In response to my post, Corporate Strategy and the Speed of the Supply China, several people commented on their hope that said jobs might one day return to the US and/or they posited the question of why not Mexico rather than China so that goods could be moved into the US more quickly?

If only it were that simple. See this March 3, 2008 WSJ article, US Shoe Factory Finds Supplies are Achilles Heel.

This article beautifully highlights why said jobs, industry and manufacturing left the US and ain’t never coming back. The article discussed how a man with his heart in the right place tried to bring some manufacturing back to the US from China and he set up a shoe manufacturing plant in Florida, he did all that he could to make it work, yet in the end failed.

Why did he fail?

Well, at the end of the day, Chinese labor is cheaper, lots cheaper, than American (and even Mexican) labor, and many just don’t fully understand and appreciate how cheap it is in comparison to these other places. He could just not compete. Perhaps more importantly, the infrastructure needed to make a factory tick no longer exits in the US for most products and industries (and if it does not exist here, it sure does not exist in Mexico in many cases). Note that the term “infrastructure” does not just mean roads and UPS delivery — it also means parts, service professionals for machines, the willingness of a firm’s supporting suppliers to fill smaller orders, etc.

One reason China can offer a more competitive factory “infrastructure” is due to clustering, and we will discuss this in greater detail once we are in the road in China. This is where a number of firms in the same industry set up shop together, or, entire towns in China devote their existence to the production of one product (e.g., sock city, watch city, tie city, etc.). The synergies and efficiencies offered by such clustering are hard to beat.

For a number of products and manufacturing industries … gone baby, gone.

Submitted By: Nic Dominguez

In the March/April issue of the Foreign Affairs periodical Harry Broadman, Economic Adviser for the Africa Region at the World Bank, bring us a new perspective on the relationships between China and India and the developing countries of Africa. Broadman’s article focuses on the trade and investment relationship between the two continents and how it can help develop the African economies but further insight can be found in the trends appearing in the Chinese and Indian imports. We now call China the factory of the world but it is very possible that Africa could be the factory of China 10 years from now.

Exports from Africa to China grew at a rate of 48 percent between 2000 and 2005. That is two and a half times the rate from the United States and four times that of the EU. As you might expect most of the exports are in energy and mineral related natural resources. A hefty 86% of exports are in oil, ore, metals, and raw agricultural commodities. This is expected from the poor, infrastructure barren economies of most African nations, nevertheless light manufactured goods exports are growing too. China and India’s budding middle class are looking to Africa to supply them with new household goods, processed foods, and back-office services. China now buys 10 percent of Africa’s total exports and India 3 percent. This jump in trade volume is not by accident. The Chinese and Indian governments are actively taking steps to improve the environment for trade and foreign direct investment.

Chinese/African relations have been improving dramatically over the last few years. Beijing’s “China’s African Policy” presented by Hu Jintao to 48 African leaders, describes China’s plan to double its assistance to Africa by 2009. It will “provide them with $5 billion in concessional loans and credits, establish a $5billion fund to encourage Chinese investment in Africa, and cancel the interest-free debt it was owed by 33.” The Export-Import Bank of India Focus Africa Program established in 2006 extends a line of credit totaling $558 million half of which is geared toward the development of West Africa. Although assistance is growing tariffs on trade still inhibit growth, but in 2006 Beijing eliminated tariffs on 190 commodities from the 25 least-developed countries. By 2007 this grew to 440 commodities.

This appears to be the same trend that emerged when the U.S. and European middle classes began to demand an increasing volume of consumer goods. It may do be too soon to conclude that the manufacturing heyday of China is coming to an end but recent offshoring of Chinese firms to Indonesia and Vietnam combined with increase trade with Africa could be the first signs of a fundamental change in the Chinese economy. I see India’s service oriented growth as much less susceptible to competition from underdeveloped nations in places such as Africa. The telecommunications infrastructure needed to conduct a service oriented business just hasn’t taken hold in Africa. In any case a stronger trade relationship between the two continents will make for a much more interesting and complicated business environment for future graduates looking into international trade.

If you would like to read the full article in Foreign Affairs and you live in San Luis Obispo I would be more than willing to lend out the article.

Submitted By: Naomi Guy

The air is hot, sticky, and dirty. Your throat becomes itchy and a bad taste arises. What do you do? Well, in China you better not spit. Renmin University in China has created a Civic Index to measure the “civility” of their cities and gauge progress as the Olympics draw near. The index analyzes behaviors such as spitting, littering, and line forming from over a quarter million observations and surveys. According to this article, Beijing has been decreasing this behavior, but not as drastically as required before the Olympics. In 2007, Beijing scored 73.4 points, up from 69.06 in 2006 and 65.21 in 2005, but not up to the 80 point target. Changes were brought about using both positive and negative reinforcements ranging from flowers to fines. An example of an interesting (yet somewhat derogatory) program is one to promote the peaceful forming of lines. On the 11th of each month (standing for 1 after 1), uniformed officials swarm upon bus stops and subway stations waving flags at everyone to ensure they line up. The program was created by Zhang Huiguang, director of Beijing’s Capital Ethics Development Office. She is now better known as “Ms. Manners”, and claims that changing these bad habits before the Olympics is “crucial in providing a cultural and historical legacy to China and the world as a whole”.

