Submitted By: Nicholas Miura

I’ve had quite a few recent discussions with friends about what makes Americans different than foreigners as the world becomes flat. One of the reoccurring themes that keeps coming up is that an American education helps create a well-rounded person who excels at innovation and problem solving, where others, Chinese and Indian especially, are too narrow in focus. Entrepreneurship and outsourcing were western traits, which is why America will come out on top in the end.

Here’s an article from the India Economic Times.

It seems that India has decided to be entrepreneurial and outsource – to the United States. All those call center jobs that Americans decided they didn’t want, or didn’t need are somehow coming back.

This raises an interesting question. Where are the American companies? Why hasn’t some bright young MBA student recognized that there was a business opportunity right in their own backyard? Instead, we got beat to the punch by Indian companies who are competing very well on the global stage.

Building on Robyn Bowie’s post ‘Need Help in School?’ - what is the future of American jobs? She wonders where the line will be drawn on what jobs can and will be outsourced. Is this the right question to ask, or should we begin to wonder when Chinese and Indian jobs will be outsourced to the United States? In our lifetime, will we see a time when foreigners come to the U.S. for medical tourism or Indian families are looking online for Harvard educated tutors for their sons and daughters?

Creativity and innovation is clearly not a United States commodity and just maybe we all should be a little more aware of where we fit into the global economy. Or, just assume everything will work out nicely - I’ve read that there’s a call center in Ohio who’s hiring.

Dan Harris and Steve Dickinson at the China Law Blog have been good supporters of our program and students. They are also kind enough to allow me to cannibalize items from their blog into our blog to promote student learning. They are smart, they work hard, they are successful, they have common sense, and they are also practical realists. In short, they are damn good and ethical business lawyers who understand China, business and provide outstanding value to their clients.

Now it’s time for some quid pro quo Guanxi.

Dan and Steve’s blog is up for a best law blog award with the American Bar Association, but they need our votes to win.

Click HERE and vote for their blog.

They are running neck and neck with the Patent Law blog. And if a friggin’ patent law blog can win a professional popularity contest like this, I may give up on the human race and become a monk.

Guanxi, baby. You gotta give it, to get it.

Submitted By: Catriona Banks-Orosco

In the coming election year one of the issues that will be hotly debated will be what to do with the border between the US and Mexico. Regardless of personal feelings, the US may want to look abroad at the world’s two fastest growing economies before making its decision.

Many people consider China and India to be business rivals. However, according to a recent article in the Harvard Business Review (Dec. 2007), China + India: The Power of Two, the countries are realizing that they have a lot to offer each other.

Instead of building barriers, a barbed wire fence was removed along Nathu La, a mountain pass that connects the two countries. Trade along this path was a significant factor in the growth of Chinese and Indian civilizations. While removing the fence may have been largely symbolic, the US would be wise to take notice.

In January 2006, the governments of China and India signed an agreement to work together on bids for energy resources. The oil companies in turn signed memorandums of understanding. The joint venture won a 50% stake in a Columbian oil company in 2006. Earlier this year, the two also agreed to work together to acquire oil assets in Venezuela and Angola.

After China and India cut themselves off from each other, the countries evolved in complimentary ways. This has reduced the competitiveness between them and strengthened their ability to work together. In China it makes sense to build manufacturing plants and take advantage of the infrastructure. India has a clear advantage in software development and trains tens of thousands of “technically sophisticated, English-speaking” graduates.

India and China have made it clear that they are ready to work together in some areas. Business leaders that embrace both countries will be able to tap into diverse strengths, just like China and India will do.

It’s interesting to me that many Americans are trying to close our borders to protect us at a time when so much of the world is opening up to the possibilities of technology, creativity and capitalism. India and China “put feeding their millions ahead of border disputes.” It’s estimated that by 2016 India and China will account for close to 40% of world trade, a position similar to where they were 200 years ago.

I can’t help but view the US as a teenager within the context of world history. Our country is still young, and perhaps too proud to consider the lessons that other nations have gone through.

Submitted By: Robyn Bowie

Well if you do all you need is a digital pen and palette and an Internet headset.

