a motorcycle cop stopped a guy on a bicycle carrying a load (looked like three sofas and a cage of ducks). The cop dismounted his bike, sauntered over, Ponch-style, to the offending cyclist and stared at him. Immediately, a gaggle of pedestrians gathered around the two of them to see what would happen next. Not able to resist peer pressure, I joined the throng (it felt good to be the gawker as opposed to the gawkee). And you know what happened? The biker got a ticket. The crowd went away happy, but I was left unfulfilled. No fight broke out. No blood was spilled. No threat levels went to Orange. A TV news anchor didn’t show up with his helmet of hair and don’t-believe-me-at-your-peril voice to intone, over a dramatic graphic sequence, What It All Means and Why You Should Be Very, Very Afraid. The dude just…got a ticket. The West is trying to convince China that they need to change, to upgrade themselves to the “modern world”. Personally, I think China is doing OK, for the most part. However, if I were to be honest, I think China could add a bit more excitement to what is, essentially, a reality show here.  I mean, if all of life is open for others to sit around and stare at, you should really go for it …you know, punch it up a bit, get better ratings and maybe raise ad rates. Cops shouldn’t just give someone a ticket: apply a little OJ and first have a slow-motion chase through downtown (actually, it would be slow-motion here in Shanghai because you’d never get over crawling speed through the traffic). An overloaded vehicle tips on the highway? Splash around some fake blood and have five people go at it, Jerry Springer style. Over-crowding on the subways could be solved if we could all vote someone off every stop (my choice would be the guy with the scary comb-over taking up two seats) or the guy who keeps losing his mobile phone signal and keeps shouting “Wei?  Wei?” into his dead phone. But I think the ultimate Reality Show here would be to demonstrate just how helpless some foreigners are here.  We could put a collection of them in a row house off Chang Le Lu, give them only CCTV, no access to DVDs or any restaurant that ends in “on the Bund”, take away their Ayis, drivers and secretaries and see who lasts the longest. Guaranteed to make Survivor look like summer camp for sissies. Download this podcast Length – 6:14 Download audio file (20091025_china_reality_show.mp3) I woke up this morning with two words running through my head: “Reality TV”.  Kind of a scary thought, huh?  But what got me thinking about Reality TV is not the content, per se, but the business model: find a bunch of people, average schlubs, and film them acting as such; edit the content to highlight the schlub-iest moments and then put it on prime time television. Violà… instant ratings. Like all great ideas, I am kicking myself that I did not think of it first. Why, you might ask, should I consider myself so forward-looking as to think I should/could come up with that idea? Well, because what they call “Reality Television” I call “the average day in China.” China is a country of “watchers”: people sitting around and simply studying other people being…well…people!?! One of the things that foreigners have to get used to here is what we would call “staring” … many here would call, simply, “observing the behavior of those around them.”  I suppose that makes sense … there are so many people there that free content is always available.  Several decades ago, just being a foreigner in China attracted attention. Go to the market, let a couple of Chinese words slip out of your mouth and you gained such a crowd on interested onlookers that you could put up a tent and charge admission. Now, certainly, things have changed over the years.  But many years ago, I was a spectacle, even in a big city like Shanghai where foreigners were not very common.  I once asked a Chinese friend why everyone stared at me and he said, “Well, for thousands of years, all we’ve had to look at is other people who look like us … you are REALLY different, so we want to have a look!”  That was tough to argue with, I must admit. So I have spent countless hours entertaining local residents here over the years. I should have had an agent negotiate a contract for me, thusly: “Mr. Kedl is willing to shop for vegetables every Tuesday and Thursday and to mispronounce a minimum of 17 Chinese words while doing so. The neighborhood will provide no less than 83 gawkers, at least 11 of whom will attempt to help Mr. Kedl negotiate the transaction and another 6 will comment on the proceedings. Mr. Kedl will receive 10% of the front end and two points on the gross plus all residuals on local TV news footage.” Not much has changed over the years in terms of the spectacle I create when shopping. The modern hypermarket has made for some great leaps in shopping convenience: too many choices are jammed into too little space at too high prices and NO room to negotiate. The beauty about shopping in China is that total strangers will feel very free to look into your cart and check out what you are buying. Many of them will feel even freer to comment on your purchases, particularly if they don’t think you can speak Chinese: “Hmmm….look at that foreigner…what in the world would he need with a toaster oven, a pile of hangers and three apples?? And he should get himself a real nose instead of that two-car garage he has holding up his glasses now!” I was at my local hypermarket recently when one elderly lady tried to convince me – in animated sign language reminiscent of Helen Keller doing liturgical dance – that the milk I was purchasing was NOT the right milk and that, if I bought the one she was buying, I could get 2-for-1. I explained to her that my kids preferred this type of milk, but thanks for the advice. She walked away a bit confused, mumbling to her shopping companion “Why in the world wouldn’t he by the cheapest kind…and it almost sounded like he spoke Chinese!!” But having a foreigner as the center of attraction is not necessary. Almost any activity on the street will garner attention from passers-by. The other day a motorcycle cop stopped a guy on a bicycle carrying a load (looked like three sofas and a cage of ducks). The cop dismounted his bike, sauntered over, Ponch-style, to the offending cyclist and stared at him. Immediately, a gaggle of pedestrians gathered around the two of them to see what would happen next. Not able to resist peer pressure, I joined the throng (it felt good to be the gawker as opposed to the gawkee). And you know what happened? The biker got a ticket. The crowd went away happy, but I was left unfulfilled. No fight broke out. No blood was spilled. No threat levels went to Orange. A TV news anchor didn’t show up with his helmet of hair and don’t-believe-me-at-your-peril voice to intone, over a dramatic graphic sequence, What It All Means and Why You Should Be Very, Very Afraid. The dude just…got a ticket. The West is trying to convince China that they need to change, to upgrade themselves to the “modern world”. Personally, I think China is doing OK, for the most part. However, if I were to be honest, I think China could add a bit more excitement to what is, essentially, a reality show here.  I mean, if all of life is open for others to sit around and stare at, you should really go for it …you know, punch it up a bit, get better ratings and maybe raise ad rates. Cops shouldn’t just give someone a ticket: apply a little OJ and first have a slow-motion chase through downtown (actually, it would be slow-motion here in Shanghai because you’d never get over crawling speed through the traffic). An overloaded vehicle tips on the highway? Splash around some fake blood and have five people go at it, Jerry Springer style. Over-crowding on the subways could be solved if we could all vote someone off every stop (my choice would be the guy with the scary comb-over taking up two seats) or the guy who keeps losing his mobile phone signal and keeps shouting “Wei?  Wei?” into his dead phone. But I think the ultimate Reality Show here would be to demonstrate just how helpless some foreigners are here.  We could put a collection of them in a row house off Chang Le Lu, give them only CCTV, no access to DVDs or any restaurant that ends in “on the Bund”, take away their Ayis, drivers and secretaries and see who lasts the longest. Guaranteed to make Survivor look like summer camp for sissies. tag:odeo.com,2009-10-24,25366410 Sat, 24 Oct 2009 18:01:08 -0700 no China Business Blog and Podcast Culture, communication, Humor, China, reality tv http://www.odeo.com/episodes/25315155-Seeing-China%E2%80%99s-Potential-%E2%80%93-Part-2-of-an-Interview-with-Sayed-Jafry-of-ThermoFisher-Scientific Download this podcast Length – 15:22 Download audio file (20091016_syed_jafy_pt2.mp3) Last week I posted the first part of an interview with Sayed Jafry of ThermoFisher where we discussed their decision to located the global headquarters for their environmental division in China.  Even though China is not currently a big part of their business, ThermoFisher management thinks that this will change and Asia – particularly China – will figure heavily into their business.  In Part 2 of my interview, we talk about the challenges in making China a global headquarters and how that is signaling some important changes in this market. Download this podcast Length – 15:22 Download audio file (20091016_syed_jafy_pt2.mp3) Last week I posted the first part of an interview with Sayed Jafry of ThermoFisher where we discussed their decision to located the global headquarters for their environmental division in China.  Even though China is not currently a big part of their business, ThermoFisher management thinks that this will change and Asia – particularly China – will figure heavily into their business.  In Part 2 of my interview, we talk about the challenges in making China a global headquarters and how that is signaling some important changes in this market. Download this podcast Length – 15:22 Download audio file (20091016_syed_jafy_pt2.mp3) Last week I posted the first part of an interview with Sayed Jafry of ThermoFisher where we discussed their decision to located the global headquarters for their environmental division in China.  Even though China is not currently a big part of their business, ThermoFisher management thinks that this will change and Asia – particularly China – will figure heavily into their business.  In Part 2 of my interview, we talk about the challenges in making China a global headquarters and how that is signaling some important changes in this market. tag:odeo.com,2009-10-19,25315155 Mon, 19 Oct 2009 15:46:21 -0700 no China Business Blog and Podcast podcast, Interview, strategy, China, environment, Thermo Fisher Scientific, Syed Jafry, "Green" development, China opportunity http://www.odeo.com/episodes/25287078-Seeing-China%E2%80%99s-Potential-%E2%80%93-An-interview-with-Syed-Jafry-of-ThermoFisher-Scientific-part-1 Download this podcast Length – 14:38 Download audio file (20091014_syed_jafy_pt1.mp3) Those of you who are long-time listeners to the China Business Podcast have heard us talk, endlessly, about ways that companies need to be looking at the potential opportunities in China, not just the actual ones … to look not only at the present, but the future of China. I loved to play and watch hockey when I was a kid, and nothing was more thrilling than to see the great Wayne Gretzky play … it was magical, how he would always be in the right place at the right time.  Someone once asked him why he was such a good hockey player and he said, “because I skated to where the puck was going to be.” And that’s the challenge, isn’t it … to start working in China today based on where it is going to be in the future.  In today’s Podcast, we have a very special treat … we are going to talk with someone who is actually putting this adage into practice.  Syed Jafry is the President of the Global ... Download this podcast Length – 14:38 Download audio file (20091014_syed_jafy_pt1.mp3) Those of you who are long-time listeners to the China Business Podcast have heard us talk, endlessly, about ways that companies need to be looking at the potential opportunities in China, not just the actual ones … to look not only at the present, but the future of China. I loved to play and watch hockey when I was a kid, and nothing was more thrilling than to see the great Wayne Gretzky play … it was magical, how he would always be in the right place at the right time.  Someone once asked him why he was such a good hockey player and he said, “because I skated to where the puck was going to be.” And that’s the challenge, isn’t it … to start working in China today based on where it is going to be in the future.  In today’s Podcast, we have a very special treat … we are going to talk with someone who is actually putting this adage into practice.  Syed Jafry is the President of the Global Environmental Division for ThermoFisher Scientific, a very diverse, publicly traded company.  Syed and ThermoFisher are on, what I believe, is the cutting edge of global business and we sat and had a conversation in his Shanghai office on a rainy morning just before the National Day holiday. Download this podcast Length – 14:38 Download audio file (20091014_syed_jafy_pt1.mp3) Those of you who are long-time listeners to the China Business Podcast have heard us talk, endlessly, about ways that companies need to be looking at the potential opportunities in China, not just the actual ones … to look not only at the present, but the future of China. I loved to play and watch hockey when I was a kid, and nothing was more thrilling than to see the great Wayne Gretzky play … it was magical, how he would always be in the right place at the right time.  Someone once asked him why he was such a good hockey player and he said, “because I skated to where the puck was going to be.” And that’s the challenge, isn’t it … to start working in China today based on where it is going to be in the future.  In today’s Podcast, we have a very special treat … we are going to talk with someone who is actually putting this adage into practice.  Syed Jafry is the President of the Global Environmental Division for ThermoFisher Scientific, a very diverse, publicly traded company.  Syed and ThermoFisher are on, what I believe, is the cutting edge of global business and we sat and had a conversation in his Shanghai office on a rainy morning just before the National Day holiday. tag:odeo.com,2009-10-14,25287078 Wed, 14 Oct 2009 13:51:57 -0700 no China Business Blog and Podcast podcast, Interview, strategy, China, environment, economy, Thermo Fisher Scientific, Syed Jafry, "Green" development, China opportunity http://www.odeo.com/episodes/25266333-Don%E2%80%99t-make-me-disobey-my-mother-%E2%80%A6-China-should-be-a-top-priority-for-2010 Download this podcast Length – 4:16 Download audio file (20091009_china_top_2010.mp3) My mother told me that its not polite to say “I told you so”, but I can’t help it.  From the start of the global economic crisis last year, we’ve been blogging and Podcasting like maniacs saying, “Yea … I know it is rough out there.  But China could be a shining light at the end of the tunnel for companies going through the rough stuff.  If the rest of your world is crumbling, now might be the time to really look at China.” And now, no less an august body than the U.S.-China Business Council is saying just this.  In their recent survey, released on October 7th and highlighted in this article from Industry Week, they say, and I quote, “Most U.S. companies doing business in China are profitable and many want to step up investments despite fears on the economy, protectionism and intellectual property rights.” Yep, I told you so. The USCBC survey is quite revealing.  51% of the 100 respondents pr... Download this podcast Length – 4:16 Download audio file (20091009_china_top_2010.mp3) My mother told me that its not polite to say “I told you so”, but I can’t help it.  From the start of the global economic crisis last year, we’ve been blogging and Podcasting like maniacs saying, “Yea … I know it is rough out there.  But China could be a shining light at the end of the tunnel for companies going through the rough stuff.  If the rest of your world is crumbling, now might be the time to really look at China.” And now, no less an august body than the U.S.-China Business Council is saying just this.  In their recent survey, released on October 7th and highlighted in this article from Industry Week, they say, and I quote, “Most U.S. companies doing business in China are profitable and many want to step up investments despite fears on the economy, protectionism and intellectual property rights.” Yep, I told you so. The USCBC survey is quite revealing.  51% of the 100 respondents projected that their revenues in China will grow in 2009, and 84% said their China operations remain profitable.  How many of you can say that about your U.S. operations? A year ago, when the nasty stuff hit the fan, the one question we asked was “Where are you going to look for growth?”  We received a number of comments using words that my mother would never approve of … but all of them were along the lines of, “Are you nuts???  Growth?? Who can look for growth?  We are only interested in survival at this point!”  Yea, I get it … when you are shedding employees and operations faster than an Eskimo stripping on a Miami beach, its tough – maybe even unnatural – to ask about growth opportunities.  But that’s what separates the men from the goats, isn’t it … asking questions and using different words from what your competition is asking.  They say “tomato”, you say “kumquat”. So I am going to go out on a limb here and repeat what I said a year ago … in 2010, companies should be looking to China for new growth opportunities.  I’m talking blue ocean, limited competition, boldly-going-where-no-person-has-gone-before stuff.  Seriously, most market sectors are still doing double-digit growth in China, more than the existing suppliers can supply. Yes, the signs in the U.S. and Europe seem better … capital markets are improving a bit, money is starting to flow and buyers are starting to buy.  But recovery is going to be slow … slow like glacial slow … slow like the speed of mammal evolution slow.  Dollars to donuts, you are not going to be able to sustain your company waiting for your domestic markets to come back.  China could be part of your answer. Now I know my smarmy tone is probably not appropriate … going after China is NOT easy.  We’ve never said it was … in fact, this blog and Podcast is dedicated to exploring just what a royal pain in the backside China is to succeed in.  But the difficulty of success here should not be confused with the importance of the pursuit. Everyone is deep into planning for 2010 so you are setting priorities and budgets.  If China is not among your top priorities, then it probably should be.  Almost 90% of USCBC’s members surveyed indicated that China remains the top or among the top five priorities for their global investment plans.  Is it yours? Now, my momma done raised me right.  I try to keep my elbows off the table when I eat, say “excuse me” when I sneeze and open doors for people when I can.  Mom also told me its not right to say “I told you so.”  So do it right this year … listen to what everyone is saying and get things in gear for China.  Get your team together Monday and ask yourself a simple question: “What are we going to do in 2010 to grow in China?”  Don’t make me have to say “I told you so” again next year.  I am already in enough hot water with Mom over missing holidays, birthdays and not writing as often as I should … and I don’t want to make it worse. Download this podcast Length – 4:16 Download audio file (20091009_china_top_2010.mp3) My mother told me that its not polite to say “I told you so”, but I can’t help it.  From the start of the global economic crisis last year, we’ve been blogging and Podcasting like maniacs saying, “Yea … I know it is rough out there.  But China could be a shining light at the end of the tunnel for companies going through the rough stuff.  If the rest of your world is crumbling, now might be the time to really look at China.” And now, no less an august body than the U.S.-China Business Council is saying just this.  In their recent survey, released on October 7th and highlighted in this article from Industry Week, they say, and I quote, “Most U.S. companies doing business in China are profitable and many want to step up investments despite fears on the economy, protectionism and intellectual property rights.” Yep, I told you so. The USCBC survey is quite revealing.  51% of the 100 respondents projected that their revenues in China will grow in 2009, and 84% said their China operations remain profitable.  How many of you can say that about your U.S. operations? A year ago, when the nasty stuff hit the fan, the one question we asked was “Where are you going to look for growth?”  We received a number of comments using words that my mother would never approve of … but all of them were along the lines of, “Are you nuts???  Growth?? Who can look for growth?  We are only interested in survival at this point!”  Yea, I get it … when you are shedding employees and operations faster than an Eskimo stripping on a Miami beach, its tough – maybe even unnatural – to ask about growth opportunities.  But that’s what separates the men from the goats, isn’t it … asking questions and using different words from what your competition is asking.  They say “tomato”, you say “kumquat”. So I am going to go out on a limb here and repeat what I said a year ago … in 2010, companies should be looking to China for new growth opportunities.  I’m talking blue ocean, limited competition, boldly-going-where-no-person-has-gone-before stuff.  Seriously, most market sectors are still doing double-digit growth in China, more than the existing suppliers can supply. Yes, the signs in the U.S. and Europe seem better … capital markets are improving a bit, money is starting to flow and buyers are starting to buy.  But recovery is going to be slow … slow like glacial slow … slow like the speed of mammal evolution slow.  Dollars to donuts, you are not going to be able to sustain your company waiting for your domestic markets to come back.  China could be part of your answer. Now I know my smarmy tone is probably not appropriate … going after China is NOT easy.  We’ve never said it was … in fact, this blog and Podcast is dedicated to exploring just what a royal pain in the backside China is to succeed in.  But the difficulty of success here should not be confused with the importance of the pursuit. Everyone is deep into planning for 2010 so you are setting priorities and budgets.  If China is not among your top priorities, then it probably should be.  Almost 90% of USCBC’s members surveyed indicated that China remains the top or among the top five priorities for their global investment plans.  Is it yours? Now, my momma done raised me right.  I try to keep my elbows off the table when I eat, say “excuse me” when I sneeze and open doors for people when I can.  Mom also told me its not right to say “I told you so.”  So do it right this year … listen to what everyone is saying and get things in gear for China.  Get your team together Monday and ask yourself a simple question: “What are we going to do in 2010 to grow in China?”  Don’t make me have to say “I told you so” again next year.  I am already in enough hot water with Mom over missing holidays, birthdays and not writing as often as I should … and I don’t want to make it worse. tag:odeo.com,2009-10-10,25266333 Sat, 10 Oct 2009 18:40:06 -0700 no China Business Blog and Podcast podcast, China, economy, healthcare, medical, stimulus plan, Industry Week, U.S. China Business Council, China healthcare, China economy 2010, U.S. Healthcare http://www.odeo.com/episodes/25224450-Health-Care-Insurance-in-China-Really Download this podcast Length – 15:40 Download audio file (20091002_china_healthcare3.mp3) In the past couple of Podcasts, we’ve been talking about healthcare in China and, specifically, about the potential opportunities that this might represent for foreign companies doing business in China. The rallying cry here in China these days comes under the heading of “yi1 gai3”, literally “healthcare reform” … and if you think that Mr. Obama is staking his future presidency on healthcare reform in the U.S., the pressure on the Chinese government is 10 times worse. China suffers from similar issues – a large number of its citizens not covered (or under-covered) by the existing insurance options. But when we say “large”, we need to be very careful what we mean here … because “large” in China means something like over a billion people with inadequate coverage. Remember from our previous Podcasts, that this is a population that is rapidly aging – by 2020, there will be 181 million people ... Download this podcast Length – 15:40 Download audio file (20091002_china_healthcare3.mp3) In the past couple of Podcasts, we’ve been talking about healthcare in China and, specifically, about the potential opportunities that this might represent for foreign companies doing business in China. The rallying cry here in China these days comes under the heading of “yi1 gai3”, literally “healthcare reform” … and if you think that Mr. Obama is staking his future presidency on healthcare reform in the U.S., the pressure on the Chinese government is 10 times worse. China suffers from similar issues – a large number of its citizens not covered (or under-covered) by the existing insurance options. But when we say “large”, we need to be very careful what we mean here … because “large” in China means something like over a billion people with inadequate coverage. Remember from our previous Podcasts, that this is a population that is rapidly aging – by 2020, there will be 181 million people aged 65+ in China, more than the entire population of Russia, and those 181 million elderly people will be 25% of the world’s total elderly. Remember, too, that the responsibility of supporting these elderly is falling on the shoulders of China’s vast only-child children, those born starting in the early 1970s when China stepped up their population control enforcement. Of course, what actually will happen in China’s healthcare reform is anyone’s guess right now and I cannot claim to have unique insight … China’s healthcare reform leaders are following Deng Xio-ping’s dictum in the early 80s that China’s developing would be, what he called, “Mo shi tou guo he” … crossing the river by feeling for stones. We’ve already talked about one of those “stones”, the infrastructural changes that China needs to make, upgrading their hospitals and equipment, starting with the mid- and lower tier hospitals. This will certainly be happening, and in a big way. But there are three other “stones” that seem to be most prominent right now: insurance, doctor training and healthcare regulation and monitoring. Let’s look at each of these in order: Insurance For most people – including yours truly – discussing health insurance is a sure cure for insomnia! But in China, there are actually some very interesting socio-economic issues tied with health insurance. In China today, over half of people’s healthcare costs come out of their own pocket while only about 18% comes from government-sponsored insurance. The exact opposite is happening in the U.S. where the vast majority of healthcare expenses are born by government or employer-sponsored insurance programs and, though it sometimes seems like a lot, a smaller portion of the average American’s paycheck goes to pay for their own healthcare. In China, about 9% of a person’s disposable income is spent on healthcare … and that figure will nearly double to over 16% by the year 2025. China has a HUGE problem on its hands right now! One of the biggest challenges we have in getting foreigners to understand the China healthcare system is to get them to realize just how little insurance matters in China … seriously, for most of China’s citizens, insurance picks up such a small portion of the total healthcare tab that people will rarely think about it. I was on a panel a couple of months ago, speaking to a group of doctors and healthcare professionals visiting from the U.S. I was the only foreigner on the panel … kind of the token white guy! For the first half hour, the visitors pelted us with questions about the insurance system in China … how much did it cover, what drugs and devices were covered, how was it paid for, etc. We tried to politely answer their questions but my fellow panelists were getting frustrated … they were wondering why these people were asking questions about something that didn’t really matter here. Finally, I spoke up and said, “Listen, I guess what we are trying to tell you is that insurance doesn’t matter AT ALL here! People don’t think about it much … they look at how much money they have in their pockets or bank account and make healthcare decisions on that basis. Get off the insurance stuff already!!” There was this shocked look among the visitors … then one of them said, “Wow … this place really IS different!!” Yes, it is different … but the Chinese government’s goal is for it to change and change drastically. As we’ve discussed before, the relatively high savings rate in China (30-40% of total income, depending on where you live) can be attributed, in part, to people’s concerns about the future healthcare costs for themselves and their parents. Beijing has to find a way to crow-bar open people’s wallets and encouraging local consumption (and not rely so heavily on exports) so fixing health insurance is a HUGE requirement for them. So a key goal of China’s medical reform is the elusive phrase “universal coverage” … that every one of China’s 1.3 billion (and growing) population is covered under a health insurance plan. And as the United States is finding out, the devil is in the details of defining what “coverage” means and how far do you need to go to get to “universal”. There is a plan in China to have several different kinds of insurance but divided, generally, into two types: insurance for urban residents and insurance for those living in the smaller towns, villages and countryside. Let’s start with urban residents, currently the only population with any kind of meaningful insurance (and even then only about 15% of them are covered). The government’s goal is, by the end of 2010, to have 100% of urban residents covered by what they are calling the Urban Employee Basic Medical Insurance. The details, of course, are still being worked out on this, but the goal seems to be to have it be funded by both the employer and the employee with co-pays up to 30% and a deductible of up to 2,000 RMB (about $300). Right now, they are saying that the maximum annual payout would be 4 times a person’s annual wage … but this could just be marketing at this point. There is talk, too, of an insurance program to cover those urban residents who are unemployed … and that would have a maximum out-of-pocket payout of about 35% of total costs. That is not much lower than it is now, but I suppose it is, as my grandfather used to say, better than a sharp stick in the eye (and, at least you can get some help paying for the medical care necessitated by the sharp stick in the eye and you know that can’t be cheap!) The insurance plan envisioned for rural residents is a bit more basic but will be much more difficult to roll out. Right now, the average rural resident gets a medical reimbursement every year of about $20 … now, healthcare is certainly cheaper in China than it is in most other countries, but 20 bucks won’t get you very far, even here! The program for rural residents is much cheaper, per person, than is the urban plan, but there are more “persons” to cover in the rural area (remember that nearly 65% of China’s 1.3 billion people still live in the countryside). In the rural plan, there would be a 100 RMB premium with 80 RMB paid by the government. There would be a 60% co-pay with an RMB 500 deductible. The maximum payment under this plan would be 10,000 RMB per year, only about $1,500. Under normal circumstances, that would be OK … but in any kind of catastrophic or near-catastrophic situation, that would not be enough to get anyone through. Again, there is a LOT of talk about this … in the media, among colleagues, etc. And this is completely anecdotal evidence, but I don’t see a lot of optimism from the average Chinese citizen that these programs will arrive on time and provide adequate coverage. There could be an opportunity here for private insurance and more of that is coming online (all the big international insurance companies are already here) but there is not a historical practice of buying health insurance. I think that people here will still be hedging against the future by saving money, not spending a lot on insurance. So right now, it seems that everyone is waiting around to see just what kind of insurance the government comes up with … and then everyone will decide if it means anything to them or not. Medical Training The second “stone” sticking up out of that raging river we are trying to cross is medical training. Right now in China, there really is no standard to practice medicine and you do not necessarily need a medical degree to practice medicine … in fact, 98% of medical professionals practicing in China today have a bachelor’s degree or less, and about 70% have the equivalent of a vocational college degree. Now, this is a bit scary, but let’s put it in some context here … China’s medical training is NOT based on a “general medicine” approach is it is in the U.S. where all medical doctors – from surgeons to dentists to psychologists – go through a standard program of general medical training. Rather, nearly every one of China’s 1.6 million doctors is a specialist – in fact, only about 4% are considered general practitioners. Everyone else has some specialization … 18% do internal medicine, 12% are surgeons of one kind or another; 10% are obstetricians; 4% are pediatricians. So when I say that they have a “vocational degree” of some kind, it means that they study their particular vocation … like surgery … to the exclusion of all else. This can make for some very good surgeons … if the problem presented to them fits the textbook case that they have previously studied. A son of a good friend of mine here fractured both bones in his forearm last year and they went to a local orthopedic surgeon who did the surgery and pinned the bones. They went back to the U.S. over the summer and had a surgeon look at it there and the U.S. surgeon was very impressed. He said that the Chinese surgeon had done the best job he had ever seen in this type of surgery. However, rarely in a medical situation do problems present themselves textbook style. Right now, if you have a medical problem, you will go to the hospital, check in and tell them, generally, what is wrong with you. If you say that your stomach hurts, you might be sent to a gastro-intestinal specialist. But if you are found to actually have a nerve condition that presents itself with stomach problems, you will end up being in kind of a no-man’s land … once you enter the system along the “stomach” track, it is very difficult to get on to the “nervous system” track. In the Chinese medical system, there really aren’t anything like “case managers”, someone that will look after your overall health picture and coordinate the care you need with the best specialists to help you. I do some work with a medical foundation here in China and we had a baby from a rural orphanage in for some heart surgery. She also had a swollen abdomen but the heart was the biggest problem … she went through surgery and came out of it OK. She spent time in the hospital and slowly recovered … but it still looked like she was hiding a basketball underneath her navel. One day, the heart surgeon came by to check on her and, after examining her, declared her fit to leave the hospital. One of our Western volunteers was there and said, “Hey, wait a minute … what about her belly??” The doctor said, “Oh, that’s not my area. You’ll have to talk to someone else about that.” He was not being mean … he was a very caring man and was a very good heart surgeon. But that is ALL that he did … he did heart surgery! He was not trained in anything else and certainly was not going to stick his neck out to go beyond his expertise. Now, what I have been talking about is for hospitals in the urban areas … the rural areas of China are even more challenging. A 2001 study of about 800 village doctors in Western provinces found that 70 percent of them had no more than a high school education, and had received an average of only 20 months of medical training. In addition, our interviews with rural clinics show that over 60% of doctors and healthcare workers in have less than 5 years of experience … and only 2% nationwide have over 10 years of experience. For a country that will soon be smack-dab in the middle of a HUGE, medically-fragile, elderly population, this is not the kind of situation you want to be in! Part of China’s investment in their healthcare future will require massive amounts of money spent on doctor and healthcare worker training. As far as I’ve been able to see from the current talk on healthcare reform, I don’t see anything committed to this effort … but there certainly should be! Regulation For those that have done any business in China, you know what China can do with a bureaucracy. Typically, Chinese government bureaucracy is mirrored at multiple levels … starting with national and moving down through provincial, county, city, district and neighborhood, there are branches of the same government entity. In healthcare regulation and monitoring in China, we see the same thing … but it becomes MUCH more complicated because there are often parallel and competing government entities vying for power. Look just at the national level and you find multiple regulatory bodies involved including: The Ministry of Health which oversees hospital management The State Food and Drug Administration which , similar to the FDA in the U.S., regulates anything related to food and pharmaceuticals, from production to distribution. The National Development and Reform Council (NDRC) which oversees much of healthcare pricing The China Insurance Regulatory Commission (CIRC) which, as its name so subtly suggests, regulates insurance, particular private insurance. Then there is the alphabet soup called the MoHRSS, the Ministry of Human Resource and Social Security who looks over the shoulder of the CIRC to regulate public insurance and the reimbursement list. Finally, there is the Ministry of Finance who is responsible to help fund this whole mess. There is not one, overarching ministry in charge … a ringmaster, a quarterback, a dominatrix in a doctor’s outfit … use whatever metaphor floats your boat! So not only do we have a HUMONGOUS need for real, lasting healthcare reform in China, we have a bunch of ministries all lunging for the same levers to pull. My concern is, obviously, that we are going to see some real challenges ahead of us in the coming years. Conclusion So let’s bring this back home … what does it mean for us, the potential foreign investors in China’s healthcare system? I can see two areas of interest: Foreign investors should be focusing on the mid- and lower-tiers of the healthcare system … to find a way to participate where the volume is and where the money is going to flow. I mentioned this in earlier Podcasts, but foreign investors – device companies, pharmaceuticals, drug delivery, etc. – should certainly try to play in the upper sectors, but should use that play to find a way to get into the lower ones. If you are a device company, find a partner to work with to bring your particular technology to the masses. Guaranteed, you are going to have to take some engineering OUT, reducing features and functions but also reducing costs. Then you’ll need to find a distribution channel that can get it to the hospitals and clinics purchasing this equipment. And they WILL be purchasing … again, the government is going to be dumping MASSIVE amounts of funds in these mid-tier healthcare outlets to upgrade their capabilities. Get in on the ground floor and you could be in for quite a ride. We are working with several medical device companies now on these strategies and the opportunities are HUGE! The second area I am only going to mention in passing because I don’t really know exactly how to do it yet – and that is, find a way to participate in the actual DELIVERY of healthcare. Participate in private clinics, open medial labs, work at doctor training. The need is obvious and overwhelming … I am honestly just not sure how to turn it into a business yet. We are working on a couple of projects in the privatization of clinics and hospitals and are seeing some very exciting things … I just haven’t seen a business here yet. Its there, I can smell it … but I haven’t found it yet. If you are working in some area of China healthcare, please share your story with us … send a comment along on our blog at www.technomicasia.com/blog. If you have a really good story, we’ll get you on the Podcast to share it. For those of us trying to cross that raging river by feeling for stones, it always helps to have others by you, to help guide and stabilize you (and, to extend the metaphor, to help haul you up when you fall flat on your can!). Thanks for listening … in our last healthcare Podcast coming this fall, we’ll talk about pharmaceuticals in China and how the healthcare reform will impact this very critical area. Until then, remember our motto: “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast. Download this podcast Length – 15:40 Download audio file (20091002_china_healthcare3.mp3) In the past couple of Podcasts, we’ve been talking about healthcare in China and, specifically, about the potential opportunities that this might represent for foreign companies doing business in China. The rallying cry here in China these days comes under the heading of “yi1 gai3”, literally “healthcare reform” … and if you think that Mr. Obama is staking his future presidency on healthcare reform in the U.S., the pressure on the Chinese government is 10 times worse. China suffers from similar issues – a large number of its citizens not covered (or under-covered) by the existing insurance options. But when we say “large”, we need to be very careful what we mean here … because “large” in China means something like over a billion people with inadequate coverage. Remember from our previous Podcasts, that this is a population that is rapidly aging – by 2020, there will be 181 million people aged 65+ in China, more than the entire population of Russia, and those 181 million elderly people will be 25% of the world’s total elderly. Remember, too, that the responsibility of supporting these elderly is falling on the shoulders of China’s vast only-child children, those born starting in the early 1970s when China stepped up their population control enforcement. Of course, what actually will happen in China’s healthcare reform is anyone’s guess right now and I cannot claim to have unique insight … China’s healthcare reform leaders are following Deng Xio-ping’s dictum in the early 80s that China’s developing would be, what he called, “Mo shi tou guo he” … crossing the river by feeling for stones. We’ve already talked about one of those “stones”, the infrastructural changes that China needs to make, upgrading their hospitals and equipment, starting with the mid- and lower tier hospitals. This will certainly be happening, and in a big way. But there are three other “stones” that seem to be most prominent right now: insurance, doctor training and healthcare regulation and monitoring. Let’s look at each of these in order: Insurance For most people – including yours truly – discussing health insurance is a sure cure for insomnia! But in China, there are actually some very interesting socio-economic issues tied with health insurance. In China today, over half of people’s healthcare costs come out of their own pocket while only about 18% comes from government-sponsored insurance. The exact opposite is happening in the U.S. where the vast majority of healthcare expenses are born by government or employer-sponsored insurance programs and, though it sometimes seems like a lot, a smaller portion of the average American’s paycheck goes to pay for their own healthcare. In China, about 9% of a person’s disposable income is spent on healthcare … and that figure will nearly double to over 16% by the year 2025. China has a HUGE problem on its hands right now! One of the biggest challenges we have in getting foreigners to understand the China healthcare system is to get them to realize just how little insurance matters in China … seriously, for most of China’s citizens, insurance picks up such a small portion of the total healthcare tab that people will rarely think about it. I was on a panel a couple of months ago, speaking to a group of doctors and healthcare professionals visiting from the U.S. I was the only foreigner on the panel … kind of the token white guy! For the first half hour, the visitors pelted us with questions about the insurance system in China … how much did it cover, what drugs and devices were covered, how was it paid for, etc. We tried to politely answer their questions but my fellow panelists were getting frustrated … they were wondering why these people were asking questions about something that didn’t really matter here. Finally, I spoke up and said, “Listen, I guess what we are trying to tell you is that insurance doesn’t matter AT ALL here! People don’t think about it much … they look at how much money they have in their pockets or bank account and make healthcare decisions on that basis. Get off the insurance stuff already!!” There was this shocked look among the visitors … then one of them said, “Wow … this place really IS different!!” Yes, it is different … but the Chinese government’s goal is for it to change and change drastically. As we’ve discussed before, the relatively high savings rate in China (30-40% of total income, depending on where you live) can be attributed, in part, to people’s concerns about the future healthcare costs for themselves and their parents. Beijing has to find a way to crow-bar open people’s wallets and encouraging local consumption (and not rely so heavily on exports) so fixing health insurance is a HUGE requirement for them. So a key goal of China’s medical reform is the elusive phrase “universal coverage” … that every one of China’s 1.3 billion (and growing) population is covered under a health insurance plan. And as the United States is finding out, the devil is in the details of defining what “coverage” means and how far do you need to go to get to “universal”. There is a plan in China to have several different kinds of insurance but divided, generally, into two types: insurance for urban residents and insurance for those living in the smaller towns, villages and countryside. Let’s start with urban residents, currently the only population with any kind of meaningful insurance (and even then only about 15% of them are covered). The government’s goal is, by the end of 2010, to have 100% of urban residents covered by what they are calling the Urban Employee Basic Medical Insurance. The details, of course, are still being worked out on this, but the goal seems to be to have it be funded by both the employer and the employee with co-pays up to 30% and a deductible of up to 2,000 RMB (about $300). Right now, they are saying that the maximum annual payout would be 4 times a person’s annual wage … but this could just be marketing at this point. There is talk, too, of an insurance program to cover those urban residents who are unemployed … and that would have a maximum out-of-pocket payout of about 35% of total costs. That is not much lower than it is now, but I suppose it is, as my grandfather used to say, better than a sharp stick in the eye (and, at least you can get some help paying for the medical care necessitated by the sharp stick in the eye and you know that can’t be cheap!) The insurance plan envisioned for rural residents is a bit more basic but will be much more difficult to roll out. Right now, the average rural resident gets a medical reimbursement every year of about $20 … now, healthcare is certainly cheaper in China than it is in most other countries, but 20 bucks won’t get you very far, even here! The program for rural residents is much cheaper, per person, than is the urban plan, but there are more “persons” to cover in the rural area (remember that nearly 65% of China’s 1.3 billion people still live in the countryside). In the rural plan, there would be a 100 RMB premium with 80 RMB paid by the government. There would be a 60% co-pay with an RMB 500 deductible. The maximum payment under this plan would be 10,000 RMB per year, only about $1,500. Under normal circumstances, that would be OK … but in any kind of catastrophic or near-catastrophic situation, that would not be enough to get anyone through. Again, there is a LOT of talk about this … in the media, among colleagues, etc. And this is completely anecdotal evidence, but I don’t see a lot of optimism from the average Chinese citizen that these programs will arrive on time and provide adequate coverage. There could be an opportunity here for private insurance and more of that is coming online (all the big international insurance companies are already here) but there is not a historical practice of buying health insurance. I think that people here will still be hedging against the future by saving money, not spending a lot on insurance. So right now, it seems that everyone is waiting around to see just what kind of insurance the government comes up with … and then everyone will decide if it means anything to them or not. Medical Training The second “stone” sticking up out of that raging river we are trying to cross is medical training. Right now in China, there really is no standard to practice medicine and you do not necessarily need a medical degree to practice medicine … in fact, 98% of medical professionals practicing in China today have a bachelor’s degree or less, and about 70% have the equivalent of a vocational college degree. Now, this is a bit scary, but let’s put it in some context here … China’s medical training is NOT based on a “general medicine” approach is it is in the U.S. where all medical doctors – from surgeons to dentists to psychologists – go through a standard program of general medical training. Rather, nearly every one of China’s 1.6 million doctors is a specialist – in fact, only about 4% are considered general practitioners. Everyone else has some specialization … 18% do internal medicine, 12% are surgeons of one kind or another; 10% are obstetricians; 4% are pediatricians. So when I say that they have a “vocational degree” of some kind, it means that they study their particular vocation … like surgery … to the exclusion of all else. This can make for some very good surgeons … if the problem presented to them fits the textbook case that they have previously studied. A son of a good friend of mine here fractured both bones in his forearm last year and they went to a local orthopedic surgeon who did the surgery and pinned the bones. They went back to the U.S. over the summer and had a surgeon look at it there and the U.S. surgeon was very impressed. He said that the Chinese surgeon had done the best job he had ever seen in this type of surgery. However, rarely in a medical situation do problems present themselves textbook style. Right now, if you have a medical problem, you will go to the hospital, check in and tell them, generally, what is wrong with you. If you say that your stomach hurts, you might be sent to a gastro-intestinal specialist. But if you are found to actually have a nerve condition that presents itself with stomach problems, you will end up being in kind of a no-man’s land … once you enter the system along the “stomach” track, it is very difficult to get on to the “nervous system” track. In the Chinese medical system, there really aren’t anything like “case managers”, someone that will look after your overall health picture and coordinate the care you need with the best specialists to help you. I do some work with a medical foundation here in China and we had a baby from a rural orphanage in for some heart surgery. She also had a swollen abdomen but the heart was the biggest problem … she went through surgery and came out of it OK. She spent time in the hospital and slowly recovered … but it still looked like she was hiding a basketball underneath her navel. One day, the heart surgeon came by to check on her and, after examining her, declared her fit to leave the hospital. One of our Western volunteers was there and said, “Hey, wait a minute … what about her belly??” The doctor said, “Oh, that’s not my area. You’ll have to talk to someone else about that.” He was not being mean … he was a very caring man and was a very good heart surgeon. But that is ALL that he did … he did heart surgery! He was not trained in anything else and certainly was not going to stick his neck out to go beyond his expertise. Now, what I have been talking about is for hospitals in the urban areas … the rural areas of China are even more challenging. A 2001 study of about 800 village doctors in Western provinces found that 70 percent of them had no more than a high school education, and had received an average of only 20 months of medical training. In addition, our interviews with rural clinics show that over 60% of doctors and healthcare workers in have less than 5 years of experience … and only 2% nationwide have over 10 years of experience. For a country that will soon be smack-dab in the middle of a HUGE, medically-fragile, elderly population, this is not the kind of situation you want to be in! Part of China’s investment in their healthcare future will require massive amounts of money spent on doctor and healthcare worker training. As far as I’ve been able to see from the current talk on healthcare reform, I don’t see anything committed to this effort … but there certainly should be! Regulation For those that have done any business in China, you know what China can do with a bureaucracy. Typically, Chinese government bureaucracy is mirrored at multiple levels … starting with national and moving down through provincial, county, city, district and neighborhood, there are branches of the same government entity. In healthcare regulation and monitoring in China, we see the same thing … but it becomes MUCH more complicated because there are often parallel and competing government entities vying for power. Look just at the national level