So what’s the big deal? It seems obvious that any country would want to look as good as possible for the hundreds of thousands of tourists expected for the Olympics. Well, we all remember back a few short years ago when SARS was a major health threat. During that time, officials tried to stop spitting in public to help stop the spread of the disease. Sadly, more effort has been directed into putting on a clean image for the Olympics than protecting the health of the country, and the world, just three short years ago (article). A fairly drastic change in behavior has occurred in the past year to create a new image, three years ago, when lives were at stake, it was hardly a difference.

So why is this? Did the government not care as much about health, or were people too stubborn to believe the threat of SARS? Is an external image more important than internal wellbeing? Would you expect this behavior to be true outside of China? Do you agree with Ms. Manners that these changes are crucial to providing a legacy?

I’d like to leave you with this statement by, Zhang Faqiang, vice chairman of the China Olympic Committee, “Ultimately, China’s modernization rests on the quality of its citizens.” Do manners truly make a quality citizen? and can that lead to modernization? I’ve know some key American inventors with little to zero etiquette…

Submitted By: Catriona Banks-Orosco

“When the US sneezes, do parts of the world get sick?” That was the question posed to us in International Business as we discussed how a slowdown in the US economy might affect other nations.

Recent articles in the Wall Street Journal and Financial Times [registration is free] describe a slow down in the economies of China and India. China’s growth is expected to slow by 2%, down to 9% this year. India’s growth will slow 1%, down to 8.7%. Not exactly stagnant, but still they’re both less than the double digit growth the countries have been experiencing over the past few years.

So, is the slow down in China and India directly tied to the economic slowdown in the US or simply the natural process of a growing economy? Does it indicate a larger problem? Or opportunity?

Exports have fallen in both countries. India is likely to keep their interest rates high to attract investors and to try to tame inflation. China’s imports outpaced exports for the last three months of 2007. As the value of the US dollar falls, imports cost us more, but suddenly our exports have a larger audience that can afford our products. China exports products to many nations, but the US market is known for its mass consumption. So could our slowdown in consumption, create the space necessary for China and India to consider longer term, environmental implications in future growth plans? The World Bank is hoping for just that. A slowdown will allow China to “recalibrate growth away from heavy industry in favour of consumption and services.” This would allow China to re-balance the economy away from resource intensive industries, reducing green house gas emissions and pollution. It would also position China to eventually become the world’s largest economy, surpassing the US in consumption, and buoying the global economy. Redirecting growth away from heavy industry won’t necessarily translate to environmental protection. But a transition to services and consumption could help lift a major portion of the population out of poverty. Heavy industry has not created many jobs. A transition to services and local consumption will create jobs for more people. As the overall level of income rises, the citizens of China are likely to begin to demand more protections, for themselves and their surroundings. Of course this won’t happen overnight. But history has shown that as populations are lifted out of poverty, they expect more. The same will hopefully be true in India, where the rise in incomes of some of its people has not been spread across its vast population.

I don’t fear the common cold, I don’t like it, but I’m not afraid of it. I let my kids dig in the dirt, wear shorts in the rain and wear themselves out. The logic is that it will increase the strength of their immune systems by allowing them to be exposed to regular germs in their environment. Maybe the slowdown in the US will have the same effect on the world economy. Many nations will be adversely affected in the short term. However, it could also force the world to take a breath, and consider future paths instead of simply plowing forward. Ideally all nations will gain an understanding of how to grow economies in a sustainable manner.

How do you see the US economic slowdown affecting the rest of the world? Could it be good for the world economy?

A hat tip to Dan Harris and the China Law Blog for this lead ….

Here is a really, really interesting power point presentation by advertising giant Ogilvy on consumers in China’s Tier II and III cities. Some great stuff in here that will relate to what you are studying or will study in your MBA marketing class this winter quarter (e.g., branding, market segmentation, packaging, impulse buying, distribution channels, price sensitivity, who makes the family buying decisions, etc. anyone?). This material also highlights why so many foreign firms are trying to get into the market there — the consumer class and their spending power in these lower tier cities are on the upswing. This presentation is worth spending a few minutes to click through and study. Doing so, via this compare and contrast measure, also helped me better understand the marketing of products here in the US. Once in China, as you walk in and out of stores, and as you bus from A to B and look out the window, you need to think back to this material and connect some of the dots as related to your coursework ….

For your Fall quarter book review, several of you picked Ha Jin’s War Trash or as I remember one of this other books, Waiting. I was reading Newsweek last night and it had this nice, short feature on books that have influenced him. He is a winner of the National Book Award and a finalist for the Pulitzer Prize; no small feat for a guy who writes in his second language. Tonight I was doing some more digging on him on the Internet and came across this 2007 Newsweek article — click HERE. What a fascinating man and unique life he has lived!

