For the next two and a half weeks, our Cal Poly MBA students will keep this on-line blog highlighting some their travels and experiences in the People’s Republic of China. Below is their first blog entry as of the day we arrive in Guangzhou (soon!) and get settled. Be sure to scroll down and read about subsequent days and experiences on the trip. These MBA students are to be commended for making this investment in their education and professional future. — Professor Carr

Submitted By: Bonnie, Athena, Joe, and Danny

Our trip began with a 14 hour plane ride to Guangzhou. Everyone seemed excited to start the trip and equally excited to get some sleep on the red eye flight. In between Chinese movies and bathroom breaks, we were able to talk to a few Chinese passengers. In particular, one woman was looking forward to seeing her family in Guangzhou after living in California for some time. She will be attending UC Davis next fall and was very friendly and happy to chat with us.

After our surprisingly short wait through customs, we met our guides, Paula and Ken. Their warm personalities immediately made us feel welcome and in good hands. They helped us load up into our bus and we were off to The White Swan Hotel, arguably one of the most famous hotels in China. From the outside, the hotel did not have the same flashy exterior we are accustomed to seeing in an American 5 star hotel. However, the service, breakfast and beautiful art were beyond our expectations.  China and the service aspect of its economy seem to be developing nicely.

With time to kill before check-in, our class split up to explore Guangzhou on our own. Some people took a much needed nap in the hotel room, while the more adventurous ones decided to brave the heat to learn a little more about life in the city. Unlike America, the streets were full of people doing morning exercises and playing games like badminton and cards. Almost every block had a large group practicing Tai Chi to music playing from a nearby stereo. Wandering through a park by the Pearl River, we saw a choir of locals singing lyrics from a table-sized paper hanging between two trees. Although we could not tell what they were singing, they seemed to be really enjoying themselves. We were also amazed to see several people washing and swimming in the river. We realized they do not have the luxury, as we do, to be picky about water quality. On the way back to our hotel, we saw an old man painting Chinese characters on the sidewalk. Watching him slowly and methodically paint the characters was both relaxing and peaceful. While these experiences were not extraordinary on their own, together, they gave us a good idea of what life in China is like.

We were next escorted by several English speaking Zhongkai University students to an electronics market.   The point of this short excursion set up by Professor Carr was not for us to immediately get off the plane and make a bee-line for the first counterfeit shop we could find in China, but for us use some down time while waiting for hotel check in to get a feel for the sheer enormity of the counterfeiting problem in China and the role that it plays in their economy, despite Western press reports that things are often getting better on this important issue between our two countries.  We got the point — the size of this not so underground economy in China is massive.    And, it was here that we faced a real world ethical dilemma to test us that any Westerner faces who complains about the counterfeiting problem in China:  to himself/herself buy or not to buy the available knockoff merchandise they complain about that comes from China once THEY arrive in China. This market was also an interesting contrast to the massive shopping complex across the street, where prices are high and bargaining is not an option. With the guidance of Lonnie Hodge, an expat American professor who now lives in Guangzhou and previously taught at Zhongkai University, everyone got good advice about Guangzhou and its shopping.

After some fun in the pool and showers at our hotel after check-in, we got back on the bus toward Zhongkai University for a tour.  Riding the bus through Guangzhou showed a seemingly endless number of apartment complexes, lined with clothes drying in the sun. After later talking with Lisi, a Zhongkai English major, we found out that the limitless apartment skyrises are necessary to accommodate Guangzhou’s ten million residents. With ten thousand students, Zhongkai University actually has a small student population for a Chinese university.  However, expectations for increased growth and a government certification inspection have spurred the University to renovate their library and add some more landscaping touches. Visiting one of the classrooms where students spent thirty hours a week in stiff chairs and no air conditioning made us respect the drive and dedication of these students and appreciate the facilities we sometimes take for granted back in California and at Cal Poly.

Professor Hodge was gracious enough to take us for a walk-through tour of a middle class Chinese neighborhood and then show us his apartment and fantastic view of the Pearl River. He gave us a unique insight into what life might be like were we to live in China as an expat.  We bombarded him with questions as our curiousity was peeked.  He had nothing but wonderful things to say about the people he worked with and the Chinese culture. He explained that Southern China is the up and coming place for business opportunities and growth and that individuals with our background are in high demand. His comments reinforced the value of our China trip and may have caused a few of us to reconsider China as a possible career destination.

As we sat with stomachs full of Dim Sum during the evening dinner, everyone had an opportunity to reflect on the day and spend more time getting to know our new Chinese friends. Today was just a teaser of all we will see in China in the days to come. And yes, for all our family and friends who wondered about the weather, it is very humid and hot!

Professor Carr Addendum:  See this realted posted by Professor Hodge titled C-MBA Programs: Trans-Pacific Crossings. He makes some key points that relate to our visit and one of the reasons we have brought these students to China.

Submitted by Chris, Patrick, Steve and Fatih: 

We started the day at 7:00 am sharp eating breakfast at the hotel.  Some of the wonderful foods were dumplings, pineapple, salmon, and bacon.

After the first full day in China, one comes to cherish the basic things in life.  This fact was first apparent at breakfast, arguably the best breakfast that we will have the pleasure of eating on this trip, when were able to enjoy very American bacon, eggs, French toast and ham.  Some of us enjoyed the international flavors also available, such as baked beans (an English breakfast necessity), and dim sum (traditional breakfast fare in Guangzhou).  Beyond this point, the similarities end, and the appreciation for our simple conveniences begin … with the toilet.

