This is China! blog

The Shanghai Business Review recently reported the European Union Chamber of Commerce has raised further complaints about discrimination against Western companies in the Chinese marketplace. Much of the consolidation occurring in China industry, though, is premature, much like the American teenager who believes at age 15 he’s entitled to drive the family SUV because he’s all grown up. Many of the sectors that rely on extensive R&D and innovative approaches to technology application are wholly immature in China, however. In the September 2010 issue Eurobiz Magazine I write in my China Energy column that:

The overwhelming majority of Chinese engineers and the companies that employ them are quite literally without application knowledge of the technologies required to meet the conditions into which the wind turbines are thrust, especially in the rough conditions of offshore installations. More than a few European General Managers and CEOs have told me Chinese buyers for their components and chemical processes expect the vendors to educate the Chinese on the specifications their parts require. As the CEO of one Danish components maker expressed to me, “We ask them [Chinese buyers] for specifications and they ask us what the specifications should be, since we are ‘the experts’.” The lack of knowledge and experience of domestic wind power components makers of many of the domestic turbine and components makers is a constant theme in discussions with Western vendors. Vendors have found they have to provide additional training and longer sales cycles to potential and current customers in order to make and keep sales in China.

Check out more of the Eurobiz article here.

Recently on the local Chinese TV news a reporter interviewed a young female university graduate who was at her wits end trying to find a job. She had graduated last year. The story was rather ironic, in that China’s economy is booming. Isn’t it? Of course, for most of those following the economic news it’s well known that most of the nearly US$4 trillion that went flew out of bank doors in China went to the State Owned Enterprises and local governments (through the aegis of “dummy” corporations they set up specifically for the purpose of fleecing the banks). Money that actually flowed into the economy went into heavy industry and big infrastructure projects like roads and damns and railways. Though China is always inclined to put a lot of people on projects, in this instance the economies are just not labor intensive enough to absorb the bright young things graduating from the universities. Last year some 7 million fresh graduates flooded the labor pool. At the time, nearly thirty percent of the graduates from the previous year still had not found jobs.

Now, with a flood of new graduates and graduates from last year and even the year before competing in a tight marketplace, salary levels for entry level staff will be depressed even more. The downside of all the competition, however, will be perfectly good candidates who don’t know how to play the employment game well enough and will be shouldered aside. Some will commit suicide at the futility of the sacrifices they and their families made to get them into and through university.

What a terrible waste.

I’ve been spending a fair amount of time in the luxury hotels of Shanghai on recently on various projects and found service levels in general quite high. International brands seem to be investing ever more budget into training staff in English communications, sales, and even complaint management. The service skills employees develop help the hotels to maintain competitive advantage in markets that have fast-become saturated at the high-end. With room supply outstripping demand and room rates falling the last three years, developing and strengthening relationships with customers is ever more important. “Employees need to understand that guests develop relationships with the individual, not with the hotel,” one industry trainer told me.

Of course, now that the labor market is heating up again, hotels have once again become recruiting grounds for companies in need of polished staff. Hotels themselves are learning to that employees are worth more than a one night’s stand.

Related posts:

I was recently sitting in a Starbucks cafe one morning, sipping a ritual espresso, when I heard shouting outdoors. The raucous startled service staff, too. One of the barristas went outside to see what was the clatter. He returned to report it was the staff of the Taiwanese Chamate restaurant/tea house exercising and chanting before the start of work. The cheer leading went on for several minutes more, during which I just had to see for myself. A single line of green-uniformed staff faced a huddle of employees in which members were trying to outshout each other. Dark-suited big bosses watched on in pride. Eventually, winded, exhausted the huddle broke with a great “hurumph!” and applause.

I returned to the Starbucks, where staff was still talking about the din. I told them that despite not doing calisthenics every morning, chanting and marching, I believed Starbucks still had amongst the highest, most consistent service delivery across the dozen or so Chinese cities in which I had sipped a demitasse of their espresso. I left the last Chamate – in fact, the very one in front of which staff had been gleefully cheering – in disgust after being chased out by six year old kids who were literally dancing on the tables, nary a mother nor service staff to set limits on behavior and ambiance. The Chamate staff simply waited for a big boss to say or do something, which one never did. In Starbucks, on the other hand, on numerous occasions in numerous locations, staff have directly and politely and assertively told ignorant customers they couldn’t smoke in the place.

One day Asian business will figure out that treating staff like grunts will only elicit the same level of guttural thinking and service.

Google’s decision to pull back to Hong Kong to stage Chinese queries on its search engine has highlighted an unsettling sentiment: American companies are finding China a frostier place in which to do business. The American Chamber of Commerce in Guangzhou recently released the results of its latest investor survey to reveal American enterprises have found that having investment opportunities restricted in various industries, a business environment still thick with intellectual property theft, domestic

Further reading: FT

Related posts:

Why Google will Remain Number 1 in the World

What’s Your Plan B?

When Will China Lead?

