Archive for November, 2006
1. What does the term “strong hardware, weak software” typically mean in the context of China? (Do some digging on Google and report back here what you find out.)
2. China is about as wide as the U.S. However, unlike the US it only has a single time zone. Why do you think China does this? What are the business advantages and disavantages of this? (Ditto.)
Prize (to be announced) to the first Cal Poly MBA student who correctly answers BOTH questions on this blog.
November 30th, 2006
I love traveling in China. I really do. Rarely will your day and travel plans unfold as you originally had planned. This includes never quite knowing what will happen with your hotel and the quality of service …
I have been in some 4 Star hotels in China that were amazingly good and others that were not so good. I would say the same thing about 5 Star hotels in China. Some are excellent, some are not anything close to what you would think of as a 5 Star hotel. We will stay in 4 Star hotels on this trip. (See Question No. 19 of your FAQ document to see how a 4 and 5 Star hotels in China are defined.)
The following two recent Wall Street Journal articles, “Best Western Shifts China Tactic To Triple Number of Upscale Hotels” and “China Budget Hotels Fill Up” are worthwhile reads. So is this one from the International Herald Tribune, ”In China Paradise Found“.
I am often amazed at the incredible business consulting opportunities that await the young MBA and entreprenuer in China and other parts of Asia with respect to improving hotel service, check in, laundry, room service, check out, etc. I have seen a number of Western travelers in China embarrass themselves by throwing a conniption (sp?) fit about poor hotel or restaurant service, yet little do they realize that at the end of the day such bitching won’t matter and they are a mere insignificant number of one (1) in a country of over 1.3 billion who view time and self-importance differently than we do; other folks, the group I call the ”smart ones”, go with the flow and try to see such defects in service as a potential business opportunity. I have killed a lot of time in Chinese service establishments while I stand in line thinking to myself “if I were to improve this and charge for it, what would I recommend and what would I charge and how would I get paid?” (this also ties into Lean Thinking principals you will study with Dr. Olsen in the Spring).
Which type of a world traveler and student of life are you?
After reading the above and these articles, what business opportunities do you see or will you be looking for re: hotels and that burgeoning service industry in China?
November 29th, 2006
Several months ago the China Law Blog did a great post on how tanning salons are taking off in China.
Last week the Wall Street Journal did its own piece on this topic (click here for the article). This China Law blog post and WSJ article are definitely worth checking out — it’s amazing to see how a great business opportunity appears to be developing in China due to the increased standard of living for China’s urbanites. Anybody want to invest in some tanning salons with me in China??
When we are in Shanghai in particular, you will see many women wearing visors to shield their faces from the sun and/or carrying an umbrella to do so. Clearly, most upper class Chinese (currently) have a different view of the merits of UV rays from the sun than do Californians.
As an aside, I have asked one of my good friends in China (Dr. Wu) to be on the lookout for a tanning salon we might visit where we can spend a few minutes with a small business entreprenuer asking him about what he/she does and how he/she does it. This would be a very different type of visit than one of our visits to a multinational firm and could offer us a good balance and a very different perspective. However, do be aware that I think it will be a longshot for me to pull this off — e.g., finding a tanning salon with enough space to comfortably house 40 people for a 30 minute chat sesssion does not likely exist in all of China and I assume you don’t want to stand out on the street to talk to such a business owner (and/or it will likely be difficult to get him/her to come to our hotel and present).
On a different note, no visit to China can be complete without visiting a karaoke club. Yet, this Wall Street Journal article reminds us that doing so will likely result in a copyright violation (at least for the club owner and/or the DJ); although it does appear that the Chinese government is doing a better job of cracking down on this no-no. I am sure that no karaoke clubs in the US run afoul of copyright laws in this regard! (Yes, that was said tongue-in-cheek.)
November 28th, 2006
The recent change in political control has many wondering about the future of Chinese and American business relations. Future speaker of the House, Nancy Pelosi has been a proponent of regulations of human rights and intellectual property in China for many years. Her strong stance against the country’s human-rights abuses and religious persecution has been widely publicized. In May 2005, Pelosi criticized the China policy of the United States as, “a total failure”(King, 2006). Will her stance on these issues lead to legislation or even sanctions against the growing Chinese economy?
