Tuesday, December 07, 2010

Does WikiLeaks Really Matter?

Back during my college days, I was fortunate to be a co-author for a business case study that ended up getting published by Richard Ivey Publishing.  The case had to do with the Vidalia Onions brand.  Essentially, Vidalia Onions were known for being extremely sweet.  However, as with any product, the sweetness varied per unit.  Customers took a risk per onion, not knowing whether they onion they were purchasing was actually the sweetest they could get.  Whether the onion ended up being sweet or not, they would have to pay the same price, and they would not find out how sweet the onion actually was until they ate the onion.

So an innovative entrepreneur decided to create a technology that could predict whether an onion was sweet or not.  He then marketed this technology to farmers as a way for them to guarantee sweetness to their customers.  Onions could be certified as real sweet Vidalia Onions.  Most of the farmers were up in arms about this.  Using the Vidalia brand name was the entrepreneur's tactical error, and has since been rectified.  The farmers victoriously framed the issue as a brand ownership issue, but that didn't stop the world from changing.  The original vision held true: a way for farmers to guarantee sweetness to customers, eliminating the customer's risk.  The farmers who didn't get on board or find another way to compete would lose in the long term.

Before this certification technology came along, the Vidalia brand depended on trust, reputation, and customer acceptance (or resignation).  But this technology decimated that brand power, and customers would come to trust the sweetness certification process much more than they would the brand.  The proof of their reassigned trust was shown in market prices for certified sweet onions, which rose, while non-certified onion prices fell.  This indicated that people were willing to pay to get value and avoid risk.  That makes sense; it's why insurance is a viable business.  Correspondingly, the corollary can be drawn that trustworthy information has value.  Furthermore, with complete trustworthy information, people are much better equipped to make decisions and judgments, as long as they are able to intake, analyze, and understand the information efficiently.

This is why WikiLeaks is so interesting right now as an academic case study in information symmetry.  WikiLeaks tries to blow wide open all information that very important people work very hard to keep from the public eye.  They view themselves as the ultimate weapon to be wielded by the anonymous whistleblower.  People can then make judgements about what is happening.  It's good and bad for many reasons.  But I'm not interested in that debate for the purpose of this blog post.  I'm more interested in the effect that initiatives like WikiLeaks would hypothetically have on governments, corporations, and various institutions.

Like the Vidalia Onions certification technology case, WikiLeaks may just be an enabler that causes latent forces to viably demand governments to act with integrity and accountability.  But if that were true, just like the Vidalia Onions case, it would cause the incumbent producers (i.e. governments, corporations, and other institutions) a lot of pain in the process for reformation.  The blindsided ones would be caught scrambling to figure out what to do, with no real clue.  Come on now, really?  Restricting government workers from doing what everyone else on the planet has already been doing, especially given that many of those same government workers probably already perused the leaked cables?

But how powerful is WikiLeaks for real in the quest for inducing governments to be accountable?  It would need to depend on the quality of information that was leaked.  There are 4 possible categories for information quality with regards to leaked information:
  1. Unbelievable Insanity:  There really were alien experiments in Area 51, cancer is a man-made disease designed to enable population control, Jurassic Park is real, and heads of states will definitely be assassinated or impeached.
  2. Sky is Falling:  Watergate level fiascos, big problems, but nothing we can't fix if we work hard enough; maybe some heads of state will be impeached.
  3. Not Surprising:  Stuff that everyone suspected, but nobody could confirm, like the Chinese government driving the Google hacking incident; interesting, but business as usual, get on with your lives.
  4. Waste of Time:  Why is this news?  Why are you wasting my time?  Don't talk to me about this insignificant stuff.
WikiLeaks may have more hype than substance at the moment because most of the stuff that was revealed through the diplomatic cables would fall into categories 3 or 4.  I'll just rip off these guys, it's easier:
Meanwhile, the organization has certainly discovered the art of over-promising, the latest Cablegate docs being a prime example. If there's anything scandalous in them, it's that the US government isn't evil enough. There's no talk of toppling foreign governments. No examples of breaking international law. No assassination talk. Nothing. Of course if you didn't bother to read any details, you'd think there had been some massive breach of America's dirtiest secrets that ripped the veil off the cloak and dagger world of the US diplomatic corps (of course, US politicians calling Wikileaks a "terrorist" organization only help to blow the docs out of proportion).