The latest trend in outsourcing to India is consumer services, and tutoring is one such service. The company is called TutorVista, a company that employs about 600 fully trained tutors just waiting to help your struggling student. With focus on standardized tests increasing in our elementary and high schools, more and more children are turning to well-known places like Sylvan and Kaplan for tutoring, but places like these can run up to $60 per session. TutorVista, on the other hand, offers monthly fees of $99 for all the 45-min tutoring sessions you need. This is much more economical for families like the Thams from Arcadia, California who were interviewed for the New York Times article “Hello India? I Need Help with My Math.” And other families seem to be catching on to this trend because TutorVista’s U.S. clients now number at 10,000.

But tutoring isn’t the only consumer service from India gaining in popularity. A new service called Ask Sunday will order your take-out food as well as a number of tasks formerly done by a personal assistant. And in fact, that’s exactly what Ask Sunday is – a remote personal assistant. The difference is this assistant will cost you just $29-$49 a month and is available 24 hours a day without complaint.

With all the outsourcing being done today, I wonder where we draw the line in what can and cannot be outsourced. Certainly we will still have demand for such things as hospitals and doctors. However, there is also a new trend of flying all the way to India to be treated for surgeries that are just too expensive in the United States. It’s called “medical tourism” and it is actually generally less expensive to fly all the way to India, have the surgery and fly back. And most patients still have the luxury of being treated by an American educated doctor who speaks perfect English.

So what job can’t be outsourced? Are we to say goodbye to all American jobs forever?

Obviously not, but I do think we will be surprised to see the types of jobs that will eventually be outsourced in the future. As more and more jobs are outsourced I wonder whether or not this is such a good thing, particularly when it comes to such consumer services.

Many of these services, like the two mentioned above, used to consist of face to face real live human interactions. Using such devices as the Internet to communicate is very useful, but we miss out on important aspects of live communication such as nonverbal cues. These cues may include facial expressions, gestures, and tone of voice and can be up to 75% of communication between people. Most people don’t even realize how important nonverbal communication really is or that they are even using it in their everyday conversations. Because of this, nonverbal communication gets tossed to the side without a thought when the price is right. How much value does that low price have when we realize what’s truly being lost? I think we will find that some things are just worth the extra money.

I assume you saw and read this WSJ article over the Thanksgiving holiday (click here).

Why do you think China did this?

1. Payback for President Bush’s recent meeting with the Dali Lama in October and Congress’ giving the Dali Lama its highest award?

2. It’s part of modern day “kowtowing” game that China likes to play, and that Dr. Morris spoke extensively about when he talked to us about China’s history (FYI — hours later, after China changed its mind and said the carrier fleet could dock in Hong Kong, Foreign Ministry spokesman Liu Jianchao told reporters, “It is a decision out of humanitarian consideration only”)?

3. The person in charge of China’s governmental PR strategy is either 200 years old, or, he/she was smoking a crack pipe the day his/her boss came to him/her asking, “what should we do?”

4. Retaliation for the Pentagon’s recent approval of a $940 million upgrade to Taiwan’s Patriot antimissile shield?

5. The Chinese don’t like turkey and all fixins’ that American servicemen would bring to Hong Kong.

6. The port call coincided with a large-scale naval and air operation by the People’s Liberation Army along coastal China, and would have put the U.S. ships in easy monitoring distance of the exercises?

7. Hong Kong is so darn rich that China does not need tourist dollars from American servicemen.

8. Other?

Discuss.

Further, assume you are a member of a high level panel of advisors that regularly meets with President Bush to provide him with feedback and ideas on foreign policy matters. You are the only business person and business voice on that panel. The rest of the panel consists of people with lifelong careers in government, several 4 star generals looking to test their troops’ battle readiness and/or probe and test some of China’s military soft spots, high level religious leaders, journalists, academics, and an assortment of do-gooders with humanitarian agendas.

President Bush asks for ideas re: what the American response to this snub should be, if any. The discussion around the table comes to you; again, the only person in the room with extensive experience in business and private industry.