Pelosi has teamed up with Charles Rangle, future chairman of the House Ways and Means committee to battle these issues. According to Rangle, “future trade restrictions could hinge on findings of unfair labor practices in China” (King, 2006). If Chinese firms were required to meet the same environmental and labor standards of the U.S., would they still hold a strong competitive advantage over other countries? Increasing these standards could cause an increase in operating costs and potentially eliminate jobs in China.
How will this legislation affect the relationship between the two nations and the neighboring countries?
China’s role in the World Trade Organization could be a factor in Congress’ decision. China has become a main importer and manufacturer of parts from Korea, Japan, and Taiwan. Legislation or sanctions against China would have a dramatic economic effect on these neighboring countries as well. New operating standards may cause firms to shut down or reduce the amount of imported goods. A recession in these developing economies could result in price hikes or supply shortages for many U.S. businesses as well. China’s integral role in the worlds’ manufacturing process has made it near impossible to regulate their standards without these negative externalities.
China’s large investment in U.S. treasury bills also could have a large impact on legislation decisions. This $300+ billion investment gives China an edge when dealing with financial policies. Some politicians forecast that implementing tougher regulations might cause China to search elsewhere for business. The new exporting rule dealing with dual-use goods has already hindered U.S. competitiveness in the Chinese market. Adding tariffs or other obligations further increases the cost and complexity of these trade relations.
Some have proposed that limiting trade with China would help the U.S. economy by creating jobs and stimulating national business. However, many of these businesses rely on these low cost imports and demand for exports, as well as outsourcing jobs and manufacturing tasks that would otherwise create insufficient returns. Since 2002, U.S. exports to China have increased 90%, further emphasizing U.S. dependence on China (Bader, 2006). Wal-Mart, the larger retailer in the U.S. imports heavily from China. Limiting this or increasing the costs to import would dramatically affect U.S. consumers. Congress must decide whether battling China on human rights issues and corporate responsibilities is worth the potential consequences to the worlds’ economy.
Submitted by Ryan Maaskamp
November 27th, 2006
The New York Times has been publishing some interesting articles lately on China. (I assume you all took advantage of your freebie on-line subscription to this newspaper per the email Vicki sent out long ago. If ignored that email, you are out of luck and missed a great opportunity!)
For example, to catch a glimpse of why many northern Chinese still feel deep anger toward the Japanese and they in turn get upset with the US when we back the Japanese on economic and foreign policy issues, read “Wartime Chinese Laborers Sue Japan.” You might then ask Professor Anderson in your law course whether, if these Chinese plaintiff’s file and win their case in China, can they collect against Japanese assets located in China? (E.g., the Japanese currently own and run factories in southern China where the resentment toward them is not as high, as well as in the city of Dalian, which is actually in northern China/Manchuria but if you look at it on a map you will easily see geographically why the Japanese are there doing business.)
Next, during the winter quarter we will have a session on sustainability in China. Check out “Bring in the Green Cat“, “The Green Leap Forward” and “A Partner for Mr. Hu” for three very good Op-Ed pieces in the NY Times by Thomas Friedman (who also wrote one of the must-read books on your reading list, in my view: “The World is Flat“). Clearly, Friedman “gets” the importance of issues relating to the enviroment.
Also read the following NY Times piece on the Great Wall (”Saving the Great Wall from Being Loved to Death“), which is simply a must see if you travel to China. As your (and my) big-eyed American footsteps help further deteriorate the Great Wall when we walk on it, we can’t say we weren’t warned (this article, sadly, reminds me of what has already happened to a certain extent with Yosemite in California). That said, try to walk lightly! And, yes you will sweat that day … a lot as the Wall is steeeeep … so bring an extra t-shirt.
And remember Cuba? As you will see in this Wall Street Journal article they are now looking toward China as THE example of how to move their own system toward a market economy and prosper. Who would have of ever predicted that 15 years ago?! No political scientist I know. But what are some differences that will likely make Cuba’s successful transition to “capitalism with a socialist face” more problematic than some of the amazing things that China has accomplished?
Also check out the WSJ’s “As China Booms, the Poorest Lose Ground” - sheds doubt on the argument that a rising economic tide lifts all boats in China (and the US).