and you find multiple regulatory bodies involved including: The Ministry of Health which oversees hospital management The State Food and Drug Administration which , similar to the FDA in the U.S., regulates anything related to food and pharmaceuticals, from production to distribution. The National Development and Reform Council (NDRC) which oversees much of healthcare pricing The China Insurance Regulatory Commission (CIRC) which, as its name so subtly suggests, regulates insurance, particular private insurance. Then there is the alphabet soup called the MoHRSS, the Ministry of Human Resource and Social Security who looks over the shoulder of the CIRC to regulate public insurance and the reimbursement list. Finally, there is the Ministry of Finance who is responsible to help fund this whole mess. There is not one, overarching ministry in charge … a ringmaster, a quarterback, a dominatrix in a doctor’s outfit … use whatever metaphor floats your boat! So not only do we have a HUMONGOUS need for real, lasting healthcare reform in China, we have a bunch of ministries all lunging for the same levers to pull. My concern is, obviously, that we are going to see some real challenges ahead of us in the coming years. Conclusion So let’s bring this back home … what does it mean for us, the potential foreign investors in China’s healthcare system? I can see two areas of interest: Foreign investors should be focusing on the mid- and lower-tiers of the healthcare system … to find a way to participate where the volume is and where the money is going to flow. I mentioned this in earlier Podcasts, but foreign investors – device companies, pharmaceuticals, drug delivery, etc. – should certainly try to play in the upper sectors, but should use that play to find a way to get into the lower ones. If you are a device company, find a partner to work with to bring your particular technology to the masses. Guaranteed, you are going to have to take some engineering OUT, reducing features and functions but also reducing costs. Then you’ll need to find a distribution channel that can get it to the hospitals and clinics purchasing this equipment. And they WILL be purchasing … again, the government is going to be dumping MASSIVE amounts of funds in these mid-tier healthcare outlets to upgrade their capabilities. Get in on the ground floor and you could be in for quite a ride. We are working with several medical device companies now on these strategies and the opportunities are HUGE! The second area I am only going to mention in passing because I don’t really know exactly how to do it yet – and that is, find a way to participate in the actual DELIVERY of healthcare. Participate in private clinics, open medial labs, work at doctor training. The need is obvious and overwhelming … I am honestly just not sure how to turn it into a business yet. We are working on a couple of projects in the privatization of clinics and hospitals and are seeing some very exciting things … I just haven’t seen a business here yet. Its there, I can smell it … but I haven’t found it yet. If you are working in some area of China healthcare, please share your story with us … send a comment along on our blog at www.technomicasia.com/blog. If you have a really good story, we’ll get you on the Podcast to share it. For those of us trying to cross that raging river by feeling for stones, it always helps to have others by you, to help guide and stabilize you (and, to extend the metaphor, to help haul you up when you fall flat on your can!). Thanks for listening … in our last healthcare Podcast coming this fall, we’ll talk about pharmaceuticals in China and how the healthcare reform will impact this very critical area. Until then, remember our motto: “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast. tag:odeo.com,2009-10-02,25224450 Fri, 02 Oct 2009 17:59:25 -0700 no China Business Blog and Podcast podcast, China, healthcare, Health Care, health insurance http://www.odeo.com/episodes/25082951-In-China-A-Name-Means-Something Download this podcast Length - 7:39 Download audio file (20090905_name.mp3) The scholar Confucius was an interesting guy … he was also a bit of a worry-wart. Certainly, there was a lot to be worried about … Kingdoms were fighting Kingdoms, people were starving, there was a general lack of education across the land. And the rulers hadn’t even gotten into building ridiculous architecture like the Great Wall. So ol’ Confucius was scratching his head for a solution but he was a pretty bright guy. Part of what he came up with revolved around names … he said, “You know, the problem is that a ruler is not acting like a ruler; a father is not acting like a father; a son is not acting like a son.” And like other famous people that need only one name – Madonna, Sting, Cher – he was also pretty good at marketing, or at least his students were. So in succeeding generations, there have been vast campaigns to get people to act in ways consistent with their names. We Westerners, on the other hand,... Download this podcast Length - 7:39 Download audio file (20090905_name.mp3) The scholar Confucius was an interesting guy … he was also a bit of a worry-wart. Certainly, there was a lot to be worried about … Kingdoms were fighting Kingdoms, people were starving, there was a general lack of education across the land. And the rulers hadn’t even gotten into building ridiculous architecture like the Great Wall. So ol’ Confucius was scratching his head for a solution but he was a pretty bright guy. Part of what he came up with revolved around names … he said, “You know, the problem is that a ruler is not acting like a ruler; a father is not acting like a father; a son is not acting like a son.” And like other famous people that need only one name – Madonna, Sting, Cher – he was also pretty good at marketing, or at least his students were. So in succeeding generations, there have been vast campaigns to get people to act in ways consistent with their names. We Westerners, on the other hand, are not smart in this way. We tend to follow William Shakespeare who asked, “What’s in a name? A rose by any other name would smell as sweet”. But maybe he wasn’t so smart … after all, he had to keep his first name in his brand. But I have been thinking a lot about names recently and how important they are here in China. Chinese names are beautiful, rich in symbolism and possess a sense of history that places the bearer securely within the culture. Finding an appropriate Chinese name for a foreigner is, perhaps, even more difficult than it is for the native-born. Many opt for the easy way out – simply translating the sound of their name into Chinese phonemes. Of course, that means the Chinese characters are devoid of meaning. Most foreigners don’t mind, but if you want to belong then you should find a “real” name. So if you want to make sure you have a good Chinese name, you’ve got to approach the situation not unlike your China business strategy – you need to take some control and work with people you trust. My Chinese name was chosen many years ago by a committee formed by my closest Chinese friends. Their mission: to find a name that matched my personality. However, the most appropriate, “Donkey-Face-Monkey-Boy’”, does not translate well in Chinese so instead they chose ? ?? or Gao Dekai. Gao is a traditional family name, but it also means “tall” and therefore alludes to my height. De means “morality” and Kai, “victory”, which says something about my successful struggles with sin (or pokes fun at my many failures). In short, Gao Dekai is a nice, solid, very Chinese name. I am never embarrassed when presenting my business card to Chinese people and they always comment on my name – “Oh … very nice name. Very strong!” Every once in a while, my Chinese friends ask me to help choose an English name for themselves or even their first child. This makes me feel most uncomfortable. The responsibility is too great and a wrong choice can mark a person with bad karma for life. I have trouble choosing a necktie, never mind something as serious as a name. I once knew a young man surnamed Zhou, who approached me one day and said: “Mr. Kent, I want you to help me pick an English name.” “OK,” I said, my voice aquiver, “have you anything in mind?” “Well, I like the name Satellite,” he said, with a proud grin. “Um… ‘Satellite Zhou’? Are you sure about that?” I asked. “Yes” he said. “Satellites are very modern and are very strong. And I want to be modern and strong. Besides, my best friend said it was a good name for me.” “Who is your best friend?” I asked, fearing the answer. “Oh,” he said, “his name is Auditorium Li.” Which reminds me, in China, everything is possible but nothing is easy. Download this podcast Length - 7:39 Download audio file (20090905_name.mp3) The scholar Confucius was an interesting guy … he was also a bit of a worry-wart. Certainly, there was a lot to be worried about … Kingdoms were fighting Kingdoms, people were starving, there was a general lack of education across the land. And the rulers hadn’t even gotten into building ridiculous architecture like the Great Wall. So ol’ Confucius was scratching his head for a solution but he was a pretty bright guy. Part of what he came up with revolved around names … he said, “You know, the problem is that a ruler is not acting like a ruler; a father is not acting like a father; a son is not acting like a son.” And like other famous people that need only one name – Madonna, Sting, Cher – he was also pretty good at marketing, or at least his students were. So in succeeding generations, there have been vast campaigns to get people to act in ways consistent with their names. We Westerners, on the other hand, are not smart in this way. We tend to follow William Shakespeare who asked, “What’s in a name? A rose by any other name would smell as sweet”. But maybe he wasn’t so smart … after all, he had to keep his first name in his brand. But I have been thinking a lot about names recently and how important they are here in China. Chinese names are beautiful, rich in symbolism and possess a sense of history that places the bearer securely within the culture. Finding an appropriate Chinese name for a foreigner is, perhaps, even more difficult than it is for the native-born. Many opt for the easy way out – simply translating the sound of their name into Chinese phonemes. Of course, that means the Chinese characters are devoid of meaning. Most foreigners don’t mind, but if you want to belong then you should find a “real” name. So if you want to make sure you have a good Chinese name, you’ve got to approach the situation not unlike your China business strategy – you need to take some control and work with people you trust. My Chinese name was chosen many years ago by a committee formed by my closest Chinese friends. Their mission: to find a name that matched my personality. However, the most appropriate, “Donkey-Face-Monkey-Boy’”, does not translate well in Chinese so instead they chose ? ?? or Gao Dekai. Gao is a traditional family name, but it also means “tall” and therefore alludes to my height. De means “morality” and Kai, “victory”, which says something about my successful struggles with sin (or pokes fun at my many failures). In short, Gao Dekai is a nice, solid, very Chinese name. I am never embarrassed when presenting my business card to Chinese people and they always comment on my name – “Oh … very nice name. Very strong!” Every once in a while, my Chinese friends ask me to help choose an English name for themselves or even their first child. This makes me feel most uncomfortable. The responsibility is too great and a wrong choice can mark a person with bad karma for life. I have trouble choosing a necktie, never mind something as serious as a name. I once knew a young man surnamed Zhou, who approached me one day and said: “Mr. Kent, I want you to help me pick an English name.” “OK,” I said, my voice aquiver, “have you anything in mind?” “Well, I like the name Satellite,” he said, with a proud grin. “Um… ‘Satellite Zhou’? Are you sure about that?” I asked. “Yes” he said. “Satellites are very modern and are very strong. And I want to be modern and strong. Besides, my best friend said it was a good name for me.” “Who is your best friend?” I asked, fearing the answer. “Oh,” he said, “his name is Auditorium Li.” Which reminds me, in China, everything is possible but nothing is easy. tag:odeo.com,2009-09-06,25082951 Sun, 06 Sep 2009 12:08:15 -0700 no China Business Blog and Podcast podcast, China, Names in China http://www.odeo.com/episodes/25048042-China-Health-Care-The-Land-of-Opportunity Download this podcast Download audio file (20090830_healthcare2.mp3) In a country this big there are plenty of sick people. Combine hundreds of millions of sick people, with less than 1,200 hospitals capable of providing comprehensive care, by that I mean best physicians, technicians, and staffing, which are called Grade 3 hosptials, and you have the world’s largest waiting room. Allow me to describe this potential process. Man has pain in groin and suspects it’s a hernia. He travels a couple of hours to nearest Grade 3 hospital in Shanghai, primarily because he has little faith in a Grade 2 hospital nearby and there are no real places that a Westerner would recognize as a primary care clinic in China. He waits a day in Shanghai to see a physician, if he is lucky, who confirms his suspicions and recommends surgery. Unfortunately no beds are available which means waiting in a nearby hotel – that’s right, hotel stays and hernias go together here in China’s health care system, until a ... Download this podcast Download audio file (20090830_healthcare2.mp3) In a country this big there are plenty of sick people. Combine hundreds of millions of sick people, with less than 1,200 hospitals capable of providing comprehensive care, by that I mean best physicians, technicians, and staffing, which are called Grade 3 hosptials, and you have the world’s largest waiting room. Allow me to describe this potential process. Man has pain in groin and suspects it’s a hernia. He travels a couple of hours to nearest Grade 3 hospital in Shanghai, primarily because he has little faith in a Grade 2 hospital nearby and there are no real places that a Westerner would recognize as a primary care clinic in China. He waits a day in Shanghai to see a physician, if he is lucky, who confirms his suspicions and recommends surgery. Unfortunately no beds are available which means waiting in a nearby hotel – that’s right, hotel stays and hernias go together here in China’s health care system, until a bed opens up. Can you feel his pain? Yes I believe you can. My friends, pain like that can only produce opportunities for business here in China’s vast and emerging health care market. But where exactly do you say are those opportunities? Let’s start at a level down from that Grade 3 facility where the bulk of patients can be served. We have seen most of the opportunity in the 6,500 Grade 2 hospitals across the country. That is where many of those people in waiting rooms in Grade 3 hospitals will find their cures by improving the quality of care at hospitals usually closer to their homes and with greater distribution across the country. After extensive research, we have found that this level of hospital will receive more government funds for improvement and greater flexibility to incorporate private sector principles in their operations. The specific opportunity is for medical device and IT companies to provide equipment and software, for better trained physician groups to practice, and for investors to add to the infusion of Chinese investment in healthcare, nearly $125 billion government funds over the next 3 years. That’s an opportunity. The full transcript of this podcast which includes a greater description of the hospital structure in China is available here. Download this podcast Download audio file (20090830_healthcare2.mp3) In a country this big there are plenty of sick people. Combine hundreds of millions of sick people, with less than 1,200 hospitals capable of providing comprehensive care, by that I mean best physicians, technicians, and staffing, which are called Grade 3 hosptials, and you have the world’s largest waiting room. Allow me to describe this potential process. Man has pain in groin and suspects it’s a hernia. He travels a couple of hours to nearest Grade 3 hospital in Shanghai, primarily because he has little faith in a Grade 2 hospital nearby and there are no real places that a Westerner would recognize as a primary care clinic in China. He waits a day in Shanghai to see a physician, if he is lucky, who confirms his suspicions and recommends surgery. Unfortunately no beds are available which means waiting in a nearby hotel – that’s right, hotel stays and hernias go together here in China’s health care system, until a bed opens up. Can you feel his pain? Yes I believe you can. My friends, pain like that can only produce opportunities for business here in China’s vast and emerging health care market. But where exactly do you say are those opportunities? Let’s start at a level down from that Grade 3 facility where the bulk of patients can be served. We have seen most of the opportunity in the 6,500 Grade 2 hospitals across the country. That is where many of those people in waiting rooms in Grade 3 hospitals will find their cures by improving the quality of care at hospitals usually closer to their homes and with greater distribution across the country. After extensive research, we have found that this level of hospital will receive more government funds for improvement and greater flexibility to incorporate private sector principles in their operations. The specific opportunity is for medical device and IT companies to provide equipment and software, for better trained physician groups to practice, and for investors to add to the infusion of Chinese investment in healthcare, nearly $125 billion government funds over the next 3 years. That’s an opportunity. The full transcript of this podcast which includes a greater description of the hospital structure in China is available here. tag:odeo.com,2009-08-30,25048042 Sun, 30 Aug 2009 13:04:41 -0700 no China Business Blog and Podcast podcast, China, medical, China hospitals, medical device market, China health care http://www.odeo.com/episodes/25048043-China-Healthcare-%E2%80%A6-and-you-think-the-U-S-has-problems Download this podcast Download audio file (20090807_china_healthcare1.mp3) I have been living and/or working in China for over 20 years and have been witness to one of the world’s most amazing phenomena … the aging of the population. Why is that so amazing in China? Well, just 50 years ago the life expectancy of the average Chinese person was 35 years old; today it is 72. In the past 10 years, life expectancy has been raised over 2 years. And why are people living longer? There are a number of reasons, but the major factor is is that people are getting better healthcare. But the cure to the Chinese people’s improved lifestyles is also the disease. Do the math: more than a billion population living nearly twice as long as their great-grandparents, equals some very, very large health care needs. The attached Podcast is starting a series on Chinese healthcare but I will just highlight some of the issues here. It is common knowledge that the low levels of consumer spending here and high... Download this podcast Download audio file (20090807_china_healthcare1.mp3) I have been living and/or working in China for over 20 years and have been witness to one of the world’s most amazing phenomena … the aging of the population. Why is that so amazing in China? Well, just 50 years ago the life expectancy of the average Chinese person was 35 years old; today it is 72. In the past 10 years, life expectancy has been raised over 2 years. And why are people living longer? There are a number of reasons, but the major factor is is that people are getting better healthcare. But the cure to the Chinese people’s improved lifestyles is also the disease. Do the math: more than a billion population living nearly twice as long as their great-grandparents, equals some very, very large health care needs. The attached Podcast is starting a series on Chinese healthcare but I will just highlight some of the issues here. It is common knowledge that the low levels of consumer spending here and high savings rates compared to more developed economies – the average Chinese citizen saves 35-40% of their total income – is due largely to the fact that the Chinese social safety net has huge holes in it. In the old days of the planned economy in China, healthcare – such as it was – was a given, part of the so-called “iron rice bowl” of guaranteed supports which included housing, schooling and healthcare along with a basic (and low) salary. Well, as the economy has opened up and more capitalistic structures and systems have been allowed to bloom in China, this iron rice bowl has started to crack and, for most people, disintegrate completely. And the economic planners in China, giddy from the incredible wealth and its associated global power, focused more on the exo-structure rather than the infrastructure in China’s development. There is a running joke among some of my China-phile friends that, if you hear a so-called expert start his or her speech with the phrase, “China is a big country”, you should immediately discount anything you hear from that point on … pointing out the obvious is not a good way to begin. Still, this must be the foundation for any discussion on the social welfare system in China, that this is just a MASSIVE country, both in terms of geography (the physical size of the U.S.) and population (1.3 billion people, more than triple the U.S.) and this scale has a lot to do with how things do or don’t get done. Comparisons are often made between China and Japan or the “Four Tigers” of Asia (Taiwan, Singapore, Hong Kong and Korea), looking at how these early Asian economies developed versus what and how China is doing today. While certainly some comparisons can (and should be) made, the fact remains that China’s scale sets it apart from the others – its like the difference between driving a Jet-ski and a super tanker – both are navigating some of the same waters, both have somewhat similar methods of propulsion and steering, but the simple differences in volume and mass make for VERY different sailing experiences! Let’s look at some age breakdowns … in 2000, it was estimated that 7% of the population was 65 and older. If current trends continue, by the year 2040 that group of 65 and older will have increased to almost 20% of the population. And a population skewed older will have greater need for healthcare of all kinds. The aging of the population alone is predicted to produce a 200% increase in deaths from cardiovascular disease in China between the years 2000 and 2040. Now, where are these people all living? A majority of China’s population – albeit a shrinking one – lives in rural areas, in small towns and villages, far from the infrastructure of the cities. In 2010, about 55% of China’s population will live in rural areas. However, this is rapidly changing and China will add about 150 million people to its urban areas over the next ten years, making for about a 50/50 urban/rural split by 2020. That means that China’s cities, many already bursting at the seams, will be additionally challenged to provide for their populations. We’ve talked before in these Podcasts about the growth in consumer activity in China’s so-called Tier 3 and 4 cities … but these cities still have between 1 and 3 million people in them! This is NOT what we in the West are used to. My own hometown – the Twin Cities of Minneapolis and St. Paul in Minnesota – has about 2.85 million people and is estimated to be the 16th largest metropolitan area in the U.S. (and notice that it takes us combining TWO cities together to do this!). But in China, that population would barely get us into the top 100 cities! Granted, we Minnesotans – with our German and Scandinavian ethnic heritages and our great bread, beer and cheese – are an order of magnitude larger than the average Chinese person so it feels more crowded in Minnesota. But for sheer measurements of “people per square meter”, China is the clear leader, if not necessarily the winner. One of the benefits of improved lifestyles is better food … and “better” often means “more fattening.” In 1982, Chinese citizens consumed, on average, about 48 grams of fat per day … in 2002, that figure was up to 76 grams for urban dwellers. This exceeds the World Health Organization’s recommended level by over 30%. Some statistics put the number of the overweight and obese in China at over 200 million people. These new diets are leading to an increase in the so-called “modern” chronic diseases such as hypertension, diabetes and heart disease. In the past couple of years, diet programs from Jenny Craig, Weight Watchers and hundreds of China look-alikes have sprouted up all over China, pursuing, particularly, the young female population by telling them that they won’t be happy until they look like this retouched photo of a movie-star who has 7 personal trainers, the God-given metabolism of a wolverine and several liposuctions under her ever-tightening belt. I have even seen adds aimed at parents of chubby kids … you can bring them to fast food during the week and to a “fat camp” on the weekend. A running joke among some of my friends in China is to walk into a restaurant and ask for a non-smoking table. “Non-smoking” just means that there is not an ashtray on the table and that YOU should not smoke there … but everyone around you, at all points of the compass, will be belching smoke like an iron smelter. Needless to say, smoking is VERY prevalent in China … an estimated 1/3 of the world’s 1.3 billion smokers are in China. The prevalence of smoking has actually dropped in China … it was 63% among men in 1996 but then fell to “only” 48% in 2002. Culturally speaking, smoking among women is not very popular … only an estimated 3% of Chinese women smoke, but that is changing as well as younger, more “modern” women are taking up the habit. And when you see smoke, you think “cancer” … and that is certainly happening in China. Reliable statistics here are MUCH more difficult to come by (given that the biggest supporter and supplier of tobacco products in China are state-owned enterprises), but some random data points (and the experience of smoking deaths in the West) can lead us to some pretty clear conclusions. Lung cancer is expected to increase by nearly 2 times, resulting in over 100 million lung cancer patients in China by the year 2015. Cancers of all kinds are growing in China. Today, about 300,000 patients die each year of primary liver cancer in China … this is a rate 24 times higher than the United States. Cardiovascular disease, chronic respiratory disease and cancer are, by far, the leading causes of death in China. Stay tuned to these pages as we explore more about the Chinese healthcare system. And check out today’s Podcast which goes into this subject in much more detail. Download this podcast Download audio file (20090807_china_healthcare1.mp3) I have been living and/or working in China for over 20 years and have been witness to one of the world’s most amazing phenomena … the aging of the population. Why is that so amazing in China? Well, just 50 years ago the life expectancy of the average Chinese person was 35 years old; today it is 72. In the past 10 years, life expectancy has been raised over 2 years. And why are people living longer? There are a number of reasons, but the major factor is is that people are getting better healthcare. But the cure to the Chinese people’s improved lifestyles is also the disease. Do the math: more than a billion population living nearly twice as long as their great-grandparents, equals some very, very large health care needs. The attached Podcast is starting a series on Chinese healthcare but I will just highlight some of the issues here. It is common knowledge that the low levels of consumer spending here and high savings rates compared to more developed economies – the average Chinese citizen saves 35-40% of their total income – is due largely to the fact that the Chinese social safety net has huge holes in it. In the old days of the planned economy in China, healthcare – such as it was – was a given, part of the so-called “iron rice bowl” of guaranteed supports which included housing, schooling and healthcare along with a basic (and low) salary. Well, as the economy has opened up and more capitalistic structures and systems have been allowed to bloom in China, this iron rice bowl has started to crack and, for most people, disintegrate completely. And the economic planners in China, giddy from the incredible wealth and its associated global power, focused more on the exo-structure rather than the infrastructure in China’s development. There is a running joke among some of my China-phile friends that, if you hear a so-called expert start his or her speech with the phrase, “China is a big country”, you should immediately discount anything you hear from that point on … pointing out the obvious is not a good way to begin. Still, this must be the foundation for any discussion on the social welfare system in China, that this is just a MASSIVE country, both in terms of geography (the physical size of the U.S.) and population (1.3 billion people, more than triple the U.S.) and this scale has a lot to do with how things do or don’t get done. Comparisons are often made between China and Japan or the “Four Tigers” of Asia (Taiwan, Singapore, Hong Kong and Korea), looking at how these early Asian economies developed versus what and how China is doing today. While certainly some comparisons can (and should be) made, the fact remains that China’s scale sets it apart from the others – its like the difference between driving a Jet-ski and a super tanker – both are navigating some of the same waters, both have somewhat similar methods of propulsion and steering, but the simple differences in volume and mass make for VERY different sailing experiences! Let’s look at some age breakdowns … in 2000, it was estimated that 7% of the population was 65 and older. If current trends continue, by the year 2040 that group of 65 and older will have increased to almost 20% of the population. And a population skewed older will have greater need for healthcare of all kinds. The aging of the population alone is predicted to produce a 200% increase in deaths from cardiovascular disease in China between the years 2000 and 2040. Now, where are these people all living? A majority of China’s population – albeit a shrinking one – lives in rural areas, in small towns and villages, far from the infrastructure of the cities. In 2010, about 55% of China’s population will live in rural areas. However, this is rapidly changing and China will add about 150 million people to its urban areas over the next ten years, making for about a 50/50 urban/rural split by 2020. That means that China’s cities, many already bursting at the seams, will be additionally challenged to provide for their populations. We’ve talked before in these Podcasts about the growth in consumer activity in China’s so-called Tier 3 and 4 cities … but these cities still have between 1 and 3 million people in them! This is NOT what we in the West are used to. My own hometown – the Twin Cities of Minneapolis and St. Paul in Minnesota – has about 2.85 million people and is estimated to be the 16th largest metropolitan area in the U.S. (and notice that it takes us combining TWO cities together to do this!). But in China, that population would barely get us into the top 100 cities! Granted, we Minnesotans – with our German and Scandinavian ethnic heritages and our great bread, beer and cheese – are an order of magnitude larger than the average Chinese person so it feels more crowded in Minnesota. But for sheer measurements of “people per square meter”, China is the clear leader, if not necessarily the winner. One of the benefits of improved lifestyles is better food … and “better” often means “more fattening.” In 1982, Chinese citizens consumed, on average, about 48 grams of fat per day … in 2002, that figure was up to 76 grams for urban dwellers. This exceeds the World Health Organization’s recommended level by over 30%. Some statistics put the number of the overweight and obese in China at over 200 million people. These new diets are leading to an increase in the so-called “modern” chronic diseases such as hypertension, diabetes and heart disease. In the past couple of years, diet programs from Jenny Craig, Weight Watchers and hundreds of China look-alikes have sprouted up all over China, pursuing, particularly, the young female population by telling them that they won’t be happy until they look like this retouched photo of a movie-star who has 7 personal trainers, the God-given metabolism of a wolverine and several liposuctions under her ever-tightening belt. I have even seen adds aimed at parents of chubby kids … you can bring them to fast food during the week and to a “fat camp” on the weekend. A running joke among some of my friends in China is to walk into a restaurant and ask for a non-smoking table. “Non-smoking” just means that there is not an ashtray on the table and that YOU should not smoke there … but everyone around you, at all points of the compass, will be belching smoke like an iron smelter. Needless to say, smoking is VERY prevalent in China … an estimated 1/3 of the world’s 1.3 billion smokers are in China. The prevalence of smoking has actually dropped in China … it was 63% among men in 1996 but then fell to “only” 48% in 2002. Culturally speaking, smoking among women is not very popular … only an estimated 3% of Chinese women smoke, but that is changing as well as younger, more “modern” women are taking up the habit. And when you see smoke, you think “cancer” … and that is certainly happening in China. Reliable statistics here are MUCH more difficult to come by (given that the biggest supporter and supplier of tobacco products in China are state-owned enterprises), but some random data points (and the experience of smoking deaths in the West) can lead us to some pretty clear conclusions. Lung cancer is expected to increase by nearly 2 times, resulting in over 100 million lung cancer patients in China by the year 2015. Cancers of all kinds are growing in China. Today, about 300,000 patients die each year of primary liver cancer in China … this is a rate 24 times higher than the United States. Cardiovascular disease, chronic respiratory disease and cancer are, by far, the leading causes of death in China. Stay tuned to these pages as we explore more about the Chinese healthcare system. And check out today’s Podcast which goes into this subject in much more detail. tag:odeo.com,2009-08-07,25048043 Fri, 07 Aug 2009 21:31:10 -0700 no China Business Blog and Podcast podcast, China, Health Care, medical, China health care, China pharmaceuticals http://www.odeo.com/episodes/25048044-China-Has-Gone-Mainstream-But-US-Business-Still-Gets-Excited Download this podcast Download audio file (20090703_nothing.mp3) Those of you who are regular consumers of this Podcast and associated blog may have noticed that I have been unusually quiet as of late. In fact, I’ve gotten email messages asking if I was alright. Was I sick? Did I break my fingers or lose my voice, rendering me technologically mute? Did the global economic tsunami finally reach the heretofore protected shores of China and was I, too, scrambling for an employment life-ring of support in my middle age? Nope. Although things were slower in the first part of this year, business is going great – everyone is interested in growing in China, the only place FOR growth these days, it seems. No, the reason for my silence is much more simple, and yet more sinister. I don’t have anything to say! I sit down to write. I stare at the blank page, my mind empty as an honest man’s wallet. After nearly 25 years writing about one American’s life abroad, I’m out of ideas. I am all talked ... Download this podcast Download audio file (20090703_nothing.mp3) Those of you who are regular consumers of this Podcast and associated blog may have noticed that I have been unusually quiet as of late. In fact, I’ve gotten email messages asking if I was alright. Was I sick? Did I break my fingers or lose my voice, rendering me technologically mute? Did the global economic tsunami finally reach the heretofore protected shores of China and was I, too, scrambling for an employment life-ring of support in my middle age? Nope. Although things were slower in the first part of this year, business is going great – everyone is interested in growing in China, the only place FOR growth these days, it seems. No, the reason for my silence is much more simple, and yet more sinister. I don’t have anything to say! I sit down to write. I stare at the blank page, my mind empty as an honest man’s wallet. After nearly 25 years writing about one American’s life abroad, I’m out of ideas. I am all talked out (and blogged out and Podcasted out!). For someone who, as a child, thought his name was “For-the-love-of-all-that-is-holy-would-you-please-shut-up,” speechlessness is an altogether alien state. Writer’s block happens, I suppose, but it happens to other people, those with less interesting lives. For instance, accountants hunched over the books under the glare of fluorescent lights – hydroponic humans in cubicle farms. What are they going to write… “Dear diary: today I struggled valiantly with that last entry until the T-account balanced, perched precariously on profit’s knife edge…?” I can imagine florists would have a tough time drumming up passion in their writing: “Dear diary, today I sold flowers. Just like yesterday. And probably tomorrow.” This I can understand. But I am writing from Shanghai, the refurbished Pearl of the Orient, a city with 23 million people all doing things my mother told me never to do: crossing against the light, slurping their noodles, eating with sticks, fricasseeing the family pet. You’d think I could find something interesting to write about. I wrack my brain, searching through the last month of my calendar. Surely something has happened that is worthy of comment. Some “ah-ha!” Some something that no one has noticed before. Suddenly, I have it, a golden nugget around which I can weave a perfect pearl of wise insight. I will blog about the traffic! Something odd is always happening in Shanghai traffic. I look out my window. Sure enough, drivers are playing their horns like a Swiss bell choir and are power-merging like Stevie Wonder in a demolition derby. But on second thought, this seems a bit lame. The traffic situation is no different today than it was last year and in fact it seems to work just fine, albeit with a few more fender benders. “Nothing to report here, Skip…back to you in the studio.” Return to the calendar. Maybe I can write about something stupid I’ve done recently. Certainly I have pulled a bonehead move in the last month that I can write about … that seems to be a never ending stream of content. I must have committed a cultural gaffe. Messed up my Chinese tones and called my mother a horse, something like that. Yeah? So what? Everyone I know is already familiar with that scenario, though my Chinese friends and colleagues are far too graceful to point out my mistakes. Yesterday I was sitting at a Starbuck’s on Huaihai Road in Shanghai, waiting for a client and trying to dredge up an idea for the Podcast…any idea…and it hit me: I am in a STARBUCKS on HUAIHAI LU trying to come up with something to say about a foreigner’s so-called crazy life in Shanghai! How crazy can it be…is the foam on my latte too frothy? Am I forced to use refined instead of raw sugar? Oh horrors, the swirl on my caramel Frappacio goes to the left and not the right??? However, this sort of middle-aged rant against the middle class in the Middle Kingdom might be considered the Grunge music of the new millennium; after all, those with nothing really to complain about favor a public forum. And I am already having trouble with middle age. Or at least my expanding middle in middle age … no one needs to hear about that. So that’s it then: it’s not me, it’s China… China’s gone mainstream. We used to have to bring pizza in from Hong Kong and now we get it delivered from around the corner. Biking down to the Telecommunications Bureau to register an international phone call and waiting three days to actually place that call was ink-worthy in the 80s. Today? I miss a call from the States because I out was taking pictures, SMS-ing and playing music on my iPhone until the battery died. So that’s my headline then: China is Not Interesting Any More. Officially hum-drum, day-to-day, not unique in any noticeable fashion. It’s not me, it is my subject: Shanghai, the Fargo of the Far East. “Move along, there is nothing to see here… go about your business.” How reassuring. I feared I was losing my edge. Confidence recently restored, I then experience an epiphany. My client arrives, the president of a billion dollar multinational, he is barely 24 hours into his first visit to China. This is a guy who has seen everything, done everything… spent more money last week than most of us will see in a lifetime and will probably lose it just as effortlessly next week. His passport has more stamps than a Philatelic Society swap-meet. His is a Gold frequent flyer on five airlines and rates “Super Mother Bad Platinum” on two more. This dude has been around. So he comes into Starbucks, sees me and nearly RUNS across the room. He drops into the chair across from me, breathless and wide-eyed, having just arrived in a taxi from the airport and his usual executive demeanor is displaced. “What is it with this place?” he whisper-screams, “I nearly lost my lunch five times on the ride over here…and these buildings…and the language…and…and… is this Starbuck’s!? I have no idea what to think about this place…it’s, it’s FANTASTIC! Where have I been all my life?!?!” We proceed to talk about the work we are doing for his company and some of the growth opportunities we have identified. There are some very exciting things happening here in his industry. At headquarters, he is trying to deal with the rug getting pulled out from under him by the current state of the economy; here he is losing himself in the lush shag of the rug that has stayed put. He is petrified by what he sees here but he is intrigued as well. China, so ugly its cute. The Orangutan of global business. A minute ago, I was thinking that I’d seen everything here. And now I meet a guy who literally HAS seen everything, and he says that China is making him think that he has seen nothing. And I have it, my new headline: “Big Pale Writer Thinks He Knows Everything About China: Film and Self-Criticism at 11.” Note to self: my blasé attitude and road worn demeanor is not about China being boring. Far from it. It’s just me being me. Thanks again for listening … and remember our motto “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast. Download this podcast Download audio file (20090703_nothing.mp3) Those of you who are regular consumers of this Podcast and associated blog may have noticed that I have been unusually quiet as of late. In fact, I’ve gotten email messages asking if I was alright. Was I sick? Did I break my fingers or lose my voice, rendering me technologically mute? Did the global economic tsunami finally reach the heretofore protected shores of China and was I, too, scrambling for an employment life-ring of support in my middle age? Nope. Although things were slower in the first part of this year, business is going great – everyone is interested in growing in China, the only place FOR growth these days, it seems. No, the reason for my silence is much more simple, and yet more sinister. I don’t have anything to say! I sit down to write. I stare at the blank page, my mind empty as an honest man’s wallet. After nearly 25 years writing about one American’s life abroad, I’m out of ideas. I am all talked out (and blogged out and Podcasted out!). For someone who, as a child, thought his name was “For-the-love-of-all-that-is-holy-would-you-please-shut-up,” speechlessness is an altogether alien state. Writer’s block happens, I suppose, but it happens to other people, those with less interesting lives. For instance, accountants hunched over the books under the glare of fluorescent lights – hydroponic humans in cubicle farms. What are they going to write… “Dear diary: today I struggled valiantly with that last entry until the T-account balanced, perched precariously on profit’s knife edge…?” I can imagine florists would have a tough time drumming up passion in their writing: “Dear diary, today I sold flowers. Just like yesterday. And probably tomorrow.” This I can understand. But I am writing from Shanghai, the refurbished Pearl of the Orient, a city with 23 million people all doing things my mother told me never to do: crossing against the light, slurping their noodles, eating with sticks, fricasseeing the family pet. You’d think I could find something interesting to write about. I wrack my brain, searching through the last month of my calendar. Surely something has happened that is worthy of comment. Some “ah-ha!” Some something that no one has noticed before. Suddenly, I have it, a golden nugget around which I can weave a perfect pearl of wise insight. I will blog about the traffic! Something odd is always happening in Shanghai traffic. I look out my window. Sure enough, drivers are playing their horns like a Swiss bell choir and are power-merging like Stevie Wonder in a demolition derby. But on second thought, this seems a bit lame. The traffic situation is no different today than it was last year and in fact it seems to work just fine, albeit with a few more fender benders. “Nothing to report here, Skip…back to you in the studio.” Return to the calendar. Maybe I can write about something stupid I’ve done recently. Certainly I have pulled a bonehead move in the last month that I can write about … that seems to be a never ending stream of content. I must have committed a cultural gaffe. Messed up my Chinese tones and called my mother a horse, something like that. Yeah? So what? Everyone I know is already familiar with that scenario, though my Chinese friends and colleagues are far too graceful to point out my mistakes. Yesterday I was sitting at a Starbuck’s on Huaihai Road in Shanghai, waiting for a client and trying to dredge up an idea for the Podcast…any idea…and it hit me: I am in a STARBUCKS on HUAIHAI LU trying to come up with something to say about a foreigner’s so-called crazy life in Shanghai! How crazy can it be…is the foam on my latte too frothy? Am I forced to use refined instead of raw sugar? Oh horrors, the swirl on my caramel Frappacio goes to the left and not the right??? However, this sort of middle-aged rant against the middle class in the Middle Kingdom might be considered the Grunge music of the new millennium; after all, those with nothing really to complain about favor a public forum. And I am already having trouble with middle age. Or at least my expanding middle in middle age … no one needs to hear about that. So that’s it then: it’s not me, it’s China… China’s gone mainstream. We used to have to bring pizza in from Hong Kong and now we get it delivered from around the corner. Biking down to the Telecommunications Bureau to register an international phone call and waiting three days to actually place that call was ink-worthy in the 80s. Today? I miss a call from the States because I out was taking pictures, SMS-ing and playing music on my iPhone until the battery died. So that’s my headline then: China is Not Interesting Any More. Officially hum-drum, day-to-day, not unique in any noticeable fashion. It’s not me, it is my subject: Shanghai, the Fargo of the Far East. “Move along, there is nothing to see here… go about your business.” How reassuring. I feared I was losing my edge. Confidence recently restored, I then experience an epiphany. My client arrives, the president of a billion dollar multinational, he is barely 24 hours into his first visit to China. This is a guy who has seen everything, done everything… spent more money last week than most of us will see in a lifetime and will probably lose it just as effortlessly next week. His passport has more stamps than a Philatelic Society swap-meet. His is a Gold frequent flyer on five airlines and rates “Super Mother Bad Platinum” on two more. This dude has been around. So he comes into Starbucks, sees me and nearly RUNS across the room. He drops into the chair across from me, breathless and wide-eyed, having just arrived in a taxi from the airport and his usual executive demeanor is displaced. “What is it with this place?” he whisper-screams, “I nearly lost my lunch five times on the ride over here…and these buildings…and the language…and…and… is this Starbuck’s!? I have no idea what to think about this place…it’s, it’s FANTASTIC! Where have I been all my life?!?!” We proceed to talk about the work we are doing for his company and some of the growth opportunities we have identified. There are some very exciting things happening here in his industry. At headquarters, he is trying to deal with the rug getting pulled out from under him by the current state of the economy; here he is losing himself in the lush shag of the rug that has stayed put. He is petrified by what he sees here but he is intrigued as well. China, so ugly its cute. The Orangutan of global business. A minute ago, I was thinking that I’d seen everything here. And now I meet a guy who literally HAS seen everything, and he says that China is making him think that he has seen nothing. And I have it, my new headline: “Big Pale Writer Thinks He Knows Everything About China: Film and Self-Criticism at 11.” Note to self: my blasé attitude and road worn demeanor is not about China being boring. Far from it. It’s just me being me. Thanks again for listening … and remember our motto “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast. tag:odeo.com,2009-07-03,25048044 Fri, 03 Jul 2009 05:39:13 -0700 no China Business Blog and Podcast Humor, China, China business strategy, US business http://www.odeo.com/episodes/25048045-Continuous-Market-Entry-Never-Ends-in-China Download this podcast Download audio file (20090629_market_entry.mp3) Nearly 18 months ago, I wrote an article for the British Chamber of Commerce in Guangzhou called “Continuous Market Entry”. A client of ours found that article and called to talk to me about it. It had been awhile since I looked at it so I did a quick review … and not only did I COMPLETELY agree with what I wrote then, I think it is even more important now! Lest you think that my ego has completely run away with me and that I have become my biggest fan (or maybe IN SPITE of that!), let me be clear – what I said then (and will say today) is NOT rocket science. In fact, because this is not rocket science – because it is quite logical and, at its heart, pretty simple – we tend to overlook it in favor of more complicated (and, we think, therefore more valuable) ways of growing our China businesses. So in today’s Podcast, I would like to revisit this issue and explore it a bit deeper. For most foreign companies establi... Download this podcast Download audio file (20090629_market_entry.mp3) Nearly 18 months ago, I wrote an article for the British Chamber of Commerce in Guangzhou called “Continuous Market Entry”. A client of ours found that article and called to talk to me about it. It had been awhile since I looked at it so I did a quick review … and not only did I COMPLETELY agree with what I wrote then, I think it is even more important now! Lest you think that my ego has completely run away with me and that I have become my biggest fan (or maybe IN SPITE of that!), let me be clear – what I said then (and will say today) is NOT rocket science. In fact, because this is not rocket science – because it is quite logical and, at its heart, pretty simple – we tend to overlook it in favor of more complicated (and, we think, therefore more valuable) ways of growing our China businesses. So in today’s Podcast, I would like to revisit this issue and explore it a bit deeper. For most foreign companies establishing a business in China, the phrase “China market entry” is a one-time process of market assessment, strategy planning and corporate structuring. Once the business license is issued, there is a palpable sense of relief among the management team – “Whew, market entry is done,” they say, maybe hoisting a few congratulatory pints between then, “Now bring in the implementation team to get things going!” However, those that have been here for awhile understand that “China market entry” is not a one-time thing and that successful companies – i.e. those that are making money here – are continuously revisiting and refreshing their market penetration strategies. In a similar way, a manufacturing theory that originated in Japan called “Kaizen” – roughly translated into English as “continuous improvement” – advocates that quality improvement is not a one-time thing: do it once and you’re done. Rather, quality should be a constant concern for everyone in the manufacturing environment and companies should always be evaluating how they make their products and how they can improve them. We look at what we call “continuous market entry” in the same way: it is an attitude and a process whereby companies approach their on-going China market assessment and strategy planning as if they are facing it for the very first time. This approach is especially important for companies that have been in China for awhile, typically 5-10 years (or even more). Our market strategy consulting firm has been on-the-ground in China since the mid-80s and helped many of these companies on their first market entry. We are now working with many of them to “re-enter” China by taking a fresh look at today’s market conditions and then crafting an appropriate response. Continuous Market Entry: “Re-asking” Questions Going “back to the beginning” is nothing new. Sports professionals talk about maintaining their love for the game by remembering what it was like to play as children on the playground. Therapists recommend couples to find ways to keep their relationship fresh by imagining that they had just met. Buildings are renovated, torn down to the foundation and rebuilt, as if new. For those who have been here for some time, it is difficult to go back to the beginning because we cannot help but look at China through the lens of the lessons we have learned from the past, through our successes and failures. Most of us would not want to return to the naïve attitudes we had when we first came to