Our first start of the day was at the Winglok Textile Factory where the owner, Mr. Huang, was more than willing to answer any of our questions about his businesses.  We were able to observe the manufacture of T-shirts that will be exported to England, France, Italy and Russia, while a portion of those manufactured would be sold here in China.  Mr. Huang’s impressive achievements became very obvious when we visited his papaya farm and learned that at the age of 16 he started as a textile laborer and eventually became the owner of a textile factory, a papaya farm, a car part manufacturer for Toyota, and a restaurant.  He was able to turn a subsistence living into an entrepreneurial success story.

We watched a shirt find life when pieces of fabric were stitched together.  Very few people have ever had the experience of seeing the beginning of the clothes they wear and take for granted every day.  Many people talk about the environment for workers in Chinese factories.  They certainly work hard, but it was significantly better than the conditions we heard about in the media.  While we do not know if this is the exception or the norm, this is an indication that some factories in China are better than we are led to believe.  This was an amazing visit and brought to life the book many of us read for one of our book reviews before coming to China:  The Travels of a T-Shirt in the Global Economy by Georgetown University Economics Professor Pietra Rivoli.

We sampled fresh papaya right on the farm where it was grown.  Mr. Huang transformed his returns from the textile factory into a new venture, growing tropical fruits.  The farm workers work cooperatively, organically farming the fruits, attracting fish in fishponds on the farm with the leftover fruit parts, and living on the land they tend to.  His farm employs 18 workers, and he sells his papayas to high-end restaurants in China.  Surpisingly, his main competition is from papaya farms in Hawaii, and he noted those Hawaiin papaya farms use fertilizer and insecticides on their papayas.  The visit to Mr. Huang’s ventures was arranged by a mutual friend between Mr. Huang and the Cal Poly MBA program, an example of the way personal networks play a very significant role in getting things done in business.  Facets of sustainability appear to be alive and used in China, despite some press reports to the contrary.

Following lunch at Mr. Huang’s restaurant, we drove to the VTREK Electronics factory.  This is a major player in the Chinese home electronics market.  They also sell product in Europe.  They manufacture DVD players, CD players, home theater systems and more.  The company was very welcoming and was more than willing to answer questions about their business and the challenges they face.  We observed their application of the Toyota Production System in their use of even workflow, visual management, quality control, and standardized work.

For the first time since traveling to China we were able to enjoy some good old fashioned American food, with a Chinese twist.  It proved to be an excellent break for some and an opportunity for others to try something new.  Much like Chinese restaurants in the United States, we ate at an American restaurant in China that made a very good attempt at authenticity, but didn’t quite hit the mark.

Our first full day in China concluded with a traditional Chinese foot massage that proved to be a relaxing way to end a busy day.  The purpose of this visit was no solely for pleasure and relaxation … much business in China apparently continues and takes place at the end of a hard day at the factory or office during a good foot massage.  Professor Carr wanted us to see and feel this aspect of China so that the next time we come to China and the client or customer takes us to a foot massage place for some TLC for the feet, we are not suprised, we know what to expect and we know how to handle ourselves.

We’re looking forward to an exciting day in Macau tomorrow!

 Submitted By:  Eric, Meghan, Mike and Katie 

On our third day of the trip we traveled to Macau from Guangzhou on a two and a half hour bus ride. 

We learned that Macau was actually first settled (not ”discovered”)  in the 1500s by the British and was later acquired by the Portuguese after the second Opium War.  The culture of Macau differs heavily from mainland China due to the Chinese and Portuguese influences.  

Upon arrival at the border to cross from mainland China into Macau, we found one of the the busiest border crossings in the world, second only to Hong Kong-Shenzhen.  We waited nearly two hours to enter Macau, amidst masses of people.  During this wait, one could not help but gain a good feel for the sheer population size of China.  We could also see arbitrage in action before our eyes by elderly men and women taking simple items like bottled water in boxes from mainland China over the border crossing into Macau to resell for just a few cents more, and they then walked back and forth across the border doing this all day long. 

Our first stop in Macau was the Red Spot Café for lunch near the Macau University of Science and Technology (MUST).  The Red Spot was opened by an Australian professor-turned-entrepreneur who talked to us about his business adventures and challenges in Macau.  The food was more Western style using fresher ingredients than would be found at competing restaurants.  From the Red Spot we were given a quick tour of the MUST campus from one of its professors, David DeGeest, a graduate of Grinell College in Iowa.  The classrooms were air conditioned and well-maintained, as would be expected from a private university.  We noticed a stark contrast to the classrooms of Zhongkai University which is a public university.   One of the things we learned from our visit to MUST was about the privatization of education in China and some of the pros and cons that go along with that.  Learning about this development in China was a real eye-opener.