Finally, see also “Much More Than Meets the Eye” — an interesting WSJ article on Chinese decorative art that will help get you ready for our visit to the Shanghai Museum of Chinese Art (one of my favorite in the world, but as good as it is it still stands behind my favorite museum of all time — Paris’ Musee d’Orsay). See also the related article on museums in China, “Why China is Letting a Thousand Museums Take Root and Bloom.” After reading this last article, what business opportunities do you see in China that intersects between an MBA and a love of art? Could you see yourself learning some Mandarin and managing one of these museums for a year or two or three? If not, why not? (Don’t out-of-hand dismiss an idea like this — museums across the world desperately need people with business acumen to keep them afloat! It’s often all about the ability to spot an opportunity and dream, take a chance to move on it, and then, of course, you need to execute. And why not you? Who says such opportunities have to always go to the locals and the article makes it sound like there is not a plethora of people in China qualifed to run these museums that will soon be coming on line in advance of the 2008 Beijing Olympics).
November 24th, 2006
I think we have fixed the problem of accessing this blog for those who use Internet Explorer. If problems remain please email me. I have never much cared for Internet Explorer. I use Mozilla Firefoxfor everthing - you may want to as well because you are much less likely to have access problems with this blog in the future if you use that browser.
For those that have emailed in their individual blog links but they are not yet up, those should inserted soon. My student assistant is working on it.
Thanks for your patience. - Prof. Carr
November 22nd, 2006
This article appeared in the Wall Street Journal on November 10, 2006. This article is about the banking market in China and the ongoing issue of foreign banking in China.
Citigroup (the article’s main focus) and other non-China based banks are facing difficulties gaining access to the market. Foreign banks have been forced to do business through Chinese banks and have yet to deal with individuals. China has been slowly taking steps to allow these banks to open branches and put ATM’s on their soil in order to reach their potential “bankable” population of 300-400 million individuals. However, new rules and regulations have slowed this progress, if not set it back a step. It is very informative article on a topic that could have a huge effect on the way banking in China is going to be done in the upcoming years.
Here are some questions to think about while you read the article.
What are you interpretations for the future based on the paragraph on the first page?
How do you think allowing foreign banks to reach individual customers in China is going to effect the economy? How might it impact, in general, the way business is done?
Is Citigroup acting too aggressively at trying to reach individual customers? Is this a good strategy? Will other banks follow or continue to do business through Chinese banks?
What do you think about Citigroup being called “Hua Qi”?
What do you think about China’s five year plan?
Does China seem to be as open as they say they are to letting foreign banking in? Are they delaying it to be as safe and conservative as possible? What are your thoughts on the three pages of requirements to be met before individual customers can be reached?
Submitted by Danny Allustiarti
November 20th, 2006
Article
Deep in the remote western mountains of the Xinjiang province in China, local botanists search for miracle drugs to share with the world. Drug companies such as Swiss drug giant Novartis AG are looking at China for new drugs from ancient Chinese remedies that exist in plants and fungi native to the country. Due to the increasing costs of developing new drugs, companies such as Novartis are optimistic that traditional Chinese medicinal cures will lead them in the battle to fight modern diseases
It is important to recognize there is a fundamental difference from the way China and the way the West discovers drugs. Over centuries, Chinese doctors have tweaked concoctions with variable amounts of different substances until they achieve their desired medicinal purpose. This was mainly completed by trial and error, so these eastern doctors are not certain which parts of the body the medicine is targeting. Alternatively, western doctors take the reverse approach by finding the targeted area of the body, and working backwards to find the correct chemical compound to cure the problematic area. This is why collaboration between the East and West will probably not occur.
Fortunately, drug companies such as Novartis and French Drug maker Servier are working together with the Shanghai Institute of Materia Medica (SIMM), to isolate the active compounds in Chinese traditional medicine by testing the raw extracts from plants collected by Chinese biologists. Over the past three decades SIMM has been hunting for the rare plants and herbs used in traditional Chinese medicine to treat ailments ranging from cancers to common aches and pains. The way Novartis sees it, ‘China has thousands of years’ experience of using plants in Chinese traditional medicines. The idea was, why not use the Chinese experience as a kind of filter.
Novartis has previously used traditional Chinese cure for fever to fight malaria with the plant with a native ‘sweetworm’ plant. The cure for this disease was found written on silk in a tomb which dates back during the West Han Dynasty which existed over 2200 years ago. In the 1970s scientists working for the Chinese military used this drug in Vietnam to combat malaria. Novartis later decided to make a deal with the Chinese to purchase rights to the sweetworm plant for several million dollars. Today, over 1,000 natural products have come to Novartis working with SIMM, resulting in cures for a number of diseases. As the multi-billion dollar pharmaceutical industry progresses into the next generation it will become increasingly important for them to protect their future…and defend the world’s endangered environments.
