Sat - May 7, 2005

The Advertising Agencies Still Don't Get It


The Sniper's Hide
In the Hutong
2240 hours

Trying really hard to look like they're working on this deductible junket, 379 advertising execs at a conference in Bermuda told each other how worried they are about the way the advertising business works.

There was a lot of talk about how to fix the advertising business, but apparently nobody had the cojones to come right out and ask the big question (is advertising doomed?), much less give the right answer (yes) and begin talking about what would take its place.

Hint 1: Stop having these stupid conferences. If you take 379 attendees, multiply by around $6k apiece ($1,700 to attend, 5 nights hotel at an average of $320 a night, airfare, food, entertainment, etc.) and figure $1500 a day in lost work time. Call it an even $4 million that it cost the industry, or commissions on $23 million in billings.

Hint 2: The industry is in love with creativity. Get over it. It's about results, guys, now winning awards for the cleverest or best-looking ads

Posted at 10:56 PM    

Attention Journalists: Please Don't Ask Any Questions, Just Write Down What Executives Tell You


The Bunker in the Hutong
2141 hrs

The San Francisco Chronicle, once again earning its sobriquet of "Pravda-by-the-Bay," published an article on tomorrow's Hua Yuan Science and Technology Conference in Santa Clara. As a part of that interview, it published two quotes that a little healthy journalistic skepticism might have questioned, and turned into a better story.

First, the reporter, Vern Kopytoff, couldn't even bother to get the name of the organization right (he spelled it "Hua Yan." Hello? Fact check? As an aside, he also missed the point that Hua Yuan is a modern-day equivalent of a Chinese self-help association that taps U.S. companies with lots of money and big China aspirations for support. Dig a bit there, boy. There's an interesting story here...Is this organization legit and above board, or is there something Masonic happening here?

Second, Mr. Kopytoff dutifully took down every word when Fang Deng, the VP for Strategy of Juniper Networks, regurgitated the standard party-line that:

U.S. firms expanding Into China can't expect immediate success. Rather, it could take a U.S. firm years to turn a profit after learning the Chinese way of doing business.

With respect, wrong on two counts.

Companies don't have to spend years to build a business in China. If they hire smart people and get professional advice they can accomplish a lot it a little time. It's the ones that assume they need to lose money and be stupid for 3-5 years that never seem to get their business in China off the ground. Your average well researched, well-thought out business plan that incorporates the kind of savvy a company SHOULD have before investing a nickel in China should be cash-flow positive within 18 months.

That does NOT mean that there is some special Chinese way of doing business. Now, the locals will try to convince you of that - they've been singing that tune for over a century, and to a culture-shocked executive from San Jose or Dayton, that sounds reasonable. It's also the first step toward disarming you and then taking you for all you've got.

Any U.S. executive (and I count Mr. Deng as one, despite his surname) who tries to convince you otherwise either a) buys into that because he's trying to justify his company's own crappy performance in China, or b) is being disingenuous and saying that in the hopes that his competitors are listening and won't try to come into China. Given Juniper's more than satisfactory performance in China, I would vote for him spreading disinformation.

I don't blame Mr. Kopytoff for that oversight. I blame the Chronicle for sending a reporter who clearly does not have enough knowledge about China to write a decent story. Which of cours assumes the Chronicle even has a reporter who understands that there are differences between Stockton St. and Jianguomenwai Avenue.

It gets worse.

Then we have Charles Zhang, CEO of Sohu.com, who proceeds to dis U.S. Internet firms in China, suggesting they're not doing quite well. One would think that the reporter would hear a voice in his head saying "hmm, but this is a guy talking about his competition. Of COURSE he's going to say that."

No evidence of healthy, journalistic skepticism.

No wonder more people are turning to blogs for information and ignoring traditional media.

Posted at 10:10 PM    

Tue - March 29, 2005

Why Isn't China Teaching Integrity, Part I


9 Floors Above the Hutong
China World Tower 2
1233 hrs

I wish to hell more companies in China would publicly eject dishonest employees. More stories like this one running here might have an impact.

"I lied to my previous employer and falsified company documents while making lots of money for them and myself. Then I wrote a book about it. What's wrong with that?"