After our short visit at MUST we were taken to a Budhist temple in Macau to get a feel for some of the superstitions and religious beliefs of the Macanese.  We were then able to explore the Macau city centre after the temple with St. Dominic’s church as our central hub.  From there we took the short walk up to the famous St. Paul’s ruins, a former Catholic church that was burned, leaving only a single edifice.  Our next stop, via a circuitous bus route and a dead stop, yes, that’s right, a dead stop, in the middle of the freeway by the bus driver to make a phone call, was the corporate office of the Sands Hotel and Casino where we saw a mock-up of the Venetian suites and the Cotai Strip, the Eastern version of the Las Vegas Strip.  Buddy Lam Chi Seng, the Associate Director of Media Relations for the Sands, was our liaison who gave us a description of the plans for the Strip and how the Venetian will fit into those plans.  He was very receptive to our questions and comments and did an excellent job.  We were then taken to the Sands Casino to experience their buffet and enjoy all that a casino has to offer.  It was most interesting to see and learn about  some of the differences in business models between Las Vegas and Macau casinos 

Several things stood out to us on our trip.  The first was the heavy control of the border, considering it is equivalent to crossing from California into Nevada.  The second was the strong European influence of the city centre.  For those of us in the group who have traveled in Europe, we found Macau to be more familiar to us than other areas we have been thus far.  This was also the first day where our schedule drastically deviated from the itinerary, which typifies the flexibility needed for doing business in China — you simply must learn to adapt, be flexible and go with the flow or you will have a hard time doing business here and building relationships.  Third, we were struck by the brain drain from the local universities into the casino industry.  Specifically, while at MUST we learned that it is not unusual for a student to drop out of university after their second or third year because they can/will make significantly more money as a croupier than as a college graduate.  Over the long term, one wonders what impact this will have on Macau and Macanese society and some of the social costs it will entail.

Upon reflecting on our day we found that there was much we had learned.  To begin, the power of guangxi and the importance of “who you know” rule one’s ability to enter into the tighly knit Macanese business market, as evidenced by our discussion with the owner of the Red Spot Café.  Also, if able to break into business in Macau, one would have also access to a burgeoning tourist hot-spot that is within a 5-hour plane ride for 3 billion people in Asia.   With the growing middle class of China, more and more of these 3 billion people will have disposable income which will allow them to vacation in places like Macau.  While walking around Macau, it is also hard to appreciate and realize that yes, you really are in China, as it has such a different look and feel from mainland China.

What a day!  We crossed the border and bused back to our hotel in Guangzhou, arriving well after midnight.

Submitted By: Stacey, Felipe, Kerry, Kristan and Steve

Apparently, even (most of) the Chinese take Sundays off.  As such, it was hard to establish formal firm visits and our benevolent leader – Professor Carr – decided to give us a day to unwind and take in a bit of the vast culture that exists within Guangzhou. The day began with a bus ride to Foshan where we sat down for an authentic Chinese lunch. Roasted duck, corn soup, rice with eggs, eggplant, was rotated around on a zhuan tai, or ‘lazy Susan’ and we had our choice of oriental delicacies. After interacting with our student translators from the Zhongkai University, we learned much about proper Chinese eating etiquette. 

We then took in a visit to a Taoist temple in Foshan that is over 900 years old. It was especially profound, considering that the oldest structure in the United States is probably less than 400 years old. This particular temple is home to a specific type of Martial Arts that has been practiced by such world-famous masters as Bruce Lee and Jet Li. We were treated to an exhibition of skill as students of all ages performed amazing acrobatic feats for a captivated crowd. We were then treated to a traditional lion dance.

After the visit to the temple, we were able to tour a paper cutting studio where authentic and lavish handmade artwork was being created by locals. Fine works that probably take hours to fashion were placed on display and put up for sale for less than 40 RMB (about $5 US).   Students were able to tour the factory and purchase some samples of the intricate works. 

To close the day, we returned to the White Swan Hotel on Shamian Island and were treated to a lavish riverfront buffet – featuring the musical styling of Kenneth G. As tour-boats passed along the beautiful Pearl River, we sat and feasted on roasted chicken feet, fish fingers, chicken squires and other local foods. The skyline of Guangzhou lit up as the sun dipped over the horizon and we finished up our meal. After the meal Lonnie Hodge, our ex-patriot expert of Guangzhou, told us about a noble undertaking that he, David DeGeest, and several Chinese locals are attempting to get up and running. They have established a website, called the Blog of Dreams, where the voices of Chinese and other people around the world can express their goals and dreams.  A portion of their business model is to increase traffic to the website, thereby increasing advertising revenues and corporate partnerships.  In doing so, they can in turn contribute to non-profit organizations that contribute to deserving causes, such as, much needed healthcare and education.  It was our last night with our friends from Guangzhou, so we said our goodbyes as we exchanged business cards, contact information, and established guangxi.

Guangzhou … what a place, what interesting business firms we visited, and what great people!   Tommorrow … off to Shenzhen for more firm visits and then catch our evening flight to Shanghai.

Submitted By: Peter, Lindsay, James, and Ashley

After our last night in Guangzhou, where our group bid farewell to Lonnie Hodge and the delightful Chinese students of Zhongkai University, everyone found themselves being woken up by alarms and wake-up calls for our earliest morning yet. We knew we had a long day of travel ahead of us as we checked out of the White Swan Hotel, but today would hold more educational value than we could have possibly imagined. We would learn much not only from our intriguing firm visits in Shenzhen, but also from our (mis)adventures with Chinese transportation.

The bus ride to our main destination was relatively uneventful, as most of the students chose to catch up on their sleep. But after a two and a half hour ride, our bus finally rolled into Shenzhen, a fast-growing and bustling metropolis. Almost immediately, students could be heard commenting on our new surroundings and how different they were from those in Guangzhou. Shenzhen has a distinctly modern feel to it, which is fitting for a city whose population of 300,000 twenty years ago has grown nearly thirty-fold to its current size of 8 million people. Professor Carr spoke to the class on the way into town, citing Deng Xiaoping’s decision to designate Shenzhen as a Special Economic Zone (SEZ) as the primary catalyst for this incredible growth.