China: how easy we thought it would be, how smart we thought we were ourselves. No, many foreigners here “walk with a limp” and we would not trade our battle scars for anything. So when I talk about continuous market entry, I am by no means advocating naiveté and downright stupidity (there is already a whole lotta that here among foreign companies entering China!). What I am encouraging us all to return to is the exploration of the many questions we had about the China market and how we could be successful when we first came here. Deep down, we knew that we didn’t know much, and we were hungry for information and any bit of insight that could give us a leg-up in our market entry. It is this non-stop asking of questions that lies at the heart of continuous market entry. There are three categories of questions that I would like to briefly address here: questions about market demand, distribution chains and competitors. Market Demand: Who is my Customer? One of the first questions anyone asks when getting into a new market is, logically, “who will buy my product?” A simple question, no? Well, no…at least not in China! Identifying, with any level of precision, who in China would buy your product and what product features, functions and pricing would satisfy was very difficult in the “old days.” Getting access to potential buyers was difficult: travel was hard, phones didn’t work, we didn’t have the Internet or email. Secondary data, when available, was very thin and was too loaded with political overtones to be very accurate. However, many early foreign entrants showed up with their products and – wonder of wonders – they sold some. Sometimes they sold a lot! Slowly but surely, the foreign companies that survived developed a customer base that kept them in business. The smarter ones moderated their expectations, following a fortune cookie I once read: “Set your goals low and you will always attain them.” But many of these companies became satisfied and somewhat complacent with their success, even moderate success. Slowly, they stopped asking themselves the questions that got them there: Who is my customer? What do they want? What else can I provide them? They slid comfortably into defining their China market as “the segment in which I am successful” rather than “all the segments I could possibly address.” In recent years, segmentation of many markets in China has become much more complex and fragmented. Take the automotive market: there used to be only a few kinds of cars to choose from with very few private buyers. There are now well over 100 brands of cars in China with hundreds of models to choose from in a dizzying array of quality, price and performance tiers, all being purchased by private owners. If you are selling into this market now, you better understand, in detail, what your opportunities are in each segment, for each kind of buyer. All foreign companies – and particularly those that have been here awhile – need to understand the details of their market segmentation and to identify, clearly, which segments they should pursue and which they should leave alone. For the latter, this is not easy. A client of ours in consumer products with over 10 years in China is currently going through a ground-up market assessment, looking at the market as if they were not yet here. Our early strategy meetings were full of statements that started with “based on our experience…” or “we know that…”. They have now moved into a stage of asking questions of the market and exploring ways of looking at it that they have never done before. The deep market probes we are doing among customers, distributors and competitors are guided by these questions and we are looking at how our client’s products are used in the market, not how our client sells them. This, in turn, has led to new ways of segmenting (and selling to) the market that is resulting in some real growth. Another client of ours is trying to look at new ways of serving the customers they already have. Because they were so early into the market, they pretty much defined their sector … and while they have certainly found success and happy customers, their strategy has been more focused on “what we have to sell” rather than “what our customer wants to buy.” Now that there is more competitive in the market, our client is going back to their long-time customers and are asking, in effect, “what if we weren’t here … what would you want??” It’s a tricky thing and we are getting some resistance from some divisions in our client from people to have an “if it ain’t broke, don’t fix it” mentality. However, the CEO and senior management, thankfully, have a different view … they see the market changing and know that they will soon face customer demands that they cannot fulfill. They need to get out ahead of those demands now, understand them and plan for them. Distribution: Finding New Routes to Market Not only have veteran foreign companies in China lost touch with their customer segments, but they often miss key distribution routes to those customers. It is logical to think that if my customer is “A” then the way to reach them is “B”. However, as markets have changed and segmented, so have routes to those markets and it is healthy to continuously review one’s distribution strategies. A client of ours brought a product in over 12 years ago and used some Hong Kong distributors to do so. At that time, the Hong Kong distributors knew the market as well as anyone and besides, there simply were not any “local” distributors. In fact, many foreigners at that time did not differentiate between those from Hong Kong and those from the Mainland, naively calling them all “Chinese”. Depending on the industry and channel, there are now many local distributors that are quite mature. They know their markets, they often know technology, and they certainly know how to sell to local buyers. In the case of our client, their Hong Kong distributors are now actually losing deals to local distributors because the local buyers consider those from Hong Kong to be “foreigners” who don’t understand local markets. I am in no way saying that all Hong Kong distributors are a bad idea in China today – but I am saying that what was appropriate several years ago may not be appropriate today. Companies pursuing continuous market entry are re-mapping distribution channels at the same time they are re-segmenting their markets, all the while trying not to be biased by the distribution channels they worked so hard to establish already. It is not an easy thing to do, but they are critically analyzing the “reach” of their present distribution and are assessing whether or not it is as broad or deep as is required. We have done many projects over the past year to objectively map just how far a foreign company’s distribution is reaching. In all cases, we found that penetration was not as great as the distributor was telling our client nor was it often even in the right channel. These discoveries didn’t necessarily lead to our clients replacing distribution; rather, they were able to add partners to get into areas they had no access to. Only an attitude of continuous market entry led them to such conclusions. Competition: New Players in New Segments When many of the “old-timers” came into China, they were some of the first foreign companies entering the market and their ability to differentiate themselves was relatively easy. Price and quality differences were very apparent: the quality and price of the foreign product was very high and the Chinese competitive products were, if they existed at all, typically low price and low quality. It was often easy for foreign companies to charge a premium of several hundred percent because a certain portion of the market was looking for quality and was willing to pay for it. If a foreign company was bringing a product or a technology to the market that had never been seen before, they found buyers (often other foreign companies) willing to pay anything for it. Ask them who their competition was, they would say “no one”…and they were basically right. A client of ours was in this situation. The capital equipment they brought into China was brand new in the market; there was nothing like it here. Our client considered it “world class” quality – and indeed, they lead most of the rest of the global market in this product category. Their immediate market entry was very successful. There was a small part of the market that would pay any price and our client was always pushing their manufacturing capacity to supply their customers. However, as the market matured, two things happened: first, more buyers came online who began to see the use of this particular product and thought it would be helpful. However, these buyers were not rich foreign companies but were often privatizing local companies who were looking for “China quality”, not “World Class quality”. Secondly, more competitors – many of them local Chinese companies – rose up to supply these segments with that “China quality” equipment, leaving our client in its own “World Class” bubble. Recently, our client has been looking at the China market with a fresh perspective and is realizing that the market has not grown beyond them, but has grown up below them. They still have sales in the premium segment of the market, but the sweet spot of the market has shifted to the middle range and competition there is quite fierce. Our client has been going back to find out how their competition is serving this market and how our client can begin to compete. We have had to work together to eliminate the phrase “we have never done it that way before” and still have some distance to go; however, waking up to a market rife with strong competition has changed the way our client is looking at the market and planning their future strategies. Our client no longer claims they have no competition in China! Another client of ours in consumer products is looking at the challenges facing them in China in today’s very unique retail market. For the non-retail jockeys in my listening audience, the retail challenge in China today, in a nutshell, is the tension between what is called “traditional trade” and “modern trade”. Traditional trade are the mom & pop shops, local retailers serving a particular neighborhood … think the corner hardware store or the neighborhood grocery store… small, familiar and convenient. Their product stocking practices are hit or miss, their pricing is not too aggressive and their quality is sometimes suspect, but their customer service is fantastic. They have been serving the same neighborhoods, sometimes for generations. Modern trade, on the other hand, are the “super stores” and “hypermarkets” … think Home Depot in the U.S. (or B&Q in Europe) and Wal-Mart. These are the stores that go to market based on their huge selection, their good quality and their low prices. They are not always convenient to get to, but they are a “destination” … you go there, fill up your car (or bike basket) and go home happy. China is going through a massive transition from traditional to modern trade … where people are going from shopping at the corner grocery store to making a trip to Wal-Mart or Carrefour. While the VOLUME of total retail sales is in the traditional channels, the GROWTH is in the modern ones. And consumer goods suppliers must manage the tension that exists in serving both of them. Our client is struggling with this … and so we are in the process of doing a benchmarking program to look at how some of their competitors are handling some of these problems and then looking at how these challenges are addressed by peer companies – companies working the retail space but not in the product space of our client. We are seeing some VERY interesting results so far. The biggest benefit is that it kind of levels the playing field. We all tend to complain that what we are facing is unique (and many try to get their bosses to see that, given the uniqueness of the situation, they are doing pretty good!). However, when you look at how your competitors are facing the very same problems you are, you take away these excuses. You benchmark your current performance against theirs and you see where you really stand. You also can sift through a lot of approaches to the same market – some of them are good and some of them are not (and some of them are downright illegal!). But you are not creating strategy in a vacuum here … you are looking at the market realities and are honestly assessing yourself against them. Conclusion In conclusion, I certainly do not want to give the impression that a continuous market entry perspective is easy nor is it a cure-all for what presently ails stagnant foreign companies in China. However, for many of us who have been in China awhile, we are victims of our own success, even if success is defined as “still standing.” We have found that returning to the fundamental questions about customers, distribution chains and competition really does begin to help break us out of old ways of thinking. For those newly arrived in China, I would like to encourage you to start now your process of continuous market entry. For the moment, hide your business plan and the feasibility study you used to get your business license. Get your key sales and marketing staff in a room and ask each other the tough questions about customers, routes-to-market and competition and press yourselves to answer them (or at least establish a plan to come up with the answers to them). If China has taught us one thing in the past decade, it is that this country and its markets will not stop changing, growing and adjusting to global conditions. The successful foreign company in China will adopt a similar attitude knowing that when they stop entering the market for the first time, it will be their last time. Thanks again for listening. And remember our motto: “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast. Download this podcast Download audio file (20090629_market_entry.mp3) Nearly 18 months ago, I wrote an article for the British Chamber of Commerce in Guangzhou called “Continuous Market Entry”. A client of ours found that article and called to talk to me about it. It had been awhile since I looked at it so I did a quick review … and not only did I COMPLETELY agree with what I wrote then, I think it is even more important now! Lest you think that my ego has completely run away with me and that I have become my biggest fan (or maybe IN SPITE of that!), let me be clear – what I said then (and will say today) is NOT rocket science. In fact, because this is not rocket science – because it is quite logical and, at its heart, pretty simple – we tend to overlook it in favor of more complicated (and, we think, therefore more valuable) ways of growing our China businesses. So in today’s Podcast, I would like to revisit this issue and explore it a bit deeper. For most foreign companies establishing a business in China, the phrase “China market entry” is a one-time process of market assessment, strategy planning and corporate structuring. Once the business license is issued, there is a palpable sense of relief among the management team – “Whew, market entry is done,” they say, maybe hoisting a few congratulatory pints between then, “Now bring in the implementation team to get things going!” However, those that have been here for awhile understand that “China market entry” is not a one-time thing and that successful companies – i.e. those that are making money here – are continuously revisiting and refreshing their market penetration strategies. In a similar way, a manufacturing theory that originated in Japan called “Kaizen” – roughly translated into English as “continuous improvement” – advocates that quality improvement is not a one-time thing: do it once and you’re done. Rather, quality should be a constant concern for everyone in the manufacturing environment and companies should always be evaluating how they make their products and how they can improve them. We look at what we call “continuous market entry” in the same way: it is an attitude and a process whereby companies approach their on-going China market assessment and strategy planning as if they are facing it for the very first time. This approach is especially important for companies that have been in China for awhile, typically 5-10 years (or even more). Our market strategy consulting firm has been on-the-ground in China since the mid-80s and helped many of these companies on their first market entry. We are now working with many of them to “re-enter” China by taking a fresh look at today’s market conditions and then crafting an appropriate response. Continuous Market Entry: “Re-asking” Questions Going “back to the beginning” is nothing new. Sports professionals talk about maintaining their love for the game by remembering what it was like to play as children on the playground. Therapists recommend couples to find ways to keep their relationship fresh by imagining that they had just met. Buildings are renovated, torn down to the foundation and rebuilt, as if new. For those who have been here for some time, it is difficult to go back to the beginning because we cannot help but look at China through the lens of the lessons we have learned from the past, through our successes and failures. Most of us would not want to return to the naïve attitudes we had when we first came to China: how easy we thought it would be, how smart we thought we were ourselves. No, many foreigners here “walk with a limp” and we would not trade our battle scars for anything. So when I talk about continuous market entry, I am by no means advocating naiveté and downright stupidity (there is already a whole lotta that here among foreign companies entering China!). What I am encouraging us all to return to is the exploration of the many questions we had about the China market and how we could be successful when we first came here. Deep down, we knew that we didn’t know much, and we were hungry for information and any bit of insight that could give us a leg-up in our market entry. It is this non-stop asking of questions that lies at the heart of continuous market entry. There are three categories of questions that I would like to briefly address here: questions about market demand, distribution chains and competitors. Market Demand: Who is my Customer? One of the first questions anyone asks when getting into a new market is, logically, “who will buy my product?” A simple question, no? Well, no…at least not in China! Identifying, with any level of precision, who in China would buy your product and what product features, functions and pricing would satisfy was very difficult in the “old days.” Getting access to potential buyers was difficult: travel was hard, phones didn’t work, we didn’t have the Internet or email. Secondary data, when available, was very thin and was too loaded with political overtones to be very accurate. However, many early foreign entrants showed up with their products and – wonder of wonders – they sold some. Sometimes they sold a lot! Slowly but surely, the foreign companies that survived developed a customer base that kept them in business. The smarter ones moderated their expectations, following a fortune cookie I once read: “Set your goals low and you will always attain them.” But many of these companies became satisfied and somewhat complacent with their success, even moderate success. Slowly, they stopped asking themselves the questions that got them there: Who is my customer? What do they want? What else can I provide them? They slid comfortably into defining their China market as “the segment in which I am successful” rather than “all the segments I could possibly address.” In recent years, segmentation of many markets in China has become much more complex and fragmented. Take the automotive market: there used to be only a few kinds of cars to choose from with very few private buyers. There are now well over 100 brands of cars in China with hundreds of models to choose from in a dizzying array of quality, price and performance tiers, all being purchased by private owners. If you are selling into this market now, you better understand, in detail, what your opportunities are in each segment, for each kind of buyer. All foreign companies – and particularly those that have been here awhile – need to understand the details of their market segmentation and to identify, clearly, which segments they should pursue and which they should leave alone. For the latter, this is not easy. A client of ours in consumer products with over 10 years in China is currently going through a ground-up market assessment, looking at the market as if they were not yet here. Our early strategy meetings were full of statements that started with “based on our experience…” or “we know that…”. They have now moved into a stage of asking questions of the market and exploring ways of looking at it that they have never done before. The deep market probes we are doing among customers, distributors and competitors are guided by these questions and we are looking at how our client’s products are used in the market, not how our client sells them. This, in turn, has led to new ways of segmenting (and selling to) the market that is resulting in some real growth. Another client of ours is trying to look at new ways of serving the customers they already have. Because they were so early into the market, they pretty much defined their sector … and while they have certainly found success and happy customers, their strategy has been more focused on “what we have to sell” rather than “what our customer wants to buy.” Now that there is more competitive in the market, our client is going back to their long-time customers and are asking, in effect, “what if we weren’t here … what would you want??” It’s a tricky thing and we are getting some resistance from some divisions in our client from people to have an “if it ain’t broke, don’t fix it” mentality. However, the CEO and senior management, thankfully, have a different view … they see the market changing and know that they will soon face customer demands that they cannot fulfill. They need to get out ahead of those demands now, understand them and plan for them. Distribution: Finding New Routes to Market Not only have veteran foreign companies in China lost touch with their customer segments, but they often miss key distribution routes to those customers. It is logical to think that if my customer is “A” then the way to reach them is “B”. However, as markets have changed and segmented, so have routes to those markets and it is healthy to continuously review one’s distribution strategies. A client of ours brought a product in over 12 years ago and used some Hong Kong distributors to do so. At that time, the Hong Kong distributors knew the market as well as anyone and besides, there simply were not any “local” distributors. In fact, many foreigners at that time did not differentiate between those from Hong Kong and those from the Mainland, naively calling them all “Chinese”. Depending on the industry and channel, there are now many local distributors that are quite mature. They know their markets, they often know technology, and they certainly know how to sell to local buyers. In the case of our client, their Hong Kong distributors are now actually losing deals to local distributors because the local buyers consider those from Hong Kong to be “foreigners” who don’t understand local markets. I am in no way saying that all Hong Kong distributors are a bad idea in China today – but I am saying that what was appropriate several years ago may not be appropriate today. Companies pursuing continuous market entry are re-mapping distribution channels at the same time they are re-segmenting their markets, all the while trying not to be biased by the distribution channels they worked so hard to establish already. It is not an easy thing to do, but they are critically analyzing the “reach” of their present distribution and are assessing whether or not it is as broad or deep as is required. We have done many projects over the past year to objectively map just how far a foreign company’s distribution is reaching. In all cases, we found that penetration was not as great as the distributor was telling our client nor was it often even in the right channel. These discoveries didn’t necessarily lead to our clients replacing distribution; rather, they were able to add partners to get into areas they had no access to. Only an attitude of continuous market entry led them to such conclusions. Competition: New Players in New Segments When many of the “old-timers” came into China, they were some of the first foreign companies entering the market and their ability to differentiate themselves was relatively easy. Price and quality differences were very apparent: the quality and price of the foreign product was very high and the Chinese competitive products were, if they existed at all, typically low price and low quality. It was often easy for foreign companies to charge a premium of several hundred percent because a certain portion of the market was looking for quality and was willing to pay for it. If a foreign company was bringing a product or a technology to the market that had never been seen before, they found buyers (often other foreign companies) willing to pay anything for it. Ask them who their competition was, they would say “no one”…and they were basically right. A client of ours was in this situation. The capital equipment they brought into China was brand new in the market; there was nothing like it here. Our client considered it “world class” quality – and indeed, they lead most of the rest of the global market in this product category. Their immediate market entry was very successful. There was a small part of the market that would pay any price and our client was always pushing their manufacturing capacity to supply their customers. However, as the market matured, two things happened: first, more buyers came online who began to see the use of this particular product and thought it would be helpful. However, these buyers were not rich foreign companies but were often privatizing local companies who were looking for “China quality”, not “World Class quality”. Secondly, more competitors – many of them local Chinese companies – rose up to supply these segments with that “China quality” equipment, leaving our client in its own “World Class” bubble. Recently, our client has been looking at the China market with a fresh perspective and is realizing that the market has not grown beyond them, but has grown up below them. They still have sales in the premium segment of the market, but the sweet spot of the market has shifted to the middle range and competition there is quite fierce. Our client has been going back to find out how their competition is serving this market and how our client can begin to compete. We have had to work together to eliminate the phrase “we have never done it that way before” and still have some distance to go; however, waking up to a market rife with strong competition has changed the way our client is looking at the market and planning their future strategies. Our client no longer claims they have no competition in China! Another client of ours in consumer products is looking at the challenges facing them in China in today’s very unique retail market. For the non-retail jockeys in my listening audience, the retail challenge in China today, in a nutshell, is the tension between what is called “traditional trade” and “modern trade”. Traditional trade are the mom & pop shops, local retailers serving a particular neighborhood … think the corner hardware store or the neighborhood grocery store… small, familiar and convenient. Their product stocking practices are hit or miss, their pricing is not too aggressive and their quality is sometimes suspect, but their customer service is fantastic. They have been serving the same neighborhoods, sometimes for generations. Modern trade, on the other hand, are the “super stores” and “hypermarkets” … think Home Depot in the U.S. (or B&Q in Europe) and Wal-Mart. These are the stores that go to market based on their huge selection, their good quality and their low prices. They are not always convenient to get to, but they are a “destination” … you go there, fill up your car (or bike basket) and go home happy. China is going through a massive transition from traditional to modern trade … where people are going from shopping at the corner grocery store to making a trip to Wal-Mart or Carrefour. While the VOLUME of total retail sales is in the traditional channels, the GROWTH is in the modern ones. And consumer goods suppliers must manage the tension that exists in serving both of them. Our client is struggling with this … and so we are in the process of doing a benchmarking program to look at how some of their competitors are handling some of these problems and then looking at how these challenges are addressed by peer companies – companies working the retail space but not in the product space of our client. We are seeing some VERY interesting results so far. The biggest benefit is that it kind of levels the playing field. We all tend to complain that what we are facing is unique (and many try to get their bosses to see that, given the uniqueness of the situation, they are doing pretty good!). However, when you look at how your competitors are facing the very same problems you are, you take away these excuses. You benchmark your current performance against theirs and you see where you really stand. You also can sift through a lot of approaches to the same market – some of them are good and some of them are not (and some of them are downright illegal!). But you are not creating strategy in a vacuum here … you are looking at the market realities and are honestly assessing yourself against them. Conclusion In conclusion, I certainly do not want to give the impression that a continuous market entry perspective is easy nor is it a cure-all for what presently ails stagnant foreign companies in China. However, for many of us who have been in China awhile, we are victims of our own success, even if success is defined as “still standing.” We have found that returning to the fundamental questions about customers, distribution chains and competition really does begin to help break us out of old ways of thinking. For those newly arrived in China, I would like to encourage you to start now your process of continuous market entry. For the moment, hide your business plan and the feasibility study you used to get your business license. Get your key sales and marketing staff in a room and ask each other the tough questions about customers, routes-to-market and competition and press yourselves to answer them (or at least establish a plan to come up with the answers to them). If China has taught us one thing in the past decade, it is that this country and its markets will not stop changing, growing and adjusting to global conditions. The successful foreign company in China will adopt a similar attitude knowing that when they stop entering the market for the first time, it will be their last time. Thanks again for listening. And remember our motto: “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast. tag:odeo.com,2009-06-29,25048045 Mon, 29 Jun 2009 05:53:35 -0700 no China Business Blog and Podcast podcast, strategy, China, China Market, China business strategy, continuous improvement, business risk http://www.odeo.com/episodes/25048046-China%E2%80%99s-M-A-Market-Like-a-Ride-on-Disney%E2%80%99s-Space-Mountain Download this podcast Download audio file (20090621_manda.mp3) I’m speaking this week at the Sixth Annual GIC Mergers and Acquisition Summit, the title of my presentation is Deal Cultivation – Keys to Success in Making Acquisitions in China. The M&A process in China is much different than in the United States. Understanding this difference will reduce anxiety and frustration among US executives pursuing M & A strategies in China. To give you a graphic representation think of the process as a ride on Disney’s Space Mountain, a long wait, followed by a plunge into the darkness of twisting turns, hair-raising screams, and emerging at the same place you started. One of the reasons that the identification and relationship phase is so important is the high transaction costs in China, compared to the deal sizes available, so effective “discovery” is important before spending substantive dollars in due diligence. In China, acquisitions require more upfront target cultivation and p... Download this podcast Download audio file (20090621_manda.mp3) I’m speaking this week at the Sixth Annual GIC Mergers and Acquisition Summit, the title of my presentation is Deal Cultivation – Keys to Success in Making Acquisitions in China. The M&A process in China is much different than in the United States. Understanding this difference will reduce anxiety and frustration among US executives pursuing M & A strategies in China. To give you a graphic representation think of the process as a ride on Disney’s Space Mountain, a long wait, followed by a plunge into the darkness of twisting turns, hair-raising screams, and emerging at the same place you started. One of the reasons that the identification and relationship phase is so important is the high transaction costs in China, compared to the deal sizes available, so effective “discovery” is important before spending substantive dollars in due diligence. In China, acquisitions require more upfront target cultivation and pre-due diligence than is typically needed in the West. To appreciate this, one need only be reminded that in China the seeds of private investment and the concept of a merger were sown just 20 years ago. China is more akin to a college age individual as it is developing a comfort with markets and corporate business entities. In this podcast, I’m interviewed by Albert Maruggi reporter for the Marketing Edge podcast about the M&A landscape as a preview to the GIC presentation this week in Shanghai. | Get your Presentation Pack Download this podcast Download audio file (20090621_manda.mp3) I’m speaking this week at the Sixth Annual GIC Mergers and Acquisition Summit, the title of my presentation is Deal Cultivation – Keys to Success in Making Acquisitions in China. The M&A process in China is much different than in the United States. Understanding this difference will reduce anxiety and frustration among US executives pursuing M & A strategies in China. To give you a graphic representation think of the process as a ride on Disney’s Space Mountain, a long wait, followed by a plunge into the darkness of twisting turns, hair-raising screams, and emerging at the same place you started. One of the reasons that the identification and relationship phase is so important is the high transaction costs in China, compared to the deal sizes available, so effective “discovery” is important before spending substantive dollars in due diligence. In China, acquisitions require more upfront target cultivation and pre-due diligence than is typically needed in the West. To appreciate this, one need only be reminded that in China the seeds of private investment and the concept of a merger were sown just 20 years ago. China is more akin to a college age individual as it is developing a comfort with markets and corporate business entities. In this podcast, I’m interviewed by Albert Maruggi reporter for the Marketing Edge podcast about the M&A landscape as a preview to the GIC presentation this week in Shanghai. | Get your Presentation Pack tag:odeo.com,2009-06-22,25048046 Mon, 22 Jun 2009 03:34:36 -0700 no China Business Blog and Podcast podcast, m&a, China mergers, China acqusitions http://www.odeo.com/episodes/25048047-Mergers-and-Acquisitions-in-China-Not-a-Quick-Wedding Steve Ganster Keynotes Deal Cultivation at China M & A Conference Shanghai, China, June 21, 2009 – Steve Ganster, Executive Director of Technomic Asia, will highlight the opportunities and challenges of mergers and acquisitions in China at the GIC sixth annual Mergers and Acquisitions Summit held in Shanghai on June 25. Ganster says China’s business is good for M&A activity, however it is still a maturing market that requires a much different approach from what many US companies expect as they consider expansion through acquiring a stake in China companies. “US companies need to modify their approach in making acquisitions in China putting a great deal more emphasis on cultivating relationships with target companies. Acquisitions are in an embryonic state in China, and the rules of the game are not well established. Much more energy needs to be spent in the discovery stage, getting to know the stakeholders and what they want from a deal. Local Chinese management often goes... Steve Ganster Keynotes Deal Cultivation at China M & A Conference Shanghai, China, June 21, 2009 – Steve Ganster, Executive Director of Technomic Asia, will highlight the opportunities and challenges of mergers and acquisitions in China at the GIC sixth annual Mergers and Acquisitions Summit held in Shanghai on June 25. Ganster says China’s business is good for M&A activity, however it is still a maturing market that requires a much different approach from what many US companies expect as they consider expansion through acquiring a stake in China companies. “US companies need to modify their approach in making acquisitions in China putting a great deal more emphasis on cultivating relationships with target companies. Acquisitions are in an embryonic state in China, and the rules of the game are not well established. Much more energy needs to be spent in the discovery stage, getting to know the stakeholders and what they want from a deal. Local Chinese management often goes into the discussions not fully understanding what they want,” says Ganster. “In the US, the emphasis is placed on financial statements in a relatively transparent process. In China, relationship is the key filter through which the deal must successfully pass.” Ganster added. China’s companies are searching for natural resources and big name brands to beef up their portfolio or supply chain in anticipation of increasing growth. Since 2007, outbound investment has grown from $26.5 billion to $52.2 billion in 2008, according to Reuters. One example of this activity is the recent intended acquisition by Sichuan Tengzhong Heavy Industrial Machinery, a private machinery maker, to purchase the Hummer brand from bankrupt General Motors. The Mergers and Acquisition Summit will be held at the Crown Plaza Century Park, Shanghai June 25 and 26. Editors & Bloggers Note: A soundbite from Steve Ganster is available with a description of the bite below. Soundbite with Steve Ganster on China Mergers and Acquisitions IN: After I’ve identified… OUT: Can’t do that successfully in China Length: :38 A full interview with Steve Ganster on the Merger and Acquisition topic is available on the China Business Podcast About Technomic Asia Technomic Asia (www.technomicasia.com), a division of Tompkins Associates, is a business strategy and supply chain consultancy with more than 25 years of experience helping clients plan and execute Asian growth and operational strategies. Technomic Asia assists companies in entering the Asian market or in expanding their business by providing critical market insight, an understanding of business potential, and assistance in designing the optimum strategy for success. Media Contact: Albert Maruggi amaruggi@providentpartners.net 612-325-8126 Steve Ganster Keynotes Deal Cultivation at China M & A Conference Shanghai, China, June 21, 2009 – Steve Ganster, Executive Director of Technomic Asia, will highlight the opportunities and challenges of mergers and acquisitions in China at the GIC sixth annual Mergers and Acquisitions Summit held in Shanghai on June 25. Ganster says China’s business is good for M&A activity, however it is still a maturing market that requires a much different approach from what many US companies expect as they consider expansion through acquiring a stake in China companies. “US companies need to modify their approach in making acquisitions in China putting a great deal more emphasis on cultivating relationships with target companies. Acquisitions are in an embryonic state in China, and the rules of the game are not well established. Much more energy needs to be spent in the discovery stage, getting to know the stakeholders and what they want from a deal. Local Chinese management often goes into the discussions not fully understanding what they want,” says Ganster. “In the US, the emphasis is placed on financial statements in a relatively transparent process. In China, relationship is the key filter through which the deal must successfully pass.” Ganster added. China’s companies are searching for natural resources and big name brands to beef up their portfolio or supply chain in anticipation of increasing growth. Since 2007, outbound investment has grown from $26.5 billion to $52.2 billion in 2008, according to Reuters. One example of this activity is the recent intended acquisition by Sichuan Tengzhong Heavy Industrial Machinery, a private machinery maker, to purchase the Hummer brand from bankrupt General Motors. The Mergers and Acquisition Summit will be held at the Crown Plaza Century Park, Shanghai June 25 and 26. Editors & Bloggers Note: A soundbite from Steve Ganster is available with a description of the bite below. Soundbite with Steve Ganster on China Mergers and Acquisitions IN: After I’ve identified… OUT: Can’t do that successfully in China Length: :38 A full interview with Steve Ganster on the Merger and Acquisition topic is available on the China Business Podcast About Technomic Asia Technomic Asia (www.technomicasia.com), a division of Tompkins Associates, is a business strategy and supply chain consultancy with more than 25 years of experience helping clients plan and execute Asian growth and operational strategies. Technomic Asia assists companies in entering the Asian market or in expanding their business by providing critical market insight, an understanding of business potential, and assistance in designing the optimum strategy for success. Media Contact: Albert Maruggi amaruggi@providentpartners.net 612-325-8126 tag:odeo.com,2009-06-21,25048047 Sun, 21 Jun 2009 10:25:32 -0700 no China Business Blog and Podcast China, Technomic Asia news, m&a, China M&A news, Mergers and Acquisitions Summit http://www.odeo.com/episodes/25048048-Remember-the-regulators Download this podcast Download audio file (20090503_regulators.mp3) China’s rapid development in the past 15 years can leave one feeling a bit dizzy.  My first time in Shanghai in the late 80s – in town for an escape from the small central China city where I was living and teaching – was heady enough.  There were only 10 taxis in the entire city and you had to get around on diesel fume-belching busses or by foot (and it was a battle between the aerobic benefits of walking and the heart-stopping inhalation of diesel exhaust).  Now its tough to step in the street here and avoid getting hit by a cab (unless, of course, it is raining or you are late to a meeting or you have two heavy boxes you are trying to schlep to a client … and then there are NO taxis to be found in the entire city.  Go figure). So when China seems like its returning to the bad old days, it is a bit shocking, particularly when this return is signaled by increased regulation from the Party.  There have been a series ... Download this podcast Download audio file (20090503_regulators.mp3) China’s rapid development in the past 15 years can leave one feeling a bit dizzy.  My first time in Shanghai in the late 80s – in town for an escape from the small central China city where I was living and teaching – was heady enough.  There were only 10 taxis in the entire city and you had to get around on diesel fume-belching busses or by foot (and it was a battle between the aerobic benefits of walking and the heart-stopping inhalation of diesel exhaust).  Now its tough to step in the street here and avoid getting hit by a cab (unless, of course, it is raining or you are late to a meeting or you have two heavy boxes you are trying to schlep to a client … and then there are NO taxis to be found in the entire city.  Go figure). So when China seems like its returning to the bad old days, it is a bit shocking, particularly when this return is signaled by increased regulation from the Party.  There have been a series of steps over the past year that, in hindsight, are heading in a direction that could be of concern to everyone who does business in China, local and foreigner alike.  Late last year we saw the government put extra restrictions on Carlyle, the financial investor, as they sought to buy out XCMG, one of China’s leading heavy equipment manufacturers.  Carlyle eventually let the deal die because the limitations were so onerous.  At the time, everyone clucked about “protectionist policies” but eventually chalked it up to China wanting to guard an industry that could figure into national defense (ala the U.S. blocking the Chinese oil giant CNOOC from investing in a U.S. offshore oil company a couple of years ago). The next big restriction was for visas for foreign visitors wanting to enter China just before the Olympics last year.  Thousands of businesses were impacted by this and many Olympic events were sparsely attended because people just could not get here.  Again, apologists for China cited so-called “legitimate” reasons for this … in this case there were serious security concerns.  The reality was that China was playing a game of CYA – “Cover Your Anterior-region” – and was willing to go overboard on restrictions in order to insure that nothing happened while the spotlight was shining so brightly on them.  Sure, it bothered me too but I guess I understand erring on the side of caution – my own country’s Transportation Safety Administration recently busted my daughter on a routine check at an airport … she was relieved of a fingernail clipper, ostensibly because she might use it to hijack the airplane to Cuba (where she would need said clipper because you simply cannot buy them there).  In the immortal words of Fleetwood Mac: “Oh well.” But then this year, things have been getting even more tight, it seems.  We started the silly season off with Coke being denied their acquisition of the large Chinese juice manufacturer, Huiyuan.  The government was oddly silent on the specific reasons for the denial.  There were some mumblings of avoiding “monopolistic” practices which, in a way, was legitimate as the merger would create a beverage company that would rule in two key categories: sodas and juices.  But many legitimately pointed out that China’s industries are ripe for consolidation and that, following pretty much any other economy as its developed, there are, as time goes on, going to be fewer but larger players in the market.  There is speculation – no none of it published, as far as I have seen – that the government is pushing Huiyuan to themselves become more acquisitive … to go out and start buying up smaller beverage companies to grow larger themselves, in effect creating a competitor to Coke.  Typical of China, the old adage is flipped on its head: “if you can’t join them, beat them.” Just this last week, two things have happened to make me even more concerned.  The first was the release last Friday of the new Postal Law in China which everyone in the logistics and delivery sector has been anticipating like Christmas morning at the Bill and Melinda Gates household.  However, much to the chagrin of foreign delivery companies like FedEx, UPS and DHL, the law bans foreign companies from participating in domestic express delivery, citing the original 1986 Postal Law that limits domestic delivery of regular mail to the government-owned China Post. 1986?  In China in 1986 it took an entire day to mail a letter!  We had to, literally, make our own envelopes, painstakingly cutting out a template from paper and then using paste thoughtfully provided by the post office to glue them together.  Then you had to let them dry before stuffing them with your letter.  You ended up with glue all over, trying to cram a sticky mess in a drop box with fingers webbed like Aquaman.  And if you wanted to send a parcel in China, fuggitaboutit!  You had to purchase white cloth and make your own bag in which to put your items.  Seriously, I am not making this up.  Around the post office were stores selling fabric, needles and thread and you had to form your own sweatshop on the steps outside the post office to assemble your package for mailing.  I had flashbacks to 7th grade home-economics class, nearly failing for improper needle threading and insufficient stitch tightness.  Who knew that I was actually learning life skills that would come in handy some day?? Anyway, I digress …  This new and unimproved interpretation of the Postal Law is going to be a serious setback to the entire postal system in China.  Plainly speaking, the foreign delivery companies have, for the most part, cracked the code in express delivery in their home markets.  Pretty much anywhere in Europe or North America, if I want something delivered by 10 a.m. tomorrow morning, its going to get there.  I might have to take out a second mortgage on my house to do it, but dang-it, its going to get done!  Now, I don’t for a minute think that any express delivery company would be able to quickly transplant their system in China … China is too big and too complex to do that simply.  But the China postal system could certainly use some external influence and best practices … mailing a letter by regular post is a hit-or-miss thing these days.  The Chinese authorities cited security reasons for keeping the foreigners out … I guess news of the express-delivered anthrax a couple of years ago in the U.S. freaked some people out here.  But seriously, can the Chinese postal system do any better??  I guess in one way they can – with such a dismal delivery rate for their mail the insidious package can’t do any damage if it never reaches the intended receiver.  Let’s hear it for incompetence! The last indicator that something’s up is the rumor – at this point unsubstantiated – that China is going to once again be very restrictive in issuing visas this summer and into the fall.  This year marks two very important anniversaries in China: the 20 years this June since the Tiananmen Square movement and 60 years this October since the founding of the People’s Republic.  Like with the Olympics last year, China wants to keep out anyone who might make a placard and march on the streets, shouting their support of any one of a number of banned issues.  Hong Kong’s South China Morning Post published a story last Thursday saying that Beijing has said that all “F” business visas issued after April 15th will expire on September 15th.  An F visa is for short-term stays of less than 6 months.  The paper quoted several China visa agents who said that applications for F visas beyond September 15th would be put on hold until there were more clarifications from the government (who, like any government, avoids clarity like the plague).  Again, there have been no confirmed announcements of this, just newspaper articles … so let’s not wig out until we have to. But shy of wigging out, I think there is some indication for concern here. There is DEFINITELY a protectionist wind blowing in China and with it could come a storm that could hit us all.  There are two sides of this coin here: First, remember that Chinese regulations are often published but never – or are selectively – enforced (on a side note, the converse is also true … China has been known to enforce rules for which they do not allow the publishing of the official law … I have heard stories of people being prosecuted for breaking a law and were refused the request to actually read the law on the basis that the law was a state secret).  What this means is that there are varying levels of sensitivity in China – if you are a big company and are doing big things in China, the light shines more brightly on you and you have to take more care to cover your bases.  All the big Fortune 500 companies working in China spend squillions of dollars each year in lobbying efforts in Beijing and in the various localities in which they do business.  This is just good business practice (hey, they even do it in Washington!). But for many companies, they work hard at doing a series of smaller things in order to stay below that radar and to not attract attention.  In any M&A deal we do in China, one of the biggest commercial due diligence questions to probe is how the regulating authorities will treat the new entity once it has foreign ownership.  Chinese companies can get away with things that foreign companies cannot, simply because they are foreign companies (and, contrary to popular practice, having local staff often does not protect you … the spotlight is just brighter on you when you are a foreign company).  So the lesson here is to explore all the possible regulatory implications of what you are doing in China … not just the laws on the books but to talk to all the authorities who touch your business to get their read on what might actually be enforced.  Your business leaders here – your general managers and CEOs – should be spending a large amount of their time schmoozing with the authorities here.  If they are not, you are exposed. The second thing to remember is, simply, that China is different – it is a one-Party system and that Party is primarily concerned with maintaining their singular hold on power. On a global scale, it is not the riskiest place to do business – that honor is held with dictatorial grip by some southeast and African nations.  But it is comparatively riskier than doing business in the West.  Walk the streets of Shanghai and you can often forget that – the signs for Western products and services make it seem like New York with a really big Chinatown.  But its not.  China is different from other markets. And, truthfully speaking, I often forget this.  Therefore, I have made myself a May Day resolution (my New Years resolutions having drowned in the Ocean of Poor Self Discipline long ago) – I resolve to be more observant of some of the macro-regulatory moves here and to not be so flip and dismissive of them when they do happen.  I firmly believe that China is moving towards more openness … my last quarter century hanging around here is proof of that.  However, these changes progress at glacial speed with short-term freezes and retreats in the midst of forward movement.  Whether what we have been seeing recently is such a momentary freeze or the tip of a larger iceberg remains to be seen. Download this podcast Download audio file (20090503_regulators.mp3) China’s rapid development in the past 15 years can leave one feeling a bit dizzy.  