Now you may be asking yourself…why should business’ worry about preserving the natural environment of China? There are several moral issues to this question.
First, If China continues to grow westward as it currently is, many of the drugs which organizations such as SIMM are searching for will become extinct before they are obtained. It is estimated that 15 to 20 percent of higher plant varieties in China are endangered (threatening the existence of 40,000 species of organisms related with them).
Continued westward expansion of Chinese industry could threaten these species which may hold the answers for solving the world’s most crippling diseases.
Second, by preserving their environment the Chinese government can ensure the next generation of Chinese will have enough to eat, clean water to drink, and healthier people. China already has the worst air quality in the world. Fortunately, China is now awakening to these rising environmental issues and is taking action by building reserves, botanic gardens, protecting endangered endemic species and by building genetic banks for rare plants. Additionally, with the Olympics coming in 2008 their government is attempting to give China more eco-friendly by erecting a ‘greenwall’ or ‘treebelt’ around Beijing to stop harmful dust and particles from reaching the city.
Lastly, helping out the environment is an important ethical issue. Many businesses operating today maximizing profit in the short-term by harming their environment and their people. Take for example the logging industry in China. With forests being cleared in China, not only is the world loosing reserves potentially for future miracle drugs, but these trees no longer exist to filter out CO2 and other pollutants in the air which filter out other diseases such as bird flu or SARS. Does this mean they should stop cutting down trees? Of course not. At the same time, businesses must be aware and responsible for the actions they make and the consequences which result.
With nearly 10 million kilometers of land, holding over 10 percent of the world’s plants and terrestrial vertebrate species, China’s rich biodiversity is faced with a critical situation. With international trade increasing in China at increasing rates, exotic pests and invasive plants are creating additional stress for the already endangered varieties of medicinal plants, fungi and herbs. Who is responsible for saving the Chinese environment? While the government is playing an important role, I believe businesses need to play a stronger role in protecting these future resources. Imagine the economic difference between finding a fungus in the Chinese forest which holds a cure for Alzheimer’s vs. clear cutting a few acres of the same forest to sell as lumber. The answer should be obvious…
Submitted by Steve Rodger
November 20th, 2006
Whether you intend to or realize it or not, most of you going on this trip will one day do business in/with Asia, whether you live there or even if you stay in California.
Rarely will anyone say this openly, but there is a perception among a number of Western businesspeople (not all, of course), including the purported more open minded and “progressive” ones from California, that the Chinese “lie, cheat and steal.”
It is not my role or place tell anyone what to feel or believe. That is up to them to decide, and we all have to deal with those consequences of our beliefs (and the missed opportunities that may go with it), particularly if we are silly enough to make such a statement in public.
Before I open this can of worms, let me make clear from that outset that I am not the “source” of this perception. Nor do I believe it. I merely report what the perception by some is as I have heard it over and over from a number of people. So don’t shoot the messenger. At first blush it seems to me that such a statement or belief, is off-base, it shows a lack of life and business experience, a lack of critical thinking skills, the inability to determine good data from bad, is an over-generalization, etc. I hope we can all agree on that. Moreover, God knows that I have certainly seen my fair share of Americans who “lie, cheat, and steal”. No country or ethnic group in the world has the monopoly on this, in my view.
Having said the above, one of the things that surprised me with respect to last year’s MBA trip to China is that I think a few students (not all) appear to have returned from China with “some” impression that “you can’t trust the Chinese; they lie, cheat and steal”. When I saw this, I realized that as a professor and college we had missed the mark in some of the pre-trip planning and even during the trip itself by not giving students several “lenses” from which they might analyze and think about this issue before they jumped to such a conclusion. (I am also not sure how one can reach such a conclusion after spending only three weeks in any country.)
So, to that end, check out the following recent posts on this very topic: one from the Useless Tree blog (here) and one from the China Hearsay blog (here). Also check out this 20 minute audio cast on the Chinese mindset from Janet Carmosky, a graduate of Wharton and President of China Prospects, Inc. I enjoyed reading these posts and in particular their discussion threads, and listening to this audio. I learned something new, and I have thought a lot about this issue the past few years.