As everyone attempted to grasp the scope of such economic development, Professor Lancaster implored us to also consider the ecological consequences that come with such rampant growth. Shenzhen was once an expansive marsh, but there is little trace of this environment left. Such a rapid alteration of a region’s ecology undoubtedly increases the potential for more dire repercussions years down the road.

Our first stop in Shenzhen was the Wal-Mart Global Procurement Center. We arrived right on time and were treated to a wonderfully thorough presentation detailing the Wal-Mart philosophy and how it is applied in procurement operations. Amy Wong, from the Corporate People (Human Resources) department, explained the history and corporate culture of Wal-Mart to establish a foundation for understanding how the company handles its employees, customers, and suppliers. Her presentation was followed by that of Lotus Wong, a divisional merchandising manager, who continued by explaining Wal-Mart Global Procurement, its origins, and its mission. We learned that a whopping 76% of Wal-Mart’s sourced products come from China and that the company conducts ethical audits of every factory to ensure local laws are being followed. After Mr. Wong finished his section, Kenneth Chan, the general merchandising manager, delved into the nitty gritty details of how procurement is handled by various Wal-Mart teams. It was evident from this section of the presentation that the supply chain for retail products is getting very fast and suppliers are expected to catch up. Though maintaining high product quality is certainly a concern for Wal-Mart, that high quality must be delivered quickly and at the lowest possible cost. Efficiency and speed is the name of the game in the retail procurement world.

Following the presentation, our group was able to tour the Wal-Mart offices. The work environment was startlingly westernized in both layout and atmosphere. Casual attire prevailed and cubicles with colorful name tags filled each room. We were fascinated to see such a distinctly American work environment be embraced in a foreign country so wholeheartedly.

Following Wal-Mart, our group departed for the Port of Shenzhen and its most prolific terminal: Yantian. At Yantian, we were set to learn of the marvel that is Chinese transportation. However, en route, we were beleaguered by engine and air conditioning problems from our bus. The irony that the Chinese transport system had failed us did not elude the sweat soaked students.

After 30 minutes of driving in the Shenzhen heat without air conditioning, we arrived at Yantian. Their friendly staff was there to greet us with towels and coldwater. Yantian then provided us with a dazzling presentation about the wonders of the China supply chain. With government support and backing, Yantian was able to gain 50% market share in the Shenzhen port. Furthermore, because of 9/11 and the need for improved security, Yantian and its commitment to technology enticed suppliers and shippers away from other ports. This can be seen in the marked decline in exports that Hong Kong has seen in the last few years, while just a little down the road, Shenzhen is blossoming. Another reason Yantian is prospering is because of the long term view they have taken towards shipping. Realizing early on that mega ships were the wave of the future, Yantian invested heavily in the infrastructure necessary to service them. These Goliaths of the ocean can carry over 13,000 cargo units. Not even the Panama Canal can hold these ships.

The largest ship in the world was unloaded at Yantian in only 9 hours. This world record holding feat is a signpost of the increasing speed of the supply chain. Goods can be transported much faster, with more accuracy, and with better quality control. However, the massive discrepancy between intra and international transportation was made infinitely apparent in our experience at the Shenzhen airport. After a flight cancellation and a 3 hour delay for no apparent reason, we were on our way to Shanghai. To quote airport authorities, “Flight 1361 to Shanghai has been delayed due to delays.” In the time accumulated at the airport, the group got a little taste of home in the form of Big Macs. It will please readers to know that the food quality is on par with any McDonalds in the U.S., and the service, even better.

At the end of the day, we had seen much China has to offer in the way of supply chain management. Wal-Mart has a 97% on time delivery rate and Yantian is capable of handling whatever the shipping industry may throw at it. On the bus ride to Shanghai, we saw signs for the Maglev train: a harbinger of the future of transportation and Chinese efficiency.

Submitted By: Eric, Victoria, Brian and Evelyn

Shanghai is China’s largest and greatest commercial city, and today was full of sightseeing to witness this firsthand. We explored a live/traditional market, the French Concession, Tian Zi Fan (small art street), Yuyan Garden/Temple, and the Bund. Each location had a different story and a different ambience. We were joined by Claire, a student from Peking University, who identified important facts related to our journey.

The live traditional market was a few minutes from our hotel in Shanghai, the Jian Gong Jin Jiang Hotel. We walked into an exhibition hall, where different merchants were selling everything from vegetables to live turtles for eating. We walked down each aisle observing how the Chinese went shopping and picked out the food items. In one section, chickens were in stacked cages where people picked one out and on the spot they were butchered. It was interesting to see how many of us were so stunned by this while the Chinese did not even flinch. Everything was fresh, from fish to tomatoes. The market showed how some do not want packaged goods and want to be able to see the “food” alive to know how fresh it truly is. Many Americans live in a culture of processed food, while this market was the complete opposite. The smell was also very pungent. Chinese demand extreme freshness while Americans want a sanitary environment. This shows some differences between American and Chinese shopping demands. Some students toured around the market, which had many tea merchants. A few students purchased tea made in China, harvested to their standards.

After this experience we loaded the bus and drove through the French Concession. After the Opium Wars, Shanghai became an open port by its colonialists, resulting in France, Britian, the Russians, et al. setting up concessions. The colonialists left Shanghai, but left their beautiful architecture still standing. Our next stop was Tian Zi Fang, a small art street. We explored the art galleries and studios. Here we learned that these Chinese artists and the government are working together to protect the intellectual property rights of these artists. Perhaps this is a sign that China is learning to better appreciate that IP protection is not just important to the mutlinationals, but their own populace and economy.   If so, this is an encouraging development.