My first time in Shanghai in the late 80s – in town for an escape from the small central China city where I was living and teaching – was heady enough.  There were only 10 taxis in the entire city and you had to get around on diesel fume-belching busses or by foot (and it was a battle between the aerobic benefits of walking and the heart-stopping inhalation of diesel exhaust).  Now its tough to step in the street here and avoid getting hit by a cab (unless, of course, it is raining or you are late to a meeting or you have two heavy boxes you are trying to schlep to a client … and then there are NO taxis to be found in the entire city.  Go figure). So when China seems like its returning to the bad old days, it is a bit shocking, particularly when this return is signaled by increased regulation from the Party.  There have been a series of steps over the past year that, in hindsight, are heading in a direction that could be of concern to everyone who does business in China, local and foreigner alike.  Late last year we saw the government put extra restrictions on Carlyle, the financial investor, as they sought to buy out XCMG, one of China’s leading heavy equipment manufacturers.  Carlyle eventually let the deal die because the limitations were so onerous.  At the time, everyone clucked about “protectionist policies” but eventually chalked it up to China wanting to guard an industry that could figure into national defense (ala the U.S. blocking the Chinese oil giant CNOOC from investing in a U.S. offshore oil company a couple of years ago). The next big restriction was for visas for foreign visitors wanting to enter China just before the Olympics last year.  Thousands of businesses were impacted by this and many Olympic events were sparsely attended because people just could not get here.  Again, apologists for China cited so-called “legitimate” reasons for this … in this case there were serious security concerns.  The reality was that China was playing a game of CYA – “Cover Your Anterior-region” – and was willing to go overboard on restrictions in order to insure that nothing happened while the spotlight was shining so brightly on them.  Sure, it bothered me too but I guess I understand erring on the side of caution – my own country’s Transportation Safety Administration recently busted my daughter on a routine check at an airport … she was relieved of a fingernail clipper, ostensibly because she might use it to hijack the airplane to Cuba (where she would need said clipper because you simply cannot buy them there).  In the immortal words of Fleetwood Mac: “Oh well.” But then this year, things have been getting even more tight, it seems.  We started the silly season off with Coke being denied their acquisition of the large Chinese juice manufacturer, Huiyuan.  The government was oddly silent on the specific reasons for the denial.  There were some mumblings of avoiding “monopolistic” practices which, in a way, was legitimate as the merger would create a beverage company that would rule in two key categories: sodas and juices.  But many legitimately pointed out that China’s industries are ripe for consolidation and that, following pretty much any other economy as its developed, there are, as time goes on, going to be fewer but larger players in the market.  There is speculation – no none of it published, as far as I have seen – that the government is pushing Huiyuan to themselves become more acquisitive … to go out and start buying up smaller beverage companies to grow larger themselves, in effect creating a competitor to Coke.  Typical of China, the old adage is flipped on its head: “if you can’t join them, beat them.” Just this last week, two things have happened to make me even more concerned.  The first was the release last Friday of the new Postal Law in China which everyone in the logistics and delivery sector has been anticipating like Christmas morning at the Bill and Melinda Gates household.  However, much to the chagrin of foreign delivery companies like FedEx, UPS and DHL, the law bans foreign companies from participating in domestic express delivery, citing the original 1986 Postal Law that limits domestic delivery of regular mail to the government-owned China Post. 1986?  In China in 1986 it took an entire day to mail a letter!  We had to, literally, make our own envelopes, painstakingly cutting out a template from paper and then using paste thoughtfully provided by the post office to glue them together.  Then you had to let them dry before stuffing them with your letter.  You ended up with glue all over, trying to cram a sticky mess in a drop box with fingers webbed like Aquaman.  And if you wanted to send a parcel in China, fuggitaboutit!  You had to purchase white cloth and make your own bag in which to put your items.  Seriously, I am not making this up.  Around the post office were stores selling fabric, needles and thread and you had to form your own sweatshop on the steps outside the post office to assemble your package for mailing.  I had flashbacks to 7th grade home-economics class, nearly failing for improper needle threading and insufficient stitch tightness.  Who knew that I was actually learning life skills that would come in handy some day?? Anyway, I digress …  This new and unimproved interpretation of the Postal Law is going to be a serious setback to the entire postal system in China.  Plainly speaking, the foreign delivery companies have, for the most part, cracked the code in express delivery in their home markets.  Pretty much anywhere in Europe or North America, if I want something delivered by 10 a.m. tomorrow morning, its going to get there.  I might have to take out a second mortgage on my house to do it, but dang-it, its going to get done!  Now, I don’t for a minute think that any express delivery company would be able to quickly transplant their system in China … China is too big and too complex to do that simply.  But the China postal system could certainly use some external influence and best practices … mailing a letter by regular post is a hit-or-miss thing these days.  The Chinese authorities cited security reasons for keeping the foreigners out … I guess news of the express-delivered anthrax a couple of years ago in the U.S. freaked some people out here.  But seriously, can the Chinese postal system do any better??  I guess in one way they can – with such a dismal delivery rate for their mail the insidious package can’t do any damage if it never reaches the intended receiver.  Let’s hear it for incompetence! The last indicator that something’s up is the rumor – at this point unsubstantiated – that China is going to once again be very restrictive in issuing visas this summer and into the fall.  This year marks two very important anniversaries in China: the 20 years this June since the Tiananmen Square movement and 60 years this October since the founding of the People’s Republic.  Like with the Olympics last year, China wants to keep out anyone who might make a placard and march on the streets, shouting their support of any one of a number of banned issues.  Hong Kong’s South China Morning Post published a story last Thursday saying that Beijing has said that all “F” business visas issued after April 15th will expire on September 15th.  An F visa is for short-term stays of less than 6 months.  The paper quoted several China visa agents who said that applications for F visas beyond September 15th would be put on hold until there were more clarifications from the government (who, like any government, avoids clarity like the plague).  Again, there have been no confirmed announcements of this, just newspaper articles … so let’s not wig out until we have to. But shy of wigging out, I think there is some indication for concern here. There is DEFINITELY a protectionist wind blowing in China and with it could come a storm that could hit us all.  There are two sides of this coin here: First, remember that Chinese regulations are often published but never – or are selectively – enforced (on a side note, the converse is also true … China has been known to enforce rules for which they do not allow the publishing of the official law … I have heard stories of people being prosecuted for breaking a law and were refused the request to actually read the law on the basis that the law was a state secret).  What this means is that there are varying levels of sensitivity in China – if you are a big company and are doing big things in China, the light shines more brightly on you and you have to take more care to cover your bases.  All the big Fortune 500 companies working in China spend squillions of dollars each year in lobbying efforts in Beijing and in the various localities in which they do business.  This is just good business practice (hey, they even do it in Washington!). But for many companies, they work hard at doing a series of smaller things in order to stay below that radar and to not attract attention.  In any M&A deal we do in China, one of the biggest commercial due diligence questions to probe is how the regulating authorities will treat the new entity once it has foreign ownership.  Chinese companies can get away with things that foreign companies cannot, simply because they are foreign companies (and, contrary to popular practice, having local staff often does not protect you … the spotlight is just brighter on you when you are a foreign company).  So the lesson here is to explore all the possible regulatory implications of what you are doing in China … not just the laws on the books but to talk to all the authorities who touch your business to get their read on what might actually be enforced.  Your business leaders here – your general managers and CEOs – should be spending a large amount of their time schmoozing with the authorities here.  If they are not, you are exposed. The second thing to remember is, simply, that China is different – it is a one-Party system and that Party is primarily concerned with maintaining their singular hold on power. On a global scale, it is not the riskiest place to do business – that honor is held with dictatorial grip by some southeast and African nations.  But it is comparatively riskier than doing business in the West.  Walk the streets of Shanghai and you can often forget that – the signs for Western products and services make it seem like New York with a really big Chinatown.  But its not.  China is different from other markets. And, truthfully speaking, I often forget this.  Therefore, I have made myself a May Day resolution (my New Years resolutions having drowned in the Ocean of Poor Self Discipline long ago) – I resolve to be more observant of some of the macro-regulatory moves here and to not be so flip and dismissive of them when they do happen.  I firmly believe that China is moving towards more openness … my last quarter century hanging around here is proof of that.  However, these changes progress at glacial speed with short-term freezes and retreats in the midst of forward movement.  Whether what we have been seeing recently is such a momentary freeze or the tip of a larger iceberg remains to be seen. tag:odeo.com,2009-05-02,25048048 Sat, 02 May 2009 17:16:04 -0700 no China Business Blog and Podcast podcast, Government, China, law, Visas, m&a, business risk, Carlyle, XCMG, Postal Law, Huiyuan http://www.odeo.com/episodes/25366411-China%E2%80%99s-Economy-is-improving-My-kids-told-me-so Teenage Attitude Index Download this podcast Download audio file (20090421_tai.mp3) Every market prognosticator worth his/her/its salt is in constant search-mode for “leading indicators” – data points that show us which way the markets are shifting and where trends will be moving before they actually become trends.  The easiest (and most used) are probably the ones everyone knows: GDP, consumer prices, commodity prices, exchange rates, etc.  Look on the back page of any financial magazine and you’ll find them … the problem, is that different sources will have different data, all highlighted by an asterisk that tells you why they are different.  Then mix in the challenge in China where economic data is so fraught with government intervention and interpretation so as to make it intelligible at best and downright false at worse. These indicators are pretty important – as we’ve discussed in these pages before, everyone is looking for the “bottom” of the market and the economic windsocks... Teenage Attitude Index Download this podcast Download audio file (20090421_tai.mp3) Every market prognosticator worth his/her/its salt is in constant search-mode for “leading indicators” – data points that show us which way the markets are shifting and where trends will be moving before they actually become trends.  The easiest (and most used) are probably the ones everyone knows: GDP, consumer prices, commodity prices, exchange rates, etc.  Look on the back page of any financial magazine and you’ll find them … the problem, is that different sources will have different data, all highlighted by an asterisk that tells you why they are different.  Then mix in the challenge in China where economic data is so fraught with government intervention and interpretation so as to make it intelligible at best and downright false at worse. These indicators are pretty important – as we’ve discussed in these pages before, everyone is looking for the “bottom” of the market and the economic windsocks and canaries in the coalmine are the only way we have of seeing this.   Everyone is looking for the upswing, particularly here in China which is expected (read: “desperately hoped”) to help lead a global recovery. The more smarmy among the economists have tried to come up with “common sense” indicators, the best-known of which, probably, is the Economist’s Big Mac Index.  This is based on the theory of purchasing power parity (PPP) which says that exchange rates should equalize the price of similar goods between economies.  They use the Big Mac, a product available across most markets in the world, as that standard and compare the Big Mac prices when converted into US dollars at current exchange rates.  This is all well and good … but with the increasing health consciousness of many populations, it might be a good idea to get away from the Super Size Me indices. So what else can we use?  I might have an idea … I live in Pudong, the “new” area of Shanghai where construction cranes have been the city bird for the past 5 years and building has been going on 24-7: industrial, commercial, residential … everything has been going up in a flurry of activity.  However, starting last fall and then hitting a low point around Chinese New Year this year, things have been going oddly quiet.  In what used to be a dust-choked part of town we can now see blue sky.  What’s up with that??  Dust, dirt and noise are good – they are signs that stuff is happening! But over the past few weeks, things seem to be changing, and that has resulted in my discovery of the perfect indicator that we are on the upswing in China – I call it the Teenage Attitude Index (or TAI). The TAI is plotted on a matrix with “Weekend Wake-Up Time” on the vertical (plotted inversely so an earlier wake up time gets a higher score) and “Crabbiness Factor” on the horizontal.  The louder the construction is around us and the earlier it starts, even on Saturday and Sunday, the earlier the kids wake up and the more angry they are that they had to wake up early.  It works really well and I can clearly plot the upswing here: the past few weekend mornings, I have observed my teenagers very carefully and have noted that they are not only waking up earlier but are in a MUCH worse mood when they do.  And I could not be happier!!  Sure, we start to hear jackhammers and cement trucks at 5 a.m. on a Saturday, but that just means that life is returning to our definition of normal.  And the grumpy look on the faces of my darling children are empirical proof of this. The only piece I have not worked out yet is how to differentiate between the crabbiness brought on by construction noise and the crabbiness associated with simply being a teenager.  But once I figure that one out, I am going to be the Nostradamus of Asia.  Who knew that teenagers could be so helpful?? Teenage Attitude Index Download this podcast Download audio file (20090421_tai.mp3) Every market prognosticator worth his/her/its salt is in constant search-mode for “leading indicators” – data points that show us which way the markets are shifting and where trends will be moving before they actually become trends.  The easiest (and most used) are probably the ones everyone knows: GDP, consumer prices, commodity prices, exchange rates, etc.  Look on the back page of any financial magazine and you’ll find them … the problem, is that different sources will have different data, all highlighted by an asterisk that tells you why they are different.  Then mix in the challenge in China where economic data is so fraught with government intervention and interpretation so as to make it intelligible at best and downright false at worse. These indicators are pretty important – as we’ve discussed in these pages before, everyone is looking for the “bottom” of the market and the economic windsocks and canaries in the coalmine are the only way we have of seeing this.   Everyone is looking for the upswing, particularly here in China which is expected (read: “desperately hoped”) to help lead a global recovery. The more smarmy among the economists have tried to come up with “common sense” indicators, the best-known of which, probably, is the Economist’s Big Mac Index.  This is based on the theory of purchasing power parity (PPP) which says that exchange rates should equalize the price of similar goods between economies.  They use the Big Mac, a product available across most markets in the world, as that standard and compare the Big Mac prices when converted into US dollars at current exchange rates.  This is all well and good … but with the increasing health consciousness of many populations, it might be a good idea to get away from the Super Size Me indices. So what else can we use?  I might have an idea … I live in Pudong, the “new” area of Shanghai where construction cranes have been the city bird for the past 5 years and building has been going on 24-7: industrial, commercial, residential … everything has been going up in a flurry of activity.  However, starting last fall and then hitting a low point around Chinese New Year this year, things have been going oddly quiet.  In what used to be a dust-choked part of town we can now see blue sky.  What’s up with that??  Dust, dirt and noise are good – they are signs that stuff is happening! But over the past few weeks, things seem to be changing, and that has resulted in my discovery of the perfect indicator that we are on the upswing in China – I call it the Teenage Attitude Index (or TAI). The TAI is plotted on a matrix with “Weekend Wake-Up Time” on the vertical (plotted inversely so an earlier wake up time gets a higher score) and “Crabbiness Factor” on the horizontal.  The louder the construction is around us and the earlier it starts, even on Saturday and Sunday, the earlier the kids wake up and the more angry they are that they had to wake up early.  It works really well and I can clearly plot the upswing here: the past few weekend mornings, I have observed my teenagers very carefully and have noted that they are not only waking up earlier but are in a MUCH worse mood when they do.  And I could not be happier!!  Sure, we start to hear jackhammers and cement trucks at 5 a.m. on a Saturday, but that just means that life is returning to our definition of normal.  And the grumpy look on the faces of my darling children are empirical proof of this. The only piece I have not worked out yet is how to differentiate between the crabbiness brought on by construction noise and the crabbiness associated with simply being a teenager.  But once I figure that one out, I am going to be the Nostradamus of Asia.  Who knew that teenagers could be so helpful?? tag:odeo.com,2009-04-21,25366411 Tue, 21 Apr 2009 14:08:57 -0700 no China Business Blog and Podcast China, economy, economic recovery, stimulus plan http://www.odeo.com/episodes/25048049-China%E2%80%99s-Economy-is-improving-My-kids-told-me-so Teenage Attitude Index Download this podcast Download audio file (20090421_tai.mp3) Every market prognosticator worth his/her/its salt is in constant search-mode for “leading indicators” – data points that show us which way the markets are shifting and where trends will be moving before they actually become trends.  The easiest (and most used) are probably the ones everyone knows: GDP, consumer prices, commodity prices, exchange rates, etc.  Look on the back page of any financial magazine and you’ll find them … the problem, is that different sources will have different data, all highlighted by an asterisk that tells you why they are different.  Then mix in the challenge in China where economic data is so fraught with government intervention and interpretation so as to make it intelligible at best and downright false at worse. These indicators are pretty important – as we’ve discussed in these pages before, everyone is looking for the “bottom” of the market and the economic windsocks... Teenage Attitude Index Download this podcast Download audio file (20090421_tai.mp3) Every market prognosticator worth his/her/its salt is in constant search-mode for “leading indicators” – data points that show us which way the markets are shifting and where trends will be moving before they actually become trends.  The easiest (and most used) are probably the ones everyone knows: GDP, consumer prices, commodity prices, exchange rates, etc.  Look on the back page of any financial magazine and you’ll find them … the problem, is that different sources will have different data, all highlighted by an asterisk that tells you why they are different.  Then mix in the challenge in China where economic data is so fraught with government intervention and interpretation so as to make it intelligible at best and downright false at worse. These indicators are pretty important – as we’ve discussed in these pages before, everyone is looking for the “bottom” of the market and the economic windsocks and canaries in the coalmine are the only way we have of seeing this.   Everyone is looking for the upswing, particularly here in China which is expected (read: “desperately hoped”) to help lead a global recovery. The more smarmy among the economists have tried to come up with “common sense” indicators, the best-known of which, probably, is the Economist’s Big Mac Index.  This is based on the theory of purchasing power parity (PPP) which says that exchange rates should equalize the price of similar goods between economies.  They use the Big Mac, a product available across most markets in the world, as that standard and compare the Big Mac prices when converted into US dollars at current exchange rates.  This is all well and good … but with the increasing health consciousness of many populations, it might be a good idea to get away from the Super Size Me indices. So what else can we use?  I might have an idea … I live in Pudong, the “new” area of Shanghai where construction cranes have been the city bird for the past 5 years and building has been going on 24-7: industrial, commercial, residential … everything has been going up in a flurry of activity.  However, starting last fall and then hitting a low point around Chinese New Year this year, things have been going oddly quiet.  In what used to be a dust-choked part of town we can now see blue sky.  What’s up with that??  Dust, dirt and noise are good – they are signs that stuff is happening! But over the past few weeks, things seem to be changing, and that has resulted in my discovery of the perfect indicator that we are on the upswing in China – I call it the Teenage Attitude Index (or TAI). The TAI is plotted on a matrix with “Weekend Wake-Up Time” on the vertical (plotted inversely so an earlier wake up time gets a higher score) and “Crabbiness Factor” on the horizontal.  The louder the construction is around us and the earlier it starts, even on Saturday and Sunday, the earlier the kids wake up and the more angry they are that they had to wake up early.  It works really well and I can clearly plot the upswing here: the past few weekend mornings, I have observed my teenagers very carefully and have noted that they are not only waking up earlier but are in a MUCH worse mood when they do.  And I could not be happier!!  Sure, we start to hear jackhammers and cement trucks at 5 a.m. on a Saturday, but that just means that life is returning to our definition of normal.  And the grumpy look on the faces of my darling children are empirical proof of this. The only piece I have not worked out yet is how to differentiate between the crabbiness brought on by construction noise and the crabbiness associated with simply being a teenager.  But once I figure that one out, I am going to be the Nostradamus of Asia.  Who knew that teenagers could be so helpful?? Teenage Attitude Index Download this podcast Download audio file (20090421_tai.mp3) Every market prognosticator worth his/her/its salt is in constant search-mode for “leading indicators” – data points that show us which way the markets are shifting and where trends will be moving before they actually become trends.  The easiest (and most used) are probably the ones everyone knows: GDP, consumer prices, commodity prices, exchange rates, etc.  Look on the back page of any financial magazine and you’ll find them … the problem, is that different sources will have different data, all highlighted by an asterisk that tells you why they are different.  Then mix in the challenge in China where economic data is so fraught with government intervention and interpretation so as to make it intelligible at best and downright false at worse. These indicators are pretty important – as we’ve discussed in these pages before, everyone is looking for the “bottom” of the market and the economic windsocks and canaries in the coalmine are the only way we have of seeing this.   Everyone is looking for the upswing, particularly here in China which is expected (read: “desperately hoped”) to help lead a global recovery. The more smarmy among the economists have tried to come up with “common sense” indicators, the best-known of which, probably, is the Economist’s Big Mac Index.  This is based on the theory of purchasing power parity (PPP) which says that exchange rates should equalize the price of similar goods between economies.  They use the Big Mac, a product available across most markets in the world, as that standard and compare the Big Mac prices when converted into US dollars at current exchange rates.  This is all well and good … but with the increasing health consciousness of many populations, it might be a good idea to get away from the Super Size Me indices. So what else can we use?  I might have an idea … I live in Pudong, the “new” area of Shanghai where construction cranes have been the city bird for the past 5 years and building has been going on 24-7: industrial, commercial, residential … everything has been going up in a flurry of activity.  However, starting last fall and then hitting a low point around Chinese New Year this year, things have been going oddly quiet.  In what used to be a dust-choked part of town we can now see blue sky.  What’s up with that??  Dust, dirt and noise are good – they are signs that stuff is happening! But over the past few weeks, things seem to be changing, and that has resulted in my discovery of the perfect indicator that we are on the upswing in China – I call it the Teenage Attitude Index (or TAI). The TAI is plotted on a matrix with “Weekend Wake-Up Time” on the vertical (plotted inversely so an earlier wake up time gets a higher score) and “Crabbiness Factor” on the horizontal.  The louder the construction is around us and the earlier it starts, even on Saturday and Sunday, the earlier the kids wake up and the more angry they are that they had to wake up early.  It works really well and I can clearly plot the upswing here: the past few weekend mornings, I have observed my teenagers very carefully and have noted that they are not only waking up earlier but are in a MUCH worse mood when they do.  And I could not be happier!!  Sure, we start to hear jackhammers and cement trucks at 5 a.m. on a Saturday, but that just means that life is returning to our definition of normal.  And the grumpy look on the faces of my darling children are empirical proof of this. The only piece I have not worked out yet is how to differentiate between the crabbiness brought on by construction noise and the crabbiness associated with simply being a teenager.  But once I figure that one out, I am going to be the Nostradamus of Asia.  Who knew that teenagers could be so helpful?? tag:odeo.com,2009-04-21,25048049 Tue, 21 Apr 2009 13:08:57 -0700 no China Business Blog and Podcast China, economy, economic recovery, stimulus plan http://www.odeo.com/episodes/25366412-Deep-Thoughts-from-the-Beach No More Vacations For Me Download this podcast Download audio file (20090403_deep_thoughts.mp3) Sheesh … can’t a guy get away for holiday without the world falling apart??  I go for 10 days of sun, sand and minimal Internet and come back to find the world upside down.  AIG needs more money (to fund bonuses? foreign banks? Liddy’s baseball card collection?) and President Obama is firing CEOs (not that many others have wanted to do the same in the past but lacked the political will and cajones).  China dope-slapping Coke in its attempted acquisition of Huiyuan is counter-slapped by Australia for Minmetals attempted investment in OZ Minerals.  An apt description from Dr. Venkman in Ghostbusters: “Cats and dogs living together!  Real wrath-of-God stuff!!” Not that the situation would be any different if I would have been on the frontlines last week, bravely Podcasting and blogging about the world from my 5th floor Shanghai office … but I do have a bit of a Rip VanWinkle feeling about it... No More Vacations For Me Download this podcast Download audio file (20090403_deep_thoughts.mp3) Sheesh … can’t a guy get away for holiday without the world falling apart??  I go for 10 days of sun, sand and minimal Internet and come back to find the world upside down.  AIG needs more money (to fund bonuses? foreign banks? Liddy’s baseball card collection?) and President Obama is firing CEOs (not that many others have wanted to do the same in the past but lacked the political will and cajones).  China dope-slapping Coke in its attempted acquisition of Huiyuan is counter-slapped by Australia for Minmetals attempted investment in OZ Minerals.  An apt description from Dr. Venkman in Ghostbusters: “Cats and dogs living together!  Real wrath-of-God stuff!!” Not that the situation would be any different if I would have been on the frontlines last week, bravely Podcasting and blogging about the world from my 5th floor Shanghai office … but I do have a bit of a Rip VanWinkle feeling about it all.  To have so much happen in the space of just over a week makes my head spin (causing the too-small brain inside my rather large cranial capacity sound like some Cinco de Mayo maraca jam session). The suddenness of all this – and too much free time on a beach – has led me to think of three deep thoughts: Deep Thought Number One: the age of dominance of the western multinational company (MNC) is over. Actually, I think this dominance has been over for some time but we’ve been so busy kicking the body and yelling “Look!  Its moving!” that we’ve not realized its dead.  Certainly this is true in manufacturing … that happened some time ago when we started worshiping at the alter of the god Wal-Mart to receive the deity’s blessings that came from cheap products manufactured in low-cost countries.  I am not saying we would/could/should have done anything differently, but we are where we are. So maybe the proper way to say this is that we Westerners need to lose the illusion that we are in total control of the world.  We are not.  And the last stand where at least Americans could claim dominance – the financial sector – has completely lost its mojo (and most of its money).  The title “Bank Manager” has become the new oxymoron replacing “student-athlete” and “country-music”. Practically speaking, this means that Western companies will now be the seller as often (or even MORE often) than they are the buyer.  For every Coke-Huiyuan situation we will find Chinese companies buying medical companies (ala Mindray), mining rights (ala Minmetals) or car companies (ala a billion rumors in the market about various GM divisions being schlepped to the Chinese ).  Certainly, there are massive financial and cultural hurdles to overcome for Chinese companies and institutions to become major buyers, but there is definitely the motivation here and there are certainly enough Western assets – distressed and otherwise – for them to pursue. Deep Thought Number Two: China WILL become a stronger global player in several sectors. This is a natural result of the first … if there is a leadership vacuum created by the decline of Western firms, someone will step into their place.  And the Chinese seem to be the most likely to come off the bench and make the winning basket.  I see three sectors to keep our eyes on – two are no-brainers and one might be a long-shot. The first sector where China will begin to gain global leadership is, obviously, automotive.  Already the second-largest auto market in the world, China is also the leading supplier of auto parts and components to the world.  China will begin to leverage this supply chain dominance into actually creating cars to sell into other markets.  It is already happening in southeast Asia where a number of Chinese suppliers are exporting cars.  And Chery attempted a distribution agreement for small cars with Chrysler in the U.S. before the U.S. auto world turned upside down.  Finally, China has declared that they WILL be the global leaders in electric cars and technology – in the next three years .  That is very aggressive but it seems the entire economic and political system is focused on doing this.  Look for the leading China auto companies – SAIC, FAW, Dongfang, Changan, Chery and the cheeky BYD – to flex their muscles internationally. The second sector is medical device.  Again, China is a leading player in the supply chain of components to the global medical industry but strict regulatory requirements have kept them largely from being very strong in Western medical markets.  The Mindray acquisition of Datascope last year was their attempt to change that – Mindray is the biggest Chinese medical device company, competing against the big boys of GE, Philips, Toshiba and Siemens.  Their acquisition of Datascope, a mid-sized U.S. player in the patient monitoring device sector, was Mindray’s first entry point into the U.S. market.  Look for them and others to follow. But look particularly at China becoming an even stronger growth market for medical companies of all kinds.  China will be investing a big chunk of their economic stimulus package in their medical sector in an attempt to rapidly upgrade the penetration and quality level of medical care for their 1.3 billion population.  As they do this, there is going to be a lot of money out there to purchase medical devices, pharmaceuticals, lab equipment and even healthcare management solutions.  Any medical company of any size should be looking at China as their key growth market in the mid-term. The third sector to keep your eyes on – and I know I am out on a limb here – is the financial sector.  What?, you say.  A centrally-controlled, socialist system with a partially convertible currency is going to become a leader in global finance??  Yes, that is exactly what I am saying.  I am not saying “tomorrow” or even “in the next 20 years”, but all you have to do is follow the money and the motivation.  China certainly has the money – both in cash and U.S. T-bills – and their motivation is repeatedly being articulated – the latest has China’s leadership saying that they hope to build Shanghai into a major financial sector by 2020 and that “the Chinese Yuan will become a new world-favored currency by then”.  Gutsy?  Sure.  Possible?  Maybe.  But are they going to work on it?  You can bet on it! This all leads us to my Third Deep Thought:  When it comes to the future, we don’t know JACK!! I know … as the proprietor of a leading market strategy consulting company in China whose very JOB it is to predict market futures for our clients, it is counter productive to admit this.  But c’mon … consider the situation.  If, 18 months ago, you would have told anyone with half a brain and a cable TV subscription that Lehman Brothers, Bear Sterns and AIG would be toast at the start of 2009, we would have assumed you had only a quarter of a brain.  Two years ago – even in the midst of big changes already happening in the automotive market – if you would have said that the U.S. Big Three would be on the edge of global collapse and that BYD (hitherto known as a battery maker) would make the biggest splash at the Detroit Auto Show, we would have taken away the last 25% and made you ride the little bus. The truth of the matter is that we – meaning pundits, consultants, politicians, TV news anchors, banking regulators (if there are any left) – have NO idea what is going to happen next.  Sure, we know that “down” is still the trend and that “flat” is the new “growth”, but the details of which movers and shakers will actually be the ones shaking and moving is a complete mystery.  So let’s give up trying to predict where things are going and start act like they are going to go somewhere. This means that we – and by “we” I mean “we Westerners” – get it through our neatly coiffed (but thick) skulls that we are not going to be returning to “normal”.  This economic crisis is not just a speed bump on the journey that we’ve been on since the dawn of the industrial age … it is a fork in the road with a car-swallowing pothole in it, at the bottom of which is a pack of very hungry lions who have been subsisting only on lettuce and Fruit Roll-ups.  OK … that metaphor needs a bit more work, but the bottom line is that EVERYTHING has changed!  The products, pricing, distribution, supply chain, competitors and even regulatory environments of your business are changing radically.  New players – many of them Chinese – are not just playing in the shallow end of the business pool; they are swimming in the deep end and, frankly, many of them look pretty good. What has not changed is the advice for Western companies regarding China – we have been saying this for a LONG time and, in fact, we can maybe put a sharper point on that advice which is: your company’s future WILL be involved somehow with China so find out what it is now and start working on it.  In the midst of the global economic meltdown, China is still one of the best places for pure growth in most sectors.  You are probably not going to find growth in your home markets in the U.S. or Europe so why keep banging your head against that wall?  Net-net: if China is not at the top of your list of “Ways to save your corporate ass and position yourself for the future”, then you are missing the boat.  That is a fact that I feel 100% confident in predicting. No More Vacations For Me Download this podcast Download audio file (20090403_deep_thoughts.mp3) Sheesh … can’t a guy get away for holiday without the world falling apart??  I go for 10 days of sun, sand and minimal Internet and come back to find the world upside down.  AIG needs more money (to fund bonuses? foreign banks? Liddy’s baseball card collection?) and President Obama is firing CEOs (not that many others have wanted to do the same in the past but lacked the political will and cajones).  China dope-slapping Coke in its attempted acquisition of Huiyuan is counter-slapped by Australia for Minmetals attempted investment in OZ Minerals.  An apt description from Dr. Venkman in Ghostbusters: “Cats and dogs living together!  Real wrath-of-God stuff!!” Not that the situation would be any different if I would have been on the frontlines last week, bravely Podcasting and blogging about the world from my 5th floor Shanghai office … but I do have a bit of a Rip VanWinkle feeling about it all.  To have so much happen in the space of just over a week makes my head spin (causing the too-small brain inside my rather large cranial capacity sound like some Cinco de Mayo maraca jam session). The suddenness of all this – and too much free time on a beach – has led me to think of three deep thoughts: Deep Thought Number One: the age of dominance of the western multinational company (MNC) is over. Actually, I think this dominance has been over for some time but we’ve been so busy kicking the body and yelling “Look!  Its moving!” that we’ve not realized its dead.  Certainly this is true in manufacturing … that happened some time ago when we started worshiping at the alter of the god Wal-Mart to receive the deity’s blessings that came from cheap products manufactured in low-cost countries.  I am not saying we would/could/should have done anything differently, but we are where we are. So maybe the proper way to say this is that we Westerners need to lose the illusion that we are in total control of the world.  We are not.  And the last stand where at least Americans could claim dominance – the financial sector – has completely lost its mojo (and most of its money).  The title “Bank Manager” has become the new oxymoron replacing “student-athlete” and “country-music”. Practically speaking, this means that Western companies will now be the seller as often (or even MORE often) than they are the buyer.  For every Coke-Huiyuan situation we will find Chinese companies buying medical companies (ala Mindray), mining rights (ala Minmetals) or car companies (ala a billion rumors in the market about various GM divisions being schlepped to the Chinese ).  Certainly, there are massive financial and cultural hurdles to overcome for Chinese companies and institutions to become major buyers, but there is definitely the motivation here and there are certainly enough Western assets – distressed and otherwise – for them to pursue. Deep Thought Number Two: China WILL become a stronger global player in several sectors. This is a natural result of the first … if there is a leadership vacuum created by the decline of Western firms, someone will step into their place.  And the Chinese seem to be the most likely to come off the bench and make the winning basket.  I see three sectors to keep our eyes on – two are no-brainers and one might be a long-shot. The first sector where China will begin to gain global leadership is, obviously, automotive.  Already the second-largest auto market in the world, China is also the leading supplier of auto parts and components to the world.  China will begin to leverage this supply chain dominance into actually creating cars to sell into other markets.  It is already happening in southeast Asia where a number of Chinese suppliers are exporting cars.  And Chery attempted a distribution agreement for small cars with Chrysler in the U.S. before the U.S. auto world turned upside down.  Finally, China has declared that they WILL be the global leaders in electric cars and technology – in the next three years .  That is very aggressive but it seems the entire economic and political system is focused on doing this.  Look for the leading China auto companies – SAIC, FAW, Dongfang, Changan, Chery and the cheeky BYD – to flex their muscles internationally. The second sector is medical device.  Again, China is a leading player in the supply chain of components to the global medical industry but strict regulatory requirements have kept them largely from being very strong in Western medical markets.  The Mindray acquisition of Datascope last year was their attempt to change that – Mindray is the biggest Chinese medical device company, competing against the big boys of GE, Philips, Toshiba and Siemens.  Their acquisition of Datascope, a mid-sized U.S. player in the patient monitoring device sector, was Mindray’s first entry point into the U.S. market.  Look for them and others to follow. But look particularly at China becoming an even stronger growth market for medical companies of all kinds.  China will be investing a big chunk of their economic stimulus package in their medical sector in an attempt to rapidly upgrade the penetration and quality level of medical care for their 1.3 billion population.  As they do this, there is going to be a lot of money out there to purchase medical devices, pharmaceuticals, lab equipment and even healthcare management solutions.  Any medical company of any size should be looking at China as their key growth market in the mid-term. The third sector to keep your eyes on – and I know I am out on a limb here – is the financial sector.  What?, you say.  A centrally-controlled, socialist system with a partially convertible currency is going to become a leader in global finance??  Yes, that is exactly what I am saying.  I am not saying “tomorrow” or even “in the next 20 years”, but all you have to do is follow the money and the motivation.  China certainly has the money – both in cash and U.S. T-bills – and their motivation is repeatedly being articulated – the latest has China’s leadership saying that they hope to build Shanghai into a major financial sector by 2020 and that “the Chinese Yuan will become a new world-favored currency by then”.  Gutsy?  Sure.  Possible?  Maybe.  But are they going to work on it?  You can bet on it! This all leads us to my Third Deep Thought:  When it comes to the future, we don’t know JACK!! I know … as the proprietor of a leading market strategy consulting company in China whose very JOB it is to predict market futures for our clients, it is counter productive to admit this.  But c’mon … consider the situation.  If, 18 months ago, you would have told anyone with half a brain and a cable TV subscription that Lehman Brothers, Bear Sterns and AIG would be toast at the start of 2009, we would have assumed you had only a quarter of a brain.  Two years ago – even in the midst of big changes already happening in the automotive market – if you would have said that the U.S. Big Three would be on the edge of global collapse and that BYD (hitherto known as a battery maker) would make the biggest splash at the Detroit Auto Show, we would have taken away the last 25% and made you ride the little bus. The truth of the matter is that we – meaning pundits, consultants, politicians, TV news anchors, banking regulators (if there are any left) – have NO idea what is going to happen next.  Sure, we know that “down” is still the trend and that “flat” is the new “growth”, but the details of which movers and shakers will actually be the ones shaking and moving is a complete mystery.  So let’s give up trying to predict where things are going and start act like they are going to go somewhere. This means that we – and by “we” I mean “we Westerners” – get it through our neatly coiffed (but thick) skulls that we are not going to be returning to “normal”.  This economic crisis is not just a speed bump on the journey that we’ve been on since the dawn of the industrial age … it is a fork in the road with a car-swallowing pothole in it, at the bottom of which is a pack of very hungry lions who have been subsisting only on lettuce and Fruit Roll-ups.  OK … that metaphor needs a bit more work, but the bottom line is that EVERYTHING has changed!  The products, pricing, distribution, supply chain, competitors and even regulatory environments of your business are changing radically.  New players – many of them Chinese – are not just playing in the shallow end of the business pool; they are swimming in the deep end and, frankly, many of them look pretty good. What has not changed is the advice for Western companies regarding China – we have been saying this for a LONG time and, in fact, we can maybe put a sharper point on that advice which is: your company’s future WILL be involved somehow with China so find out what it is now and start working on it.  In the midst of the global economic meltdown, China is still one of the best places for pure growth in most sectors.  You are probably not going to find growth in your home markets in the U.S. or Europe so why keep banging your head against that wall?  Net-net: if China is not at the top of your list of “Ways to save your corporate ass and position yourself for the future”, then you are missing the boat.  That is a fact that I feel 100% confident in predicting. tag:odeo.com,2009-04-02,25366412 Thu, 02 Apr 2009 16:17:48 -0700 no China Business Blog and Podcast podcast, Government, China, automotive, manufacturing, economy, medical, Economic Crisis, stimulus plan http://www.odeo.com/episodes/24400944-Deep-Thoughts-from-the-Beach No More Vacations For Me Download this podcast Download audio file (20090403_deep_thoughts.mp3) Sheesh … can’t a guy get away for holiday without the world falling apart??  I go for 10 days of sun, sand and minimal Internet and come back to find the world upside down.  AIG needs more money (to fund bonuses? foreign banks? Liddy’s baseball card collection?) and President Obama is firing CEOs (not that many others have wanted to do the same in the past but lacked the political will and cajones).  China dope-slapping Coke in its attempted acquisition of Huiyuan is counter-slapped by Australia for Minmetals attempted investment in OZ Minerals.  An apt description from Dr. Venkman in Ghostbusters: “Cats and dogs living together!  Real wrath-of-God stuff!!” Not that the situation would be any different if I would have been on the frontlines last week, bravely Podcasting and blogging about the world from my 5th floor Shanghai office … but I do have a bit of a Rip VanWinkle feeling about it... No More Vacations For Me Download this podcast Download audio file (20090403_deep_thoughts.mp3) Sheesh … can’t a guy get away for holiday without the world falling apart??  I go for 10 days of sun, sand and minimal Internet and come back to find the world upside down.  AIG needs more money (to fund bonuses? foreign banks? Liddy’s baseball card collection?) and President Obama is firing CEOs (not that many others have wanted to do the same in the past but lacked the political will and cajones).  China dope-slapping Coke in its attempted acquisition of Huiyuan is counter-slapped by Australia for Minmetals attempted investment in OZ Minerals.  An apt description from Dr. Venkman in Ghostbusters: “Cats and dogs living together!  Real wrath-of-God stuff!!” Not that the situation would be any different if I would have been on the frontlines last week, bravely Podcasting and blogging about the world from my 5th floor Shanghai office … but I do have a bit of a Rip VanWinkle feeling about it all.  To have so much happen in the space of just over a week makes my head spin (causing the too-small brain inside my rather large cranial capacity sound like some Cinco de Mayo maraca jam session). The suddenness of all this – and too much free time on a beach – has led me to think of three deep thoughts: Deep Thought Number One: the age of dominance of the western multinational company (MNC) is over. Actually, I think this dominance has been over for some time but we’ve been so busy kicking the body and yelling “Look!  Its moving!” that we’ve not realized its dead.  Certainly this is true in manufacturing … that happened some time ago when we started worshiping at the alter of the god Wal-Mart to receive the deity’s blessings that came from cheap products manufactured in low-cost countries.  I am not saying we would/could/should have done anything differently, but we are where we are. So maybe the proper way to say this is that we Westerners need to lose the illusion that we are in total control of the world.  We are not.  And the last stand where at least Americans could claim dominance – the financial sector – has completely lost its mojo (and most of its money).  The title “Bank Manager” has become the new oxymoron replacing “student-athlete” and “country-music”. Practically speaking, this means that Western companies will now be the seller as often (or even MORE often) than they are the buyer.  For every Coke-Huiyuan situation we will find Chinese companies buying medical companies (ala Mindray), mining rights (ala Minmetals) or car companies (ala a billion rumors in the market about various GM divisions being schlepped to the Chinese ).  Certainly, there are massive financial and cultural hurdles to overcome for Chinese companies and institutions to become major buyers, but there is definitely the motivation here and there are certainly enough Western assets – distressed and otherwise – for them to pursue. Deep Thought Number Two: China WILL become a stronger global player in several sectors. This is a natural result of the first … if there is a leadership vacuum created by the decline of Western firms, someone will step into their place.  And the Chinese seem to be the most likely to come off the bench and make the winning basket.  I see three sectors to keep our eyes on – two are no-brainers and one might be a long-shot. The first sector where China will begin to gain global leadership is, obviously, automotive.  Already the second-largest auto market in the world, China is also the leading supplier of auto parts and components to the world.  China will begin to leverage this supply chain dominance into actually creating cars to sell into other markets.  It is already happening in southeast Asia where a number of Chinese suppliers are exporting cars.  And Chery attempted a distribution agreement for small cars with Chrysler in the U.S. before the U.S. auto world turned upside down.  Finally, China has declared that they WILL be the global leaders in electric cars and technology – in the next three years .  That is very aggressive but it seems the entire economic and political system is focused on doing this.  Look for the leading China auto companies – SAIC, FAW, Dongfang, Changan, Chery and the cheeky BYD – to flex their muscles internationally. The second sector is medical device.  Again, China is a leading player in the supply chain of components to the global medical industry but strict regulatory requirements have kept them largely from being very strong in Western medical markets.  The Mindray acquisition of Datascope last year was their attempt to change that – Mindray is the biggest Chinese medical device company, competing against the big boys of GE, Philips, Toshiba and Siemens.  Their acquisition of Datascope, a mid-sized U.S. player in the patient monitoring device sector, was Mindray’s first entry point into the U.S. market.  