WikiLeaks would have the potential to really make an impact if it had the ability to leak Category 1 or 2 information.  The fact that it hasn't demonstrates that either governments are very good at keeping Category 1 or 2 information under control, or that no Category 1 or 2 information exists in the first place.  To have Category 3 or 4 information leak is embarrassing, but not devastating.  In fact, some conspiracy theorists would argue that it's a carefully calculated ploy on the US government's part.  That would be ironic: the weapon that is pointed at the government turns out to be a tool of the government.  But that's only another conspiracy theory for now.

Whether WikiLeaks truly has the ability to induce more long-term accountability and integrity in governments is is yet to be seen, especially if it is true that governments are able to retain excellent control over their hypothetical Category 1 & 2 scandals.  The sweetness certification technology enabled consumers to tell if a Vidalia onion was truly sweet with 100% certainty; that's how customers were able to demand and purchase only the real stuff.  WikiLeaks does not enable a nation's population to tell if their government is being accountable in matters that really matter with 100% certainty; if anything, it may actually even decrease certainty by increasing noise.  More noise in the equation leads to higher decision difficulty.  This is especially true for the general population that doesn't have the time or patience necessary to really peruse and understand everything that was leaked and discriminate for the real signal while discarding the noise.  WikiLeaks is probably an enabler for whistleblowers, but not necessarily a game-changing enabler.  Note that all the truly big-effect whistleblowers throughout recent modern history have done just fine getting their stories broken by fact-digging journalists.  WikiLeaks wasn't needed back then, so is WikiLeaks really needed now to accomplish the leaks that really matter?

The founder of WikiLeaks, Julian Assange, said something to the effect that their goal is to blast leaked information as far and wide as possible to have the most significant impact possible.  Certainly, it makes for a lot of fascinating reading and public outrage about activities in the Middle East, etc, but there's nothing that historians would care to discuss 50 years from now.  Of course, maybe that will change.  But overall, you could say that Category 3 & 4 scandals need WikiLeaks, because they're not very impactful by themselves.  However, if someone really wanted to anonymously go public with a Category 1 or 2 scandal, there are ways even if WikiLeaks is eradicated.  This is because Category 1 & 2 scandals would sell themselves, and believe it or not, there was a time when journalism prided itself as being a bastion of watchdogs and investigations.  I'll say it again: Category 3 & 4 scandals need WikiLeaks to matter, but Category 1 & 2 scandals don't.  Correspondingly, this may be the strongest reason why WikiLeaks does not matter, except to serve a news-starved media and readership (or viewership).

I think that the most interesting outcome of this whole WikiLeaks thing was how Amazon and many other companies decided to turn against WikiLeaks, whether pushed by the government or by public opinion.  Nick Carr has a nice summary of some stuff written by Newsweek COO Joseph Galarneau.  Amazon has demonstrated some unsettling powers for censorship that could affect how the media reports on leaked information if they publish/present their media via 3rd-party technology platforms.  Now that is interesting and unexpected.  However, not unprecedented, given the amount of censorship control the UK and Chinese governments appear to have over their own media.

Update:  An excellent piece that was shared by Minna Van.  This quote (quoted below) really stands out.  Interesting, if true, journalism is no longer a bastion of watchdogs and investigations?  Or perhaps it's not a big deal.  I'm curious as to how much Ellsberg's stuff was redacted when he leaked his stuff.
"Referring to the efforts by news organisation such as the New York Times to consult with the government on which areas of the documentation to redact, Benkler added that ‘The next Daniel Ellsberg [who leaked the Pentagon Papers to the New York Times] would not risk their career, or their liberty, going to the New York Times’."

