It’s been a busy week so I wasn’t able to put this observation down as fast as I’d like to. I attended a great speech on Thursday morning given by Chris Devonshire-Ellis, Senior partner/founder of Dezan Shira & Associates. Mr. Devonshire-Ellis was giving a talk comparing business environments in China and India where his company has offices and his business is growing in both countries.

He made a very interesting statement about business ethics: one place where India has an advantage over China is knowledge and experience working with in international business norms. China on the other hand while having a system of business ethics on paper doesn’t really enforce them and therefore businessmen (at least those in powerful positions) can get away with growing their business by what ever method they want whether it is ethical or not. This becomes a disadvantage for Chinese businessmen when they go overseas and try to apply their business experience to the international system and realize that their experience doesn’t jive with the international ethical system and actually prevents Chinese businessmen from growing their businesses.

I read a real life demonstration of this right after the speech when I read Paul Midler’s take on Alibaba’s launch of its Alimama blog-advertising venture on his China Game blog:

“There is little about the new business model that suggests it’s legit, and the biggest tip-off is Alimama’s logo – it’s a blatant rip off of Amazon’s. Even if you want to forgive copyright issues in China, this is not what you expect from a global company that is valued in the billions. We don’t expect Burger King ever to come out with a Burger Queen sub-brand, while borrowing a logo from a completely unrelated industry. And any number of consultants can explain to you why Coca-Cola never launched with Shmoka-Cola.”

It looks like Alibaba is trying to compete in the global business environment as a big player (now that its stock price has it valued in the billions) by still using marketing that you see from many small players in China. To be honest, the logo will probably change soon, but this is supposed to be a modern international Chinese company –it should be able to come up with its own logo and a business venture that isn’t copying the model of one of its international partners. I’d expect more from Alibaba especially since it’s always talked about being a global player.

Maybe Jack Ma needs to spend more time in the international business arena to learn how to play by the rules.

J.

I heard an interesting news story yesterday while listening to CBC Radio’s the Sunday Edition (podcasts can be found here). The Canadian Auto Workers Union has signed a deal with Magna International that would allow the CAW to form a union in Magna’s plants, but workers would not have the right to strike. At the same time, Magna would not have the right to lock the workers out. Disputes that could not be settled over the bargaining table would go to binding arbitration.

Now this may be old news to Canadian readers as it received a lot of press coverage (The podcast I was listening to was also from November 11th — iTunes didn’t allow me to download it until yesterday). But what interested me about this case is that one of the reasons that Buzz Hargrove, head of the CAW said he was willing to sacrifice the right to strike was that it was a way to ensure that jobs at Magna didn’t move to China and other outsourcing hot spots.

In the case of Magna this is actually an improvement as it never was a union-shop, but I wonder what this will have on other unionized auto plants. In the latest auto strike with Ford in the US, the United Auto Workers gave up their cost-of-living fund in order to pay for health insurance (something Canadian unions don’t have to worry about due to universal health care). It’s not giving up the right to strike but it is still a major trade off. Hargrove said in the interview on the Sunday Edition that the CAW would never give up the right to strike where they have it (about 70% of the CAW’s membership has the right to strike. The 30% that doesn’t — excluding the Magna workers — are not allowed to because they are mandated as essential workers by provincial governments and therefore are only allowed to go to binding arbitration), but what other concessions will CAW give up to maintain manufacturing in Canada and really compete with China and other outsourcing nations?

In a way, manufacturing in Canada and North America in general is becoming very much like China as wages and benefits are cut to compete with the Middle Kingdom.

J.

P.S. I’ve added a new category “Canada & Other Outer Realms” in which I will discuss in-direct China stories as the above.

I read an interesting article today in China Daily. The article entitled “Mooncakes acquire networking flavor” it tells how mooncakes have become a favourite way for businesses to keep in touch with business contacts and clients:

“We send presents to our clients during the Mid-Autumn Festival, rather than the Spring Festival,” said Elsa Wang, who works for a public relations firm in Beijing. The company started budgeting months earlier and has been delivering mooncakes as early as a month ago.

“It doesn’t matter how much a package costs…. Mooncakes are the best way to say: Let us keep in touch.”

Lin Jian, a guest writer on the Financial Times Chinese website, wrote that the consumption of mooncakes has one simple purpose – to maintain relationships.

I don’t know if mooncakes are the best way to keep in touch, but I know that I’ve received about RMB 1,000 worth (US$ 120) worth of mooncakes and mooncake certificates in the last two weeks (that I shared with my colleagues — our company followed tradition and gave employees mooncake certificates) so they certainly are popular.

J.

This morning I went to the Economist Intelligence Unit’s China Strategic Forecast. I had a lot of fun. I got to chat with a lot of interesting people (other consultants and senior decision makers at different companies) and learned a lot of good information. Here are the highlights from the EIU’s forecast:

•  Expect more control by the central government to help balance the economy and continue harmonizing society. This means the provinces will start to lobby the central government and the National Development and Reform Commission for policies that help maintain their interests. The NDRC however is more likely to approve policies that meet its own interests.
• The central government is going to push further integration with the global economy through the yet-to-be-named investment fund and allowing funds to go outside the country. This will help get rid of the excess financial liquidity in the market.
• The current case of inflation is overstated, economic growth will continue next year.
• Consumer strength will increase not only because middle class salaries are rising, but also because of the harmonious society mentioned earlier, social spending will increase, so low-income families will have more money to spend.
• There will be greater pluralism allowed in society. This will come from two areas — one the appointment of government ministers who are not Communist Party members and two recognition that even with the Great Firewall, the central government can completely control the flow of information. It will be interesting to see how they manage the freedom of information.
• There will also be demographic pressures. The first generation of One-child policy kids will be turning 22 next year. They are the jello-generation their political views aren’t yet formed (so the government will try to shape them — J.) The one-child policy is also going to cause shortages in manufacturing in certain sectors and a gender inbalance in some areas because boys are still favoured over girls.