Look for them and others to follow. But look particularly at China becoming an even stronger growth market for medical companies of all kinds.  China will be investing a big chunk of their economic stimulus package in their medical sector in an attempt to rapidly upgrade the penetration and quality level of medical care for their 1.3 billion population.  As they do this, there is going to be a lot of money out there to purchase medical devices, pharmaceuticals, lab equipment and even healthcare management solutions.  Any medical company of any size should be looking at China as their key growth market in the mid-term. The third sector to keep your eyes on – and I know I am out on a limb here – is the financial sector.  What?, you say.  A centrally-controlled, socialist system with a partially convertible currency is going to become a leader in global finance??  Yes, that is exactly what I am saying.  I am not saying “tomorrow” or even “in the next 20 years”, but all you have to do is follow the money and the motivation.  China certainly has the money – both in cash and U.S. T-bills – and their motivation is repeatedly being articulated – the latest has China’s leadership saying that they hope to build Shanghai into a major financial sector by 2020 and that “the Chinese Yuan will become a new world-favored currency by then”.  Gutsy?  Sure.  Possible?  Maybe.  But are they going to work on it?  You can bet on it! This all leads us to my Third Deep Thought:  When it comes to the future, we don’t know JACK!! I know … as the proprietor of a leading market strategy consulting company in China whose very JOB it is to predict market futures for our clients, it is counter productive to admit this.  But c’mon … consider the situation.  If, 18 months ago, you would have told anyone with half a brain and a cable TV subscription that Lehman Brothers, Bear Sterns and AIG would be toast at the start of 2009, we would have assumed you had only a quarter of a brain.  Two years ago – even in the midst of big changes already happening in the automotive market – if you would have said that the U.S. Big Three would be on the edge of global collapse and that BYD (hitherto known as a battery maker) would make the biggest splash at the Detroit Auto Show, we would have taken away the last 25% and made you ride the little bus. The truth of the matter is that we – meaning pundits, consultants, politicians, TV news anchors, banking regulators (if there are any left) – have NO idea what is going to happen next.  Sure, we know that “down” is still the trend and that “flat” is the new “growth”, but the details of which movers and shakers will actually be the ones shaking and moving is a complete mystery.  So let’s give up trying to predict where things are going and start act like they are going to go somewhere. This means that we – and by “we” I mean “we Westerners” – get it through our neatly coiffed (but thick) skulls that we are not going to be returning to “normal”.  This economic crisis is not just a speed bump on the journey that we’ve been on since the dawn of the industrial age … it is a fork in the road with a car-swallowing pothole in it, at the bottom of which is a pack of very hungry lions who have been subsisting only on lettuce and Fruit Roll-ups.  OK … that metaphor needs a bit more work, but the bottom line is that EVERYTHING has changed!  The products, pricing, distribution, supply chain, competitors and even regulatory environments of your business are changing radically.  New players – many of them Chinese – are not just playing in the shallow end of the business pool; they are swimming in the deep end and, frankly, many of them look pretty good. What has not changed is the advice for Western companies regarding China – we have been saying this for a LONG time and, in fact, we can maybe put a sharper point on that advice which is: your company’s future WILL be involved somehow with China so find out what it is now and start working on it.  In the midst of the global economic meltdown, China is still one of the best places for pure growth in most sectors.  You are probably not going to find growth in your home markets in the U.S. or Europe so why keep banging your head against that wall?  Net-net: if China is not at the top of your list of “Ways to save your corporate ass and position yourself for the future”, then you are missing the boat.  That is a fact that I feel 100% confident in predicting. No More Vacations For Me Download this podcast Download audio file (20090403_deep_thoughts.mp3) Sheesh … can’t a guy get away for holiday without the world falling apart??  I go for 10 days of sun, sand and minimal Internet and come back to find the world upside down.  AIG needs more money (to fund bonuses? foreign banks? Liddy’s baseball card collection?) and President Obama is firing CEOs (not that many others have wanted to do the same in the past but lacked the political will and cajones).  China dope-slapping Coke in its attempted acquisition of Huiyuan is counter-slapped by Australia for Minmetals attempted investment in OZ Minerals.  An apt description from Dr. Venkman in Ghostbusters: “Cats and dogs living together!  Real wrath-of-God stuff!!” Not that the situation would be any different if I would have been on the frontlines last week, bravely Podcasting and blogging about the world from my 5th floor Shanghai office … but I do have a bit of a Rip VanWinkle feeling about it all.  To have so much happen in the space of just over a week makes my head spin (causing the too-small brain inside my rather large cranial capacity sound like some Cinco de Mayo maraca jam session). The suddenness of all this – and too much free time on a beach – has led me to think of three deep thoughts: Deep Thought Number One: the age of dominance of the western multinational company (MNC) is over. Actually, I think this dominance has been over for some time but we’ve been so busy kicking the body and yelling “Look!  Its moving!” that we’ve not realized its dead.  Certainly this is true in manufacturing … that happened some time ago when we started worshiping at the alter of the god Wal-Mart to receive the deity’s blessings that came from cheap products manufactured in low-cost countries.  I am not saying we would/could/should have done anything differently, but we are where we are. So maybe the proper way to say this is that we Westerners need to lose the illusion that we are in total control of the world.  We are not.  And the last stand where at least Americans could claim dominance – the financial sector – has completely lost its mojo (and most of its money).  The title “Bank Manager” has become the new oxymoron replacing “student-athlete” and “country-music”. Practically speaking, this means that Western companies will now be the seller as often (or even MORE often) than they are the buyer.  For every Coke-Huiyuan situation we will find Chinese companies buying medical companies (ala Mindray), mining rights (ala Minmetals) or car companies (ala a billion rumors in the market about various GM divisions being schlepped to the Chinese ).  Certainly, there are massive financial and cultural hurdles to overcome for Chinese companies and institutions to become major buyers, but there is definitely the motivation here and there are certainly enough Western assets – distressed and otherwise – for them to pursue. Deep Thought Number Two: China WILL become a stronger global player in several sectors. This is a natural result of the first … if there is a leadership vacuum created by the decline of Western firms, someone will step into their place.  And the Chinese seem to be the most likely to come off the bench and make the winning basket.  I see three sectors to keep our eyes on – two are no-brainers and one might be a long-shot. The first sector where China will begin to gain global leadership is, obviously, automotive.  Already the second-largest auto market in the world, China is also the leading supplier of auto parts and components to the world.  China will begin to leverage this supply chain dominance into actually creating cars to sell into other markets.  It is already happening in southeast Asia where a number of Chinese suppliers are exporting cars.  And Chery attempted a distribution agreement for small cars with Chrysler in the U.S. before the U.S. auto world turned upside down.  Finally, China has declared that they WILL be the global leaders in electric cars and technology – in the next three years .  That is very aggressive but it seems the entire economic and political system is focused on doing this.  Look for the leading China auto companies – SAIC, FAW, Dongfang, Changan, Chery and the cheeky BYD – to flex their muscles internationally. The second sector is medical device.  Again, China is a leading player in the supply chain of components to the global medical industry but strict regulatory requirements have kept them largely from being very strong in Western medical markets.  The Mindray acquisition of Datascope last year was their attempt to change that – Mindray is the biggest Chinese medical device company, competing against the big boys of GE, Philips, Toshiba and Siemens.  Their acquisition of Datascope, a mid-sized U.S. player in the patient monitoring device sector, was Mindray’s first entry point into the U.S. market.  Look for them and others to follow. But look particularly at China becoming an even stronger growth market for medical companies of all kinds.  China will be investing a big chunk of their economic stimulus package in their medical sector in an attempt to rapidly upgrade the penetration and quality level of medical care for their 1.3 billion population.  As they do this, there is going to be a lot of money out there to purchase medical devices, pharmaceuticals, lab equipment and even healthcare management solutions.  Any medical company of any size should be looking at China as their key growth market in the mid-term. The third sector to keep your eyes on – and I know I am out on a limb here – is the financial sector.  What?, you say.  A centrally-controlled, socialist system with a partially convertible currency is going to become a leader in global finance??  Yes, that is exactly what I am saying.  I am not saying “tomorrow” or even “in the next 20 years”, but all you have to do is follow the money and the motivation.  China certainly has the money – both in cash and U.S. T-bills – and their motivation is repeatedly being articulated – the latest has China’s leadership saying that they hope to build Shanghai into a major financial sector by 2020 and that “the Chinese Yuan will become a new world-favored currency by then”.  Gutsy?  Sure.  Possible?  Maybe.  But are they going to work on it?  You can bet on it! This all leads us to my Third Deep Thought:  When it comes to the future, we don’t know JACK!! I know … as the proprietor of a leading market strategy consulting company in China whose very JOB it is to predict market futures for our clients, it is counter productive to admit this.  But c’mon … consider the situation.  If, 18 months ago, you would have told anyone with half a brain and a cable TV subscription that Lehman Brothers, Bear Sterns and AIG would be toast at the start of 2009, we would have assumed you had only a quarter of a brain.  Two years ago – even in the midst of big changes already happening in the automotive market – if you would have said that the U.S. Big Three would be on the edge of global collapse and that BYD (hitherto known as a battery maker) would make the biggest splash at the Detroit Auto Show, we would have taken away the last 25% and made you ride the little bus. The truth of the matter is that we – meaning pundits, consultants, politicians, TV news anchors, banking regulators (if there are any left) – have NO idea what is going to happen next.  Sure, we know that “down” is still the trend and that “flat” is the new “growth”, but the details of which movers and shakers will actually be the ones shaking and moving is a complete mystery.  So let’s give up trying to predict where things are going and start act like they are going to go somewhere. This means that we – and by “we” I mean “we Westerners” – get it through our neatly coiffed (but thick) skulls that we are not going to be returning to “normal”.  This economic crisis is not just a speed bump on the journey that we’ve been on since the dawn of the industrial age … it is a fork in the road with a car-swallowing pothole in it, at the bottom of which is a pack of very hungry lions who have been subsisting only on lettuce and Fruit Roll-ups.  OK … that metaphor needs a bit more work, but the bottom line is that EVERYTHING has changed!  The products, pricing, distribution, supply chain, competitors and even regulatory environments of your business are changing radically.  New players – many of them Chinese – are not just playing in the shallow end of the business pool; they are swimming in the deep end and, frankly, many of them look pretty good. What has not changed is the advice for Western companies regarding China – we have been saying this for a LONG time and, in fact, we can maybe put a sharper point on that advice which is: your company’s future WILL be involved somehow with China so find out what it is now and start working on it.  In the midst of the global economic meltdown, China is still one of the best places for pure growth in most sectors.  You are probably not going to find growth in your home markets in the U.S. or Europe so why keep banging your head against that wall?  Net-net: if China is not at the top of your list of “Ways to save your corporate ass and position yourself for the future”, then you are missing the boat.  That is a fact that I feel 100% confident in predicting. tag:odeo.com,2009-04-02,24400944 Thu, 02 Apr 2009 15:17:48 -0700 no China Business Blog and Podcast Government, China, automotive, manufacturing, economy, medical, Economic Crisis, stimulus plan http://www.odeo.com/episodes/25366413-A-Stimulus-Package-that-Stimulates Follow the Money, Most of it Will Stimulate Download this podcast Download audio file (20090331_stimulus.mp3) There has been a lot of press, not to mention moaning and groaning, about stimulus packages in the last few months. Many countries have put forth their genius to turn their economies around…but we haven’t seen much fruit yet to be sure, and their remains a high dose of skepticism out there on virtually everybodies stimulus approach. This skeptical view even exists with China, the global champion in actually getting things done. As usual, there is a lot of noise in the media about anything to do with China and the ever present political filters that tend to bias realities. In this podcast, I will try to cut through this static and identify what we think is really happening with China’s stimulus plan and how western companies can benefit. I’ll cover the current status of the plan, what forms the various stimuli are taking, some key themes that underly the programs and the indu... Follow the Money, Most of it Will Stimulate Download this podcast Download audio file (20090331_stimulus.mp3) There has been a lot of press, not to mention moaning and groaning, about stimulus packages in the last few months. Many countries have put forth their genius to turn their economies around…but we haven’t seen much fruit yet to be sure, and their remains a high dose of skepticism out there on virtually everybodies stimulus approach. This skeptical view even exists with China, the global champion in actually getting things done. As usual, there is a lot of noise in the media about anything to do with China and the ever present political filters that tend to bias realities. In this podcast, I will try to cut through this static and identify what we think is really happening with China’s stimulus plan and how western companies can benefit. I’ll cover the current status of the plan, what forms the various stimuli are taking, some key themes that underly the programs and the industry sectors that will benefit most. In this horrible economic environment there are few places one can go for revenue growth. China is one of those places… so companies with the intent to find growth despite the current pain they are experiencing in their home markets, will do well to take a hard look at what is happening in China. So let’s set the context a bit before getting into specifics on the stimulus plan. It should be clear to us by now that when the Chinese government is determined to get something done, it usually happens… and it happens fast, and often in a big way as we saw with the Olympics last year. Go to a rural township one year and it’s a patchwork of dirt roads and asphalt. Go there the next year, and not only are all the roads paved, but they are lined by quaint looking trees of all the same breed, shape, and height. Ask around, and a peasant points into the distance and says that the government “uprooted all those trees from that mountain over there”. The Chinese government has, to date, earmarked (can I use that word?) some US$ 584 billion to stimulate things in the economy. By our US standards of throwing trillions at a problem in the hopes of overwhelming it, this figure may seem a bit paltry. But keep in mind that at 10 to 20 times the wages of those peasant tree-movers, we’re getting a lot less investment bang for our stimulus buck here. Further, the actual usefulness of the monies spent almost embarrases our US program (most pork bellies in China are served with a nice Maotai). There is some opaqueness to the source of these funds (about 25% is slated to come from the central government and the balance from provincial and local government sources). Yet China’s track record when it comes to stimulus spending is pretty stellar so we have confidence this level of resource will indeed find its way in to the market…eventually. Best estimates say that about $57 billion (or one-tenth of the total package) has already been spent as of the end of 2008. Of this, about $39 billion has been spent on rural infrastructure, roads, railroads, and housing construction. Construction has already started on a $13 billion gas pipeline from Xinjiang to Shanghai, and there are plans to start building at least four nuclear power plants this year. As a result of these and other mega-projects, Yangtze River cargo throughput of steel, coal, and cement ticked up in January after suffering declines since last August. A sign of the stimulus at work! I was in a meeting with China’s largest grocery chain a couple weeks ago and they were describing their brand new 1.3 mm sq ft., state of the art distribution center being developed…with monies from the stimulus. Our stimulus activities in the US seem like taking a couple advil to ease the pain of a heel spur versus China’s shot of cortisone right into the ­­­affected area. In these types of programs, we see the Chinese government taking more of a long-term, strategic view of the investment. The goal is not only to address the short-term pain, but to build the country’s overall health and competitiveness. In this regard, it is interesting to note some of the main themes of the stimulus package… Upgrading technology through forced obsolescence and replacement of outdated, energy intensive and polluting processes & equipment Upgrading/expanding capacities e.g. an astonishing $90 billion has been budgeted to more than double China’s rail network over the next decade, adding 25,000km of track. Providing rural development/support, as in offering coupons to get discounts on purchasing durable goods Providing investment and incentives for innovation and expansion of R&D Implementing industry consolidation Spurring export promotion and competitiveness via putting back some of the VAT tax refunds Expanding energy sources including nuclear, coal and renewable energy We also see the government using a creative mix of methods to stimulate the market using both direct and indirect tactics…it’s not all about spending cash. Tax rebates/cuts Direct investment Policies e.g. consolidation, financing terms Technology funds Direct subsidies Ten industries have been designated as direct stimulus beneficiaries: automobiles, steel, textiles, shipbuilding, petrochemicals, light industry, electronics, nonferrous metals, equipment manufacturing, and logistics. Not many areas will be unaffected. The government will employ a mix of the methods I just mentioned to bring help to these sectors. Some will benefit from consumption subsidies, e.g. 13% off for peasants to buy mobile phones, computers, and home appliances. Others, such as textiles and light industry, will get bigger export tax rebates. The auto industry will get some help through tax reduction, e.g. going from a 10% to 5% purchase tax to buy a car. Almost all of the industries will benefit from government commitments to invest in innovation and new technology, with multi-billion dollar funds already announced for the auto and steel industries. The government is also taking industrial policy one step further, guiding consolidation in the fragmented auto and logistics sectors, and getting rid of excess capacity in steel, metals, and equipment manufacturing. Industrial policy is not always spending per se (and it is important to keep in mind that the Chinese term for “stimulus,” zhenxing jihua or “rejuvenation plan,” does not necessarily imply spending), but China is clearly thinking of the global crisis as an opportunity to enhance its industrial competitiveness. While the ambition of government planners has never been in doubt, there is always some concern for the reality of things in China given that the government always retains a level of opaqueness in its announced programs. So we do need to take some of these specifics with a grain of salt. There certainly will be some, how shall we say “leakage” as the money flows into the system (or the pockets of some politicians). It’s easy to suspect that some big-ticket projects and industrial policies are simply “piggy-backing” on the stimulus to give their proponents bureaucratic momentum, thus exaggerating the headline figure of $586 billion. My litmus test for the reality of these types of things in China is simply to look out my apartment window to see if I can see tangible evidence of activity. I recall during China’s boom periods in the 1990s and early 2000s when many economists doubted the reality of China’s double digit GDP growth. Yet the fact that 50% of the world’s construction cranes were operating in China at the time presented a pretty compelling case for the reality of China’s growth. So, bottom line? China’s stimulus package is real and its impact will not only spur more economic growth in China’s domestic market but will take China to the next level of global competitiveness as we have seen happen before. The plan is not without its faults and false advertising but don’t doubt its real impact on the economy. Foreign companies, with smart and targeted growth initiatives, can take advantage of this stimulus package to obtain some added growth. You need to be proactive and aggressive to exploit these opportunities. They won’t just fall in your lap! Development Areas Development Area % US$ bn Railways, highways, airports and electrical system 45% $263.7 Disaster reconstruction 25% $146.5 Rural development & infrastructure 9% $52.8 Environmental protection 9% $52.7 Public housing 7% $41.0 Industry restructuring 4% $23.4 Education, healthcare and public utilities 1% $5.9 Follow the Money, Most of it Will Stimulate Download this podcast Download audio file (20090331_stimulus.mp3) There has been a lot of press, not to mention moaning and groaning, about stimulus packages in the last few months. Many countries have put forth their genius to turn their economies around…but we haven’t seen much fruit yet to be sure, and their remains a high dose of skepticism out there on virtually everybodies stimulus approach. This skeptical view even exists with China, the global champion in actually getting things done. As usual, there is a lot of noise in the media about anything to do with China and the ever present political filters that tend to bias realities. In this podcast, I will try to cut through this static and identify what we think is really happening with China’s stimulus plan and how western companies can benefit. I’ll cover the current status of the plan, what forms the various stimuli are taking, some key themes that underly the programs and the industry sectors that will benefit most. In this horrible economic environment there are few places one can go for revenue growth. China is one of those places… so companies with the intent to find growth despite the current pain they are experiencing in their home markets, will do well to take a hard look at what is happening in China. So let’s set the context a bit before getting into specifics on the stimulus plan. It should be clear to us by now that when the Chinese government is determined to get something done, it usually happens… and it happens fast, and often in a big way as we saw with the Olympics last year. Go to a rural township one year and it’s a patchwork of dirt roads and asphalt. Go there the next year, and not only are all the roads paved, but they are lined by quaint looking trees of all the same breed, shape, and height. Ask around, and a peasant points into the distance and says that the government “uprooted all those trees from that mountain over there”. The Chinese government has, to date, earmarked (can I use that word?) some US$ 584 billion to stimulate things in the economy. By our US standards of throwing trillions at a problem in the hopes of overwhelming it, this figure may seem a bit paltry. But keep in mind that at 10 to 20 times the wages of those peasant tree-movers, we’re getting a lot less investment bang for our stimulus buck here. Further, the actual usefulness of the monies spent almost embarrases our US program (most pork bellies in China are served with a nice Maotai). There is some opaqueness to the source of these funds (about 25% is slated to come from the central government and the balance from provincial and local government sources). Yet China’s track record when it comes to stimulus spending is pretty stellar so we have confidence this level of resource will indeed find its way in to the market…eventually. Best estimates say that about $57 billion (or one-tenth of the total package) has already been spent as of the end of 2008. Of this, about $39 billion has been spent on rural infrastructure, roads, railroads, and housing construction. Construction has already started on a $13 billion gas pipeline from Xinjiang to Shanghai, and there are plans to start building at least four nuclear power plants this year. As a result of these and other mega-projects, Yangtze River cargo throughput of steel, coal, and cement ticked up in January after suffering declines since last August. A sign of the stimulus at work! I was in a meeting with China’s largest grocery chain a couple weeks ago and they were describing their brand new 1.3 mm sq ft., state of the art distribution center being developed…with monies from the stimulus. Our stimulus activities in the US seem like taking a couple advil to ease the pain of a heel spur versus China’s shot of cortisone right into the ­­­affected area. In these types of programs, we see the Chinese government taking more of a long-term, strategic view of the investment. The goal is not only to address the short-term pain, but to build the country’s overall health and competitiveness. In this regard, it is interesting to note some of the main themes of the stimulus package… Upgrading technology through forced obsolescence and replacement of outdated, energy intensive and polluting processes & equipment Upgrading/expanding capacities e.g. an astonishing $90 billion has been budgeted to more than double China’s rail network over the next decade, adding 25,000km of track. Providing rural development/support, as in offering coupons to get discounts on purchasing durable goods Providing investment and incentives for innovation and expansion of R&D Implementing industry consolidation Spurring export promotion and competitiveness via putting back some of the VAT tax refunds Expanding energy sources including nuclear, coal and renewable energy We also see the government using a creative mix of methods to stimulate the market using both direct and indirect tactics…it’s not all about spending cash. Tax rebates/cuts Direct investment Policies e.g. consolidation, financing terms Technology funds Direct subsidies Ten industries have been designated as direct stimulus beneficiaries: automobiles, steel, textiles, shipbuilding, petrochemicals, light industry, electronics, nonferrous metals, equipment manufacturing, and logistics. Not many areas will be unaffected. The government will employ a mix of the methods I just mentioned to bring help to these sectors. Some will benefit from consumption subsidies, e.g. 13% off for peasants to buy mobile phones, computers, and home appliances. Others, such as textiles and light industry, will get bigger export tax rebates. The auto industry will get some help through tax reduction, e.g. going from a 10% to 5% purchase tax to buy a car. Almost all of the industries will benefit from government commitments to invest in innovation and new technology, with multi-billion dollar funds already announced for the auto and steel industries. The government is also taking industrial policy one step further, guiding consolidation in the fragmented auto and logistics sectors, and getting rid of excess capacity in steel, metals, and equipment manufacturing. Industrial policy is not always spending per se (and it is important to keep in mind that the Chinese term for “stimulus,” zhenxing jihua or “rejuvenation plan,” does not necessarily imply spending), but China is clearly thinking of the global crisis as an opportunity to enhance its industrial competitiveness. While the ambition of government planners has never been in doubt, there is always some concern for the reality of things in China given that the government always retains a level of opaqueness in its announced programs. So we do need to take some of these specifics with a grain of salt. There certainly will be some, how shall we say “leakage” as the money flows into the system (or the pockets of some politicians). It’s easy to suspect that some big-ticket projects and industrial policies are simply “piggy-backing” on the stimulus to give their proponents bureaucratic momentum, thus exaggerating the headline figure of $586 billion. My litmus test for the reality of these types of things in China is simply to look out my apartment window to see if I can see tangible evidence of activity. I recall during China’s boom periods in the 1990s and early 2000s when many economists doubted the reality of China’s double digit GDP growth. Yet the fact that 50% of the world’s construction cranes were operating in China at the time presented a pretty compelling case for the reality of China’s growth. So, bottom line? China’s stimulus package is real and its impact will not only spur more economic growth in China’s domestic market but will take China to the next level of global competitiveness as we have seen happen before. The plan is not without its faults and false advertising but don’t doubt its real impact on the economy. Foreign companies, with smart and targeted growth initiatives, can take advantage of this stimulus package to obtain some added growth. You need to be proactive and aggressive to exploit these opportunities. They won’t just fall in your lap! Development Areas Development Area % US$ bn Railways, highways, airports and electrical system 45% $263.7 Disaster reconstruction 25% $146.5 Rural development & infrastructure 9% $52.8 Environmental protection 9% $52.7 Public housing 7% $41.0 Industry restructuring 4% $23.4 Education, healthcare and public utilities 1% $5.9 tag:odeo.com,2009-03-31,25366413 Tue, 31 Mar 2009 04:13:29 -0700 no China Business Blog and Podcast podcast, Government, China, economy, china stimulus plan, economic stimulus, stimulus plan http://www.odeo.com/episodes/24389970-A-Stimulus-Package-that-Stimulates Follow the Money, Most of it Will Stimulate Download this podcast Download audio file (20090331_stimulus.mp3) There has been a lot of press, not to mention moaning and groaning, about stimulus packages in the last few months. Many countries have put forth their genius to turn their economies around…but we haven’t seen much fruit yet to be sure, and their remains a high dose of skepticism out there on virtually everybodies stimulus approach. This skeptical view even exists with China, the global champion in actually getting things done. As usual, there is a lot of noise in the media about anything to do with China and the ever present political filters that tend to bias realities. In this podcast, I will try to cut through this static and identify what we think is really happening with China’s stimulus plan and how western companies can benefit. I’ll cover the current status of the plan, what forms the various stimuli are taking, some key themes that underly the programs and the indu... Follow the Money, Most of it Will Stimulate Download this podcast Download audio file (20090331_stimulus.mp3) There has been a lot of press, not to mention moaning and groaning, about stimulus packages in the last few months. Many countries have put forth their genius to turn their economies around…but we haven’t seen much fruit yet to be sure, and their remains a high dose of skepticism out there on virtually everybodies stimulus approach. This skeptical view even exists with China, the global champion in actually getting things done. As usual, there is a lot of noise in the media about anything to do with China and the ever present political filters that tend to bias realities. In this podcast, I will try to cut through this static and identify what we think is really happening with China’s stimulus plan and how western companies can benefit. I’ll cover the current status of the plan, what forms the various stimuli are taking, some key themes that underly the programs and the industry sectors that will benefit most. In this horrible economic environment there are few places one can go for revenue growth. China is one of those places… so companies with the intent to find growth despite the current pain they are experiencing in their home markets, will do well to take a hard look at what is happening in China. So let’s set the context a bit before getting into specifics on the stimulus plan. It should be clear to us by now that when the Chinese government is determined to get something done, it usually happens… and it happens fast, and often in a big way as we saw with the Olympics last year. Go to a rural township one year and it’s a patchwork of dirt roads and asphalt. Go there the next year, and not only are all the roads paved, but they are lined by quaint looking trees of all the same breed, shape, and height. Ask around, and a peasant points into the distance and says that the government “uprooted all those trees from that mountain over there”. The Chinese government has, to date, earmarked (can I use that word?) some US$ 584 billion to stimulate things in the economy. By our US standards of throwing trillions at a problem in the hopes of overwhelming it, this figure may seem a bit paltry. But keep in mind that at 10 to 20 times the wages of those peasant tree-movers, we’re getting a lot less investment bang for our stimulus buck here. Further, the actual usefulness of the monies spent almost embarrases our US program (most pork bellies in China are served with a nice Maotai). There is some opaqueness to the source of these funds (about 25% is slated to come from the central government and the balance from provincial and local government sources). Yet China’s track record when it comes to stimulus spending is pretty stellar so we have confidence this level of resource will indeed find its way in to the market…eventually. Best estimates say that about $57 billion (or one-tenth of the total package) has already been spent as of the end of 2008. Of this, about $39 billion has been spent on rural infrastructure, roads, railroads, and housing construction. Construction has already started on a $13 billion gas pipeline from Xinjiang to Shanghai, and there are plans to start building at least four nuclear power plants this year. As a result of these and other mega-projects, Yangtze River cargo throughput of steel, coal, and cement ticked up in January after suffering declines since last August. A sign of the stimulus at work! I was in a meeting with China’s largest grocery chain a couple weeks ago and they were describing their brand new 1.3 mm sq ft., state of the art distribution center being developed…with monies from the stimulus. Our stimulus activities in the US seem like taking a couple advil to ease the pain of a heel spur versus China’s shot of cortisone right into the ­­­affected area. In these types of programs, we see the Chinese government taking more of a long-term, strategic view of the investment. The goal is not only to address the short-term pain, but to build the country’s overall health and competitiveness. In this regard, it is interesting to note some of the main themes of the stimulus package… Upgrading technology through forced obsolescence and replacement of outdated, energy intensive and polluting processes & equipment Upgrading/expanding capacities e.g. an astonishing $90 billion has been budgeted to more than double China’s rail network over the next decade, adding 25,000km of track. Providing rural development/support, as in offering coupons to get discounts on purchasing durable goods Providing investment and incentives for innovation and expansion of R&D Implementing industry consolidation Spurring export promotion and competitiveness via putting back some of the VAT tax refunds Expanding energy sources including nuclear, coal and renewable energy We also see the government using a creative mix of methods to stimulate the market using both direct and indirect tactics…it’s not all about spending cash. Tax rebates/cuts Direct investment Policies e.g. consolidation, financing terms Technology funds Direct subsidies Ten industries have been designated as direct stimulus beneficiaries: automobiles, steel, textiles, shipbuilding, petrochemicals, light industry, electronics, nonferrous metals, equipment manufacturing, and logistics. Not many areas will be unaffected. The government will employ a mix of the methods I just mentioned to bring help to these sectors. Some will benefit from consumption subsidies, e.g. 13% off for peasants to buy mobile phones, computers, and home appliances. Others, such as textiles and light industry, will get bigger export tax rebates. The auto industry will get some help through tax reduction, e.g. going from a 10% to 5% purchase tax to buy a car. Almost all of the industries will benefit from government commitments to invest in innovation and new technology, with multi-billion dollar funds already announced for the auto and steel industries. The government is also taking industrial policy one step further, guiding consolidation in the fragmented auto and logistics sectors, and getting rid of excess capacity in steel, metals, and equipment manufacturing. Industrial policy is not always spending per se (and it is important to keep in mind that the Chinese term for “stimulus,” zhenxing jihua or “rejuvenation plan,” does not necessarily imply spending), but China is clearly thinking of the global crisis as an opportunity to enhance its industrial competitiveness. While the ambition of government planners has never been in doubt, there is always some concern for the reality of things in China given that the government always retains a level of opaqueness in its announced programs. So we do need to take some of these specifics with a grain of salt. There certainly will be some, how shall we say “leakage” as the money flows into the system (or the pockets of some politicians). It’s easy to suspect that some big-ticket projects and industrial policies are simply “piggy-backing” on the stimulus to give their proponents bureaucratic momentum, thus exaggerating the headline figure of $586 billion. My litmus test for the reality of these types of things in China is simply to look out my apartment window to see if I can see tangible evidence of activity. I recall during China’s boom periods in the 1990s and early 2000s when many economists doubted the reality of China’s double digit GDP growth. Yet the fact that 50% of the world’s construction cranes were operating in China at the time presented a pretty compelling case for the reality of China’s growth. So, bottom line? China’s stimulus package is real and its impact will not only spur more economic growth in China’s domestic market but will take China to the next level of global competitiveness as we have seen happen before. The plan is not without its faults and false advertising but don’t doubt its real impact on the economy. Foreign companies, with smart and targeted growth initiatives, can take advantage of this stimulus package to obtain some added growth. You need to be proactive and aggressive to exploit these opportunities. They won’t just fall in your lap! Development Areas Development Area % US$ bn Railways, highways, airports and electrical system 45% $263.7 Disaster reconstruction 25% $146.5 Rural development & infrastructure 9% $52.8 Environmental protection 9% $52.7 Public housing 7% $41.0 Industry restructuring 4% $23.4 Education, healthcare and public utilities 1% $5.9 Follow the Money, Most of it Will Stimulate Download this podcast Download audio file (20090331_stimulus.mp3) There has been a lot of press, not to mention moaning and groaning, about stimulus packages in the last few months. Many countries have put forth their genius to turn their economies around…but we haven’t seen much fruit yet to be sure, and their remains a high dose of skepticism out there on virtually everybodies stimulus approach. This skeptical view even exists with China, the global champion in actually getting things done. As usual, there is a lot of noise in the media about anything to do with China and the ever present political filters that tend to bias realities. In this podcast, I will try to cut through this static and identify what we think is really happening with China’s stimulus plan and how western companies can benefit. I’ll cover the current status of the plan, what forms the various stimuli are taking, some key themes that underly the programs and the industry sectors that will benefit most. In this horrible economic environment there are few places one can go for revenue growth. China is one of those places… so companies with the intent to find growth despite the current pain they are experiencing in their home markets, will do well to take a hard look at what is happening in China. So let’s set the context a bit before getting into specifics on the stimulus plan. It should be clear to us by now that when the Chinese government is determined to get something done, it usually happens… and it happens fast, and often in a big way as we saw with the Olympics last year. Go to a rural township one year and it’s a patchwork of dirt roads and asphalt. Go there the next year, and not only are all the roads paved, but they are lined by quaint looking trees of all the same breed, shape, and height. Ask around, and a peasant points into the distance and says that the government “uprooted all those trees from that mountain over there”. The Chinese government has, to date, earmarked (can I use that word?) some US$ 584 billion to stimulate things in the economy. By our US standards of throwing trillions at a problem in the hopes of overwhelming it, this figure may seem a bit paltry. But keep in mind that at 10 to 20 times the wages of those peasant tree-movers, we’re getting a lot less investment bang for our stimulus buck here. Further, the actual usefulness of the monies spent almost embarrases our US program (most pork bellies in China are served with a nice Maotai). There is some opaqueness to the source of these funds (about 25% is slated to come from the central government and the balance from provincial and local government sources). Yet China’s track record when it comes to stimulus spending is pretty stellar so we have confidence this level of resource will indeed find its way in to the market…eventually. Best estimates say that about $57 billion (or one-tenth of the total package) has already been spent as of the end of 2008. Of this, about $39 billion has been spent on rural infrastructure, roads, railroads, and housing construction. Construction has already started on a $13 billion gas pipeline from Xinjiang to Shanghai, and there are plans to start building at least four nuclear power plants this year. As a result of these and other mega-projects, Yangtze River cargo throughput of steel, coal, and cement ticked up in January after suffering declines since last August. A sign of the stimulus at work! I was in a meeting with China’s largest grocery chain a couple weeks ago and they were describing their brand new 1.3 mm sq ft., state of the art distribution center being developed…with monies from the stimulus. Our stimulus activities in the US seem like taking a couple advil to ease the pain of a heel spur versus China’s shot of cortisone right into the ­­­affected area. In these types of programs, we see the Chinese government taking more of a long-term, strategic view of the investment. The goal is not only to address the short-term pain, but to build the country’s overall health and competitiveness. In this regard, it is interesting to note some of the main themes of the stimulus package… Upgrading technology through forced obsolescence and replacement of outdated, energy intensive and polluting processes & equipment Upgrading/expanding capacities e.g. an astonishing $90 billion has been budgeted to more than double China’s rail network over the next decade, adding 25,000km of track. Providing rural development/support, as in offering coupons to get discounts on purchasing durable goods Providing investment and incentives for innovation and expansion of R&D Implementing industry consolidation Spurring export promotion and competitiveness via putting back some of the VAT tax refunds Expanding energy sources including nuclear, coal and renewable energy We also see the government using a creative mix of methods to stimulate the market using both direct and indirect tactics…it’s not all about spending cash. Tax rebates/cuts Direct investment Policies e.g. consolidation, financing terms Technology funds Direct subsidies Ten industries have been designated as direct stimulus beneficiaries: automobiles, steel, textiles, shipbuilding, petrochemicals, light industry, electronics, nonferrous metals, equipment manufacturing, and logistics. Not many areas will be unaffected. The government will employ a mix of the methods I just mentioned to bring help to these sectors. Some will benefit from consumption subsidies, e.g. 13% off for peasants to buy mobile phones, computers, and home appliances. Others, such as textiles and light industry, will get bigger export tax rebates. The auto industry will get some help through tax reduction, e.g. going from a 10% to 5% purchase tax to buy a car. Almost all of the industries will benefit from government commitments to invest in innovation and new technology, with multi-billion dollar funds already announced for the auto and steel industries. The government is also taking industrial policy one step further, guiding consolidation in the fragmented auto and logistics sectors, and getting rid of excess capacity in steel, metals, and equipment manufacturing. Industrial policy is not always spending per se (and it is important to keep in mind that the Chinese term for “stimulus,” zhenxing jihua or “rejuvenation plan,” does not necessarily imply spending), but China is clearly thinking of the global crisis as an opportunity to enhance its industrial competitiveness. While the ambition of government planners has never been in doubt, there is always some concern for the reality of things in China given that the government always retains a level of opaqueness in its announced programs. So we do need to take some of these specifics with a grain of salt. There certainly will be some, how shall we say “leakage” as the money flows into the system (or the pockets of some politicians). It’s easy to suspect that some big-ticket projects and industrial policies are simply “piggy-backing” on the stimulus to give their proponents bureaucratic momentum, thus exaggerating the headline figure of $586 billion. My litmus test for the reality of these types of things in China is simply to look out my apartment window to see if I can see tangible evidence of activity. I recall during China’s boom periods in the 1990s and early 2000s when many economists doubted the reality of China’s double digit GDP growth. Yet the fact that 50% of the world’s construction cranes were operating in China at the time presented a pretty compelling case for the reality of China’s growth. So, bottom line? China’s stimulus package is real and its impact will not only spur more economic growth in China’s domestic market but will take China to the next level of global competitiveness as we have seen happen before. The plan is not without its faults and false advertising but don’t doubt its real impact on the economy. Foreign companies, with smart and targeted growth initiatives, can take advantage of this stimulus package to obtain some added growth. You need to be proactive and aggressive to exploit these opportunities. They won’t just fall in your lap! Development Areas Development Area % US$ bn Railways, highways, airports and electrical system 45% $263.7 Disaster reconstruction 25% $146.5 Rural development & infrastructure 9% $52.8 Environmental protection 9% $52.7 Public housing 7% $41.0 Industry restructuring 4% $23.4 Education, healthcare and public utilities 1% $5.9 tag:odeo.com,2009-03-31,24389970 Tue, 31 Mar 2009 03:13:29 -0700 no China Business Blog and Podcast Government, China, economy, china stimulus plan, economic stimulus, stimulus plan http://www.odeo.com/episodes/24237330-Making-sense-out-of-China-for-US-business-school-students Eye Opening and Life Changing - ChinaSense Trips for US Business School Students Download this podcast Download audio file (20090228_jenny_kent.mp3) The world is a very large place if you get outside your comfort zone and experience it. That’s easy for me to say, I first set foot in China when I was 20. It was a very different country then. Fast forward to today and I’m here after more than two decades in the country, and reporting on the China Business Podcast for nearly four years. ChinaSense Sample Itinerary We are coming full circle in this interview with Jennifer Pan, the CEO of ChinaSense. Her company produces some of the most in depth, and eye-opening trips to China for US MBA and EMBA students. Jenny has graciously asked me to speak to several of her groups and it is a joy to field their questions. Regardless of how overwhelmed they may be with a two week China immersion itinerary, they leave China with a sense that anything is possible and a new horizon of oppor... Eye Opening and Life Changing - ChinaSense Trips for US Business School Students Download this podcast Download audio file (20090228_jenny_kent.mp3) The world is a very large place if you get outside your comfort zone and experience it. That’s easy for me to say, I first set foot in China when I was 20. It was a very different country then. Fast forward to today and I’m here after more than two decades in the country, and reporting on the China Business Podcast for nearly four years. ChinaSense Sample Itinerary We are coming full circle in this interview with Jennifer Pan, the CEO of ChinaSense. Her company produces some of the most in depth, and eye-opening trips to China for US MBA and EMBA students. Jenny has graciously asked me to speak to several of her groups and it is a joy to field their questions. Regardless of how overwhelmed they may be with a two week China immersion itinerary, they leave China with a sense that anything is possible and a new horizon of opportunities for them to explore further. In this podcast, I’d like you to meet this entrepreneur who has helped many American students discover a new country, while also discovering something new about themselves. Eye Opening and Life Changing - ChinaSense Trips for US Business School Students Download this podcast Download audio file (20090228_jenny_kent.mp3) The world is a very large place if you get outside your comfort zone and experience it. That’s easy for me to say, I first set foot in China when I was 20. It was a very different country then. Fast forward to today and I’m here after more than two decades in the country, and reporting on the China Business Podcast for nearly four years. ChinaSense Sample Itinerary We are coming full circle in this interview with Jennifer Pan, the CEO of ChinaSense. Her company produces some of the most in depth, and eye-opening trips to China for US MBA and EMBA students. Jenny has graciously asked me to speak to several of her groups and it is a joy to field their questions. Regardless of how overwhelmed they may be with a two week China immersion itinerary, they leave China with a sense that anything is possible and a new horizon of opportunities for them to explore further. In this podcast, I’d like you to meet this entrepreneur who has helped many American students discover a new country, while also discovering something new about themselves. tag:odeo.com,2009-02-28,24237330 Sat, 28 Feb 2009 21:24:10 -0800 no China Business Blog and Podcast Culture, China, Visiting China, US Students in China, China trips http://www.odeo.com/episodes/24236496-Making-sense-out-of-china-for-US-students Eye Opening and Life Changing - ChinaSense Trips for US Students Download this podcast Download audio file (20090228_jenny_kent.mp3) The world is a very large place if you get outside your comfort zone and experience it. That’s easy for me to say, I first set foot in china when I was 19. It was a very different country then. Fast forward to today and I’m here after more than two decades in the country, and reporting on the China Business Podcast for nearly four years. ChinaSense Sample Itinerary We are coming full circle in this interview with Jenny Pan the CEO of ChinaSense. Her company produces some of the most in depth, and eye-opening trips to China for US college students. Jenny has graciously asked me to speak to several of her groups and it is a joy to field their questions. Regardless of how overwhelmed they may be with a two week China immersion itinerary, they leave China with