It’s your turn to step up to the plate and give the President your frank advice. He looks at you and says, “I have always valued your input, as you are in tune with the practicalities of the real world. I feel strongly that we can’t act like a significant snub like this never happened. Our carrier fleet has been coming to and docking in Hong Kong for years around Thanksgiving, and the Chinese damn well know that. What does the business community have to say about this recent event and how should we respond? Won’t ‘turning the other cheek’ just give the Chinese a ‘get out of jail free card’ to do something like this again in the future?”

What will you tell him, and why?

January 3, 2008 update: Nice op-ed piece in yesterday’s Wall Street Journal on this topic, China Flexes Its Muscles.

No, this is not a post that suggests that just because China has a bizillion people you will make tons of money just by entering this market. If only it were that easy. Let me take that off the table from the outset; don’t misconstrue the point of this post.

I recently listened to a very good and interesting podcast interview by Christine Lu of the China Business Network with Tom Doctoroff, Greater China CEO and Northeast Asia Director of JWT, and top tier marketing and advertising firm. Check it out (a mere 10 minutes in length).

Then a few minutes later, I opened up the NY Times and saw the following related article about the Olympics and China’s marketers, that extensively quotes Tom: For Olympics, China’s Marketers Are Showing Their Pride. Check it out (has a cool picture at the top, by the way).

Well done, Christine and Tom. Some good information and insight for MBA students on marketing, markets, connecting with customers, and all in the context of cross cultural differences. And now I better understand some of the differences between Confucianism and Daoism, per Tom’s discussion, and how some of those foundational beliefs relate  and apply to marketing strategy.

Then several days later, I came across this very good WSJ Op-Ed piece, Capturing China’s Middle Market, which notes:

Historically, multinationals have focused on China’s premium market. But the playing field over the last few years has changed rapidly. Multinationals sticking with a premium-only strategy are increasingly under attack from emerging Chinese champions with a compelling offering: fairly reliable products at prices low enough to attract China’s growing ranks of mid-level consumers. Indeed, China’s middle market is growing faster than both the premium and low-end segments. In some categories, the “good enough” space already accounts for nearly half of all revenues. Eight out of every 10 washing machines and televisions now sold in China, for instance, are “good enough” brands.

The op-ed piece goes on to note how Gillette, Anheuser-Busch, and Colgate-Palmolive purchased Chinese companies so that they could gain access to China’s middle tier market:

Gillette was extremely careful to protect both Duracell’s and Nanfu’s brands — a crucial part of the strategy as Gillette continues to sell premium batteries under the Duracell brand and has maintained Nanfu as the leading national brand for the mass market. Dual branding, cost synergies, a broadened product portfolio, economies of scale, and distribution to more than three million retail outlets in China have paid off for Gillette, which has seen significant increases in its operating margins in China. In 2004, for instance, Anheuser-Busch outbid its competitor SABMiller to acquire Harbin, the fourth-largest brewer in China. That acquisition allowed Anheuser-Busch to reach the masses while preventing Harbin from moving upmarket. The next year, it increased its stake in Tsingtao Brewery, to 27% from 9.9%. Both moves enabled the global brewer to rapidly increase its share among China’s current mid-market beer drinkers.

Colgate-Palmolive made similar moves in China. It entered into a joint venture in the early 1990s with one of China’s largest toothpaste producers, and it acquired China’s market leader for toothbrushes a decade later, allowing it to scale up and then leverage its production processes to compete in other parts of the world. As a result, Colgate more than doubled its oral hygiene revenues in China between 1998 and 2005, and it now exports its China products to 70 countries.

The above also relates to Ashley’s recent blog post and comment discussion therein, Government Promises and 2008 Olympics.

The Student Blogs From 2008, 2007 and 2006 Are Accessible Off The Drop Down On The Home Page Sidebar

Time to separate the pretenders from the contenders, and see who has, in fact, been checking the blog every 2 or 3 days as instructed by the syllabus and FAQ document. Thus far only a small number of students planning on going to China have submitted posts and/or comments, and I am not thrilled by the signal that sends. To again reiterate — I won’t award 4 units of graduate school credit and/or a decent grade attached to it those who just go through the motions.