Overall, it’s pretty positive. The EIU’s view on inflation was a new one to me. But once you look at China’s CPI — food is a large part of the index  and China has suffered a shortage of pork and grains due blue-eared pig’s disease and bad flooding this summer that destroyed  many crops == you’ll see that  if you discount food for the reasons I just listed,  the situations not that bad.

I will definitely be attending more of these events and hopefully blogging about them too.

J.

When I logged into my Netvibes account this morning I saw the headline, Beijing’s fastest-growing export is inflation   It describes how China used to export deflation through low-cost goods, which helped prevent inflation from gather ground in the West. Now due to China’s growing demand for resources, China is exporting inflation to the West in the form of higher resource costs (it’s also driving up its domestic inflation).

Then later in the day I read this story from China Economic Review: 

China launches first environmental investment firm

Environment
10 September 2007

China launched its first environmental investment management corporation, Zhongzhuo Energy Investment, last week in Beijing, Economic Observer reported (in Chinese). The new state-owned firm will be devoted to providing investment management services for the coutry’s energy-saving, environmental protection and sustainable development projects. The founding of the new organization is seen as a formal effort on the part of the government to actively promote a “recycling economy.”

After reading that story something clicked (hopefully it did for you too). China is racing to buy lots of resources because its industries are very inefficient and produce a lot of waste. This waste isn’t just causing the country to export inflation, it’s destroying the environment. If Zhongzhuo Energy Investment is really what the Central government say it is — something that will help business to become more energy efficient  — then some* of that inflation should go away and the country’s environment will hopefully improve.  If not then we’re all in trouble either economically or environmentally.

J.

* Unfortunately, these energy-saving measures will mark the end of cheap Chinese products — if the VAT refund policy on July 1/07 didn’t kill it already.

China Herald has a post on Reebok’s failed attempt at a union at one of its suppliers in Fujian, Shun Da Shoes. They started out with good intentions and to build up its CSR. But five years later and union hasn’t made things better, they’re much worse. The report seems to indicate the union leaders are corrupt and the workers make less than they did before and with less benefits.  Now that Adidas purchase Reebok, the workers’ workload has increased and the human rights monitor has left the factory.

A pretty bad situation. Since Adidas and Reebox sponsor the Olympics, I wonder if their supplier will get investigated by the Beijing Olympic Committee.

J

According to the China Law Blog, the China Inspection Quarintine Bureau is redesigning products that have been recalled in the US and insisting on exporters to implement these changes to their designs unless the exporters can guarantee they will not be recalled in the US.

This is new information to Dan Harris of China Law Blog and to myself as well, so there doesn’t seem to be much more information than that available at the moment. It’d be interesting to see what sort of designs the CIQ is asking for and as Dan says what happens if the guarantee is violated who is responsible? I’d like to ask what happens if the products that have the design changes made to them are still recalled?

Anyone have any thoughts or have any updated information?

J.

This week’s Economist has a great article on the main issue preventing foreign companies from growing their China business: staffing. There is a shortage of skilled Chinese workers that are able to fulfill the requirements of foreign companies to work in China. This makes them a very desirable commodity — and the Chinese know this and using to their advantage. They’ll hop between jobs for more money, but most importantly they’ll hop between jobs for career advancement. Graeme Maxton does a great job of outlining all the factors involved with this issue and even mentions some of the ways to businesses can lower staff turnover (Disclosure: I work for one of the consulting firms mentioned in the article. That isn’t why I am recommending this piece it really is an informative article).

And since Maxton does such a great job outlining China’s staffing problem, the piece has got some coverage at other blogs on the web. Managing the Dragon did a great post on it and over at ThinkChina some of us had a short discussion on it.

J.

Digital watch had a great post this week about IPR and software  but the most interesting thing is to view the article blogger Kaiser Kou linked to. The blog is written by two Chinese who track the evolving web applications industry in Beijing. They think it’s positive that someone has launched a Chinese-version project management software even if it’s a copy of Basecamp. But the comments posted in response to their article seem to go the opposite way.

This really brings up the idea of how Chinese people view IPR, as Kaiser states in his original article, it’s not really viewed by the Chinese web community as theft more like they are filling an existing need in the Chinese community. And they are, but instead of mentioning this need to Basecamp’s development team, developers took the task on themselves and have made a little bit of money in the process. That view can be taken as a view of a lot of IPR issues in Chinese, yes a lot of people are out to make a quick buck by copying something that is already really successful in another market. But there is also a small portion that see there is something missing in the Chinese market and think that they can better meet the need than the small, medium or large-sized corporation that design the original product.

I’m not a fan of IPR infringement so I don’t want this to sound like a defense of IPR infringement, it’s just an observation.

J.

Virtual gold farmers that is. According to a report I read in NVR Magazine, about 100,000 workers — the majority who are from rural areas — get paid about US$0.30/hour to kill monsters and collect gold in the game World of War Craft. They then sell it to foreign game players in what is supposedly a US$1.8 million a year gray market business.

Unfortunately with success like this comes backlash. There’s a class action law suit in the US again virtual gold-selling firm IGE (not sure if this company is Chinese or not as the article didn’t say) and Youtube has a tons anti-Chinese gold farmer videos.

Is This another sign of a general ant-Chinese fever gathering in the US.

J.

Update: According to Tricia Wang at Youmeiti, there is a documentary about Chinese Gold Farmers now available.