(On a related note, I read each book review before Christmas. I usually made a brief comment to your review, but due to the number of reviews (times 3 over the year), I am unable to leave extensive comments (as was noted would be the case in the syllabus). For a few of you, I could not post a comment unless/until you alter your blog comment setting to allow comments from “anonymous” or “other” as requested in the syllabus (I always type my name when I leave a comment using either), or, your blog requires me/the reader to register for a Google or MSN Hotmail account in order to leave a comment. Please check this, and if you can plug in the “anonymous” or “other” option for a reader to comment please do so.  But if your blog is one that requires me to register to comment, I am afraid you are stuck with that format, and that’s okay — just know I do read your reviews, but am unable to leave a comment.  If this all makes little sense, surf a few of your classmates blogs and reviews and you will see what I am referring to.

Check out Christine Lu’s latest China Business Network podcast, How To Live and Do Business in China.

A nice feature on a normal, everyday Canadian that went to the PRC and made the adjustment.  He also has an interesting take on corruption in China vis-a-vis the West.

I love the Big Iz and his music. I was bummed, really bummed, when the he died at the young age of 38 a few years back. He was a music and Hawaiian icon. I especially like his song, White Sandy Beach In Hawaii. Tears come to my eyes when I hear that song. Check out his music. You won’t regret it. His rendition of Somewhere Over the Rainbow is, for my money, the best ever made.

Hawaii used to be filled with Japanese tourists. Not so much anymore. And, they are being replaced by Chinese with money — loads of it.

See this Honolulu Star Bulletin article, US-Chinese Pact To Boost Tourism.

Any interest in moving to Hawaii, a paradise if there ever was such a place, and make a living servicing this soon to be burgeoning Chinese tourist clientle? Would that lot in life be worse than driving being stuck in traffic on the way to work everyday on the 405, 101 or 280? If you wanted to jump in on this, how would you do it?

See also these related China Business Network podcasts:

• The 2007 WTM-ChinaContact Future of Travel Forum

• The Online Travel Market in China

Braddah Iz, we miss you ….

In my other life, I was under daily (hourly?) attack by people who disliked attorneys. Until, of course, they needed one, and then they wanted to be my best friend.

From time to time I reflect back on the survey of the American public that the American Bar Association (ABA) did a few years ago on people’s perceptions of lawyers.

The ABA found that many people held lawyers in low esteem because, among other things, they perceived them as too hard nosed, too aggressive in their representation of clients, etc.  But when the survey asked these respondents what qualities they/the respondents would most want in their own lawer, at the top of the list were items like, “I want him/her to be aggressive” and “I want him/her to be hard nosed for me”.

Go figure. Ahhh Americans …. they never cease to amaze me and prove time and time again that those darn economists may be right – maybe we are a people, no different or special than others, who are motivated by self interest and we respond to incentives that favor what we value in life  (rational choice theory!).

Now that I am in a business school, I have found that my pain in this regard has not subsided.

My friends across the world have recently emailed me, over and over and over (will you people get back to work?!), the recent Wall Street Journal article, Business Schools Forgetting Their Missions?

Good article. It raises some excellent points. And it also raises a few points that don’t hold much water.

And yes, business brow beaters out there, I read the darn thing long before you emailed it to me. No need to send me another! Get back to work! I already have plenty of copies!

But like most things in life, at least in my view, the truth probably lies somewhere in the middle.

Your thoughts?

Brow beat away. But don’t look for me to argue back or try to counter. I have (finally) learned that there are some arguments in life one just can’t/won’t win with somone on the other side who has made up their mind.  E.g.,  the abortion debate, creationism vs. evolution debate, “are there too many lawsuits in America” debate, “does the rest of the world need American style democracy” debate, the “school vouchers are a good/bad thing” debate, the “we need universal health care” debate, the “the UN does/does not do a good job” debate, ”China is corrupt and the devil versus it’s trying to move forward in good faith” debate, etc., 

I see this as another such issue.

But hey, let me try to close by accentuating the positive. I am doing what I can do make a difference. There is no question in my mind that taking a group of  Orfalea College of Business graduate students each year to China, and now possibly India, is consistent with the core mission of our businesss school, higher education and a hands on eduction.   Can we do more and do better?  Of course.  Of course.  Of course.

And to further accentuate the positive that comes out of business schools and the professors who work in them, this weekend, if you stop by my house, you might just find me re-reading the book by fellow law professors Tim Fort of the George Washington University business school and Cindy Shipani of the University of Michigan business school’s, The Role of Business in Fostering Peaceful Societies.

Now, enough from me about this debate.  I need to get back to work. 

But I do welcome rational and reasonable thoughts on this subject.   And I REALLY, REALLY welcome proposals for improvement that are practical, can actually be exeucted in a reasonable amount of time, and can be afforded and paid for in a resource constrained  enviroment.  If you can offer such a proposal, you are da’ man or da’ woman.

I finally had a chance to watch PBS’ The People’s Court: China’s Legal Revolution.

I enjoyed it, very much. and learned a thing or two. Scroll down and click on Parts 1, 2, 3, 4 and the final Interview, and then come back here and comment.

What did you learn that you did not know before? Many scholars argue that economic growth is facilitated by a strong rule of law. Some even go a step farther, and argue that economic growth requires a strong rule of law. Yet, China does not yet have a strong rule of law and it’s booming. How do you explain that?