Assignment, Due Wednesday, November 21, by 5:00 pm:

A number of good, thoughtful and insightful posts and comments have been submitted thus far. Nice job to those who have jumped in.

But in reading through some of the comments, it is apparent that some foundational understandings about economics, capital flows and trade, finance and globalization are missing. If you were Masters in Philosophy or Masters in Viticulture students, I would not be terribly concerned. But because you are MBA and MS in IT students, I am concerned. You must understand how this works and its complexities, to hold the credible title of MBA or MS in IT.

For example, China’s economy has been growing at a hefty pace for a number of years now. No reasonable person disputes that. Further, when China’s economy grows, that too, is good for the US and our own overall economy, as the two have become inextricably interlinked. Again, no reasonable person disputes that. Finally, no reasonable person doubts that one reason China’s economy has and is growing so fast is because of its lax standards, rules and particularly its poor enforcement re: things like IP protection, the environment, coal mine safety, labor and employee protections, etc., as without said constraints the cost of doing business in China, for foreign and Chinese firms, would be higher.

So, if we ask China to raise the bar on a number of these fronts and thereby slow down their economic growth, won’t that in turn hurt us and our own overall economy in a number of ways?

(My hypothesis is that “raise the bar” will be the majority consensus of the group, and nothing wrong with that; but I am asking you to think about this at a deeper level than the usual American throwout of, “well, those Chinese need to treat people better and pass more laws and all will be well” offered as the business and political solution. If it were that simple, heck, wouldn’t that have been done some time ago?)

If we slow down their growth are you in turn willing and ready to step up and pay higher prices for goods, pay a higher interest rate on the mortgage you take out when you buy a house (a mere 1 percent up-tick in your loan rate makes a HUGE difference on what you pay for a house in California over the life of a 15 or 30 year loan; and if you are making a California mortgage payment, like me, you know all too well the pain of which I speak), are you willing to have a harder time getting access to affordable capital so you can start or grow your business, etc.?

Relatedly, you are taking statistics right now and are learning what is good data, how to gather it, how to interpret it, etc., so are things like the lead paint toy reports and antifreeze in the toothpaste cases reported by the press outliers, or, do they represent the statistical mean? How many other products does China import into the US other than toys and toothpaste category and any problems with those?

Which economic poison do you pick, and why? And if this bothers you, either way, can it be fixed and if so, how? What is politically possible? Should Americans lose out more than Chinese on this, or vice versa, and why? Discuss.

Turn in your assignment/thoughts/response by the above noted deadline, via your comment below. It should take you no more than 10 or 15 minutes, max, to think about this issue and type something up. Amount of points for this assignment to be determined later. Your initial comment and any subsequent comments you make to/in this particular post does not count as one of your required quarterly blog posts.

Later in the day Prof. Carr Addendeum:

And below are three China Law Blog posts that adds some background to the above that you might find helpful as you wrestle with this issue. The info in these links suggest that the belief that that China is not trying to move forward on these issues my be more urban legend and reality. Maybe these developments show that China is on a normal progression to solving these problems that’s in line with how other countries have economically developed over the past few centuries? See, e.g., this related A Nation of Outlaws. Uuuuuhh, Beavis …That Would Be You and Me post I wrote some time ago, and this is why to understand many of these issues, Dr. Morris is right, you have to know and understand something about the history of our own country and the world:

China Changes FDI Rules

Services Will Reign, Part XV

Services Will Reign, Part XVI: The VCs Tell Us So

Click here.  Need I say more?

Dr. Morris was right, in its own mind China as the ‘Middle Kingdom’ invented everything!

Thanks to my colleague Lonnie Hodge of the Blog of Dreams in Guangzhou for the lead.  This video is a hoot.  A little levity for us heading into the weekend.

Submitted By: Rob Belloni

Three Gorges Drama: Why Chinese Dam Is Forcing Yet Another Mass Exodus.   This article by Shai Oster of the WSJ focuses on current issues regarding the Three Gorges dam. The article frames larger issues with the dam in the context of a man named Fan Zhongcheng, whose mother and father were killed as they demolished their own home to move out of the path of rising lake waters.