"Uh, you're a self-confessed dishonest guy who has no integrity and has committed acts that under the laws of the land could be considered criminal. Hit the road."

Damn, I wish there was more of that here...

Attention all employers in China! If they cannot define "integrity" when you interview them, DON'T HIRE THEM.

If they behave with a lack of integrity, FIRE them.

Build it into company policies. Use YOUR definition of proper behavior and clear it with local counsel. Then enforce it.

Posted at 12:50 PM    

Signs


Somewhere on the Third Ring Road
Beijing
0725 hrs

Looking to be another long day. Possibly some interesting news later. I'm a half-hour early for my first appointment of the day, and the skies are clear if hazy above Beijing. There is promise in the air.

Great iPod shuffle billboard along 3rd Ring near the Zhaolong hotel. ¥990 is a bit more expensive than the $99 the thing goes for in the states, but it's brilliant. In a country where there price is a mostly subjective thing, simply smacking a price on a billboard is a bold statement. Go Apple.

Huge double-decker bus ads for 7-Eleven, stores which are just starting to pop up in China. Why does China need more convenience retail? It doesn't. It needs more cost-effective convenience retail, and 7-Eleven's inventory and supply-chain management technology are what is going to revolutionize small retail here. It will become increasingly difficult in China to run a retail operation with an abacus and a cash box.

Posted at 07:34 AM    

Bluetooth's China GIveaway - There's Gotta Be More To It


In The Hutong
2324 hrs

Check this out on Chinatechnews.com.

Posted at 12:14 AM    

Mon - March 28, 2005

In China, Be Human


Somewhere on the Airport Expressway
Beijing
2149 hrs

Heading home after an exceptionally long day (global CEO in town) passing a 1/4 ton truck half filled with leaves and five guys with dirty orange coveralls crapped out on top of the pile humming along at 120 kilometers an hour, I am reminded once again that for all of the advancement in this country, human life remains an exceptionally cheap commodity.

To an economist that's not surprising: in a country with 1.3 billion people, human life is plentiful, and thus inexpensive. The marginal value of each individual is to the state and its economy is, depending on which expert you ask, not only tiny, but indeed perhaps negative. China has too many people, we are told. Take this logic an extra step, and the question then becomes "so, how do we shave a few hundred million off of the total."

A repugnant thought to anyone raised in a tradition that teaches that the value of an individual life is equal to the value of the entire world.

Okay. So say it's "culture." Say that China is different from the West. Accept it. Deal with it.

You start making compromises with your humanity like that, and sure as hell, you will find yourself justifying injustice all day long in China.

The challenge is to sustain and constructively channel that just outrage without allowing it to consume you, to neither apologize for this place nor to hurl yourself bodily against the system in protest, but to find a way to create change a little bit a day.

I smile a lot. I salute the guards back when they salute me. I tip. I say thank you. It's not much, but dammit, if more people would do it, I guarantee you this would be a lot nicer place to live and work.

Posted at 10:05 PM    

Sun - March 20, 2005

Irish Ball


Hangover Recovery Unit
Silicon Hutong Clinic
Beijing

Irish Ball in Beijing last night, Sunny and I there courtesy of Cyril and the gang at I.T. United. Still getting over it, but a good time had by all. Cyril is one of those guys who is plugged into a whole lot of fascinating people, and we shared the table with some deeply fascinating people. And anyway, any table with senior executives from Airbus, BMW, Panalpina, and the Beijing city government can't help but be really interesting.

One of the wonderful things about living in Beijing - ball season. Ran into a bunch of people I haven't seen in a while, including Greg from Sun. Sun is up for taking a chunk of the open source war over here, and Greg is leading the charge with regional governments in Northeast Asia. That's a tough battle, given that the Asianux folks have a long lead and have something of a home court advantage.

Posted at 08:41 PM    

Tue - February 15, 2005

In A Land Full of People, Not Enough People


Snow Desk in the Hutong

One thing we're hearing more and more of in the Hutong is how China is still not turning out enough people with the right kinds of skills to support high-tech industries. Most recent example of this was in today's Wall Street Journal, in a big page one article about how Baguio, in northern Luzon in the Philippines, is somehow a better place to assemble and test semiconductors than China.