Friday, November 26, 2010

If you don't know the rules, maybe you shouldn't play

A couple of days ago, I read this interesting article on the front page of Stockhouse.com, talking about how the TSX is looking to expand into China to attract more Chinese companies to go IPO in Canadian public markets.  This scares the heck out of me.  People have a hard enough time making investment decisions and lose their shirts all the time.  If Chinese companies truly do see the Canadian public markets as a viable platform to go public, I worry for the shirts of many Canadian investors.  Spurred on by the hype surrounding China, they'd have the ability to easily apply their same poor decision-making abilities on companies where it is much harder to do due diligence due to distance and foreign-based ignorance.

The fact is that China is still maturing in terms of its economic behaviour.  I don't want to sound like I'm discriminating against China unfairly.  They have huge growth potential that I like, but lots to learn.  Scams exist in western nations too.  Just look at Bernie Madoff and the like.  Whether or not China has a higher incidence of corruption and scams than the West is irrelevant.  What's relevant is that there is bad stuff that goes down in China, and you sitting across the ocean would have a very difficult time sniffing it out in your investment due diligence analysis, especially since the rules may be different in China.  Let's look at this fascinating example of the Universal Travel Group, who some people accuse of being a scam listed on the NYSE.  This guy's due diligence analysis goes deep, really deep, to the point where he has local people carrying out tasks for him.  Spoiler: the conclusion is that the company really doesn't look good.

If you want to trade a Chinese company listed on the TSX, would you be able to go to the same level of due diligence to make sure you didn't make a poor investment?  While the TSX no doubt has standards and processes to ensure that only legitimate companies can go public on its exchanges, it can't catch everything.  So when an inexperienced ignorant trader sees the reported financials for a Chinese company that is supposed to be growing like a weed in quite possibly the most significant growth market in the world, why would he not buy?  Emerging markets, especially China, are hot.  The stage may be set for a beehive of activity that causes a huge letdown, unless China can take control of their inflation issues:
The U.S. monetary policy and domestic asset market conditions are the most important factors in attracting hot money. When speculators take money to emerging markets, they expect massive gains like 100 percent in a couple of years. Such returns are possible only in a bubbly environment and, of course, one must have the skills to leave before the bubble bursts. The loose U.S. monetary condition is a necessary condition for an emerging market bubble. Hot money is the ammunition to make it happen. But, emerging economies must be receptive in the bubble game. If a government is determined to go against a bubble, it cannot happen, regardless how loose the Fed's monetary policy is and how enthusiastic the speculators are. When an emerging economy shows resolve to fight a bubble by raising interest rates, the hot money tends to leave. When China raised interest rates unexpectedly last time, the yuan forward price in the offshore NDF market fell. It is one piece of evidence that the hot money would leave rather than flood in when China raises interest rates.

Investing is all about buy low, sell high.  I lost thousands trying to make a buck in the mining bull run back in 2007, especially in uranium.  My money's starting to come back thanks to uranium getting hotter again and my favourite stock URC (up 119% since I bought back in August!), but quite frankly, I know I don't know what I'm doing.  My friend Kyle knows what he's doing.

Kyle:  "Hey, hey, guess how much money I made today!"  
Me:  "No."
Kyle:  "Come on, guess!"
Me:  "$20,000."
Kyle:  "Nope!  Guess again!"
Me:  "40,000."
Kyle:  "No man, $80,000!  I killed it today!"

Every week he goes in, he says he expects to lose money 4 days of the week.  But if he plays it right, the 5th day will more than make up for all his losses.  And as he told me, "You either have what it takes or you don't."  But the other thing he does is not go into something he feels is risky or he feels he doesn't understand.  Amateur traders don't understand this part.  The good guys know what they're doing.  The rest are the suckers who take the losses that make profits possible for the winners.