Mr. Zhongcheng is just one of 1.4 million people displaced by the dam, and the displacement of human beings is just one issue among many that have resulted from the dam’s construction. As I read this article and contemplated the negative aspects of the dam I wondered two things. First I wondered who made the ultimate decision to build this dam? Second, I wondered what positives will come from this dam - or is everything about it bad?

Why the Three Gorges Dam was Built

According to Wikipedia, the dam was conceived by Sun Yat-sen in 1914. Sun Yat-sen was Provisional President of the Republic of China for a short period of time around 1912. This article on worldpress.org claims the dam was conceived in 1919. Whatever the case may be, the idea of building a dam in this region of China had been around for considerable time. The issue was revisited many times in the years leading up to the start of construction, but it was only in modern times that the Chinese government was able to secure sufficient funds to begin building.

The man behind the dam if you will, is Li Peng a Hydroelectric Engineer who rose to become the Premier of China from 1987 to 1998. Li Peng considered the Three Gorges Dam to be his life’s work, and pushed the issue through the National People’s Congress despite uncharacteristic dissent and absenteeism during the vote. What struck me here was how one person was able to initiate such a massive undertaking. Some would say this is the beauty of the communist system. Many would say that things like this reflect the horrifying nature of communism - that one person can have so much power.

What also struck me as I read about the history of the dam is how its building was viewed as an inevitable outcome. The train of logic was something like; Sun Yat-sen said we should do it, Mao said we should do it, Li Peng said we should do it - so we did it - and our only regret was that it could not have been done sooner. I have no doubt that if the capability and financing had been available any time between 1912 and 1992, the dam would have been built then.

In America there exists a system of checks and balances to rein in individuals who seek to use political power to advance their personal projects. Environmental agencies like the EPA mandate EIR’s and other checks to ensure that one person’s “good idea” is not a catastrophe waiting to happen. The system here is not perfect, and without a doubt we can find a litany of bad projects in the U.S. that resulted from lack of oversight, group-think, and other political failings - but I cannot imagine a project like the Three Gorges dam ever coming to fruition in the 1990’s in America.

The Three Gorges Dam was built because a historical context existed, because one man (Li Peng) achieved a position powerful enough to make it happen, because China reached a point of financial capability, and because a political system existed that did not have the necessary checks built in to prevent it.

Looking for Good in the Three Gorges Dam

A Google search for articles on the Three Gorges Dam will find you a long list of articles deriding the dam and pointing out its failings. The standard article format (like the one focused on here) starts with a litany of negatives about the dam, makes passing reference to the positive aspects of the dam, and follows that with comments about what “critics” say about those positive comments.

When you do find a positive article about the dam, it almost always originates from a Chinese media outlet and focuses on three things: flood control, energy production, and navigation of the Yangtze River. Ironically, if you research the Hoover dam in the U.S., you find articles touting the exact same things. Compare this article on sunsetcities.com about the Hoover Dam with this article on chinadaily.com and ask yourself why you didn’t mind what you read in the sunsetcities.com article, but felt like the chinadaily.com article was just a propaganda tool.

Why are we, as American’s, so willing to gloss over the negative aspects of our Dam projects while criticizing the Chinese with such thinly veiled vehemence? You will be hard pressed to find information and articles criticizing major American dams like the Hoover Dam. But the Hoover dam is responsible for flooding 20% of the Grand Canyon, killing off three of eight native fishes in the Colorado River, and the death of 104 workers during its construction. Granted this does not equate with the level of damage and destruction resulting from the construction of the Three Gorges Dam, but it is hard to look at these two dams without bias.

The Three Gorges Dam will generate substantial amounts of hydroelectric power, obviating the need to burn coal. The Dam will result in economic benefits for that region in China, and for China as a whole. People living below the dam will benefit from improved flood control. Boats will be able to navigate the 400+ mile long lake with ease. There will be costs associated with these benefits, but you cannot deny them. Perhaps the lesson here is that we should not be so quick to call the kettle black when we are occasionally the pot.