Of course, Intel would probably beg to differ, given that they are well along the way in building their second assemble and test facility in China.

I'd have to agree that the toughest damned thing to find in China today is good local managerial talent. Oh, sure, you can find folks from Taiwan, Hong Kong, and a host of returnees. But for a whole lot of reasons these guys aren't the best solution to the management problem.

This issue also plagues China on the outsourcing and offshoring front. The country is finding it increasingly difficult to compete with other Asian nations when the need is for quality - not quantity - human resources. And if China is going to capitalize on its huge population, the nation needs to be able to field a growing skilled workforce, rather than try to keep winning investment and business on the basis of cheap labor.

Posted at 02:01 PM    

Nokia in Trouble: One Less Enemy? Guess again...


In the Hutong under half a foot of snow

So Nokia seems to toss up a white flag in its holy wars, agreeing to license Microsoft e-mail and music software for use in some of its phones. Viewed alone, one would see this as a smart move for Nokia. One of the core "challenges" facing the Espooians is that in attempting to own the industry standard at each link in an ever-lengthening value chain, they are in severe danger of both spreading their resources too thin, and of winding up with a bunch of expensively-wrought technologies that, when compared to the competition, are third-rate at best.

I empathize with Nokia, even though I lambaste them, because I understand what it must be like to go from being the dominant handset, base station, software, and technology supplier to an industry to finding one's entire business model turned on its ear.

The Boys in the Glass House seem to understand that the old vertical model of the mobile telecommunications industry (manufacturer to carrier to subscriber) has gone away, perhaps forever. Their response, however, is to try do do everything. And they can't - not if they are going to remain a credible supplier to carriers who are desperately trying to reinvent their businesses, and not if they are going to satisfy the needs of an increasingly demanding group of users.

What Nokia needs to do if it hopes to retain its market share leadership, its profits, and indeed to continue to exist is to make some hard choices. It needs to cede significant chunks of the value chain and focus on a few that it can do really well and quite profitably.

This is especially the case in China. One of the reasons the government and industry are paying attention to mobile telecoms now is that they see the horizontalization of the industry as a huge opportunity for not-so-large Chinese enterprises to begin building global businesses in the niches that are opening up as the model matures.

Which brings us back to today's news - how smart of them to agree to use some Microsoft technology rather than keep trying to reinvent the wheel. One almost sees hope.

Unfortunately, Mary McDowell, head of Nokia's enterprise division, chimes in and says "It doesn't mean swords have been turned into plowshares," meaning that the war with Microsoft will continue on most other fronts.

No, folks, unfortunately for Nokia fans and shareholders everywhere, the Finnish Navel-Gazers are no closer to recognizing the mistakes in their approach to the business now than they were a year ago.

Short Nokia.

Posted at 12:42 PM    

Sun - July 18, 2004

Busting the China Tobacco Monopolies: Open Market or Open Season



Big Tobacco has spent the last 20 years waiting on the sidelines in China, and BAT's announcement that it will be allowed to build a factory to make 100 billion cigarettes per year is being hailed by the industry as the end of the central government's efforts to protect the monopoly local weed processors have enjoyed for 52 years.

Ostensibly, the monopoly was protected on the basis that the market was already saturated (a claim that has been increasingly specious as Beijing allowed foreign access and investment to other "saturated" industries i.e. automobiles). Now, the reason given by the government for opening up is that foreign competition will help streamline an industry with over 150 factories and over 300 brands.

Such reasoning stretches credulity. The government could compel a rationalization of the market via regulation and the kind of micro-level involvement that drives observers of the telecommunications industry crazy. Despite a new administration and the accession of China to the WTO, the nations leaders still aggressively pursue a policy of industrial determinism that would make even Japanese officials blush.

This suggests that the central government's reasoning is somewhat less simple than they are letting on. There are several factors in the market that may indicate other reasoning.

First, taking the "drive rationalization through foreign competition" angle to its logical conclusion, it's fairly clear that the authorities aim to create domestic tobacco firms that can take on BAT, Philip-Morris, and Japan Tobacco on the global market. Some tightly managed foreign competition among the locals to cull the weak will be the first step in creating international players.