I think Chinese companies listing abroad is a good thing.  It enables access to capital markets easier, and spreads the risk around (but hopefully not too much, ala subprime).  But frankly, I wouldn't know where to even start to make sure I'm making a good investment decision.  So I'm doing the sensible thing.  I'm staying out.  If you want to dive into investing in anything, let alone China, go in at your own risk and don't risk more than you can afford to lose.  It may still look like a grass field to you, but there's a reason why there's no quarterback in a game of rugby.  The rules are just different, even if the ball looks similar, and you better be up to date on how to play.

On a side note, here's why I'm bullish about uranium again, even if the economy turns sour, causing a lower demand in energy.  Peak oil and peak coal.  Let's face it, solar and wind power just aren't there yet.  The only thing even remotely capable of supplying our energy needs sufficiently in the short term are all those nuclear power plants that are being built.  So far, the market has a consensus on this thought.  Yay.  And I'd say apparent dangers wouldn't disappear if we decided to put a ban on nuclear power plants.  That's like saying mobs will stop using hitmen because guns are illegal.  No, I think they'll still find a way to get their guns.  If there's something positive to be gained from uranium, let's by all means grab it.  Just remember, I'm only a clueless amateur.

Tuesday, November 23, 2010

Dang it, North Korea, stand down, for everyone's sake

Just a quick comment on the recent North Korean attack on South Korea.  Apparently, South Korea was doing some military exercises that involved 70,000 troops and North Korea saw that as aggression and responded violently?  According to the NYT:
The South Korean deputy minister of defense, Lee Yong-geul, acknowledged that artillery units had been firing test shots on Tuesday afternoon close to the North Korean coast, from a battery on the South Korean island of Paeknyeongdo. But he denied Pyongyang’s charge that the shots had crossed the sea border.While skirmishes between the two countries have not been uncommon in recent years, the clash appeared to have been the most serious in decades and came amid heightened tensions over the North’s nuclear program. An American nuclear scientist who recently visited the North said he had been shown a secret and modern enrichment facility.
Well, if you see someone firing artillery in your direction and you know that guy's not friendly, can you really interpret it as anything other than aggression, even if it is only supposed to be part of an annual exercise?  I'm not defending North Korea here at all.  I'm just trying to imagine how the situation became what it is.  Some nervous trigger happy NK soldiers may have been briefed about how this SK 70,000 troop exercise was training to invade the homeland; suddenly they heard all this artillery firing, panicked, and decided to fire back.  That's the scenario that makes the most sense in my mind.  Otherwise, it was a carefully calculated event by North Korea's leadership to use the South Korean exercise to justify a small attack and lay blame on South Korea.  Or there was something else that's not crossing my mind.  Who knows?

The important questions.  Firstly, will this escalate to war?  The sinking of the Cheonan in March certainly didn't.  North Korea denied being behind that incident, but international experts that investigated the sinking could only conclude that it was North Korea.  However, there were no real significant repercussions against North Korea; certainly no military reprisals.  This is especially interesting to note because the March attack was unprovoked, while North Korea could argue that this one was provoked.

Is this attack really any different?  It feels a bit different.  It's not just a ship at sea that was sunk, actual soil was attacked.  More people died in the ship's sinking for sure (46 sailors to be exact), but I wonder which has a bigger impact on a nation's psyche?  A ship at sea could be easily abstracted away from one's own life, despite the number of deaths.  Meanwhile, a direct hit on home soil may incite much more close-to-home fear and outrage, despite causing only 2 deaths.  Or maybe not.  I have no idea, but if it were me, I'd be more spooked by the home soil getting attacked, even if it is an outlying island.  If South Koreans in general agree with that sentiment, that alone could cause an escalation to war.  If it doesn't great, but South Korea would just look more and more like like the nerdy wimp that the class bully uses to cheat on his homework and get lunch money.  This also is not a good scenario because you don't want the bully to get any more belligerent than he already is; you want him to tone it down.