Yuyan Garden/Temple was where we ate lunch and spent around 2 hours shopping. We learned that is called a “temple”, but here in 2007 it is more of just an area for gathering, not for a congregation of parishners. Thus, words in different cultures have very different meanings. This is similar to Chinese characters, where one character can mean many things based on the pronunciation. In addition, the building structure was ornate. This shopping trip was very successful for many students. People bought purses, magnetic bracelets, silk robes, and handmade stamps. You could see the variety of cultural goods, as well as the tourist souvenirs. There were many more ethnicities here than in other areas we have visited.

The Shanghai Bund, one of the most famous tourist destinations in Shanghai, is located on the Hangpu River.  It once and still does house many historical buildings. It shows a very impressive skyline that includes many historical buildings as well as new five star hotels. An interesting observation we made was the mix of people living in different demographics. For example, we saw middle class business workers, the working class, “little emperors,” and even children who were forced to beg for money. We learned that even though Shanghai is a very prosperous city, there are still those who have not grown consistently with the city’s growth. Hopefully in the near future, there will be a more even economic demographic among its population.

Tomorrow … back to visiting more firms.

Submitted By: Peter, Andrew, Adib and Chuck

In day 2 of our Shanghai trip, we visited the Shanghai Urban Planning Exhibition Center, Shanghai Museum, and KPMG Shanghai.

Our first stop of the day was the Shanghai Urban Planning Exhibition Hall. Shanghai is known as the “Pearl of the Orient;” the city has transformed since the 1930s because of tremendous developments by both domestic and foreign developers. The exhibition center consisted of 5 floors plus one basement floor. As we ascended through the floors, our tour guide revealed Shanghai’s early history through interactive photos, showed us the principle of Shanghai city model plan for developments to year 2020, and walked us through the detail planning of the key infrastructures such as the Shanghai Air Port, and the Shanghai deep water port. Shanghai is also hosting the 2010 World Expo; in preparing for this event, the city plans to build an expo center, extend the magnetic bullet train route to the expo center, and improve Shanghai airport’s capacity to handle 100 million passengers per year.

Seeing the exhibition center made us realize the determination and commitment by the Chinese to develop Shanghai into a world class city. The model plans shown to us, along with the logistics of extending railways and bridges, demonstrated the change needed to support the city’s anticipated growth and infrastructure development through 2020. This massive task will involve a great deal of tedious planning and organizational activities. The exhibition center educates and reveals to the public Shanghai’s plans of becoming the next greatest city in the world. Our visit to the Urban Planning Exhibition Hall was a nice set-up for our next day visit with Callison, a Seattle based architecture firm with an office in Shanghai.

We next visited the Shanghai Museum. Though this was more of a cultural experience, it was very telling of China and its place in history and its place in the world today. Currently, foreigners may view China as a third world nation with nothing to offer the world other than cheap and abundant labor. While this perception cannot be farther from the truth, what makes it truly unfortunate is that it is also applied to China’s past. In fact, many probably don’t even realize that China has much of a past. Stepping into this museum erases these unfounded and uncorroborated notions that people may possess.

The museum is overflowing with relics from China’s past that testify to its greatness and elevated position in history. One can view carvings dating back to the 31st century B.C. One can view art, calligraphy, hand crafted furniture, and money which was all created before the birth of America and even any sort of modern development in Europe. China was advanced far beyond any other nation for centuries. It is only recently that it has stumbled. The exhibits at the museum humbled us westerners. They made us realize that our 150 year old antiques are nothing when viewed in the proper light of Chinese history. China has a past that is unparalleled and unrivaled.

Our final visit of the day was a stop at KPMG Shanghai.

KPMG is an accounting firm that provides audit, tax, and advisory services. It currently has 5500 employees in China. Mr. John Lee, the partner in charge from the tax department in Shanghai, gave us an excellent presentation about KPMG’s history and its current business status in Hong Kong and China. While most of us have the perception of China’s cheap labor domination in manufacturing sector, Mr. Lee opened our eyes and stated that China is now being selective in doing the work that creates “more value” rather than simply manufacturing high volume, low quality goods. Mr. Lee explained that companies are shifting towards R&D using talented engineers from all over the country rather than hiring cheap labor just to do manufacturing. Mr. Lee also discussed KPMG’s business plan on doubling its size every three years in China. This is a testimony to China’s rapid growth. KPMG also has offices in Hong Kong, but its growth there has leveled off, because as Mr. Lee mentioned, Hong Kong is a mature market; China is growing exponentially. Multinational firms are rushing over to China.

However, Mr. Lee cautioned us about some of the pitfalls that exist and that he has seen firms fall prey to. He mentioned that if you are looking to open operations in China, you should be willing to send your best people here to establish your China branch. Just sending second or third tier people here will not get the job done. Firms coming to China also need to be flexible and willing to assume some risk. In China nothing is black and white; there is a lot of gray. You must also be willing to accept the fact that things will be ambiguous which will require you to make decisions on the fly. You will not succeed if you are looking to have a 100% guarantee or a “yes” or “no” answer to every issue before moving forward. It is also important to know your partner. In China, Chinese citizens often need to have some stake in the businesses. Consequently, it is important to do your homework before hand and have a good idea of what the person you are partnering with is expecting. What are their goals and expectations? What are they looking to gain from the joint venture? Not having the right partner can result in failure.