Second, it's pretty clear that the government - prodded by the Ministry of Health, the WHO, and a host of other players - is beginning to recognize the long term social and economic costs of a population increasingly addicted to tobacco. This has likely been enough to make some policy makers uncomfortable with the government's role as a commercial player (via the monopoly) in the industry.

Third, there is a backlash coming, and the government wants to sneak out of the cross-fire before the real shooting starts. As the dangers of smoking become more apparent to the population, the government cannot afford to have itself associated with the enterprises that sell the stuff. Imagine how queasy a Chinese lawmaker must feel at the prospect of a growing local anti-smoking lobby led by doctors and nurses all vilifying the government for not only allowing but supporting the effort to hook China on tobacco. Such a movement would make the uproar around the government's handling of SARS disappear into insignificance by comparison.

But a wise government cannot only be concerned about the public outcry - after all, such movements can be managed. What is likely of equal concern is that consumer rights movement is growing in China, as is the consumer tort bar, both largely encouraged by the government as part of an effort to sustain a "popular" (i.e., driven by the people) aspect around its efforts to rein in the excesses of both local and foreign enterprise. There are early indications that China will become increasingly litigious, and that industries like tobacco are going to be some of the first targets of outraged consumers empowered by opportunistic lawyers. The government wants to ensure it is not a target in these cases, both for economic reasons and for the political reasons noted above. As such, commercializing the industry by bringing in foreign competition and cutting local producers loose from government protection adds another layer of credibility in the government's argument against its being named as codefendant in future legal wrangling.

All of which suggests that BAT could be walking itself into a massive future contingent liability. China's domestic manufacturers have reaped the benefits of 50-odd years of growth in the tobacco business, leaving the global players with the scraps of grey-market product entering the market. But when the time comes to litigate - and given current trends that time is likely within the next decade - the focus will be on the global players. For those policy makers in China who can see the trend, it must warm the cockles to anticipate multinational companies sharing the liability of China's smoking habit with the local firms that have reaped the greatest benefit.

It is entirely possible that BAT has already thought about all of this, and has made the actuarial calculation that suggests that the potential benefits of a chunk of China's market far outweigh collective risks of any and all future litigation. But there are two factors that need to be added into that calculus:

> BAT will have to spend millions to gain market share in an already incredibly competitive market, in the face of already onerous and growing restrictions on how tobacco companies are allowed to advertise and market their products;

> Counterfeit both local and foreign-branded cigarettes is already a huge business in China, and attempts thus far to curtail counterfeiting have failed utterly. With a significant portion of China's 300 cigarette brands crushed by rationalization and foreign competition, many are likely to turn to the production of counterfeits. Even an optimistic projection suggests that BAT et al will face decades of battles in the streets and in the courts to battle this problem.

Congratulations, BAT, on entering China. It was a good battle well fought and hard won. But the real fight is just beginning.

Posted at 11:23 AM    

Wed - February 18, 2004

Silicon Hutong 5: Sympathy for the Devil


It's high time we realized that Microsoft has a tough job, and that having governments gang up on the software provider is probably more a reflection of misplaced populism than appropriate regulation.


Posted at 02:05 PM    

Silicon Hutong Four: Winning The Wi-Fight In China


China is taking square aim at its own big toe with the introduction of its WAPI wireless standard. And for what? A self-important group of failed engineers-turned-bureaucrats?


Posted at 02:03 PM    

Silicon Hutong Three: The Core Business Trap


By defining their core businesses too tightly and using the wrong criteria, China's growing tech firms risk stumbling as they leap into global markets.


Posted at 01:57 PM    

Silicon Hutong Two: Standards that Kill


As the Chinese government works to help its local firms develop and commercialize technology standards, overzealous bureaucrats appear to be using government mandated standards to allow local developers a leg up. But by making China a proprietary island in a sea of standardization, policymakers risk shutting Chinese industries out of the global game.


Posted at 01:55 PM    

Silicon Hutong One: Nokia Does Not Get The Picture


Debut of the Silicon Hutong column at Chinatechnews.com, David notes that by loading phones with a vast variety of features, Nokia appears to be flailing for a strategy. David's suggestion - get back in touch with the users, and enable network features.


Posted at 01:51 PM    

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