a sense that anything is possible and a new horizon of opportunities for them to expl... Eye Opening and Life Changing - ChinaSense Trips for US Students Download this podcast Download audio file (20090228_jenny_kent.mp3) The world is a very large place if you get outside your comfort zone and experience it. That’s easy for me to say, I first set foot in china when I was 19. It was a very different country then. Fast forward to today and I’m here after more than two decades in the country, and reporting on the China Business Podcast for nearly four years. ChinaSense Sample Itinerary We are coming full circle in this interview with Jenny Pan the CEO of ChinaSense. Her company produces some of the most in depth, and eye-opening trips to China for US college students. Jenny has graciously asked me to speak to several of her groups and it is a joy to field their questions. Regardless of how overwhelmed they may be with a two week China immersion itinerary, they leave China with a sense that anything is possible and a new horizon of opportunities for them to explore further. In this podcast, I’d like you to meet a wonderful woman who has helped many American students discover a new country, while also discovering something new about themselves. Eye Opening and Life Changing - ChinaSense Trips for US Students Download this podcast Download audio file (20090228_jenny_kent.mp3) The world is a very large place if you get outside your comfort zone and experience it. That’s easy for me to say, I first set foot in china when I was 19. It was a very different country then. Fast forward to today and I’m here after more than two decades in the country, and reporting on the China Business Podcast for nearly four years. ChinaSense Sample Itinerary We are coming full circle in this interview with Jenny Pan the CEO of ChinaSense. Her company produces some of the most in depth, and eye-opening trips to China for US college students. Jenny has graciously asked me to speak to several of her groups and it is a joy to field their questions. Regardless of how overwhelmed they may be with a two week China immersion itinerary, they leave China with a sense that anything is possible and a new horizon of opportunities for them to explore further. In this podcast, I’d like you to meet a wonderful woman who has helped many American students discover a new country, while also discovering something new about themselves. tag:odeo.com,2009-02-28,24236496 Sat, 28 Feb 2009 21:24:10 -0800 no China Business Blog and Podcast Culture, China, Visiting China, US Students in China, China trips http://www.odeo.com/episodes/24045779-%E2%80%9COn-the-Frontlines-Doing-Business-in-China%E2%80%9D-provides-keys-to-harnessing-China%E2%80%99s-power-as-a-strategic-business-destination-for-Western-companies The Atlantic’s James Fallows hosts and the New York Times’ Joe Nocera offers commentary and analysis throughout the video series Despite the global downturn, China still offers an economy that’s growing, with predictions for growth ranging from about 7 percent to 9 percent in 2009, stimulated by significant government investment. As such, China will remain a key market for growth as well as a major supplier to the world. To help management of Western businesses better understand how to tap China’s potential, Technomic Asia has partnered with the producers of “On the Frontlines: Doing Business in China” to create a pragmatic and street-smart business tool useful for China beginners and veterans alike. A preview from the producers of “On the Frontlines: Doing Business in China”: The “On the Frontlines: Doing Business in China” series consists of five DVDs full of insights from more than 150 interviews and one CD, sponsored by... The Atlantic’s James Fallows hosts and the New York Times’ Joe Nocera offers commentary and analysis throughout the video series Despite the global downturn, China still offers an economy that’s growing, with predictions for growth ranging from about 7 percent to 9 percent in 2009, stimulated by significant government investment. As such, China will remain a key market for growth as well as a major supplier to the world. To help management of Western businesses better understand how to tap China’s potential, Technomic Asia has partnered with the producers of “On the Frontlines: Doing Business in China” to create a pragmatic and street-smart business tool useful for China beginners and veterans alike. A preview from the producers of “On the Frontlines: Doing Business in China”: The “On the Frontlines: Doing Business in China” series consists of five DVDs full of insights from more than 150 interviews and one CD, sponsored by Technomic Asia, that contains research reports, book excerpts, a China Readiness Assessment and more. The video series is hosted by James Fallows, China correspondent for the Atlantic, who also served as editorial director for this project. Joe Nocera, business columnist for the New York Times, provides commentary and analysis throughout the series, as well. With “On the Frontlines: Doing Business in China,” business leaders will quickly understand how to: overcome the cultural barriers to doing business in China, master the fine art of negotiating with the Chinese, succeed in making the deals you want to make in China, and avoid costly mistakes: business is different in China. “On the Frontlines: Doing Business in China” is only available online and sells for $199, but the series can be ordered at a 25 percent discount off the retail price at www.chinadoingbusiness.com using the promo code “TechAsia2009.” “One of our favorite sayings is ‘In China, everything is possible, but nothing is easy,’ and this documentary shines some light on why that’s true,” said Steven Ganster, one of the interviewees for this documentary series and the managing director of Technomic Asia, a China-strategy consultancy and a division of Tompkins International. “Although nothing in China is easy, a well-informed strategy to establishing a business presence is worth the effort. With most of world reeling from economic trouble, China provides opportunities to great to be ignored.” (Original news release) The Atlantic’s James Fallows hosts and the New York Times’ Joe Nocera offers commentary and analysis throughout the video series Despite the global downturn, China still offers an economy that’s growing, with predictions for growth ranging from about 7 percent to 9 percent in 2009, stimulated by significant government investment. As such, China will remain a key market for growth as well as a major supplier to the world. To help management of Western businesses better understand how to tap China’s potential, Technomic Asia has partnered with the producers of “On the Frontlines: Doing Business in China” to create a pragmatic and street-smart business tool useful for China beginners and veterans alike. A preview from the producers of “On the Frontlines: Doing Business in China”: The “On the Frontlines: Doing Business in China” series consists of five DVDs full of insights from more than 150 interviews and one CD, sponsored by Technomic Asia, that contains research reports, book excerpts, a China Readiness Assessment and more. The video series is hosted by James Fallows, China correspondent for the Atlantic, who also served as editorial director for this project. Joe Nocera, business columnist for the New York Times, provides commentary and analysis throughout the series, as well. With “On the Frontlines: Doing Business in China,” business leaders will quickly understand how to: overcome the cultural barriers to doing business in China, master the fine art of negotiating with the Chinese, succeed in making the deals you want to make in China, and avoid costly mistakes: business is different in China. “On the Frontlines: Doing Business in China” is only available online and sells for $199, but the series can be ordered at a 25 percent discount off the retail price at www.chinadoingbusiness.com using the promo code “TechAsia2009.” “One of our favorite sayings is ‘In China, everything is possible, but nothing is easy,’ and this documentary shines some light on why that’s true,” said Steven Ganster, one of the interviewees for this documentary series and the managing director of Technomic Asia, a China-strategy consultancy and a division of Tompkins International. “Although nothing in China is easy, a well-informed strategy to establishing a business presence is worth the effort. With most of world reeling from economic trouble, China provides opportunities to great to be ignored.” (Original news release) tag:odeo.com,2009-02-10,24045779 Tue, 10 Feb 2009 07:00:01 -0800 no China Business Blog and Podcast Business, Culture, strategy, China, guanxi, dvd http://www.odeo.com/episodes/24035481-China-M-A-How-to-mess-up-a-deal-possibly-wrecking-both-your-company-and-your-career “So, Kent, how would we really mess this one up?” Download this podcast Download audio file (20090203_how_to_mess_up_a_deal.mp3) Full transcript of today’s podcast: In a recent Podcast, I talked about how we at Technomic Asia think that many sectors in China today are in a “pre-consolidation” phase where, we believe, that we are going to see a lot of the smaller companies in many industries falling away and the bigger ones getting bigger. I talked about the potential for some interesting acquisition plays in 2009 for the right company to come in and lead this consolidation. We’ve had some really good response to this Podcast and some good questions so I thought I would continue the topic this week. I was in a meeting a couple of weeks ago with a client of ours, a foreign consumer products company that is looking to acquire a local company here in China. One of my senior managers and I were talking with their division president from their overseas ... “So, Kent, how would we really mess this one up?” Download this podcast Download audio file (20090203_how_to_mess_up_a_deal.mp3) Full transcript of today’s podcast: In a recent Podcast, I talked about how we at Technomic Asia think that many sectors in China today are in a “pre-consolidation” phase where, we believe, that we are going to see a lot of the smaller companies in many industries falling away and the bigger ones getting bigger. I talked about the potential for some interesting acquisition plays in 2009 for the right company to come in and lead this consolidation. We’ve had some really good response to this Podcast and some good questions so I thought I would continue the topic this week. I was in a meeting a couple of weeks ago with a client of ours, a foreign consumer products company that is looking to acquire a local company here in China. One of my senior managers and I were talking with their division president from their overseas headquarters and their China GM in charge of this division, along with various other financial and legal reps on their deal team. We were talking about the M&A process in China – what to do, the pitfalls, how long it takes, etc. The Big-Big Boss asked me the question that EVERYONE asks in this situation: “What are the chances of success for doing a deal in China?” Not able to resist a chance to be smarmy, I responded, “Well, if you do it right, you’ll probably see over a 60% hit rate. But if you want to mess it up – and most seem to be wanting to do that – the rate is closer to 25%.” Thankfully, the Big-Big Boss got the distinction and my lame attempt at injecting humor in a very serious question. Then, better than any straight-man in a comedy team, asked me the next question, a great set up: “So, Kent, how would we really mess this one up?” So in this week’s Podcast, I am going to tell you, verbatim, what I told this deal team and am titling it, “China M&A: How to mess up a deal, possibly wrecking both your company and your career.” OK, I didn’t quite respond with that level of sarcasm, but you get the idea… So, here, in order of importance, are the 4 steps to doing a bad deal in China: #1 Make no attempt to understand the market environment in which you are acquiring a company. You are thinking to yourself, “Oh, this is going to be a good Podcast, starting out stating the obvious like that.” But you’d be surprised at how many companies come to China to acquire a company and they don’t really understand the market environment in which the targets live and work. We were contacted recently by the CEO of a company who wanted to look for acquisition targets making a certain kind of product. There are, conservatively, about 500 companies doing this type of product in China. I asked him what applications were most attractive; what types of distribution they needed to have; did they need R&D; how about certifications? There was a pregnant pause and the CEO said, “I don’t know, they just need to make the product.” No. Wrong answer. Successful China M&A starts with a deep understanding of the market and a VERY detailed checklist of the criteria of an attractive candidate, the criteria that makes the target attractive in THIS market. If the market I am working in has a particularly fragmented distribution structure and several key customer segments, then I am going to want to look at the targets that have both solid distribution and a really good sales team into those customers. It sounds really simple, but again, you’d be surprised at how many companies overlook this when coming into China. You are going to want to pay particular attention to the requirements for distribution in China. Too often, we see foreign companies come here with what they think is a “great product” but since they don’t understand the often-fragmented distribution chains here, they don’t really know how to get it to market. I would say that nearly all of the acquisitions we do here put “effective distribution” very high on the list of criteria for assessing targets. Distribution is the one thing that takes a long time to build in China and tends to be regionally fragmented. If you can come in and buy that distribution and start to run your own products in parallel with the target’s, then that can be a “win” all around. So though it might seem obvious, get a shopping list together before you head into an M&A program. Deep dive the market to understand what products are out there, what customers want, and how the competition is getting product to market. Only then will you be able to determine the list of criteria that makes for an attractive target. We typically spend the first part of a project developing and refining that list – it might seem tedious at first, but if you have a good criteria list, then it makes the rest go much faster. OK…the second way to mess up a deal in China is to “Go after the first company you find.” A good M&A process – like a good sales process – starts with a good pipeline. If you have a number of prospects in your sales pipeline, you are going to be able to work all of them at the same time. The right ones will close and some will fall away. If you have only one deal in your pipeline, you are going to kill yourself to close it, even if it is not closeable. The same goes for M&A – if you only have one company you are considering, and if you REALLY want to do a deal, you are going to do whatever you can to make that deal work, even if it is the wrong deal. You should arrive at your acquisition targets through a rigorous process of elimination, starting with that criteria list I talked about. Take that list and find as MANY companies in China as you can that come anywhere near fitting that list. Then start doing commercial due diligence on them, all at the same time. Get as much information as you possibly can about all of them, and then you can compare this information and benchmark them against each other. “How many” companies should I consider, you ask? It might seem like an unanswerable question, but those are my favorite kinds! In truth, I think you need to have at least 10 companies on your “Long List” – this is the list of companies that somehow operate in this market and on which you have a certain high level of intelligence (and in some cases, we’ve had as many as 30). Then I think you need to have at least 2-3 on your “short list” … these are companies that you have researched very deeply and know a LOT about them. You know their commercial practices (distribution, pricing, bribes, etc.), manufacturing (processes, costs, suppliers, etc.) and their management (who they are, where are they from, what is their reputation, who really owns the company). Your short listed companies should have also indicated a level of interest in doing a deal with a foreign company. We’ll talk below about HOW to approach them but, for now, hear what I am saying – you should have at 2-3 companies that fit your criteria and who have shown an interest in doing a deal. Certainly, you will prefer one over the others, but at least you’ll have back ups. If you have only one option, you are, essentially, going into a deal and are trying to “marry your first date”. You could be in trouble. You NEED options and it is your responsibility to go find them. The 3rd way to mess up a deal in China is related to the first … and that is to ignore the importance of relationships in China when starting deal discussions. The Western way to get a deal started is often to have the CEO of one company call the CEO of another company and they start talking. Sure, sometimes intermediaries like brokers or investment banks are used, but direct is a valid approach as well and is often preferred. At least in U.S. business culture, “directness” and “openness” is valued and boss-to-boss communication is often the best way to do that. Too often, we see foreign companies use this same method in China, going directly to a potential acquisition target and start discussions, saying too much, too soon, before they have done any kind of due diligence on the target. They even rely on the target to tell them about the target’s business and the market. But in China, where standards of accounting and business practices are still in their early stages, you cannot rely on a target to either really understand their market or their company the way YOU need to understand them. And in Chinese business culture, going through intermediaries is often preferred so that both sides can explore things slowly without having to confront the principals directly and risk either side losing face. The consumer products company I was talking about in the introduction to this Podcast fell into this trap. They are a large, well-known global company with a very large group of super-smart MBAs in their deal team. When they want to do a deal, they send these Men (and Women) in Black who do a deal the way they are used to doing a deal … approach the target, sign an NDA, validate the target’s financials and go from there. Well, they basically did that here in China … before getting ANY market intelligence on the target, they approached one of the biggest players in the China market and started talking about ways they could cooperate. The target was, of course, VERY interested in this large, well-known company that wanted to do a deal with them, but they were a bit befuddled as to how to properly respond. So they did the only thing they knew how to do and they pulled out all the stops to show what a good acquisition target they could be and why a VERY high price would be justified. After many months, LOTSof documents being passed back and forth (including letters of intent that discussed possible valuations) not to mention untold dollars spent on the deal team’s resources, the Western company’s senior management suddenly realized that what they were hearing from the target did not seem to make sense in the market and that they had no objective view of the target or the market. That’s when they called us, to come in and do the due diligence on the target – which is fine! We love doing this and we are VERY good at what we do. And in this case, we found out that there were some huge problems with the target: they had been losing market share rapidly, their management was clueless and many of their distributors were angry and in danger of jumping ship (none of this information, of course, was included in the presentations that the target did when our client approached them directly … then everything was hunky dory and getting even hunkier and dorier!). This is NOT an uncommon finding in China; however, since our client had already had very deep discussions with the target – including discussing deal structures and valuations – there was no room to move with this new information. If our client would have done the commercial due diligence FIRST, before ever approaching the target, then they would have been MUCH better prepared to discuss the details of a deal and would have had tons of objective market intelligence to challenge the target with. We did a program like this a few months ago, for a large high-tech company where we had 9 China targets on the “long list” and on whom we did a pretty deep level of due diligence. Two companies came out of that effort as the leading targets – we knew who they were, their ownership, their advantages in the market, their warts. Everything! We also were able to get a high level of confidence from the target’s ownership that they were interested in talking to a foreign company about potential hook ups. The key here, is that we were able to get all of this information ANONYMOUSLY … none of the 9 companies knew who our client was. Now, we were able to put our client in a VERY strong position where they know a lot more about the targets than the targets know about them. We can make the introductions and continue to act as a “middle-man” of sorts to facilitate the communication. Our client is able to keep the conversation going with several of the targets at once, only committing themselves once they absolutely have to (usually around the time that they need to sign an LOI). If our consumer products client had done this, knowing what they know now, they might not have approached their target at all. But like my point earlier, they had NO back-up plans … they didn’t have a short list … so there was no where to go from here. It is really too bad because our client wasted a LOT of time, effort and money to get to a point of no return and they had to start at zero again. The fourth and final way to mess up a deal in China is to assume that the value you create is going to be done through balance sheet re-engineering and NOT through improving the commercial practices of the target. In the West, the heroes of the M&A deal teams are the financial wizards, the quant jocks who can read a dense balance sheet like a primary school textbook and then apply complicated techniques to squeeze more value out of it. A Private Equity firm we work with did just this with a recent acquisition of a $25 million company, finding an extra $1 million in EBITDA that the original owners did not have the experience to locate. I am not naïve here … of course this is not the ONLY value that is created from M&A in the West, but it is a key goal for many acquiring firms, be they strategic or financial. But in China, this does not work so well; rather, value in an acquisition is created by helping the target become a better player in the market. To a great extent, this starts with very often not having an accurate balance sheet at all … remember, you ask a Chinese company to show you their books and they will often say, “sure, which ones?”. This even applies to the larger, publicly traded companies – we found this to be very true in the due diligence we did on this consumer products company – there was a broad discrepancy between their stated sales and the actual tax receipts that could be associated directly to those sales. No, foreign companies who acquire Chinese companies need to be thinking, first and foremost, of creating value by upgrading the target’s commercial practices, working with them to find the right products, at the right prices going to the right customers through the right channels. For the consumer products company, we identified big gaps in the target’s distributor management processes that were contributing to their loss of market share. Our client is quite well known for how they manage distributors and, though their practices would need some “China-fying” we identified several key areas where value could quickly be created. With our high-tech client – the one with the 9-company long list – it was a different situation. The targets had very good channel and distribution practices (this was one of the key criteria for selecting them); however, what all of them lacked was a solid foundation in R&D, an area in which our client is a global leader in their sector. We identified areas where upgrading the targets’ R&D capabilities could reap great rewards in the market, by promoting Western technology at a China price. The value created is, of course, very different in each situation – but the fact remains that, more often than not, this value is going to be in the commercial area and NOT in reorganizing the balance sheet. So…if you really want to mess up a deal and risk destroying both your company and your career, I just gave you the roadmap! I am assuming, of course, that this is NOT the case. So what should you do? Well, if you already have a target identified, sit with your deal team and assess what you do or do not know about the China market situation (point #1 above) and what other possible targets might be out there (my point #2). If you are in talks with a target and find that things have stalled, a good way to shake things up is to start talking to another target: it provides you with some perspective and signals to the first target that you have options! If you are just considering growth in China via acquisition, then you have the freedom to start things off correctly. Walk through points #1 and #2 by fully understanding the market and all of your options. Then you can find a way to approach these targets in an IN-direct fashion and find ways where you can add value by improving their commercial practices. Trust me, when you reach the point of pulling the trigger on a deal, you will be MUCH more confident if you’ve first eliminated most of the ways that you could possibly mess it up. Thanks again for spending time with us. Remember our motto – and it particularly applies to M&A in China – “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Blog and Podcast. “So, Kent, how would we really mess this one up?” Download this podcast Download audio file (20090203_how_to_mess_up_a_deal.mp3) Full transcript of today’s podcast: In a recent Podcast, I talked about how we at Technomic Asia think that many sectors in China today are in a “pre-consolidation” phase where, we believe, that we are going to see a lot of the smaller companies in many industries falling away and the bigger ones getting bigger. I talked about the potential for some interesting acquisition plays in 2009 for the right company to come in and lead this consolidation. We’ve had some really good response to this Podcast and some good questions so I thought I would continue the topic this week. I was in a meeting a couple of weeks ago with a client of ours, a foreign consumer products company that is looking to acquire a local company here in China. One of my senior managers and I were talking with their division president from their overseas headquarters and their China GM in charge of this division, along with various other financial and legal reps on their deal team. We were talking about the M&A process in China – what to do, the pitfalls, how long it takes, etc. The Big-Big Boss asked me the question that EVERYONE asks in this situation: “What are the chances of success for doing a deal in China?” Not able to resist a chance to be smarmy, I responded, “Well, if you do it right, you’ll probably see over a 60% hit rate. But if you want to mess it up – and most seem to be wanting to do that – the rate is closer to 25%.” Thankfully, the Big-Big Boss got the distinction and my lame attempt at injecting humor in a very serious question. Then, better than any straight-man in a comedy team, asked me the next question, a great set up: “So, Kent, how would we really mess this one up?” So in this week’s Podcast, I am going to tell you, verbatim, what I told this deal team and am titling it, “China M&A: How to mess up a deal, possibly wrecking both your company and your career.” OK, I didn’t quite respond with that level of sarcasm, but you get the idea… So, here, in order of importance, are the 4 steps to doing a bad deal in China: #1 Make no attempt to understand the market environment in which you are acquiring a company. You are thinking to yourself, “Oh, this is going to be a good Podcast, starting out stating the obvious like that.” But you’d be surprised at how many companies come to China to acquire a company and they don’t really understand the market environment in which the targets live and work. We were contacted recently by the CEO of a company who wanted to look for acquisition targets making a certain kind of product. There are, conservatively, about 500 companies doing this type of product in China. I asked him what applications were most attractive; what types of distribution they needed to have; did they need R&D; how about certifications? There was a pregnant pause and the CEO said, “I don’t know, they just need to make the product.” No. Wrong answer. Successful China M&A starts with a deep understanding of the market and a VERY detailed checklist of the criteria of an attractive candidate, the criteria that makes the target attractive in THIS market. If the market I am working in has a particularly fragmented distribution structure and several key customer segments, then I am going to want to look at the targets that have both solid distribution and a really good sales team into those customers. It sounds really simple, but again, you’d be surprised at how many companies overlook this when coming into China. You are going to want to pay particular attention to the requirements for distribution in China. Too often, we see foreign companies come here with what they think is a “great product” but since they don’t understand the often-fragmented distribution chains here, they don’t really know how to get it to market. I would say that nearly all of the acquisitions we do here put “effective distribution” very high on the list of criteria for assessing targets. Distribution is the one thing that takes a long time to build in China and tends to be regionally fragmented. If you can come in and buy that distribution and start to run your own products in parallel with the target’s, then that can be a “win” all around. So though it might seem obvious, get a shopping list together before you head into an M&A program. Deep dive the market to understand what products are out there, what customers want, and how the competition is getting product to market. Only then will you be able to determine the list of criteria that makes for an attractive target. We typically spend the first part of a project developing and refining that list – it might seem tedious at first, but if you have a good criteria list, then it makes the rest go much faster. OK…the second way to mess up a deal in China is to “Go after the first company you find.” A good M&A process – like a good sales process – starts with a good pipeline. If you have a number of prospects in your sales pipeline, you are going to be able to work all of them at the same time. The right ones will close and some will fall away. If you have only one deal in your pipeline, you are going to kill yourself to close it, even if it is not closeable. The same goes for M&A – if you only have one company you are considering, and if you REALLY want to do a deal, you are going to do whatever you can to make that deal work, even if it is the wrong deal. You should arrive at your acquisition targets through a rigorous process of elimination, starting with that criteria list I talked about. Take that list and find as MANY companies in China as you can that come anywhere near fitting that list. Then start doing commercial due diligence on them, all at the same time. Get as much information as you possibly can about all of them, and then you can compare this information and benchmark them against each other. “How many” companies should I consider, you ask? It might seem like an unanswerable question, but those are my favorite kinds! In truth, I think you need to have at least 10 companies on your “Long List” – this is the list of companies that somehow operate in this market and on which you have a certain high level of intelligence (and in some cases, we’ve had as many as 30). Then I think you need to have at least 2-3 on your “short list” … these are companies that you have researched very deeply and know a LOT about them. You know their commercial practices (distribution, pricing, bribes, etc.), manufacturing (processes, costs, suppliers, etc.) and their management (who they are, where are they from, what is their reputation, who really owns the company). Your short listed companies should have also indicated a level of interest in doing a deal with a foreign company. We’ll talk below about HOW to approach them but, for now, hear what I am saying – you should have at 2-3 companies that fit your criteria and who have shown an interest in doing a deal. Certainly, you will prefer one over the others, but at least you’ll have back ups. If you have only one option, you are, essentially, going into a deal and are trying to “marry your first date”. You could be in trouble. You NEED options and it is your responsibility to go find them. The 3rd way to mess up a deal in China is related to the first … and that is to ignore the importance of relationships in China when starting deal discussions. The Western way to get a deal started is often to have the CEO of one company call the CEO of another company and they start talking. Sure, sometimes intermediaries like brokers or investment banks are used, but direct is a valid approach as well and is often preferred. At least in U.S. business culture, “directness” and “openness” is valued and boss-to-boss communication is often the best way to do that. Too often, we see foreign companies use this same method in China, going directly to a potential acquisition target and start discussions, saying too much, too soon, before they have done any kind of due diligence on the target. They even rely on the target to tell them about the target’s business and the market. But in China, where standards of accounting and business practices are still in their early stages, you cannot rely on a target to either really understand their market or their company the way YOU need to understand them. And in Chinese business culture, going through intermediaries is often preferred so that both sides can explore things slowly without having to confront the principals directly and risk either side losing face. The consumer products company I was talking about in the introduction to this Podcast fell into this trap. They are a large, well-known global company with a very large group of super-smart MBAs in their deal team. When they want to do a deal, they send these Men (and Women) in Black who do a deal the way they are used to doing a deal … approach the target, sign an NDA, validate the target’s financials and go from there. Well, they basically did that here in China … before getting ANY market intelligence on the target, they approached one of the biggest players in the China market and started talking about ways they could cooperate. The target was, of course, VERY interested in this large, well-known company that wanted to do a deal with them, but they were a bit befuddled as to how to properly respond. So they did the only thing they knew how to do and they pulled out all the stops to show what a good acquisition target they could be and why a VERY high price would be justified. After many months, LOTSof documents being passed back and forth (including letters of intent that discussed possible valuations) not to mention untold dollars spent on the deal team’s resources, the Western company’s senior management suddenly realized that what they were hearing from the target did not seem to make sense in the market and that they had no objective view of the target or the market. That’s when they called us, to come in and do the due diligence on the target – which is fine! We love doing this and we are VERY good at what we do. And in this case, we found out that there were some huge problems with the target: they had been losing market share rapidly, their management was clueless and many of their distributors were angry and in danger of jumping ship (none of this information, of course, was included in the presentations that the target did when our client approached them directly … then everything was hunky dory and getting even hunkier and dorier!). This is NOT an uncommon finding in China; however, since our client had already had very deep discussions with the target – including discussing deal structures and valuations – there was no room to move with this new information. If our client would have done the commercial due diligence FIRST, before ever approaching the target, then they would have been MUCH better prepared to discuss the details of a deal and would have had tons of objective market intelligence to challenge the target with. We did a program like this a few months ago, for a large high-tech company where we had 9 China targets on the “long list” and on whom we did a pretty deep level of due diligence. Two companies came out of that effort as the leading targets – we knew who they were, their ownership, their advantages in the market, their warts. Everything! We also were able to get a high level of confidence from the target’s ownership that they were interested in talking to a foreign company about potential hook ups. The key here, is that we were able to get all of this information ANONYMOUSLY … none of the 9 companies knew who our client was. Now, we were able to put our client in a VERY strong position where they know a lot more about the targets than the targets know about them. We can make the introductions and continue to act as a “middle-man” of sorts to facilitate the communication. Our client is able to keep the conversation going with several of the targets at once, only committing themselves once they absolutely have to (usually around the time that they need to sign an LOI). If our consumer products client had done this, knowing what they know now, they might not have approached their target at all. But like my point earlier, they had NO back-up plans … they didn’t have a short list … so there was no where to go from here. It is really too bad because our client wasted a LOT of time, effort and money to get to a point of no return and they had to start at zero again. The fourth and final way to mess up a deal in China is to assume that the value you create is going to be done through balance sheet re-engineering and NOT through improving the commercial practices of the target. In the West, the heroes of the M&A deal teams are the financial wizards, the quant jocks who can read a dense balance sheet like a primary school textbook and then apply complicated techniques to squeeze more value out of it. A Private Equity firm we work with did just this with a recent acquisition of a $25 million company, finding an extra $1 million in EBITDA that the original owners did not have the experience to locate. I am not naïve here … of course this is not the ONLY value that is created from M&A in the West, but it is a key goal for many acquiring firms, be they strategic or financial. But in China, this does not work so well; rather, value in an acquisition is created by helping the target become a better player in the market. To a great extent, this starts with very often not having an accurate balance sheet at all … remember, you ask a Chinese company to show you their books and they will often say, “sure, which ones?”. This even applies to the larger, publicly traded companies – we found this to be very true in the due diligence we did on this consumer products company – there was a broad discrepancy between their stated sales and the actual tax receipts that could be associated directly to those sales. No, foreign companies who acquire Chinese companies need to be thinking, first and foremost, of creating value by upgrading the target’s commercial practices, working with them to find the right products, at the right prices going to the right customers through the right channels. For the consumer products company, we identified big gaps in the target’s distributor management processes that were contributing to their loss of market share. Our client is quite well known for how they manage distributors and, though their practices would need some “China-fying” we identified several key areas where value could quickly be created. With our high-tech client – the one with the 9-company long list – it was a different situation. The targets had very good channel and distribution practices (this was one of the key criteria for selecting them); however, what all of them lacked was a solid foundation in R&D, an area in which our client is a global leader in their sector. We identified areas where upgrading the targets’ R&D capabilities could reap great rewards in the market, by promoting Western technology at a China price. The value created is, of course, very different in each situation – but the fact remains that, more often than not, this value is going to be in the commercial area and NOT in reorganizing the balance sheet. So…if you really want to mess up a deal and risk destroying both your company and your career, I just gave you the roadmap! I am assuming, of course, that this is NOT the case. So what should you do? Well, if you already have a target identified, sit with your deal team and assess what you do or do not know about the China market situation (point #1 above) and what other possible targets might be out there (my point #2). If you are in talks with a target and find that things have stalled, a good way to shake things up is to start talking to another target: it provides you with some perspective and signals to the first target that you have options! If you are just considering growth in China via acquisition, then you have the freedom to start things off correctly. Walk through points #1 and #2 by fully understanding the market and all of your options. Then you can find a way to approach these targets in an IN-direct fashion and find ways where you can add value by improving their commercial practices. Trust me, when you reach the point of pulling the trigger on a deal, you will be MUCH more confident if you’ve first eliminated most of the ways that you could possibly mess it up. Thanks again for spending time with us. Remember our motto – and it particularly applies to M&A in China – “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Blog and Podcast. tag:odeo.com,2009-02-04,24035481 Wed, 04 Feb 2009 05:45:07 -0800 no China Business Blog and Podcast podcast, China, research, due diligence, Mergers, acquisitions, m&a http://www.odeo.com/episodes/24027784-Supplier-guanxi-management Over on his “Go Go Go! Supply Chain” blog, Jim Tompkins of Tompkins Associates writes about building strong relationships as the key to successful supplier relationship management, especially in China, which Tompkins calls “North America’s preferred overseas destination for low-cost sourcing.” He writes: [T]he most significant part of Supplier Relationship Management (SRM) — the actual Relationship — has either not been fully developed or has been insufficiently nourished in order to thrive. SRM goes to the heart of successful Supply Chain Partnerships, and in China, Guanxi is at the heart of any business, government or personal relationship. …With suppliers, Guanxi is a general and deep type of understanding between two entities in which both are aware of the other’s needs and always take them into account. It’s an ongoing process and often flows on a more personal level than Westerners would consider a typical business re... Over on his “Go Go Go! Supply Chain” blog, Jim Tompkins of Tompkins Associates writes about building strong relationships as the key to successful supplier relationship management, especially in China, which Tompkins calls “North America’s preferred overseas destination for low-cost sourcing.” He writes: [T]he most significant part of Supplier Relationship Management (SRM) — the actual Relationship — has either not been fully developed or has been insufficiently nourished in order to thrive. SRM goes to the heart of successful Supply Chain Partnerships, and in China, Guanxi is at the heart of any business, government or personal relationship. …With suppliers, Guanxi is a general and deep type of understanding between two entities in which both are aware of the other’s needs and always take them into account. It’s an ongoing process and often flows on a more personal level than Westerners would consider a typical business relationship. Read the full post here. For more on guanxi, watch this 3:30 video put together by the creators of “On the Frontlines: Doing Business in China,” a DVD series Technomic Asia has helped produce. For more info on that, see here. Over on his “Go Go Go! Supply Chain” blog, Jim Tompkins of Tompkins Associates writes about building strong relationships as the key to successful supplier relationship management, especially in China, which Tompkins calls “North America’s preferred overseas destination for low-cost sourcing.” He writes: [T]he most significant part of Supplier Relationship Management (SRM) — the actual Relationship — has either not been fully developed or has been insufficiently nourished in order to thrive. SRM goes to the heart of successful Supply Chain Partnerships, and in China, Guanxi is at the heart of any business, government or personal relationship. …With suppliers, Guanxi is a general and deep type of understanding between two entities in which both are aware of the other’s needs and always take them into account. It’s an ongoing process and often flows on a more personal level than Westerners would consider a typical business relationship. Read the full post here. For more on guanxi, watch this 3:30 video put together by the creators of “On the Frontlines: Doing Business in China,” a DVD series Technomic Asia has helped produce. For more info on that, see here. tag:odeo.com,2009-02-03,24027784 Tue, 03 Feb 2009 08:10:30 -0800 no China Business Blog and Podcast Relationships, China, guanxi, supply chain, sourcing, Supplier Relationship Management http://www.odeo.com/episodes/23951803-Things-that-go-around-again Question: Can you pull out of the biggest financial freefall in modern history by encouraging your people to go shopping? The recent Republican administration in the U.S. tried to do this with their rebate checks of 2008, encouraging people to go spend on feel-good stuff to wipe away the icky sensation that we were circling the financial drain. However, people used those checks to pay for frivolous things like food, clothing and utilities and it had zero effect on the economy; it was like trying to stop a runaway train with nothing but an extended palm and a stern, disapproving look. Score: train 1; erstwhile train-stopper nil. But here in China, the authorities are betting it is going to be different. The rumor on the street is that we will soon see a move by the Chinese government to provide huge subsidies on a basket of goods that will be pushed out into the countryside and small towns in China. This cornucopia of goodness, supposedly, will include things like washing machines, m... Question: Can you pull out of the biggest financial freefall in modern history by encouraging your people to go shopping? The recent Republican administration in the U.S. tried to do this with their rebate checks of 2008, encouraging people to go spend on feel-good stuff to wipe away the icky sensation that we were circling the financial drain. However, people used those checks to pay for frivolous things like food, clothing and utilities and it had zero effect on the economy; it was like trying to stop a runaway train with nothing but an extended palm and a stern, disapproving look. Score: train 1; erstwhile train-stopper nil. But here in China, the authorities are betting it is going to be different. The rumor on the street is that we will soon see a move by the Chinese government to provide huge subsidies on a basket of goods that will be pushed out into the countryside and small towns in China. This cornucopia of goodness, supposedly, will include things like washing machines, motor scooters, TVs, rice cookers and other small appliances. And by “subsidies,” the word is that this stuff will be practically free to the buyers — like they will pay only 10 percent of the retail price of the goods. Its like one day Sears and Best Buy throw open their doors and help patrons loot the place. Download this podcast Download audio file (20090126_washing_machine.mp3) As we have said many times before in this podcast, rumors are rampant in China and we must be careful not to plan market strategy on the basis of what is called “back alley news” ( ???? xiao dao xiao xi). However, as I thought about what this program might do, I wondered if it might actually work. Remember that, despite the spectacle that is the big cities like Shanghai (where you can’t throw a chopstick without hitting a Starbucks or McDonalds) the rest of China is decidedly less urban and an estimated 65 percent of China’s population still lives in rural areas. There is a lot of disagreement as to exactly what the rural population number is, but it is impossible to determine. The several hundreds of millions of migrant workers make it tough to count them when they won’t stand still. The backlash of lower growth in China is going to hit the migrant workers the hardest, and many of them have lost their jobs in China in recent months. The timing of these losses might diffuse the situation a bit: We are in the Spring Festival holiday this week where many of these workers have returned to their homes and turnover at factories can be as high as 40 percent in a normal year. Still, if factories are shutting down, there will be less for these workers to return to after the holiday so the unemployment gap will increase. The biggest challenge for the Chinese government is to find a way to keep many of these workers “down on the farm,” so to speak, and moderate the flow into the cities. Certainly, workers are going to be needed to support the growth that is still happening here (remember our rants last week that “only” 8 percent growth is still growth?!), but not as many. Adding to this challenge is that many of these workers have been to the circus and seen the elephant — they know what lives many Chinese urbanites are living with all the standard trappings of wealth (funny how a Mercedes E-Class communicates the same thing in any culture. It says: “I am a 55-year-old male, I have money and I am compensating for something”). So the first bit of encouragement the government can bring to the rural worker is to start them on the road to the better life by providing the starter-kit of bling: call it “Pimp my Farmhouse,” if you will. When I first came to China in the ’80s, people lusted after the “4 Things that Go Around,” which included a bicycle, watch and sewing machine — and I forgot the fourth. A pizza cutter? Not much has changed except that the expectations have risen. We need to get places faster, so the bike has become the scooter. No one makes clothes any more but they do want to avoid washing them by hand. Hence the washing machine. And you know what? Bully for them! There is nothing wrong with wanting –- and getting -– this stuff. I love my washing machine, TV and my rice cooker. Probably couldn’t live without them (at least, I could not properly parent teenagers without a TV!). Why should others be denied these because they can’t currently afford them? If the Chinese government can find a way to get these things to people who want them, that’s great. And contrary to the U.S. approach where people collect credit cards like Yugioh, if the rumors are correct, then people here will still be paying cash for these goods like they always have. They are just going to pay a lot less than they otherwise would. As we have seen, economic recessions have a huge emotional and psychological component and the path of a county trends in the direction of the collective consciousness of its citizens. The revolution in China in 1949 was a radical departure from the socialist revolutions in Europe. While the Soviet Union and its satellite protectorates came into being through an urban/worker revolt, China’s came about through revolution in the countryside. Mao Ze-dong and his compatriots harnessed the anger of the abused peasant and swept themselves into power. Since that time, there is a tension in Beijing that, on the one hand, celebrates such peasant roots while, at the same time, wanting to guard against a repeat performance. China’s leaders now are decidedly urbanized intellectuals and one of their primary concerns is how to avoid rural unrest. There have been many protests in the countryside in recent years, and interestingly, the Chinese media has reported on some of them. But so far, the “big one” has not come about. Deng Xiao-ping’s twist on socialism was to say that its OK if some got rich before others –- which is all fine and dandy if you can see the path out for yourself to boldly go where others have gone before. These subsidized goods, if true, would be a step in that direction. The second benefit this program could bring would be to help keep factories open that are making these goods. Yes, people would like stuff, but they also need a job so they can keep buying more stuff. I have heard figures of unemployed migrant workers range from 3 million to nearly 6 million (so much for data accuracy in China). Whatever the figure, there are not enough factories making washing machines, TVs and rice cookers to absorb all of these displaced workers. But every little bit helps. And the Chinese leaders’ growing sophistication in PR could come into play here. Have some of the leaders visit the factories where these products are made and then accompany these goods to the countryside to pass them out, shaking hands and kissing babies in the process. Splash that around the newspapers and online chat rooms and get some buzz going, some good buzz that might transfer to the foreign press. Radical? Not by Western standards, but it would be very different here in China. And it might even do some good. For every happy, smiley, feel-good tingle that this program might engender, there is a potential darker side to it, as well. Getting