The more interesting question is if it does escalate to war, how will the world's players react?  Will they ignore it and treat it like a regional dispute in which they shouldn't get involved?  Most likely not, as the region is too strategically important to the world's economic output, which currently needs all the help it can get.  However, it's interesting to note how wars correlate with power swings.  After the two world wars, Germany became a regional player who never regained its political clout, the UK lost its superpower status, and the up and coming USA emerged to lead the way for the future, despite having endured the Great Depression only just previously to the second war.  Many might say it was the war that enabled them to rev up the engines that were established in the roaring 1920s but collapsed in the 1930s, especially since the USA came late to the party.  Europe slaughtered itself, then the USA came to save the day when almost everyone was tapped out.  Obviously, that's a very simplistic summary, but relevant for this discussion.

Currently, the tables are again turned.  The USA is floundering due to the latest self-induced economic crisis, and it continues to have heavy military activities in the middle east.  Compare this to China that has almost no military activity and is finally starting to show some economic teeth.  If war breaks out again, and the USA and China get involved, who will last longer and emerge the world's superpower?  This is a worst-case scenario, and a frightening one at that.  The one ace that the USA has up its sleeve is that China holds massive numbers of American dollars.  That's a massive amount of cash, which China wants to convert slowly and gradually into sovereign denominated/controlled wealth.  It does China no good to have the USA do an economic nosedive, as it would kill China's own currency reserves.  Plus the fact that the Chinese yuan is tied to the American dollar.  It is in China's economic interest to let the USA die a slow and painful death, not a quick and violent death.

China's not stupid.  It needs to care about its own interests.  It wants to grow economically, and it wants the world's favour, not its spite.  The monkey wrench is that it may be North Korea's only remaining real ally.  It's dealing with a little brother that it needs to keep bailing out of jail.  The kid may just want attention and feel he doesn't get it, so he causes trouble instead.  Eventually, China must decide if family comes first and it will defend (and teach) its troublesome kid brother till death do them part, or give up on his kid brother because the guy causes too much trouble.  What are you going to do, China?  As is the trend these days (disliked by some), you have the most power to resolve this situation, not the USA, Europe, Japan, or any other party.

Of course, there's that ever-so-strange conspiracy theory that maybe this is in fact good for China; some might think that the combination of the economic crisis and more war is the best way for the USA to die its slow and painful death.  I just hope that if that happens, I'm not caught up in the middle of it, since I'm living over here now, huh?

I'm betting that this will end up like the Cheonan incident.  Lots of outrage, but no real repercussions.  Then we continue as normal until the next incident.  Ad infinitum.

Sunday, November 21, 2010

The Best Current Summary of China's Ambition That I've Seen To Date

Someone posted this article over at HN.  Best current summary I've read on the topic to date.  And his comment really sticks out:
This article really struck a note with me. The atmosphere here in Beijing really has changed a lot over the past few years. The relative wealth of the 2 countries is directly evident in the different attitudes of Western expats and native Chinese towards money. The expats here are becoming noticeably poorer. I see it because I am a retailer of luxury goods.
There was a time when being on an expat package in Beijing meant living the good life - you could splurge however you wanted because the cost of living was so cheap. Today, my products are really pushing the affordability of the expats here but are considered a great value by the new middle class here. Several times a week I get complaints from expats that our prices are too high. I've never heard that from a Chinese. Indeed, the opposite is true, several times a week Chinese people tell me what a good deal I'm offering.
It's actually getting a bit problematic for me. Inflation's pushing my costs up and my competitors are raising their prices as well. I've been raising prices alongside everyone else, but I'm really about to price myself out of the expat market. Expats who receive their paychecks in dollars are seeing their purchasing power diminish and I think it's having a big psychological effect on them. They're really important to me, but I would be crazy to not be trying to reduce the percentage of sales that they constitute.
This is directly impacting my spending decisions. A few years ago, it would have made sense for me to drop money to advertise in expat magazines. These days, that extra money's all going to marketing towards the Chinese.