Also, Mr. Lee mentioned that parties need to be willing to walk away from the deal or business if necessary. If you see that your company is struggling and things are not going as planned, it may not be in your best interest to push the envelope and try to force success that simply isn’t there. The better option may be to cut bait and exit China, before you lose too much of your investment.

We really enjoyed our visit to KPMG.  It was very informative and we greatly appreciated their time with us.

Submitted By:  Lee, Ryan, Jared and Derrik

The second day of firm visits in Shanghai presented a very unique learning experience for the group.  The primary visits of the day were focused on the main Chinese offices for Starbucks and Callison Architecture.  Each firm is based in Seattle, Washington and each has chosen to capitalize on the endless amount of opportunity presented by the Chinese marketplace. 

Several mantras continued to ring true during the visits; China is a tremendous growth market with unrivaled growth potential, market research and knowledge of local customs is paramount to success, and China is a marketplace where only the best and brightest of a company’s employees should be sent. 

Starbucks has a very unique and short history as an international retail power but nevertheless one must respect their rapid international success since their first international store opened in 1996.  The company was originally founded in 1971 as a roasted coffee bean and grounds retailer.  They originally offered high quality product for at home brewing.  The concept of the Starbucks we are so familiar with is the result of the breeding of the third place concept.  “Third place” meaning that people inevitably flock to three distinct locations in their everyday lives; home, work, and a restaurant or other retailer.  Starbucks successfully designed a place for the consumer to purchase a high quality product at an acceptable price as well as design an area to converse and congregate with friends, co-workers, and family. 

Dr. Eden Woon shared many of the guiding principles that have accounted for Starbucks’ rapid success.   He also provided insight into Starbucks market entry strategy and milestones for achieving success.  Starbucks opened its first location in China in 1999 after more than two-years of discussion on the topic and an exhaustive amount of market research.  We learned that the first location opened in Beijing as the result of a joint venture with a small Chinese firm.  The firm licensed the Starbuck’s name and leveraged their brand image to allow early success.  However thanks to China’s entrance into the WTO in 2005 Starbucks was able to repurchase this location from their licensee.  Starbucks plans to continue this strategy for their more than 500 locations in mainland China, one-half of which are owned by their partner firm. 

Obviously Starbuck’s coffee is considered a luxury item in China where the level of discretionary income of the majority of the populous does not allow for the same purchasing patterns of American consumers.  In fact, this reality causes a dramatic shift in the target market for the firm, forcing them to rely upon the purchasing power of a much younger segment than the one that frequents their stores in the United States.  This also has caused Starbucks to redesign their store fronts, because Starbucks in China offers a product that is not widely consumed, coffee (China has a tea drinking culture), their value adding service becomes more the location to meet and relax than the coffee itself.  Though they are offering a good alternative to a good cup of tea, and offering some products more catered to the Chinese palette.  It is said that “if you are not at Starbucks, you are on your way to Starbucks”.  Their stores have become a popular destination, thus increasing the importance of their brand identity related to corporate social responsibility and their core values. 

Nothing would be more tragic to Starbucks than a bad experience or a sour taste in the mouth of the consumer with regard to their brand.  That said, Starbucks has worked diligently to support the goals of the Chinese people by offering over $5 million dollars for philanthropic efforts.  This form of  public relations should create the positive image Starbucks seeks to garner throughout the 40 countries they are currently serving. 

It is also important to note that because the Chinese have such a unique palette and loyalty towards brands that Starbucks works diligently to continuously improve its product. Being on the ground and active in China is extremely important to a firm’s success in the market and Starbucks intends to continue it’s expansion organically so as to prevent the dilution of the brand.

Looking back on the day, our most important take away as it relates to Starbucks is that an American firm can be successful with the same product with very little modification for local taste.  Starbucks’ success seems to stem from the fact that the experience at a Starbucks is similar in all 40 countries they operate in.  Their product and brand has not been changed to suit existing demands or conceptions like many other firms in the same category (e.g.m, YUM Brands, McDonald’s). 

Callison Architecture was our next stop.  It is one of the world’s foremost designers of retail space.  According to Callison, the architectural industry of the United States is comprised of firms that specialize in specific areas including residential, mixed-use, corporate office and public works projects.  However, in the Chinese market firms are expected to be much more generalist in their expertise and ability.

China’s centrally planned governmental structure creates unique challenges for architectural firms. In order to be successful, a firm must balance their artistic desires with the government’s vision for the city.  This highlights several of the key issues in doing business in China.  First, relationships within the government and private industry are key to getting things done.  Secondly, the realities of a centrally planned city and regional expansion, where the government is the owner of the land, allows for a greater influence from individual political officials than it would in a more pure market structure.

Callison, the number one retail space designer in the world, has had a hand in many of the most impressive mixed use and pure retail projects worldwide.  These include the Pearl in Doha, Qatar, the retail space underneath the World Trade Center Memorial Building in New York City, Microsoft’s Main operations office in Redmond Washington, and multiple resorts, hospitals, and corporate offices around the world.

Their experience in China began in 1987 and the learning curve was steep as it is with many American firms entering the market.  One difference mentioned was  the proliferation of large mixed-use projects not common to the United States.  The scale of projects within China tends to be over 3 million square feet per development.  Such size tends to naturally allow only the largest of firms with a breadth of resources to compete successfully in the Chinese market.