Any conversation about culture often gets heated (nothing wrong with that), and these posts are no different but the comments do show how complex this issue is to look at and analyze. This information and input from these various people will help better prepare you for what you will see in China.
And after you read these posts, come back here and discuss what these posts and their discussion threads teach you about Asia, China, culture and how it is shaped and perceived, our upcoming trip, and yourself?
And what, in a society, shapes “culture” and business conduct? For example, does the standard of living in a country lead to its culture, or does culture lead to a countries standard of living? (Economic scholars have some interesting things to say about this question; e.g., here is a recent SSRN paper of possible interest you can download for free (”Does Culture Affect Economic Outcomes?”), which relates to this discussion). See also the March 27, 2006 related discussion thread on this blog called “The Role of Women in Chinese Economic Activity“ — students had some interesting things to say on this sub-issue.
Which is more important for you and your future — to understand a culture and look at what forms the behavior at issue, or, to understand how a culture is expressed by those who practice it? Discuss and defend your position.
My experience is that the Chinese have their own sterotypes of Americans — what/how do you think they see us and our culture (in general)? How, in a business transaction, might you take advantage of their stereotypes about you, and is your doing so “lying, cheating, stealing”, just in a different form?
For example, once you see how cheaply a pair of women’s high end brand name dress shoes cost to make in China and how much they are in turn sold for by US retailers to the US consumer, let’s go for a cup of coffee and you can try to convince me that such price gouging by the US retailer … err, I mean what retailers euphemistically call their “markup”, is not “stealing” from the consumers. And yes, blah, blah, blah, I know and appreciate that we all go like sheep to slaughter and pay it, but does that make such business conduct the right thing to do? It may very well be acceptable to do, but I want you/us to at least ask that question.
(I appreciate that you will likely better be able to answer this latter question after we visit English Corner).
November 18th, 2006
It is well known that China has long faced ‘over-population’ and that the government has instituted policies to curb population growth; the most famous of which has been the ‘one-child’ rule instituted in 1979. While this policy has accomplished its specific purpose of lowering the current population by an estimated 400 million people, it has also brought many unforeseen complications. China is now faced with an aging population and an unbalanced gender ratio – problems which have serious long-term economic and social implications.
The negative effects of an aging population will be two-fold - First, as the workforce shrinks due to retirement, economic growth will be curbed. Secondly, the growth in China’s dependency ratio (the # of people too unable to work/# of people of working age) could cripple China’s (already limited) social service programs.
Many economists attribute China’s unmatched population growth to its seemingly limitless supply of labor. As the Chinese workforce ages, it will be increasingly difficult for China to sustain the level of economic growth that it is currently achieving; growth tends to slow as a country’s population ages
Currently, only city dwellers are covered under China’s pension laws. Meanwhile, rural elderly must depend on children for support, it’s one of the reasons that these families are allowed to have more than one child. It is estimated that by 2050 the dependency ratio in China will be .70; this means every 10 Chinese workers will have to support 7 people who cannot work.
Because most Chinese families, especially in rural areas, see females as liabilities – many are aborted before birth. Government statistics show that currently, there are 117 boys born for every 100 girls in China (well above average for industrialized nations.) Obviously, this is going to make it harder for men to find women to marry as time moves on. The frustration that this causes could lead to great civil unrest; it could also lead to population migration, as men feel the need to find marriageable females in other cities or countries.
China has only recently taken notice of the problems and begun to institute change; however, the government refuses to scrap the ‘one-child’ program. Even if it does ease the policy, it would not have much affect, as children can be too large a burden for the typical Chinese family to handle. Some of the fixes that China is implementing include offering subsidies to families that have female offspring, offering subsidies to rural families that have more than one child, educating the population about the benefits of having female children, and becoming aggressive in seeking returns on pension fund management.
China is facing quite a paradox – the population growth that drives their economic growth is also overpopulating their cities. They cannot avoid this problem, their population has to peak at some point and their economic growth (at least that attributed to labor) will slow. They can counter this effect by focusing on technology and capital expenditures that will provide an infrastructure for growth that will not rely so heavily on labor. As far as the gender ratio is concerned, the government must convince the citizenry that females are not a liability especially as the Chinese economy continues to modernize. Instilling faith that the subsidies will be consistent and reliable for the long-term will also help the Chinese people change their perception.
Submitted By Felipe Hernandez
November 15th, 2006
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