someone a washing machine for cheap will make one feel pretty good, but before the warranty is up, you can be darned sure that the receiver is going to be saying, “OK, thanks for the washing machine, but what’s next?” If the government is using a program such as this as a quick-fix finger in the dam of emotions in the countryside, they are going to be very shocked to find out just how short-term this solution will be. The reality is that, despite the amazing growth of the past few years (or maybe because of it), true rural reform has to be high on the to-do list for Chinese government leaders. The opening of the economy has gutted the social programs that were tied to state-owned factories and farms and, while many individuals have been able to make more money on the freer market, they don’t often make enough to purchase affordable housing or good health care. Cheap motor scooters are nice, but if you can’t get emergency health care following your inevitable mash-up, is it that much of a benefit? So we should be monitoring two things in the coming months in China: First, let’s see if the rumors are true and we see a subsidy program hit the street. Again, I hear enough rumors every day to listen to all of them and trust none of them, but this one seems to have a lot of internal logic to it. But secondly, keep your eyes on the real reforms that have been promised in the countryside: new schools, clinics, hospitals, affordable housing, etc. We have several clients for whom we are exploring these rural opportunities (particularly in medical devices and building products), and things are looking pretty good so far. But until real people get real and lasting benefit from real reforms, there is always the danger of people using their cheap scooters to drive to the nearest protest. And I don’t think the warranty is supposed to cover that! Thanks again for listening. Happy Year of the Ox to everyone, and remember our motto: “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast. Photo courtesy of JSolomon on Flickr Question: Can you pull out of the biggest financial freefall in modern history by encouraging your people to go shopping? The recent Republican administration in the U.S. tried to do this with their rebate checks of 2008, encouraging people to go spend on feel-good stuff to wipe away the icky sensation that we were circling the financial drain. However, people used those checks to pay for frivolous things like food, clothing and utilities and it had zero effect on the economy; it was like trying to stop a runaway train with nothing but an extended palm and a stern, disapproving look. Score: train 1; erstwhile train-stopper nil. But here in China, the authorities are betting it is going to be different. The rumor on the street is that we will soon see a move by the Chinese government to provide huge subsidies on a basket of goods that will be pushed out into the countryside and small towns in China. This cornucopia of goodness, supposedly, will include things like washing machines, motor scooters, TVs, rice cookers and other small appliances. And by “subsidies,” the word is that this stuff will be practically free to the buyers — like they will pay only 10 percent of the retail price of the goods. Its like one day Sears and Best Buy throw open their doors and help patrons loot the place. Download this podcast Download audio file (20090126_washing_machine.mp3) As we have said many times before in this podcast, rumors are rampant in China and we must be careful not to plan market strategy on the basis of what is called “back alley news” ( ???? xiao dao xiao xi). However, as I thought about what this program might do, I wondered if it might actually work. Remember that, despite the spectacle that is the big cities like Shanghai (where you can’t throw a chopstick without hitting a Starbucks or McDonalds) the rest of China is decidedly less urban and an estimated 65 percent of China’s population still lives in rural areas. There is a lot of disagreement as to exactly what the rural population number is, but it is impossible to determine. The several hundreds of millions of migrant workers make it tough to count them when they won’t stand still. The backlash of lower growth in China is going to hit the migrant workers the hardest, and many of them have lost their jobs in China in recent months. The timing of these losses might diffuse the situation a bit: We are in the Spring Festival holiday this week where many of these workers have returned to their homes and turnover at factories can be as high as 40 percent in a normal year. Still, if factories are shutting down, there will be less for these workers to return to after the holiday so the unemployment gap will increase. The biggest challenge for the Chinese government is to find a way to keep many of these workers “down on the farm,” so to speak, and moderate the flow into the cities. Certainly, workers are going to be needed to support the growth that is still happening here (remember our rants last week that “only” 8 percent growth is still growth?!), but not as many. Adding to this challenge is that many of these workers have been to the circus and seen the elephant — they know what lives many Chinese urbanites are living with all the standard trappings of wealth (funny how a Mercedes E-Class communicates the same thing in any culture. It says: “I am a 55-year-old male, I have money and I am compensating for something”). So the first bit of encouragement the government can bring to the rural worker is to start them on the road to the better life by providing the starter-kit of bling: call it “Pimp my Farmhouse,” if you will. When I first came to China in the ’80s, people lusted after the “4 Things that Go Around,” which included a bicycle, watch and sewing machine — and I forgot the fourth. A pizza cutter? Not much has changed except that the expectations have risen. We need to get places faster, so the bike has become the scooter. No one makes clothes any more but they do want to avoid washing them by hand. Hence the washing machine. And you know what? Bully for them! There is nothing wrong with wanting –- and getting -– this stuff. I love my washing machine, TV and my rice cooker. Probably couldn’t live without them (at least, I could not properly parent teenagers without a TV!). Why should others be denied these because they can’t currently afford them? If the Chinese government can find a way to get these things to people who want them, that’s great. And contrary to the U.S. approach where people collect credit cards like Yugioh, if the rumors are correct, then people here will still be paying cash for these goods like they always have. They are just going to pay a lot less than they otherwise would. As we have seen, economic recessions have a huge emotional and psychological component and the path of a county trends in the direction of the collective consciousness of its citizens. The revolution in China in 1949 was a radical departure from the socialist revolutions in Europe. While the Soviet Union and its satellite protectorates came into being through an urban/worker revolt, China’s came about through revolution in the countryside. Mao Ze-dong and his compatriots harnessed the anger of the abused peasant and swept themselves into power. Since that time, there is a tension in Beijing that, on the one hand, celebrates such peasant roots while, at the same time, wanting to guard against a repeat performance. China’s leaders now are decidedly urbanized intellectuals and one of their primary concerns is how to avoid rural unrest. There have been many protests in the countryside in recent years, and interestingly, the Chinese media has reported on some of them. But so far, the “big one” has not come about. Deng Xiao-ping’s twist on socialism was to say that its OK if some got rich before others –- which is all fine and dandy if you can see the path out for yourself to boldly go where others have gone before. These subsidized goods, if true, would be a step in that direction. The second benefit this program could bring would be to help keep factories open that are making these goods. Yes, people would like stuff, but they also need a job so they can keep buying more stuff. I have heard figures of unemployed migrant workers range from 3 million to nearly 6 million (so much for data accuracy in China). Whatever the figure, there are not enough factories making washing machines, TVs and rice cookers to absorb all of these displaced workers. But every little bit helps. And the Chinese leaders’ growing sophistication in PR could come into play here. Have some of the leaders visit the factories where these products are made and then accompany these goods to the countryside to pass them out, shaking hands and kissing babies in the process. Splash that around the newspapers and online chat rooms and get some buzz going, some good buzz that might transfer to the foreign press. Radical? Not by Western standards, but it would be very different here in China. And it might even do some good. For every happy, smiley, feel-good tingle that this program might engender, there is a potential darker side to it, as well. Getting someone a washing machine for cheap will make one feel pretty good, but before the warranty is up, you can be darned sure that the receiver is going to be saying, “OK, thanks for the washing machine, but what’s next?” If the government is using a program such as this as a quick-fix finger in the dam of emotions in the countryside, they are going to be very shocked to find out just how short-term this solution will be. The reality is that, despite the amazing growth of the past few years (or maybe because of it), true rural reform has to be high on the to-do list for Chinese government leaders. The opening of the economy has gutted the social programs that were tied to state-owned factories and farms and, while many individuals have been able to make more money on the freer market, they don’t often make enough to purchase affordable housing or good health care. Cheap motor scooters are nice, but if you can’t get emergency health care following your inevitable mash-up, is it that much of a benefit? So we should be monitoring two things in the coming months in China: First, let’s see if the rumors are true and we see a subsidy program hit the street. Again, I hear enough rumors every day to listen to all of them and trust none of them, but this one seems to have a lot of internal logic to it. But secondly, keep your eyes on the real reforms that have been promised in the countryside: new schools, clinics, hospitals, affordable housing, etc. We have several clients for whom we are exploring these rural opportunities (particularly in medical devices and building products), and things are looking pretty good so far. But until real people get real and lasting benefit from real reforms, there is always the danger of people using their cheap scooters to drive to the nearest protest. And I don’t think the warranty is supposed to cover that! Thanks again for listening. Happy Year of the Ox to everyone, and remember our motto: “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast. Photo courtesy of JSolomon on Flickr tag:odeo.com,2009-01-26,23951803 Mon, 26 Jan 2009 13:38:06 -0800 no China Business Blog and Podcast podcast, Culture, China, economy http://www.odeo.com/episodes/23900743-Out-with-old-in-with-the-%E2%80%A6 I woke up this morning thinking about capitalism. I know…heady stuff for a Monday morning. First thoughts Monday morning should be limited to pondering which texture of socks to wear that day (the color, black, is a given). Wednesday or Thursday is when the brain has fully recovered from Weekend Mode and can handle the deeper, philosophical issues: politics, economics, why tomatoes are considered a fruit. When Kierkegaard first asked “is there a teleological suspension of the ethical,” you can be darn sure it was not on a Monday morning. Monday he was thinking about his socks, too. Download this podcast Download audio file (20090119_out_with_the_old.mp3) But the first moment of consciousness Monday morning upon emerging from the depths of R.E.M. brought this thought to my addled brain: “I wonder if, when I’m 80, capitalism will be the same?” Funny I did not question whether or not I would make it to 80, but there you have it. Nine months ago I wou... I woke up this morning thinking about capitalism. I know…heady stuff for a Monday morning. First thoughts Monday morning should be limited to pondering which texture of socks to wear that day (the color, black, is a given). Wednesday or Thursday is when the brain has fully recovered from Weekend Mode and can handle the deeper, philosophical issues: politics, economics, why tomatoes are considered a fruit. When Kierkegaard first asked “is there a teleological suspension of the ethical,” you can be darn sure it was not on a Monday morning. Monday he was thinking about his socks, too. Download this podcast Download audio file (20090119_out_with_the_old.mp3) But the first moment of consciousness Monday morning upon emerging from the depths of R.E.M. brought this thought to my addled brain: “I wonder if, when I’m 80, capitalism will be the same?” Funny I did not question whether or not I would make it to 80, but there you have it. Nine months ago I would not have been on this train of thought. I would have agreed with the recent presidential runner-up who said, at that time, that the “fundamentals” of the U.S. economy – the poster child and standard bearer for modern day capitalism – were sound. Daily, the sun rose in the east and my 401(K) followed the same upward path, bouncing a bit each 24-hour period but still following a generally buoyant trajectory. But suddenly, the Invisible Hand of capitalism grabbed a whistle, blew it and yelled, “Everybody out of the pool!!” And dang it all if we didn’t listen. This, of course, got me to thinking about the situation here in China – because, when I am not thinking about my socks or capitalism, I guess I am thinking about China (someone, pity me quickly!). For years, the wizards and witches from the Hogwart’s School of Western Economics have been slapping Chinese leaders for not “opening up” their economy. The problem, quoth the wizards, was that the Chinese economy was too regulated where creativity and risk was not allowed free play, thus constricting growth and maturity. Cash, said the witches, was too important to the Chinese economy, not allowing it to bloom under the liberal application of credit, spread around like Dolly Levi’s manure, encouraging little things to grow. The mad rush from the Pool of Western Capitalism was not just because of the lifeguard’s whistle … it seemed that someone had an accident in said pool and left a floater of assets that were so over-leveraged that they had nearly left their solid state and were approaching a gaseous one (OK, I know I mixed a metaphor there but, it being Monday morning, I am not sure how to make it right…work it out yourselves). The very principles upon which capitalism was based contributed to its downfall, the body economic had turned on itself in a cannibalistic fervor. Which brings me to my initial question this morning – if the fundamentals of what we thought were capitalism are, in fact, contributing to its downfall, how then shall we live? Well, while the jury is still out, maybe the pithy and somewhat tongue-in-cheek “capitalism with Chinese characteristics” could have something to teach us. First, the Chinese economy is very regulated – yes, too much so in certain cases, but I am not sure that a pendulum swing a bit right of center would be the worse thing for Western capitalism at this point (I have visions of sub-prime mortgage lenders standing at a chalkboard writing a thousand times “I will not destroy the very foundations of millions of people’s lives for my own selfish gain”). The Chinese government has regulations on who can invest; how much they can invest; what forms that investment can take; how much equity they can get for that investment – heck, even the currency exchange rate for foreign investment is controlled through a diaphanous peg to a “basket” of currencies. Regulatory control in China is ultimate; however, ENFORCEMENT is spotty and the reality is that things do fall through the regulatory cracks. But still, the Chinese regulators’ underlying philosophy – besides the maintenance of one-Party rule – is that we are NOT “rational actors” in any sense of the phrase. We are irrational, lemming-like creatures who will follow, nose-to-tush, the rodent in front of us as we all dive off the financial cliff du jour. Sages in the West are nodding their heads in agreement that we need to “do something” and that greater regulation is part of that something. Talk is easy. As parents, its easy to feel bad once Junior is caught cheating at school and we might assuage our guilt by agreeing, as caring-yet-responsible parents, that Junior needs more discipline. Its easy to talk about this in the car on the way home, shooting Junior putative glances in the rearview mirror as he sulks in the backseat. But it is not easy to get home and dial back on Junior’s daily four-hour Guitar Hero fix and get his nose back in the books. His backseat sulk is a joy of Smurf-like proportions compared to the hooded glares of adolescent hate he will be shooting at you from his books. Same with demanding more regulation in Western capitalism – my fear is that its going to be difficult to keep them down on the Regulatory Farm when they’ve been to the Credit Circus and have ridden the cheap financing elephant. Which brings us to point number two: Old Capitalism might need to dial back our obsession with credit. Economists will differentiate between a “leveraged deal” and a “Ponzi scheme,” as if it were a binary, black-and-white thing rather than a sliding scale full of more shades of grey than a Rauschenberg. In China, cash still rules – it is an incredibly frustrating thing running a business here where you still have to schlep around massive amounts of cash because, though wire transfers are certainly possible, the approval process can sometimes crush you (depending on which banks are involved). The penetration rate of credit cards is still only in the single digits in China (in the U.S. it is in the many hundreds of percent if you count the multiple cards that people often have). Though loosening slightly, real estate purchases in China – particularly residential – still require 30-40% cash up front. Over 90% of automobiles in China are purchased with cash, not credit. So not only does Junior need to hit the books, he needs to limit his spending to what he earns mowing lawns on weekends. I often test my understanding of concepts by seeing if I can explain them to Chinese friends and colleagues. Not only does it challenge me to really understand the fundamentals, it also provides a moment of comedy relief for my friends – double bonus! In trying to explain credit derivatives and the sub-prime mortgage my Chinese friends would ask, “but how can you buy something when you can’t afford it.” I’d shake my head, like a majestic lion with a bothersome tse-tse fly buzz-diving its ears, and try again – “You don’t get it,” I’d say, “the credit allows you to buy what you could not originally afford…you look bigger than you really are.” One friend said, “I get it … just like the most popular elective surgery in China these days is the boob job.” Touché… Third – and to me, this is the biggest one – we in the West would benefit from taking a longer view of our investments, how much they return to us and when. For our U.S. clients who are publicly traded, the pressure to show quarterly (or even monthly) progress borders on an obsessive-compulsive disorder. Monk might be a great detective but I’m not going to trust him with my stock portfolio. Every time we help a client do a big investment deal, I sit with the executives and, with full eye contact and a lot of love in my heart, tell them: “You know … some day, sooner or later, this China investment is going to look like doggie doo-doo. You are not going to hit your numbers; your manufacturing is going to suffer quality problems; your partner is going to go cowboy on you; your biggest distributor is going to hold you hostage for a larger margin; sudden regulation is going to make part of your original strategy obsolete. One, several or all of the above are going to happen. And when it does, what are you going to tell the market and the analysts? Draft the script now and keep it in a ‘Break Glass In Case of Emergency” box.’ You’re gonna need it.” Wouldn’t it be nice to not have to worry so much about that? If the markets and analysts could show more grace; more patience; more understanding. To sit still long enough, take their eyes off their Blackberrys, stop Twittering every time they experience a gas pain and LISTEN to a company’s long term global strategy. To see the destination and not just the road thirty inches off the front bumper. To say, “yea, I get where you are going … it sucks that you had a bad month-slash-quarter, but life happens. I am not going to invest any more until I can see whether this is a blip or a trend – but I am not going to jump ship. I got your back, homey.” All right, asking an analyst to use the word “homey” is probably demanding a bit much, but you get my drift. Our clients who are privately-held – although lacking in some of the experience and resources of their larger, publicly traded cousins – have a fundamental advantage in China simply because they often have more space to do something, stumble a bit, and then keep walking. Would that the NYSEs and NASDAQs of the world had the same grace. Let me be clear here; I am not asking for the guilty to cry a tear-stained confession in front of the congregation, begging for our forgiveness. The guilt behind this global financial crisis is no one individual’s responsibility to confess nor is absolution ours to offer. That would be giving both parties too much power. But I am saying that there is a third way, grasshopper. Get back to the fundamentals, like in the bad old days: look for good assets that fit a validated growth strategy; acquire them at the right valuation and then run the heck out of them, knowing full well that the final movie will not follow the original script. Too simple? Yea, probably. But I don’t know of a company that got in trouble for doing just this. We recently completed a commercial due diligence program for a large, publicly traded company. They were looking at an acquisition deal in China and we were tasked with assessing the feasibility of the deal – could our client believe the target’s marketing brochures and could our client execute the strategy they had in mind through this company. After many weeks of very intense work – and to grossly over-simplify – I had the meeting with the Big Dogs back in the U.S. At the end of my report, Chief Big Dog said to me, “So Kent, would you do this deal?” And I said – again, with full eye contact and empathy – “No, I would not…they are not who they say they are and you are not going to be able to do what you want to do with them if you were to acquire them. Besides, they are asking too much and you’d be giving up too much control. Plain and simple…no.” I gave him several other options that he should consider, each of them taking a bit more time and effort from his deal team to explore and execute but, in my mind, infinitely more do-able. He was a bit shocked at my candor – I guess real consultants are given to more prevarication and use “it depends” every other sentence [Note to self: need to work on that]. But I could tell that he REALLY wanted to do this deal. I mean REALLY. His company was looking for some good news; something to show the Street that they were not going to let a pesky global financial meltdown ruin their plans for growth. He already had the press release drafted (in his mind if not on his laptop) and it sounded good. Really good. Lots of active verbs in a Dilbertesque homage to the gods of Leverage. The specter of old capitalism was on one shoulder, telling him in a raspy, been-there-done-that-deal-guy voice to do it. I am not sure if I embodied the spirit of new capitalism or if I was just being difficult, but I was on the other shoulder, and of a different mind. Now is a difficult time to be making this decision, when the ghosts of old capitalism are still haunting us. Fast forward 30 years and the decision, I hope, will be easier because we will have learned our lesson. Somehow, though, I don’t think so – so I am going to keep this Podcast close. After all, I am going to be older then and won’t want to be working so hard. So when I wake up on a Monday morning pondering capitalism I will just call this up, change the dates a bit and re-record it. Then I can get on to more important things … like sorting my socks. Remember our motto: In China, everything is possible, but nothing is easy. We’ll see you next time on the China Business Podcast. I woke up this morning thinking about capitalism. I know…heady stuff for a Monday morning. First thoughts Monday morning should be limited to pondering which texture of socks to wear that day (the color, black, is a given). Wednesday or Thursday is when the brain has fully recovered from Weekend Mode and can handle the deeper, philosophical issues: politics, economics, why tomatoes are considered a fruit. When Kierkegaard first asked “is there a teleological suspension of the ethical,” you can be darn sure it was not on a Monday morning. Monday he was thinking about his socks, too. Download this podcast Download audio file (20090119_out_with_the_old.mp3) But the first moment of consciousness Monday morning upon emerging from the depths of R.E.M. brought this thought to my addled brain: “I wonder if, when I’m 80, capitalism will be the same?” Funny I did not question whether or not I would make it to 80, but there you have it. Nine months ago I would not have been on this train of thought. I would have agreed with the recent presidential runner-up who said, at that time, that the “fundamentals” of the U.S. economy – the poster child and standard bearer for modern day capitalism – were sound. Daily, the sun rose in the east and my 401(K) followed the same upward path, bouncing a bit each 24-hour period but still following a generally buoyant trajectory. But suddenly, the Invisible Hand of capitalism grabbed a whistle, blew it and yelled, “Everybody out of the pool!!” And dang it all if we didn’t listen. This, of course, got me to thinking about the situation here in China – because, when I am not thinking about my socks or capitalism, I guess I am thinking about China (someone, pity me quickly!). For years, the wizards and witches from the Hogwart’s School of Western Economics have been slapping Chinese leaders for not “opening up” their economy. The problem, quoth the wizards, was that the Chinese economy was too regulated where creativity and risk was not allowed free play, thus constricting growth and maturity. Cash, said the witches, was too important to the Chinese economy, not allowing it to bloom under the liberal application of credit, spread around like Dolly Levi’s manure, encouraging little things to grow. The mad rush from the Pool of Western Capitalism was not just because of the lifeguard’s whistle … it seemed that someone had an accident in said pool and left a floater of assets that were so over-leveraged that they had nearly left their solid state and were approaching a gaseous one (OK, I know I mixed a metaphor there but, it being Monday morning, I am not sure how to make it right…work it out yourselves). The very principles upon which capitalism was based contributed to its downfall, the body economic had turned on itself in a cannibalistic fervor. Which brings me to my initial question this morning – if the fundamentals of what we thought were capitalism are, in fact, contributing to its downfall, how then shall we live? Well, while the jury is still out, maybe the pithy and somewhat tongue-in-cheek “capitalism with Chinese characteristics” could have something to teach us. First, the Chinese economy is very regulated – yes, too much so in certain cases, but I am not sure that a pendulum swing a bit right of center would be the worse thing for Western capitalism at this point (I have visions of sub-prime mortgage lenders standing at a chalkboard writing a thousand times “I will not destroy the very foundations of millions of people’s lives for my own selfish gain”). The Chinese government has regulations on who can invest; how much they can invest; what forms that investment can take; how much equity they can get for that investment – heck, even the currency exchange rate for foreign investment is controlled through a diaphanous peg to a “basket” of currencies. Regulatory control in China is ultimate; however, ENFORCEMENT is spotty and the reality is that things do fall through the regulatory cracks. But still, the Chinese regulators’ underlying philosophy – besides the maintenance of one-Party rule – is that we are NOT “rational actors” in any sense of the phrase. We are irrational, lemming-like creatures who will follow, nose-to-tush, the rodent in front of us as we all dive off the financial cliff du jour. Sages in the West are nodding their heads in agreement that we need to “do something” and that greater regulation is part of that something. Talk is easy. As parents, its easy to feel bad once Junior is caught cheating at school and we might assuage our guilt by agreeing, as caring-yet-responsible parents, that Junior needs more discipline. Its easy to talk about this in the car on the way home, shooting Junior putative glances in the rearview mirror as he sulks in the backseat. But it is not easy to get home and dial back on Junior’s daily four-hour Guitar Hero fix and get his nose back in the books. His backseat sulk is a joy of Smurf-like proportions compared to the hooded glares of adolescent hate he will be shooting at you from his books. Same with demanding more regulation in Western capitalism – my fear is that its going to be difficult to keep them down on the Regulatory Farm when they’ve been to the Credit Circus and have ridden the cheap financing elephant. Which brings us to point number two: Old Capitalism might need to dial back our obsession with credit. Economists will differentiate between a “leveraged deal” and a “Ponzi scheme,” as if it were a binary, black-and-white thing rather than a sliding scale full of more shades of grey than a Rauschenberg. In China, cash still rules – it is an incredibly frustrating thing running a business here where you still have to schlep around massive amounts of cash because, though wire transfers are certainly possible, the approval process can sometimes crush you (depending on which banks are involved). The penetration rate of credit cards is still only in the single digits in China (in the U.S. it is in the many hundreds of percent if you count the multiple cards that people often have). Though loosening slightly, real estate purchases in China – particularly residential – still require 30-40% cash up front. Over 90% of automobiles in China are purchased with cash, not credit. So not only does Junior need to hit the books, he needs to limit his spending to what he earns mowing lawns on weekends. I often test my understanding of concepts by seeing if I can explain them to Chinese friends and colleagues. Not only does it challenge me to really understand the fundamentals, it also provides a moment of comedy relief for my friends – double bonus! In trying to explain credit derivatives and the sub-prime mortgage my Chinese friends would ask, “but how can you buy something when you can’t afford it.” I’d shake my head, like a majestic lion with a bothersome tse-tse fly buzz-diving its ears, and try again – “You don’t get it,” I’d say, “the credit allows you to buy what you could not originally afford…you look bigger than you really are.” One friend said, “I get it … just like the most popular elective surgery in China these days is the boob job.” Touché… Third – and to me, this is the biggest one – we in the West would benefit from taking a longer view of our investments, how much they return to us and when. For our U.S. clients who are publicly traded, the pressure to show quarterly (or even monthly) progress borders on an obsessive-compulsive disorder. Monk might be a great detective but I’m not going to trust him with my stock portfolio. Every time we help a client do a big investment deal, I sit with the executives and, with full eye contact and a lot of love in my heart, tell them: “You know … some day, sooner or later, this China investment is going to look like doggie doo-doo. You are not going to hit your numbers; your manufacturing is going to suffer quality problems; your partner is going to go cowboy on you; your biggest distributor is going to hold you hostage for a larger margin; sudden regulation is going to make part of your original strategy obsolete. One, several or all of the above are going to happen. And when it does, what are you going to tell the market and the analysts? Draft the script now and keep it in a ‘Break Glass In Case of Emergency” box.’ You’re gonna need it.” Wouldn’t it be nice to not have to worry so much about that? If the markets and analysts could show more grace; more patience; more understanding. To sit still long enough, take their eyes off their Blackberrys, stop Twittering every time they experience a gas pain and LISTEN to a company’s long term global strategy. To see the destination and not just the road thirty inches off the front bumper. To say, “yea, I get where you are going … it sucks that you had a bad month-slash-quarter, but life happens. I am not going to invest any more until I can see whether this is a blip or a trend – but I am not going to jump ship. I got your back, homey.” All right, asking an analyst to use the word “homey” is probably demanding a bit much, but you get my drift. Our clients who are privately-held – although lacking in some of the experience and resources of their larger, publicly traded cousins – have a fundamental advantage in China simply because they often have more space to do something, stumble a bit, and then keep walking. Would that the NYSEs and NASDAQs of the world had the same grace. Let me be clear here; I am not asking for the guilty to cry a tear-stained confession in front of the congregation, begging for our forgiveness. The guilt behind this global financial crisis is no one individual’s responsibility to confess nor is absolution ours to offer. That would be giving both parties too much power. But I am saying that there is a third way, grasshopper. Get back to the fundamentals, like in the bad old days: look for good assets that fit a validated growth strategy; acquire them at the right valuation and then run the heck out of them, knowing full well that the final movie will not follow the original script. Too simple? Yea, probably. But I don’t know of a company that got in trouble for doing just this. We recently completed a commercial due diligence program for a large, publicly traded company. They were looking at an acquisition deal in China and we were tasked with assessing the feasibility of the deal – could our client believe the target’s marketing brochures and could our client execute the strategy they had in mind through this company. After many weeks of very intense work – and to grossly over-simplify – I had the meeting with the Big Dogs back in the U.S. At the end of my report, Chief Big Dog said to me, “So Kent, would you do this deal?” And I said – again, with full eye contact and empathy – “No, I would not…they are not who they say they are and you are not going to be able to do what you want to do with them if you were to acquire them. Besides, they are asking too much and you’d be giving up too much control. Plain and simple…no.” I gave him several other options that he should consider, each of them taking a bit more time and effort from his deal team to explore and execute but, in my mind, infinitely more do-able. He was a bit shocked at my candor – I guess real consultants are given to more prevarication and use “it depends” every other sentence [Note to self: need to work on that]. But I could tell that he REALLY wanted to do this deal. I mean REALLY. His company was looking for some good news; something to show the Street that they were not going to let a pesky global financial meltdown ruin their plans for growth. He already had the press release drafted (in his mind if not on his laptop) and it sounded good. Really good. Lots of active verbs in a Dilbertesque homage to the gods of Leverage. The specter of old capitalism was on one shoulder, telling him in a raspy, been-there-done-that-deal-guy voice to do it. I am not sure if I embodied the spirit of new capitalism or if I was just being difficult, but I was on the other shoulder, and of a different mind. Now is a difficult time to be making this decision, when the ghosts of old capitalism are still haunting us. Fast forward 30 years and the decision, I hope, will be easier because we will have learned our lesson. Somehow, though, I don’t think so – so I am going to keep this Podcast close. After all, I am going to be older then and won’t want to be working so hard. So when I wake up on a Monday morning pondering capitalism I will just call this up, change the dates a bit and re-record it. Then I can get on to more important things … like sorting my socks. Remember our motto: In China, everything is possible, but nothing is easy. We’ll see you next time on the China Business Podcast. tag:odeo.com,2009-01-19,23900743 Mon, 19 Jan 2009 00:20:02 -0800 no China Business Blog and Podcast podcast, economy http://www.odeo.com/episodes/23862138-Top-20-reasons-to-love-China For two decades, the good folks back in the USA have asked me: “What is so great about China?” It’s a fair question, I suppose, coming, as it does, from a people who struggle to locate Seattle on the map. Still, I am a little tired of their pestering me. The time has come to provide a definitive reply in print. Download this podcast Download audio file (20090112_top_20_things.mp3) Of course, I could take the easy way out and reply that China is great because of its “long and storied history” or that its “modern dynamism is unparalleled in the world.” But that would be like saying Hunter S. Thomson was a “good” writer. China (and the good doctor) deserves more. I have come up with a list. A definitive list. The Top 20 Reasons to Love China: (with apologies to talk show hosts and their lawyers) China is the only place on earth where you can see a man pedaling a bicycle loaded with two butchered pigs, a living room sofa and two fami... For two decades, the good folks back in the USA have asked me: “What is so great about China?” It’s a fair question, I suppose, coming, as it does, from a people who struggle to locate Seattle on the map. Still, I am a little tired of their pestering me. The time has come to provide a definitive reply in print. Download this podcast Download audio file (20090112_top_20_things.mp3) Of course, I could take the easy way out and reply that China is great because of its “long and storied history” or that its “modern dynamism is unparalleled in the world.” But that would be like saying Hunter S. Thomson was a “good” writer. China (and the good doctor) deserves more. I have come up with a list. A definitive list. The Top 20 Reasons to Love China: (with apologies to talk show hosts and their lawyers) China is the only place on earth where you can see a man pedaling a bicycle loaded with two butchered pigs, a living room sofa and two family members. And he is not even breathing hard. The Chinese word for “mother” and the word for “horse” are separated by just one tone, leaving open a world of possible insults for the sloppy student of the language. A black GM sedan is the coolest car on the road…this IS your father’s Oldsmobile! You are acclaimed a “China Expert” by local acquaintances the minute you come close to properly pronouncing ni hao and know the meaning of the word guanxi. At the same time, these same Chinese acquaintances will correct your mispronounciation of ever other Chinese word, which will fill you with a sense of belonging, knowing as you do that they now feel comfortable enough to tell you what they really think. When someone asks you whether they drive on the right or the left side of the road in China, you can truthfully answer: “both.” Reading an EKG report is easier than deciphering Chinese calligraphy, even for many locals. It is not impolite to slurp your noodles, ask someone’s age or how much money they make. Eat your heart out, Ms. Manners. You can buy a Spongebob Squarepants doll while visiting the Great Wall, thereby gaining an immediate understanding of the clash of civilizations without having to read Samuel P. Huntington. One’s heart rate after crossing the street on foot is roughly equivalent to a 20 minute Stairmaster workout. The answer given to me by a Shanghai native when I asked how he knew if a Chinese sign should be read left to right or right to left: “I read it one way. If it doesn’t make any sense I read it the other way.” The look on the face of a foreigner at his first formal banquet when he receives an answer to the question, “What is this I am eating?” Dogs here understand commands in Chinese better than I do. The always empty Rolex brand store 200 meters from Xiangyang market. Fortune cookies are NOT a Chinese invention; spaghetti is. Not only can you turn right on a red light, you can do so without stopping. Even though China’s per capita GDP is one-twentieth that of the US, Starbucks charges the same price for a cup of coffee in China as they do in the States. The taxi sign reminding you to take everything with you, the English translation of which reads: “Don’t forget to hold your thing.” A coupon to the local go-kart track, good for “One free ride” and “One free beer” at the bar, which stipulates that the beer must be consumed before taking the free ride. You get to eat with sticks. For two decades, the good folks back in the USA have asked me: “What is so great about China?” It’s a fair question, I suppose, coming, as it does, from a people who struggle to locate Seattle on the map. Still, I am a little tired of their pestering me. The time has come to provide a definitive reply in print. Download this podcast Download audio file (20090112_top_20_things.mp3) Of course, I could take the easy way out and reply that China is great because of its “long and storied history” or that its “modern dynamism is unparalleled in the world.” But that would be like saying Hunter S. Thomson was a “good” writer. China (and the good doctor) deserves more. I have come up with a list. A definitive list. The Top 20 Reasons to Love China: (with apologies to talk show hosts and their lawyers) China is the only place on earth where you can see a man pedaling a bicycle loaded with two butchered pigs, a living room sofa and two family members. And he is not even breathing hard. The Chinese word for “mother” and the word for “horse” are separated by just one tone, leaving open a world of possible insults for the sloppy student of the language. A black GM sedan is the coolest car on the road…this IS your father’s Oldsmobile! You are acclaimed a “China Expert” by local acquaintances the minute you come close to properly pronouncing ni hao and know the meaning of the word guanxi. At the same time, these same Chinese acquaintances will correct your mispronounciation of ever other Chinese word, which will fill you with a sense of belonging, knowing as you do that they now feel comfortable enough to tell you what they really think. When someone asks you whether they drive on the right or the left side of the road in China, you can truthfully answer: “both.” Reading an EKG report is easier than deciphering Chinese calligraphy, even for many locals. It is not impolite to slurp your noodles, ask someone’s age or how much money they make. Eat your heart out, Ms. Manners. You can buy a Spongebob Squarepants doll while visiting the Great Wall, thereby gaining an immediate understanding of the clash of civilizations without having to read Samuel P. Huntington. One’s heart rate after crossing the street on foot is roughly equivalent to a 20 minute Stairmaster workout. The answer given to me by a Shanghai native when I asked how he knew if a Chinese sign should be read left to right or right to left: “I read it one way. If it doesn’t make any sense I read it the other way.” The look on the face of a foreigner at his first formal banquet when he receives an answer to the question, “What is this I am eating?” Dogs here understand commands in Chinese better than I do. The always empty Rolex brand store 200 meters from Xiangyang market. Fortune cookies are NOT a Chinese invention; spaghetti is. Not only can you turn right on a red light, you can do so without stopping. Even though China’s per capita GDP is one-twentieth that of the US, Starbucks charges the same price for a cup of coffee in China as they do in the States. The taxi sign reminding you to take everything with you, the English translation of which reads: “Don’t forget to hold your thing.” A coupon to the local go-kart track, good for “One free ride” and “One free beer” at the bar, which stipulates that the beer must be consumed before taking the free ride. You get to eat with sticks. tag:odeo.com,2009-01-12,23862138 Mon, 12 Jan 2009 08:46:03 -0800 no China Business Blog and Podcast podcast, Culture, Humor, China, Top 20 http://www.odeo.com/episodes/23757331-Why-China-matters-part-2 Why China Matters - Part 2 Today’s podcast features Steve Ganster, managing director of Technomic Asia. Kent’s not gone — just sharing the spotlight. Download this podcast Download audio file (20081215_china_matters_2.mp3) A full transcript: I wanted to take a few minutes to lift our thinking out of the chaos and calamitous scenarios bombarding us in the news today to revisit and expand on one of our earlier podcasts by my cohort Kent Kedl on the topic “Why China Matters.” In that podcast, Kent encouraged us to keep our eye on the ball with respect to China — in terms of what it can contribute to both our top and bottom lines. He also warned us to keep our attention on China’s ability and increasing interest to invest in the West. As many of you no doubt have heard, there are a range of scenarios being bantered around about a Chinese auto company buying GM. While I think there are many hurdles to this scenario, even its possibility should gr... Why China Matters - Part 2 Today’s podcast features Steve Ganster, managing director of Technomic Asia. Kent’s not gone — just sharing the spotlight. Download this podcast Download audio file (20081215_china_matters_2.mp3) A full transcript: I wanted to take a few minutes to lift our thinking out of the chaos and calamitous scenarios bombarding us in the news today to revisit and expand on one of our earlier podcasts by my cohort Kent Kedl on the topic “Why China Matters.” In that podcast, Kent encouraged us to keep our eye on the ball with respect to China — in terms of what it can contribute to both our top and bottom lines. He also warned us to keep our attention on China’s ability and increasing interest to invest in the West. As many of you no doubt have heard, there are a range of scenarios being bantered around about a Chinese auto company buying GM. While I think there are many hurdles to this scenario, even its possibility should grab our attention. China will continue to increase its standing in the world economy and thus affect our business, negatively or positively, whether we like it or not. Therefore, it has to remain on our strategic radar. In this podcast I wanted to give you some perspective on the “talk on the streets” from companies and observers actively playing in China’s market in order to get a read on their views of the opportunities and challenges facing western firms doing business there. I’ll also touch on the tactics and initiatives being considered as a response. These insights are assimilated from a range of sources, including our own Technomic team, our many clients (who comprise both large and small/medium sized firms both sourcing and selling in China), from local Chinese businessmen, as well as from our friends at AmCham-Shanghai. First let me acknowledge that all is not rosy in China either. Most firms are planning for lower growth (though you will note they do use the term “growth”) and, as you would expect, they see recession in Europe and the U.S. Credit is tight and the market for public offering of equity is very difficult. China’s stock market has also tumbled. Competition is becoming even fiercer with resultant price/margin pressure. This margin pressure extends throughout the whole supply chain. So local management see as the keys to success a major focus on cash and cutting costs while trying to maintain and even develop their human capital, attempting to keep morale up. They are looking to be more innovative and to excel in their supply chains. We continually hear the buzz words, “get lean,” “best practice” and “China is the best place to be.” Digging deeper Let’s probe a couple of these areas a little more deeply and identify some specific measures and initiatives being implemented by those companies taking a more proactive position in these tough times. Supply chain excellence remains a central theme with a focus on inventory reduction, scrap/waste elimination, capacity rationalization and better/smarter purchasing. As mentioned, credit risk management is a high priority as is the preservation of cash. One thing the Chinese businessman has taught me over the years is that “cash is king,” or emperor as the case may be. Importantly, and a central point I want to get across, is the continued emphasis on growth. China, despite some slowdown, still offers attractive possibilities to expand the top line, even in this world recession. To achieve this, companies are trying to get smarter in their commercial strategies, selecting high value/high margin projects, targeting higher growth industries and especially import substitution (perhaps a warning here for those of you feeling comfortable with your export channels into China’s marketplace). Additionally, they are maximizing access to global and regional accounts, trying to exert as much account leverage and influence as they can. The central theme here is proactivity. In these turbulent market conditions, disruptive strategies can be very effective, especially if your competition is distracted by such mundane things as survival. Let me also address a question that I hear constantly these days: Is manufacturing leaving China? I know how to say the word “no” in about 10 languages, so consider it said. Now, is China’s manufacturing profile changing? Absolutely! We see some attrition where manufacturing is very people intensive, has low margin and is highly polluting. The government seems content to let this type of manufacturing either survive on its own, or migrate to other Asian countries like Vietnam. We are seeing little abatement in manufacturing FDI coming into China. Look what at China offers manufacturers: A strong and deepening supply chain and infrastructure A major and continually growing domestic market in addition to export potential Large volume scale and its benefits to cost competitiveness An ample workforce that can be trained and empowered Significant latent productivity to be gained by further process improvements A very supportive pro-business government Talk to Westerners who have dealt with government, employees and unions in Vietnam, India or other developing southeast Asian nations. This may open your eyes to the positive things China offers. As we have repeated over the past year, China remains a strategic market for a dual-strategy approach: tapping the local market while developing secure and competitive sourcing for both domestic and international markets. And to quell the rumors of China’s impending demise that I see reported in the U.S. media, note the following: According to the “2009 Economic Blue Paper” released Dec. 2 by the Chinese Academy of Social Science, a central government think tank, China’s GDP is expected to grow 9.8 percent or so this year and should be able to be maintained at a growth rate of some 9.3 percent in 2009. The minimum GDP growth rate for 2009 as set by the government is 8 percent. Anything lower than this is not acceptable to the government, whose top priority is to maintain social stability. So I can imagine that the Chinese government will do whatever is possible to accomplish this “break-even” growth rate for 2009. The government has both the will and the means to make this happen, and we have seen no hesitation in the past for them to take action. If you like mind boggling numbers, note this one: Pledged investment by the central government for 2009/2010 is RMB 4 trillion! My calculator doesn’t have so many decimal places, but I reckon that’s almost $580 billion. Local governments are committing substantial funds, as well, which could significantly increase or even exceed this already massive figure. The central government even earmarked almost $15 billion for investment projects for the 4th quarter of 2008 to pad GDP a bit. As the Summer Olympics this year showed us, China can do things on a mind-boggling scale. The EIU forecasts that by 2030 China will have over one billion middle- or upper-class consumers and be second only to the U.S. in economic output. So, yes, China will have its struggles, but it ain’t going anywhere. Finally, let me leave you with a few take-aways in terms of actions you might consider with respect to China as you review your 2009 strategy: A clear theme among our client base is “smart growth.” This means being aggressive but more pointed in your projects and target markets/customers. To be effective, you must have current and accurate intelligence on your marketplace. Manufacturing efficiencies are there to be had. Explore lean strategies and bring your best practices to China. Even if you are working with third-party vendors, in the right buyer-supplier relationship, you can effectively transfer process knowledge to key partners to help them improve their competitiveness. Re-think your supply chain from start to finish. The recent dynamics in global markets have changed the landscape of sourcing costs and moving product around. Look at ways to optimize your supply chain and use it as an offensive weapon. You can exploit the strain your supply chain partners are feeling to develop a more efficient process and a more competitive supply structure. You may find, like the Detroit Three, as our auto companies are now called, that they are open to about any conditions