China is strategically one of the most important markets for Callison.  Given China’s low standard wages, knowledge based work such as rendering and drafting can be performed at a much lower cost  This makes the importance of a successful Chinese office even greater.  In order to remain competitive in an industry where costs can rise quickly, minimizing costs becomes increasingly important. They have recently moved to a larger office in order to accommodate their plans for growth from 16 architects to 30 by year’s end and 45 by the end of next year. 

The day ended with an incredible cultural experience.  We had the opportunity to dine at a restaurant that served food from the most northwestern region of China.  We all had a wonderful time dancing with the locals and enjoying their music.

Submitted By:  Joe, Danny, Athena and Bonnie 

This morning we checked out of the Jian Gong Jin Jiang Hotel.  Hotels in China have a different procedure from American hotels for checking out of hotels.  Guests are required to turn in the room keys, or pay a fee for not turning them in, before leaving the hotel.  The rooms are then thoroughly inspected to see if anything in the room is missing.  The hotels will charge you for anything that is missing, such as towels, coat hangers, or glasses.   Joe and Danny had a little trouble checking out due to an unexpected room charge.  They were presented with a phone bill for making local calls to the Papa Johns down the street.  The boys began to worry until they saw the amount, 1.30 yuan, or the equivalent of a little under 20 U.S. cents.  The point of all this is that for business trips to China, one must plan for the timing of the check out process — it will take you a lot longer to get checked out of your hotel and make that flight to the airport.  

Today’s lunch was very similar to that of the lunches of previous days.  It was a very typical Chinese style lunch characterized with a big round table with a lazy Susan in the middle of it.  The dishes brought included different meats, vegetables, and a bowl of soup.  The only thing that stood out in terms of this restaurant was that all the waiters were wearing roller skates rather than walking from table to table.  The conversation at our lunch table is what made this lunch stand apart, and in our mind, has been the best lunch yet.  We were very lucky to have the chance to sit and talk with Claire (our Peking University student) and Professor Chris Carr together. 

We began the lunch by going around the table and sharing our biggest business takeaway.  It was real eye opening to see all the different things that people picked up and helped us learn a lot because not everyone noticed the same things.  After this, we shared our most memorable cultural experience and biggest culture shocks.  This topic opened the flood gates for a great conversation between Claire and the rest of the table.  We discussed such things as differences between the U.S and China in terms of relationships, perceptions and views of each others cultures and people, and everyday social interactions.  For example, we talked lot about the Chinese culture and how important relationships and connections are when going about day to day life.  In short, she explained that in order for someone to meet someone else and build a good foundation for a future relationship they must have been introduced or referred to by someone else.  Without that link, it is very hard to build a stable relationship.  It was a shock to hear this because in the U.S. we are so used to meeting strangers and making friends with people we have no connection to.  This is just one example of some of the things we talked about, so as to provide you with some idea as to the meat of the conversation.  What many of us at the table learned, was that our perceptions of the situations and encounters we have experienced are not in line with the reality of the situation.   

After lunch we were supposed to go to CF Racing, but there was a change in plans due to the length of travel time in the crazy traffic of Shanghai.  Fortunately, Athena Schwartz’s cousin was able to schedule a visit to his firm, SMIC, which was significantly closer to our hotel.  SMIC is a pure-play Integreated Circuit foundry that provides wafer fabrication facilities in Shanghai and Tianjin to production, providing 0.35um to 90nm wafer manufacturing services.

When we arrived at his office, we were greeted by Beverly Liu, a Chinese American from Los Angeles who did her undergraduate work at Boston University, and then seated in a conference room.  We were then given a short, excellent presentation by Ms. Liu that explained the activities of the firm and the different kinds of package they offer their employees.  Unlike their competitors SMIC has attracted top talent through the creation of an offsite employee community.  Complete with a gymnasium and school, SMIC has made the transition to China much easier for its employees. 

After the presentation, the VP of Corporate Relations, Matthew Szymanski, an attorney who worked on Capital Hill in Washington DC for a number of years on China issues, shared his thoughts on establishing a network in China and the Chinese view of relationships.  This helped clarify the misconception many Americans have about the silent personality of the Chinese.  We were also lucky in that Mr. Szymanski was joined by Mr. Chen Guomin, a Minister with the PRC Embassy in Washington DC.  We spent some time discussing with them the interdependence of the Chinese and American economies and why this relationship will most likely prevent the US from implementing additional tariffs on Chinese goods.  This was an excellent firm visit.  They also shared their thoughts with us for how the US and China might more effectively work together in the future.  

The second firm we visited, Augmentum, is a Chinese software provider that is striving to become the best software provider in the world.  They currently have 850 employees and intend to grow that number to approximately 14,000 in the next ten years.  The interesting thing about Augmentum is the fact that they make their employees speak English at work to help improve upon their employees’ communication skills.  At a lot of the firm visits we have been doing, there are noticeable similarities to U.S. firms that stand out.  In the case of Augmentum, there was one difference that we could not help but notice.  When we did an office tour, we noticed that all of the cubicles were bare and almost identical.  The employees are not allowed to decorate their cubicle in the same manner one might see in an American office.  This is different than most firms in the U.S. and raised for us the academic and practical question that we had not previously considered in great detail – what should the work place environment look and feel like to an employee and/or a client?  When asked why, the response was security concerns and they also wanted to keep a professional appearance in front of clients.  Along with this, we learned that employees are not allowed to talk about non-work related activities while at work, or even talk to people not on their project team (because they would be talking about non-work activities).  This is also different than the environment in many U.S. firms.   This, too, was an excellent firm visit.