Pulling a “Google” on China

Companies exist to make money for their shareholders. After 1971 that became the corporate mantra. Companies are able to exist at all, however, because of their stakeholders: employees, supply chains, communities and shareholders. The shift in focus from stakeholders to shareholders has justified many corporations forgoing doing what is right for what is expedient.

Google is an exception. It’s the reason, too, why Google will remain one of the most innovative companies of the 21st-century. It dared to do differently.

Related posts:

What’s Your Plan B?

Pulling a “Google” on China

The Power of the Twenty-somethings

Is China Still a Risk Worth Taking?

Cyber-kerfuffle

My friend Andrew Hupert recently wrote in his monthly online Chinese negotiation column for the China Economic Review lessons foreign businesses can learn from Google’s brush with death dealing with the powers that be. It’s well worth the read:

• You can’t always get what you want
• Sometimes “no” has to mean “no.”
• Don’t sacrifice your own core values for empty promises.
• Walk away slowly and leave the door open to come back later.

Who says companies cannot seek redemption?

Foreign IT companies are feeling less welcome than ever in China as the national government feels the country’s own sector is muscular enough to go it alone. On May 1, 2010 foreign companies that want to tender for government contracts will have to release their source code and security keys to government agencies for scrutiny. Central government wants to make its own information infrastructure secure against foreign intrusion, possibly pilfer leading-edge technology, and lock up its own domestic market to the exclusion of foreign players.

John Neuffer, vice-president for global policy at the Information Technology Industry Council, a lobby group, said: “The looming choice for many of our companies is to create costly bifurcated product lines, one for China and one for the rest of the world, or to ponder less ambitious trade and investment choices in that market.”

As China continues its turn inward, it endangers its ability to share in the information exchanges that flow through countries boosting Innovation. Ming Dynasty emperors did very much the same thing in breaking up the great commercial fleet of Zheng He, the shipyards in which the ships were built, and restricting the flow of activity across the Silk Road. Six hundred years later we may be hearing history’s echo.

Further reading: FT

Previous posts:

The Clever, the Genius and the Just Plain Dumb

Elementary, Watson

China’s Innovation Blowback

A couple years ago I had a conversation with a Chinese scientist in the pharmaceuticals industry who had worked in the USA for nearly 15-years. He and a Chinese partner had started their own lab to produce drugs in America, but were frustrated by the lack of funding available. He planned to set up a lab in Zhejiang province, where Wenzhou entrepreneurs were interested in diversifyng their investment interests.

This same scientist may now be part of a major trend that sees China having increased the number of peer-reviewed scientific papers more than 64-fold since 1981,according to Thomson Reuters. America with more than 300,000 papers still published more than three-times the number of papers as China in 2008; however, according to the research company, China could be the largest producer of scientific knowledge by 2020.

The Financial Times article that discusses survey findings sites that nearly 10% of the Chinese papers were co-authored with scientists in the West. A substantial source of the papers recently generated come from Chinese scientists who have lived in the West for several years, and who now spend part or all their time in China with the support of government subsidies intended to bolster scientific research in China.

A genuine telltale of China’s scientific development is a check of references the papers cite. When Pareto sees 20% of the references of papers worldwide refer to researchers schooled and based in Mainland China, and when Western graduate students in the sciences come to China to study and to conduct research, then the world may see a genuine tipping point in the quality, uniqueness and kind of knowledge China is contributing to the world.

Until then, the country is just manufacturing facts.

Further reading: FT

The Chinese rocket scientist Qian Xuesan once asked, “Why does China produce so many clever people, but so few geniuses?” He died last year at the age of 97, since when a plethora of answers have been bandied about in cafes, bulletin boards and social networks. Still, it’s said Bill Gates once quipped, “If a genius is one-in-a-million, then China has more than a lot geniuses”.

So why haven’t all those clever souls and unsung geniuses not created a more innovative Chinese society? China, it’s true, excels at innovation, but not disruptive Innovation. “Small i” innovation is about patching and work-arounds – the work of clever people. “Big I” Innovation is about changing the course of markets and even of societies – the work of genius. Chinese culture and history have always been supportive of “small i” innovation, due to the capricious nature of local government policies and decisions; and due to dramatic turns of events – revolts, revolutions, banditry, dynastic dissolution – that quickly destroy the fruits of labor. Hence, the tendency of so many constructions and creations in Chinese society to be just “good enough”; after all, who knows how long such works will be able to stand?

The Chinese government throughout the ages has not supported disruptive innovation in the vein of the Western style. Western entrepreneurs look forward to upsetting the apple cart (Americans, in general, more than Europeans); Chinese rule throughout history has not inculcated the Western sense of Innovation through its laws (meant to maintain stability); arbitrary application of the laws (meant to maintain local control as conditions change); or through the value it places on copying/memorization in education (meant to “harmonize” thinking and behavior).

The current government trend toward absorption of parts of the private sector (guojinmintui) by the State does not bode well for Innovation in China; nor does the march toward heavily bounding the internet from international flows of information. Increasingly, any Chinese Innovation will first of all develop from the requirements of the country’s home market; the technology and information walls the government is putting in place will severely inhibit Innovation applicability in international markets.

Now that’s just plain dumb

Read more:  NYT