in order to get “bailed out” of their present circumstances. Lastly, chaos is the breeding ground for disruptive strategies. Look at going forward or backward in your supply chain in order to add value and enhance control. Consider an aggressive acquisition. There are many cost-effective assets to be had in China if you know how to find and cultivate them. A strategic move here could alter the playing field in your market, both in China and internationally. With the lull in market demand and the difficulties in going IPO, you may find that there are more friendly targets out there among Chinese manufacturers than there have been in the last couple of years when many of these same companies were demanding 20-30 times earnings for a piece of the action. I hope these insights from the front lines have been helpful and that you will consider some of the actions I suggested. It is interesting to note that when the Chinese use the word for crisis (wei ji), it is a joining together of two words: “danger” and “opportunity.” Let’s not forget the second part of this meaning for crisis as we battle this economic environment. Stay tuned for continued updates from our teams at Technomic Asia and Tompkins Associates. Why China Matters - Part 2 Today’s podcast features Steve Ganster, managing director of Technomic Asia. Kent’s not gone — just sharing the spotlight. Download this podcast Download audio file (20081215_china_matters_2.mp3) A full transcript: I wanted to take a few minutes to lift our thinking out of the chaos and calamitous scenarios bombarding us in the news today to revisit and expand on one of our earlier podcasts by my cohort Kent Kedl on the topic “Why China Matters.” In that podcast, Kent encouraged us to keep our eye on the ball with respect to China — in terms of what it can contribute to both our top and bottom lines. He also warned us to keep our attention on China’s ability and increasing interest to invest in the West. As many of you no doubt have heard, there are a range of scenarios being bantered around about a Chinese auto company buying GM. While I think there are many hurdles to this scenario, even its possibility should grab our attention. China will continue to increase its standing in the world economy and thus affect our business, negatively or positively, whether we like it or not. Therefore, it has to remain on our strategic radar. In this podcast I wanted to give you some perspective on the “talk on the streets” from companies and observers actively playing in China’s market in order to get a read on their views of the opportunities and challenges facing western firms doing business there. I’ll also touch on the tactics and initiatives being considered as a response. These insights are assimilated from a range of sources, including our own Technomic team, our many clients (who comprise both large and small/medium sized firms both sourcing and selling in China), from local Chinese businessmen, as well as from our friends at AmCham-Shanghai. First let me acknowledge that all is not rosy in China either. Most firms are planning for lower growth (though you will note they do use the term “growth”) and, as you would expect, they see recession in Europe and the U.S. Credit is tight and the market for public offering of equity is very difficult. China’s stock market has also tumbled. Competition is becoming even fiercer with resultant price/margin pressure. This margin pressure extends throughout the whole supply chain. So local management see as the keys to success a major focus on cash and cutting costs while trying to maintain and even develop their human capital, attempting to keep morale up. They are looking to be more innovative and to excel in their supply chains. We continually hear the buzz words, “get lean,” “best practice” and “China is the best place to be.” Digging deeper Let’s probe a couple of these areas a little more deeply and identify some specific measures and initiatives being implemented by those companies taking a more proactive position in these tough times. Supply chain excellence remains a central theme with a focus on inventory reduction, scrap/waste elimination, capacity rationalization and better/smarter purchasing. As mentioned, credit risk management is a high priority as is the preservation of cash. One thing the Chinese businessman has taught me over the years is that “cash is king,” or emperor as the case may be. Importantly, and a central point I want to get across, is the continued emphasis on growth. China, despite some slowdown, still offers attractive possibilities to expand the top line, even in this world recession. To achieve this, companies are trying to get smarter in their commercial strategies, selecting high value/high margin projects, targeting higher growth industries and especially import substitution (perhaps a warning here for those of you feeling comfortable with your export channels into China’s marketplace). Additionally, they are maximizing access to global and regional accounts, trying to exert as much account leverage and influence as they can. The central theme here is proactivity. In these turbulent market conditions, disruptive strategies can be very effective, especially if your competition is distracted by such mundane things as survival. Let me also address a question that I hear constantly these days: Is manufacturing leaving China? I know how to say the word “no” in about 10 languages, so consider it said. Now, is China’s manufacturing profile changing? Absolutely! We see some attrition where manufacturing is very people intensive, has low margin and is highly polluting. The government seems content to let this type of manufacturing either survive on its own, or migrate to other Asian countries like Vietnam. We are seeing little abatement in manufacturing FDI coming into China. Look what at China offers manufacturers: A strong and deepening supply chain and infrastructure A major and continually growing domestic market in addition to export potential Large volume scale and its benefits to cost competitiveness An ample workforce that can be trained and empowered Significant latent productivity to be gained by further process improvements A very supportive pro-business government Talk to Westerners who have dealt with government, employees and unions in Vietnam, India or other developing southeast Asian nations. This may open your eyes to the positive things China offers. As we have repeated over the past year, China remains a strategic market for a dual-strategy approach: tapping the local market while developing secure and competitive sourcing for both domestic and international markets. And to quell the rumors of China’s impending demise that I see reported in the U.S. media, note the following: According to the “2009 Economic Blue Paper” released Dec. 2 by the Chinese Academy of Social Science, a central government think tank, China’s GDP is expected to grow 9.8 percent or so this year and should be able to be maintained at a growth rate of some 9.3 percent in 2009. The minimum GDP growth rate for 2009 as set by the government is 8 percent. Anything lower than this is not acceptable to the government, whose top priority is to maintain social stability. So I can imagine that the Chinese government will do whatever is possible to accomplish this “break-even” growth rate for 2009. The government has both the will and the means to make this happen, and we have seen no hesitation in the past for them to take action. If you like mind boggling numbers, note this one: Pledged investment by the central government for 2009/2010 is RMB 4 trillion! My calculator doesn’t have so many decimal places, but I reckon that’s almost $580 billion. Local governments are committing substantial funds, as well, which could significantly increase or even exceed this already massive figure. The central government even earmarked almost $15 billion for investment projects for the 4th quarter of 2008 to pad GDP a bit. As the Summer Olympics this year showed us, China can do things on a mind-boggling scale. The EIU forecasts that by 2030 China will have over one billion middle- or upper-class consumers and be second only to the U.S. in economic output. So, yes, China will have its struggles, but it ain’t going anywhere. Finally, let me leave you with a few take-aways in terms of actions you might consider with respect to China as you review your 2009 strategy: A clear theme among our client base is “smart growth.” This means being aggressive but more pointed in your projects and target markets/customers. To be effective, you must have current and accurate intelligence on your marketplace. Manufacturing efficiencies are there to be had. Explore lean strategies and bring your best practices to China. Even if you are working with third-party vendors, in the right buyer-supplier relationship, you can effectively transfer process knowledge to key partners to help them improve their competitiveness. Re-think your supply chain from start to finish. The recent dynamics in global markets have changed the landscape of sourcing costs and moving product around. Look at ways to optimize your supply chain and use it as an offensive weapon. You can exploit the strain your supply chain partners are feeling to develop a more efficient process and a more competitive supply structure. You may find, like the Detroit Three, as our auto companies are now called, that they are open to about any conditions in order to get “bailed out” of their present circumstances. Lastly, chaos is the breeding ground for disruptive strategies. Look at going forward or backward in your supply chain in order to add value and enhance control. Consider an aggressive acquisition. There are many cost-effective assets to be had in China if you know how to find and cultivate them. A strategic move here could alter the playing field in your market, both in China and internationally. With the lull in market demand and the difficulties in going IPO, you may find that there are more friendly targets out there among Chinese manufacturers than there have been in the last couple of years when many of these same companies were demanding 20-30 times earnings for a piece of the action. I hope these insights from the front lines have been helpful and that you will consider some of the actions I suggested. It is interesting to note that when the Chinese use the word for crisis (wei ji), it is a joining together of two words: “danger” and “opportunity.” Let’s not forget the second part of this meaning for crisis as we battle this economic environment. Stay tuned for continued updates from our teams at Technomic Asia and Tompkins Associates. tag:odeo.com,2008-12-15,23757331 Mon, 15 Dec 2008 11:13:23 -0800 no China Business Blog and Podcast podcast, strategy, China, economy, supply chain http://www.odeo.com/episodes/23774812-Why-China-matters-part-2 Why China Matters - Part 2 Today’s podcast features Steve Ganster, managing director of Technomic Asia. Kent’s not gone — just sharing the spotlight. Download this podcast Download audio file (20081215_china_matters_2.mp3) A full transcript: I wanted to take a few minutes to lift our thinking out of the chaos and calamitous scenarios bombarding us in the news today to revisit and expand on one of our earlier podcasts by my cohort Kent Kedl on the topic “Why China Matters.” In that podcast, Kent encouraged us to keep our eye on the ball with respect to China — in terms of what it can contribute to both our top and bottom lines. He also warned us to keep our attention on China’s ability and increasing interest to invest in the West. As many of you no doubt have heard, there are a range of scenarios being bantered around about a Chinese auto company buying GM. While I think there are many hurdles to this scenario, even its possibility should gr... Why China Matters - Part 2 Today’s podcast features Steve Ganster, managing director of Technomic Asia. Kent’s not gone — just sharing the spotlight. Download this podcast Download audio file (20081215_china_matters_2.mp3) A full transcript: I wanted to take a few minutes to lift our thinking out of the chaos and calamitous scenarios bombarding us in the news today to revisit and expand on one of our earlier podcasts by my cohort Kent Kedl on the topic “Why China Matters.” In that podcast, Kent encouraged us to keep our eye on the ball with respect to China — in terms of what it can contribute to both our top and bottom lines. He also warned us to keep our attention on China’s ability and increasing interest to invest in the West. As many of you no doubt have heard, there are a range of scenarios being bantered around about a Chinese auto company buying GM. While I think there are many hurdles to this scenario, even its possibility should grab our attention. China will continue to increase its standing in the world economy and thus affect our business, negatively or positively, whether we like it or not. Therefore, it has to remain on our strategic radar. In this podcast I wanted to give you some perspective on the “talk on the streets” from companies and observers actively playing in China’s market in order to get a read on their views of the opportunities and challenges facing western firms doing business there. I’ll also touch on the tactics and initiatives being considered as a response. These insights are assimilated from a range of sources, including our own Technomic team, our many clients (who comprise both large and small/medium sized firms both sourcing and selling in China), from local Chinese businessmen, as well as from our friends at AmCham-Shanghai. First let me acknowledge that all is not rosy in China either. Most firms are planning for lower growth (though you will note they do use the term “growth”) and, as you would expect, they see recession in Europe and the U.S. Credit is tight and the market for public offering of equity is very difficult. China’s stock market has also tumbled. Competition is becoming even fiercer with resultant price/margin pressure. This margin pressure extends throughout the whole supply chain. So local management see as the keys to success a major focus on cash and cutting costs while trying to maintain and even develop their human capital, attempting to keep morale up. They are looking to be more innovative and to excel in their supply chains. We continually hear the buzz words, “get lean,” “best practice” and “China is the best place to be.” Digging deeper Let’s probe a couple of these areas a little more deeply and identify some specific measures and initiatives being implemented by those companies taking a more proactive position in these tough times. Supply chain excellence remains a central theme with a focus on inventory reduction, scrap/waste elimination, capacity rationalization and better/smarter purchasing. As mentioned, credit risk management is a high priority as is the preservation of cash. One thing the Chinese businessman has taught me over the years is that “cash is king,” or emperor as the case may be. Importantly, and a central point I want to get across, is the continued emphasis on growth. China, despite some slowdown, still offers attractive possibilities to expand the top line, even in this world recession. To achieve this, companies are trying to get smarter in their commercial strategies, selecting high value/high margin projects, targeting higher growth industries and especially import substitution (perhaps a warning here for those of you feeling comfortable with your export channels into China’s marketplace). Additionally, they are maximizing access to global and regional accounts, trying to exert as much account leverage and influence as they can. The central theme here is proactivity. In these turbulent market conditions, disruptive strategies can be very effective, especially if your competition is distracted by such mundane things as survival. Let me also address a question that I hear constantly these days: Is manufacturing leaving China? I know how to say the word “no” in about 10 languages, so consider it said. Now, is China’s manufacturing profile changing? Absolutely! We see some attrition where manufacturing is very people intensive, has low margin and is highly polluting. The government seems content to let this type of manufacturing either survive on its own, or migrate to other Asian countries like Vietnam. We are seeing little abatement in manufacturing FDI coming into China. Look what at China offers manufacturers: A strong and deepening supply chain and infrastructure A major and continually growing domestic market in addition to export potential Large volume scale and its benefits to cost competitiveness An ample workforce that can be trained and empowered Significant latent productivity to be gained by further process improvements A very supportive pro-business government Talk to Westerners who have dealt with government, employees and unions in Vietnam, India or other developing southeast Asian nations. This may open your eyes to the positive things China offers. As we have repeated over the past year, China remains a strategic market for a dual-strategy approach: tapping the local market while developing secure and competitive sourcing for both domestic and international markets. And to quell the rumors of China’s impending demise that I see reported in the U.S. media, note the following: According to the “2009 Economic Blue Paper” released Dec. 2 by the Chinese Academy of Social Science, a central government think tank, China’s GDP is expected to grow 9.8 percent or so this year and should be able to be maintained at a growth rate of some 9.3 percent in 2009. The minimum GDP growth rate for 2009 as set by the government is 8 percent. Anything lower than this is not acceptable to the government, whose top priority is to maintain social stability. So I can imagine that the Chinese government will do whatever is possible to accomplish this “break-even” growth rate for 2009. The government has both the will and the means to make this happen, and we have seen no hesitation in the past for them to take action. If you like mind boggling numbers, note this one: Pledged investment by the central government for 2009/2010 is RMB 4 trillion! My calculator doesn’t have so many decimal places, but I reckon that’s almost $580 billion. Local governments are committing substantial funds, as well, which could significantly increase or even exceed this already massive figure. The central government even earmarked almost $15 billion for investment projects for the 4th quarter of 2008 to pad GDP a bit. As the Summer Olympics this year showed us, China can do things on a mind-boggling scale. The EIU forecasts that by 2030 China will have over one billion middle- or upper-class consumers and be second only to the U.S. in economic output. So, yes, China will have its struggles, but it ain’t going anywhere. Finally, let me leave you with a few take-aways in terms of actions you might consider with respect to China as you review your 2009 strategy: A clear theme among our client base is “smart growth.” This means being aggressive but more pointed in your projects and target markets/customers. To be effective, you must have current and accurate intelligence on your marketplace. Manufacturing efficiencies are there to be had. Explore lean strategies and bring your best practices to China. Even if you are working with third-party vendors, in the right buyer-supplier relationship, you can effectively transfer process knowledge to key partners to help them improve their competitiveness. Re-think your supply chain from start to finish. The recent dynamics in global markets have changed the landscape of sourcing costs and moving product around. Look at ways to optimize your supply chain and use it as an offensive weapon. You can exploit the strain your supply chain partners are feeling to develop a more efficient process and a more competitive supply structure. You may find, like the Detroit Three, as our auto companies are now called, that they are open to about any conditions in order to get “bailed out” of their present circumstances. Lastly, chaos is the breeding ground for disruptive strategies. Look at going forward or backward in your supply chain in order to add value and enhance control. Consider an aggressive acquisition. There are many cost-effective assets to be had in China if you know how to find and cultivate them. A strategic move here could alter the playing field in your market, both in China and internationally. With the lull in market demand and the difficulties in going IPO, you may find that there are more friendly targets out there among Chinese manufacturers than there have been in the last couple of years when many of these same companies were demanding 20-30 times earnings for a piece of the action. I hope these insights from the front lines have been helpful and that you will consider some of the actions I suggested. It is interesting to note that when the Chinese use the word for crisis (wei ji), it is a joining together of two words: “danger” and “opportunity.” Let’s not forget the second part of this meaning for crisis as we battle this economic environment. Stay tuned for continued updates from our teams at Technomic Asia and Tompkins Associates. Why China Matters - Part 2 Today’s podcast features Steve Ganster, managing director of Technomic Asia. Kent’s not gone — just sharing the spotlight. Download this podcast Download audio file (20081215_china_matters_2.mp3) A full transcript: I wanted to take a few minutes to lift our thinking out of the chaos and calamitous scenarios bombarding us in the news today to revisit and expand on one of our earlier podcasts by my cohort Kent Kedl on the topic “Why China Matters.” In that podcast, Kent encouraged us to keep our eye on the ball with respect to China — in terms of what it can contribute to both our top and bottom lines. He also warned us to keep our attention on China’s ability and increasing interest to invest in the West. As many of you no doubt have heard, there are a range of scenarios being bantered around about a Chinese auto company buying GM. While I think there are many hurdles to this scenario, even its possibility should grab our attention. China will continue to increase its standing in the world economy and thus affect our business, negatively or positively, whether we like it or not. Therefore, it has to remain on our strategic radar. In this podcast I wanted to give you some perspective on the “talk on the streets” from companies and observers actively playing in China’s market in order to get a read on their views of the opportunities and challenges facing western firms doing business there. I’ll also touch on the tactics and initiatives being considered as a response. These insights are assimilated from a range of sources, including our own Technomic team, our many clients (who comprise both large and small/medium sized firms both sourcing and selling in China), from local Chinese businessmen, as well as from our friends at AmCham-Shanghai. First let me acknowledge that all is not rosy in China either. Most firms are planning for lower growth (though you will note they do use the term “growth”) and, as you would expect, they see recession in Europe and the U.S. Credit is tight and the market for public offering of equity is very difficult. China’s stock market has also tumbled. Competition is becoming even fiercer with resultant price/margin pressure. This margin pressure extends throughout the whole supply chain. So local management see as the keys to success a major focus on cash and cutting costs while trying to maintain and even develop their human capital, attempting to keep morale up. They are looking to be more innovative and to excel in their supply chains. We continually hear the buzz words, “get lean,” “best practice” and “China is the best place to be.” Digging deeper Let’s probe a couple of these areas a little more deeply and identify some specific measures and initiatives being implemented by those companies taking a more proactive position in these tough times. Supply chain excellence remains a central theme with a focus on inventory reduction, scrap/waste elimination, capacity rationalization and better/smarter purchasing. As mentioned, credit risk management is a high priority as is the preservation of cash. One thing the Chinese businessman has taught me over the years is that “cash is king,” or emperor as the case may be. Importantly, and a central point I want to get across, is the continued emphasis on growth. China, despite some slowdown, still offers attractive possibilities to expand the top line, even in this world recession. To achieve this, companies are trying to get smarter in their commercial strategies, selecting high value/high margin projects, targeting higher growth industries and especially import substitution (perhaps a warning here for those of you feeling comfortable with your export channels into China’s marketplace). Additionally, they are maximizing access to global and regional accounts, trying to exert as much account leverage and influence as they can. The central theme here is proactivity. In these turbulent market conditions, disruptive strategies can be very effective, especially if your competition is distracted by such mundane things as survival. Let me also address a question that I hear constantly these days: Is manufacturing leaving China? I know how to say the word “no” in about 10 languages, so consider it said. Now, is China’s manufacturing profile changing? Absolutely! We see some attrition where manufacturing is very people intensive, has low margin and is highly polluting. The government seems content to let this type of manufacturing either survive on its own, or migrate to other Asian countries like Vietnam. We are seeing little abatement in manufacturing FDI coming into China. Look what at China offers manufacturers: A strong and deepening supply chain and infrastructure A major and continually growing domestic market in addition to export potential Large volume scale and its benefits to cost competitiveness An ample workforce that can be trained and empowered Significant latent productivity to be gained by further process improvements A very supportive pro-business government Talk to Westerners who have dealt with government, employees and unions in Vietnam, India or other developing southeast Asian nations. This may open your eyes to the positive things China offers. As we have repeated over the past year, China remains a strategic market for a dual-strategy approach: tapping the local market while developing secure and competitive sourcing for both domestic and international markets. And to quell the rumors of China’s impending demise that I see reported in the U.S. media, note the following: According to the “2009 Economic Blue Paper” released Dec. 2 by the Chinese Academy of Social Science, a central government think tank, China’s GDP is expected to grow 9.8 percent or so this year and should be able to be maintained at a growth rate of some 9.3 percent in 2009. The minimum GDP growth rate for 2009 as set by the government is 8 percent. Anything lower than this is not acceptable to the government, whose top priority is to maintain social stability. So I can imagine that the Chinese government will do whatever is possible to accomplish this “break-even” growth rate for 2009. The government has both the will and the means to make this happen, and we have seen no hesitation in the past for them to take action. If you like mind boggling numbers, note this one: Pledged investment by the central government for 2009/2010 is RMB 4 trillion! My calculator doesn’t have so many decimal places, but I reckon that’s almost $580 billion. Local governments are committing substantial funds, as well, which could significantly increase or even exceed this already massive figure. The central government even earmarked almost $15 billion for investment projects for the 4th quarter of 2008 to pad GDP a bit. As the Summer Olympics this year showed us, China can do things on a mind-boggling scale. The EIU forecasts that by 2030 China will have over one billion middle- or upper-class consumers and be second only to the U.S. in economic output. So, yes, China will have its struggles, but it ain’t going anywhere. Finally, let me leave you with a few take-aways in terms of actions you might consider with respect to China as you review your 2009 strategy: A clear theme among our client base is “smart growth.” This means being aggressive but more pointed in your projects and target markets/customers. To be effective, you must have current and accurate intelligence on your marketplace. Manufacturing efficiencies are there to be had. Explore lean strategies and bring your best practices to China. Even if you are working with third-party vendors, in the right buyer-supplier relationship, you can effectively transfer process knowledge to key partners to help them improve their competitiveness. Re-think your supply chain from start to finish. The recent dynamics in global markets have changed the landscape of sourcing costs and moving product around. Look at ways to optimize your supply chain and use it as an offensive weapon. You can exploit the strain your supply chain partners are feeling to develop a more efficient process and a more competitive supply structure. You may find, like the Detroit Three, as our auto companies are now called, that they are open to about any conditions in order to get “bailed out” of their present circumstances. Lastly, chaos is the breeding ground for disruptive strategies. Look at going forward or backward in your supply chain in order to add value and enhance control. Consider an aggressive acquisition. There are many cost-effective assets to be had in China if you know how to find and cultivate them. A strategic move here could alter the playing field in your market, both in China and internationally. With the lull in market demand and the difficulties in going IPO, you may find that there are more friendly targets out there among Chinese manufacturers than there have been in the last couple of years when many of these same companies were demanding 20-30 times earnings for a piece of the action. I hope these insights from the front lines have been helpful and that you will consider some of the actions I suggested. It is interesting to note that when the Chinese use the word for crisis (wei ji), it is a joining together of two words: “danger” and “opportunity.” Let’s not forget the second part of this meaning for crisis as we battle this economic environment. Stay tuned for continued updates from our teams at Technomic Asia and Tompkins Associates. tag:odeo.com,2008-12-15,23774812 Mon, 15 Dec 2008 11:13:23 -0800 no China Business Blog and Podcast podcast, strategy, China, economy, supply chain http://www.odeo.com/episodes/23774813-Talking-monkey Talking monkey Download this podcast Download audio file (20081204_talking_monkey.mp3) A common question among the foreign community in China is “Do you speak Chinese?” Well, my answer is yes, but with a somewhat metaphysical qualification. Yes, I speak Chinese, however I’m unsure that when I do that I am really “me” — or even human. Because to the non-philosophy majors (i.e. those with a real education) “metaphysics” often means “confusion,” allow me to explain. To my Chinese friends and co-workers, I am neither funny nor witty in Chinese, though I like to think I am (maybe mistakenly) in my native language. I am certainly interesting, in the same sense that monkeys are amusing when taught to use simple sign language. I can talk, but it is not communication. It is desperation. Some people say I am “bright” because I can pick up the language or “clever” because I can mimic an accent. Yet I don’... Talking monkey Download this podcast Download audio file (20081204_talking_monkey.mp3) A common question among the foreign community in China is “Do you speak Chinese?” Well, my answer is yes, but with a somewhat metaphysical qualification. Yes, I speak Chinese, however I’m unsure that when I do that I am really “me” — or even human. Because to the non-philosophy majors (i.e. those with a real education) “metaphysics” often means “confusion,” allow me to explain. To my Chinese friends and co-workers, I am neither funny nor witty in Chinese, though I like to think I am (maybe mistakenly) in my native language. I am certainly interesting, in the same sense that monkeys are amusing when taught to use simple sign language. I can talk, but it is not communication. It is desperation. Some people say I am “bright” because I can pick up the language or “clever” because I can mimic an accent. Yet I don’t consider those attributes “human.” This reason being, communication has nothing to do with fluency and everything to do with culture. In China, to be human is to use the Chinese language and to use it properly. Anthropologists have discovered rudimentary Chinese characters scratched into turtle shells and cattle bones many thousands of years old. To be Chinese is to be attached to this history by some unseen umbilical cord that feeds you and keeps you alive. To really speak Chinese, one must incorporate that history. The idiom, and its linguistic cousins, is shunned in the English language — as a high school English teacher said to us, “avoid cliches like the plague!” However, in Chinese, to speak the language properly, one must correctly use cheng-yu, idiomatic parts of speech passed down over millennia that define what it means to be Chinese. In China, you are “human” not because you sound human but because you are able to link yourself with the rest of humanity (i.e., the Chinese). When you speak or write in Chinese, your audience is much broader than the receiver(s) of your immediate message. The Chinese ancestors hover about your conversations and they are disappointed when you miss an opportunity to refer to a present situation in light of the past, for it is the past that is their primary concern. These forbears still communicate with the modern generation and they are strict teachers, ready to rap you on the knuckles with the ruler of historical linguistics should you neglect their lessons. One can think of communication not as a process of passing a “message” from sender to receiver but rather as a way of sharing meaning. A conversation can be a “sacred ceremony” wherein meaning is shared and reality is created, altered and negotiated. According to this perspective, my primary purpose for communicating is not to get someone to do something (although that may also happen), but it is to tie myself to that person, to share something beyond the words of the liturgy and to the spirit of the relationship. To be able to take part in that ceremony, one must be a “believer” in a linguistic sense. In Chinese, the meaning, history and feel of the words must reside in your soul, not in a dictionary. So yes, I guess I “speak Chinese,” but not as a believer. In Chinese, I am a heathen, like noted atheist Madeline Murray O’Hare reciting the Common Book of Prayer — you know what the words mean, but you are not quite sure what she means. Which is why I prefer to communicate in English, because when I do I feel a weight lifted from my shoulders, a great linguistic burden placed there by the whim of natural geography and about 10,000 years of Chinese history. Suddenly, I am no longer a talking monkey — I am human again. Talking monkey Download this podcast Download audio file (20081204_talking_monkey.mp3) A common question among the foreign community in China is “Do you speak Chinese?” Well, my answer is yes, but with a somewhat metaphysical qualification. Yes, I speak Chinese, however I’m unsure that when I do that I am really “me” — or even human. Because to the non-philosophy majors (i.e. those with a real education) “metaphysics” often means “confusion,” allow me to explain. To my Chinese friends and co-workers, I am neither funny nor witty in Chinese, though I like to think I am (maybe mistakenly) in my native language. I am certainly interesting, in the same sense that monkeys are amusing when taught to use simple sign language. I can talk, but it is not communication. It is desperation. Some people say I am “bright” because I can pick up the language or “clever” because I can mimic an accent. Yet I don’t consider those attributes “human.” This reason being, communication has nothing to do with fluency and everything to do with culture. In China, to be human is to use the Chinese language and to use it properly. Anthropologists have discovered rudimentary Chinese characters scratched into turtle shells and cattle bones many thousands of years old. To be Chinese is to be attached to this history by some unseen umbilical cord that feeds you and keeps you alive. To really speak Chinese, one must incorporate that history. The idiom, and its linguistic cousins, is shunned in the English language — as a high school English teacher said to us, “avoid cliches like the plague!” However, in Chinese, to speak the language properly, one must correctly use cheng-yu, idiomatic parts of speech passed down over millennia that define what it means to be Chinese. In China, you are “human” not because you sound human but because you are able to link yourself with the rest of humanity (i.e., the Chinese). When you speak or write in Chinese, your audience is much broader than the receiver(s) of your immediate message. The Chinese ancestors hover about your conversations and they are disappointed when you miss an opportunity to refer to a present situation in light of the past, for it is the past that is their primary concern. These forbears still communicate with the modern generation and they are strict teachers, ready to rap you on the knuckles with the ruler of historical linguistics should you neglect their lessons. One can think of communication not as a process of passing a “message” from sender to receiver but rather as a way of sharing meaning. A conversation can be a “sacred ceremony” wherein meaning is shared and reality is created, altered and negotiated. According to this perspective, my primary purpose for communicating is not to get someone to do something (although that may also happen), but it is to tie myself to that person, to share something beyond the words of the liturgy and to the spirit of the relationship. To be able to take part in that ceremony, one must be a “believer” in a linguistic sense. In Chinese, the meaning, history and feel of the words must reside in your soul, not in a dictionary. So yes, I guess I “speak Chinese,” but not as a believer. In Chinese, I am a heathen, like noted atheist Madeline Murray O’Hare reciting the Common Book of Prayer — you know what the words mean, but you are not quite sure what she means. Which is why I prefer to communicate in English, because when I do I feel a weight lifted from my shoulders, a great linguistic burden placed there by the whim of natural geography and about 10,000 years of Chinese history. Suddenly, I am no longer a talking monkey — I am human again. tag:odeo.com,2008-12-04,23774813 Thu, 04 Dec 2008 15:33:53 -0800 no China Business Blog and Podcast communication, China, language, chinese http://www.odeo.com/episodes/23706747-Talking-monkey Talking monkey Download this podcast Download audio file (20081204_talking_monkey.mp3) A common question among the foreign community in China is “Do you speak Chinese?” Well, my answer is yes, but with a somewhat metaphysical qualification. Yes, I speak Chinese, however I’m unsure that when I do that I am really “me” — or even human. Because to the non-philosophy majors (i.e. those with a real education) “metaphysics” often means “confusion,” allow me to explain. To my Chinese friends and co-workers, I am neither funny nor witty in Chinese, though I like to think I am (maybe mistakenly) in my native language. I am certainly interesting, in the same sense that monkeys are amusing when taught to use simple sign language. I can talk, but it is not communication. It is desperation. Some people say I am “bright” because I can pick up the language or “clever” because I can mimic an accent. Yet I don’... Talking monkey Download this podcast Download audio file (20081204_talking_monkey.mp3) A common question among the foreign community in China is “Do you speak Chinese?” Well, my answer is yes, but with a somewhat metaphysical qualification. Yes, I speak Chinese, however I’m unsure that when I do that I am really “me” — or even human. Because to the non-philosophy majors (i.e. those with a real education) “metaphysics” often means “confusion,” allow me to explain. To my Chinese friends and co-workers, I am neither funny nor witty in Chinese, though I like to think I am (maybe mistakenly) in my native language. I am certainly interesting, in the same sense that monkeys are amusing when taught to use simple sign language. I can talk, but it is not communication. It is desperation. Some people say I am “bright” because I can pick up the language or “clever” because I can mimic an accent. Yet I don’t consider those attributes “human.” This reason being, communication has nothing to do with fluency and everything to do with culture. In China, to be human is to use the Chinese language and to use it properly. Anthropologists have discovered rudimentary Chinese characters scratched into turtle shells and cattle bones many thousands of years old. To be Chinese is to be attached to this history by some unseen umbilical cord that feeds you and keeps you alive. To really speak Chinese, one must incorporate that history. The idiom, and its linguistic cousins, is shunned in the English language — as a high school English teacher said to us, “avoid cliches like the plague!” However, in Chinese, to speak the language properly, one must correctly use cheng-yu, idiomatic parts of speech passed down over millennia that define what it means to be Chinese. In China, you are “human” not because you sound human but because you are able to link yourself with the rest of humanity (i.e., the Chinese). When you speak or write in Chinese, your audience is much broader than the receiver(s) of your immediate message. The Chinese ancestors hover about your conversations and they are disappointed when you miss an opportunity to refer to a present situation in light of the past, for it is the past that is their primary concern. These forbears still communicate with the modern generation and they are strict teachers, ready to rap you on the knuckles with the ruler of historical linguistics should you neglect their lessons. One can think of communication not as a process of passing a “message” from sender to receiver but rather as a way of sharing meaning. A conversation can be a “sacred ceremony” wherein meaning is shared and reality is created, altered and negotiated. According to this perspective, my primary purpose for communicating is not to get someone to do something (although that may also happen), but it is to tie myself to that person, to share something beyond the words of the liturgy and to the spirit of the relationship. To be able to take part in that ceremony, one must be a “believer” in a linguistic sense. In Chinese, the meaning, history and feel of the words must reside in your soul, not in a dictionary. So yes, I guess I “speak Chinese,” but not as a believer. In Chinese, I am a heathen, like noted atheist Madeline Murray O’Hare reciting the Common Book of Prayer — you know what the words mean, but you are not quite sure what she means. Which is why I prefer to communicate in English, because when I do I feel a weight lifted from my shoulders, a great linguistic burden placed there by the whim of natural geography and about 10,000 years of Chinese history. Suddenly, I am no longer a talking monkey — I am human again. Talking monkey Download this podcast Download audio file (20081204_talking_monkey.mp3) A common question among the foreign community in China is “Do you speak Chinese?” Well, my answer is yes, but with a somewhat metaphysical qualification. Yes, I speak Chinese, however I’m unsure that when I do that I am really “me” — or even human. Because to the non-philosophy majors (i.e. those with a real education) “metaphysics” often means “confusion,” allow me to explain. To my Chinese friends and co-workers, I am neither funny nor witty in Chinese, though I like to think I am (maybe mistakenly) in my native language. I am certainly interesting, in the same sense that monkeys are amusing when taught to use simple sign language. I can talk, but it is not communication. It is desperation. Some people say I am “bright” because I can pick up the language or “clever” because I can mimic an accent. Yet I don’t consider those attributes “human.” This reason being, communication has nothing to do with fluency and everything to do with culture. In China, to be human is to use the Chinese language and to use it properly. Anthropologists have discovered rudimentary Chinese characters scratched into turtle shells and cattle bones many thousands of years old. To be Chinese is to be attached to this history by some unseen umbilical cord that feeds you and keeps you alive. To really speak Chinese, one must incorporate that history. The idiom, and its linguistic cousins, is shunned in the English language — as a high school English teacher said to us, “avoid cliches like the plague!” However, in Chinese, to speak the language properly, one must correctly use cheng-yu, idiomatic parts of speech passed down over millennia that define what it means to be Chinese. In China, you are “human” not because you sound human but because you are able to link yourself with the rest of humanity (i.e., the Chinese). When you speak or write in Chinese, your audience is much broader than the receiver(s) of your immediate message. The Chinese ancestors hover about your conversations and they are disappointed when you miss an opportunity to refer to a present situation in light of the past, for it is the past that is their primary concern. These forbears still communicate with the modern generation and they are strict teachers, ready to rap you on the knuckles with the ruler of historical linguistics should you neglect their lessons. One can think of communication not as a process of passing a “message” from sender to receiver but rather as a way of sharing meaning. A conversation can be a “sacred ceremony” wherein meaning is shared and reality is created, altered and negotiated. According to this perspective, my primary purpose for communicating is not to get someone to do something (although that may also happen), but it is to tie myself to that person, to share something beyond the words of the liturgy and to the spirit of the relationship. To be able to take part in that ceremony, one must be a “believer” in a linguistic sense. In Chinese, the meaning, history and feel of the words must reside in your soul, not in a dictionary. So yes, I guess I “speak Chinese,” but not as a believer. In Chinese, I am a heathen, like noted atheist Madeline Murray O’Hare reciting the Common Book of Prayer — you know what the words mean, but you are not quite sure what she means. Which is why I prefer to communicate in English, because when I do I feel a weight lifted from my shoulders, a great linguistic burden placed there by the whim of natural geography and about 10,000 years of Chinese history. Suddenly, I am no longer a talking monkey — I am human again. tag:odeo.com,2008-12-04,23706747 Thu, 04 Dec 2008 15:33:53 -0800 no China Business Blog and Podcast communication, China, language, chinese http://www.odeo.com/episodes/23774814-Out-with-the-Old%E2%80%A6 Out with the Old… Download this podcast Download audio file (20081107_out_with_the_old.mp3) Well, the elections in the U.S. just came to a historic conclusion, and amidst those rejoicing and those preaching gloom and doom, there is a general agreement that the United States has done something “new.” What was once thought absolutely inconceivable just two generations ago is a reality. It doesn’t mean that the old racist attitudes and systems are a thing of the past (I think some unfortunate events during the campaign proved that this is not the case). However, everyone I have talked to — from all points on the political spectrum — feels that we have, to some extent, sloughed off the “old” way of thinking and are in some “new” territory. In today’s podcast, I want to talk about this transition from the “old” to the “new” — but I would like to apply it to today’s environment of global ... Out with the Old… Download this podcast Download audio file (20081107_out_with_the_old.mp3) Well, the elections in the U.S. just came to a historic conclusion, and amidst those rejoicing and those preaching gloom and doom, there is a general agreement that the United States has done something “new.” What was once thought absolutely inconceivable just two generations ago is a reality. It doesn’t mean that the old racist attitudes and systems are a thing of the past (I think some unfortunate events during the campaign proved that this is not the case). However, everyone I have talked to — from all points on the political spectrum — feels that we have, to some extent, sloughed off the “old” way of thinking and are in some “new” territory. In today’s podcast, I want to talk about this transition from the “old” to the “new” — but I would like to apply it to today’s environment of global business. And the subject was not originally inspired by the election, though I personally found it very inspiring. Rather, it came from a note sent to me by Scott Tong, a friend of mine who is a journalist with Marketplace at National Public Radio. He said he wanted to talk about “this big-picture existential conversation about the U.S.-China ‘global imbalance’ — Chinese oversave, Americans overconsume and it’s unhealthy for both sides. Do you ever think about that? Does it overlap with your work?” I was going to send him back some piffle, but once I started writing, I just kept going. By the time I looked up, I had written some massive treatise to what was, possibly, just an interesting question on his part but from which I had departed on my own rant. It might still be piffle, and there is a lot of that, but I thought it would make an interesting and timely subject for this week’s podcast, given the global pondering of the old and the new. So if you hear Scott address this issue on his program, I would believe him before me (he has a much larger audience and gets paid to do that besides!). Anyway, here is what I wrote to him… Hmmm… “Is there an unhealthy global imbalance between U.S. over-consumers and Chinese under-consumers?” Interesting question, but I think it is actually just as practical as it is existential, in part because it is using the language of an “old” way of thinking. In our business, we deal with this all the time in the microcosm of an individual company trying to balance out supply and demand in their own chain. The problem is that the road we took into this mess is not the one that will take us out, and we are always working with companies to get them to see this. For example, a company might have built their current business structure (and size and profitability) on the foundation of a stable, predictable (and, typically, growing) U.S. demand. Sure, they might have international sales too, but their real bread and butter is their domestic market. Some of them have been doing this for generations and their company structure and culture is based on it. And its not just small companies — most of the bigger companies are still, by far, larger in their markets of origin than they are in other markets (there are a few exceptions like GE, but they are exceptions and not the rule). Of course, this is logical: you would expect to be strongest in the market where you began. And when times are good, that’s not necessarily a bad thing. But fast forward to today where one of the most stable, predictable (and growing) markets is China — and the U.S. is unstable, wildly unpredictable and in recession (and Europe, in many ways, is even worse). Asking about U.S. vs. Chinese consumption in this environment always comes up with a messy answer, in part because it does not account for all the inputs of this new situation. And the typical company does not have the resources or the experience to deal with something like this. This is a brand new machine, and they see all these buttons and levers in front of them and they don’t know which to push and pull (and in what order) for good things to happen. In fact, most American companies are still in denial and think global expansion is optional. Our European friends look at Americans and just shake their heads. They know that going global is not optional, and, in fact, many of them are here ahead of us. And most Asian economies were built on going global and, like China, have to learn how to rely more on their domestic markets. Expand this out to the macro economies of the world and you see the problem magnified. We can talk about “U.S. consumption” and “Chinese savings,” but those are just broad (and fundamentally inaccurate) descriptions of a phenomenon that we really don’t have the language to describe yet. By calling it an “existential question,” you already know that to reduce the issue to a drop in U.S. consumption and “stuck” Chinese savings does not do justice to the problem. But we are talking two languages here: the first is the language of a business culture in which the West are consumers and Asia are producers — U.S. demand drives global markets and U.S. money funds global growth. The second is the language of truly global commerce where supply and demand is not just filled — it is actually created and the people with the money could be anywhere. To introduce (and probably butcher) yet another metaphor, it’s like going from doing math to playing jazz. There are relationships between the two of them, and mathematic principles can be identified within jazz. But we know that to explain jazz using only mathematics does not do justice to what jazz really is. So this is where the existentialism comes in — in that we are in the process of, literally, creating a new culture with different words, syntax, rules of behavior, and internal logic systems. Certainly, the new culture has its roots in the old, but there are fundamental ways of thinking that we are all catching up to. And, in the spirit of true existentialism, it trends toward the absurd. The problem comes in our natural tendency to frame the question as Scott did (and as I would do): that the drop in U.S. consumption might be able to be counterbalanced by getting these Chinese people to stop saving so dang much money (on average 50 percent of their total incomes). But what we are saying is that, the way we got into this mess — by the U.S. consuming a basket of goods and services and driving the gl