The day ended with a long three hour bus ride to Hangzhou where once again, traffic increased the length of the drive, but with a population of approximately 15 million nothing else could be expected.  Many of the students used this time to rest as the gruelingly long days are starting to take a toll on our bodies.  We are beginning to understand the physical and mental drain that international travel has on the body, but it is good primer for our future professional careers.

We drove straight to the hotel and checked in before being released for the day and on our own for dinner.  Most of the students headed to KFC, McDonalds, or Pizza Hut.  We are staying at the Xinqiao hotel.  This hotel about as nice as the previous two, and it is still comparable to American facilities.  Despite the fact that some of the bathrooms we have encountered do not have toilet paper or a sit down toilet, the hotel rooms come with both.  The showers are always hot, and we have been provided with an assortment of soaps and toiletries.

Submitted By:  Steve, Chris, Patrick and Fatih

We are in Hangzhou. Today, we have the day off.

Today was a great opportunity to for everybody to sleep in, recharge and spend some time exploring the city at their own pace. A number of students went to nearby Buddhist temples to take in their amazing architecture and religious meaning. Two of the temples are perched adjacent and elevated above the city so that you can get a bird’s eye view of the cityscape.

A different group of students used the day to get lost in Hangzhou. By getting lost I literally mean getting lost; they boarded a city bus with no knowledge of where the bus was headed or a map of the city. All they had was the address of the hotel we are staying at, the cash in their pockets and an adventurous attitude. 

A third group of students took the opportunity to walk and explore West Lake, a large lake located less then ½ mile from our hotel. It served to be a relaxing escape from the rigors of the business tour.

Personally, I took this opportunity to do some people watching from a park bench and reflect on what has taken place so far on our business tour to China.   While watching the people walking around the lake and spending money at the little snack booths, I realized that the people of this city are a not all that different from the people of California.  (I specifically use Hangzhou and California because of another lesson learned on this trip – don’t generalize China or anywhere else in this world for that matter. Those from Hangzhou are different from those in Bejing, and those from California are different from those in Texas.)  The people here enjoy the outdoors, enjoy the company of friends, dress, act, and spend money much like those in California. I don’t intend to downplay the cultural differences, as there are many, and some more obvious than others, but the point is that China is not third world, but rather 1rst world in a number or ways and an emerging world power. This country has many things going for it, and many things working against it, just like any other 1rst world country. The fact is China is sitting at the high limit poker table at the world’s casino.

Hangzhou is also different than any other city we have visited so far for a number of reasons. The air pollution in Hangzhou is a lot less dense than the other cities we visited, the citizens speak better English, they are slightly more accepting and at night the streets are alive with people, music and neon lights. The area surrounding our hotel (I concede that this is a very small sample size) is lined with modern shopping malls, restaurants boutiques and bars. At night the city is a very vibrant place.

Other Student Musings: 

A number of ill students also took the day to recuperate from stomach viruses and bum knees. For these students, today’s break was a welcome day off. Unfortunately, I am recovering from food poisoning. Health should be the most important issue to address when on this trip. In this environment, every person cannot receive full attention to his/her needs. For example, we were on the bus and most of the people on the bus wanted the temperature low. This left the individuals that wanted a higher temperature to deal with the condition. The climate makes recovery difficult. The weather is hot with much humidity, and when you are not used to this weather your body is fighting the heat and your sickness. The hotels allow everyone to separate and regenerate.  I am fortunate to stay in my room today to recuperate.

The Chinese love KFC. KFC was extremely crowded. I stood in line for 10 minutes only to find out that the cash register person did not speak English. I left the store to look for the closest McDonalds or other fast food and saw only another KFC about 100 yards away. The food was similar to the United States. Probably to accommodate the standard of living, the price was about half of the United States’ KFC. 

Today was the first free day and I decided to discover the city randomly. I started my journey by taking a random bus line towards West Lake direction in front of the hotel. I had no idea where I would end up. The bus fares are ridiculously cheap in Hangzhou. The ticket is 1 RMB for short distances and 2 RMB for long distances. I also bought a city map and promised myself to use it only if I got severely lost. Later in the bus I realized that my map was in Chinese. It seemed to be a fun day. After seeing a great lotus garden (literally a garden) on the lake, I got off the bus and started walking along the lake side. I was not expecting to see the best examples of gardening in my life. The placement of cobblestones, wooden works on the floor and the landscape design was fascinating. On the path to South, a stone gate with square lotus pad gardens attracted my attention. I went through the gate. This was a museum temple with some archeological findings and fabulous wooden work on the ceilings of the temple. I went through different rooms and corridors again with great gardening at the sides. After getting lost in this huge temple, I found the “way out” and continued my walk along the lake.

The city is really hot, but the Chinese in the city invented a great way to cool themselves down. They placed small open buildings on the lake connected to the land with bridges. Once you are on that building, the wind blows like no where else.

My next stop was Leifeng Pagoda on the West Lake. This is a four story tower with a great sight of the city at the top. Here I met two other friends and we decided to climb up to another temple on the next hill. The hills around Hangzhou have a religious structure on the top, and they are connected to each other with cobble stone paths that you can’t see from outside. On the way, we saw different farms at higher altitudes.

Finally we went down to city from the hills and took couple of other random buses. I am surprised we have found the hotel before 9 pm. I loved the people of this city. They are very kind and do not hesitate to smile to foreign visitors. I took their pictures, they took my pictures (I still could not figure out the reason though). They did their best to help me with my Chinese map and the street signs.