Saturday, November 20, 2010

What the Average Person Doesn't Understand About High Paying Jobs

All this money that Google is throwing at their top people to make sure they don't go to Facebook has got me thinking.  The latest story is that Google offered one of its employees $6 million to stay.  Two things in particular have been crossing my mind: what kind of people get the good jobs in big corporations and what the superstars are really worth.

1.  People who get high paying jobs in big corporations
I remember back in university when I started my job search in my last year.  It was September, and I was to graduate the following April.  A good 8 months to find a job.  I applied to a bunch of companies.  In particular, I applied to a bunch of leadership development programs in various respected companies.  These are the programs where you bring in the cream of the crop from the next generation, and put them through a special career schedule that readies them for a management position in 2 to 5 years.  I also applied for interesting high-growth opportunities in smaller companies where I felt pull (i.e. they wanted me and it excited me).  I ended up getting 2 job offers, and took the one that excited me the most.  What interested me through the whole process watching my peers go through the same thing.

I know a lot of people who really want to get good jobs at big companies, but I think they don't understand several things.  This next sentence is going to sound bad.  It will sound mean.  But it will be the truth.  Frankly, looking at most people I know who want to work for big companies but don't, these people aren't cut out for big companies.  They don't work hard enough, they're not smart or creative enough, and they don't have enough mental toughness.  They only see the nice pay, benefits, and fancy reputations.  They don't see the ugly stuff from the outside.  If they did, maybe they would realize they're not a good fit.

Working Hard Enough
The work can be a tough grind, the hours can be long, and you'll be lucky to get OT pay for your efforts.  Normally, you get paid a salary by the year, not a wage by the hour.  This is made up for if you can get a nice bonus based on personal and corporate performance.  And if you can participate in a share plan or get share options.  But the fact is, getting OT pay isn't a normally expected thing (flex days are a different matter, depending on the company).  If you get put on a fantastic, high-profile, strategic project?  Hey, that's every corporate junkie's dream.  You can put something amazing on your track record, get recommendations galore, and make a real difference.  But then you also need to expect to put in 60 to 80 hour weeks.  I've been there.  The people who expect to do 9 to 5 with some water cooler chat can't hack it.  I've seen those people wither and die.  They can't pull their own weight.  And then they have to be kicked off because they're too much a risk to the project.  It's not pretty.  And if you're not working on a special project, but you still need to pull 60 hour weeks to get everything done?  Poor you.  Wah wah wah.  Get it done.  What do you think you're getting paid for?

Being Smart and Creative Enough
Update:  I want to be clear after some initial feedback that this section is not referring to innovation or product development creativity.  It is referring to having the intelligence and creativity to deal with crappy problems that can only exist in big companies, problems that should never exist in the first place.  Anyone who reads what I write will know my thoughts on creativity in big successful companies.  In fact, this entire post is just to demonstrate that the grass is greener on the other side.

You have to be smart to have a good job in a big company.  This isn't because the job requires intelligent or creative people.  Often enough, the job itself requires very little intelligence or creativity.  My friend at Google says with a hint of honesty that he and his co-workers feel like they are just janitors.  But this same friend interviewed an MIT PhD (everyone participates in interviews at Google) and rejected that guy for not being able to demonstrate a good level of intelligence.  I've been on both sides; I've rejected people and I've been rejected by people.  It always boiled down to level of potential that was demonstrated in the interview.  What is this person's potential to make a positive impact?  What is this person's potential to consistently deliver quality work?  What is this person's potential to rise in the company?  A new hire candidate needs to demonstrate potential in all of these areas to be seriously considered, and that requires intelligence and creativity.  Doing the work described in your job description is easy.  Everyone can do that, it's what they trained to do for many years.  Some jobs may have required more intellectually difficult training (chemical engineer) than others (insurance sales).  That doesn't matter, you need to compare yourself with people who have the same training.  Going above and beyond your job description is what differentiates you from the herd, and that's hard.

Intelligence and creativity are required when you're faced with a difficult and unexpected situation, and you need to make good decisions on the fly.  When there's risky groupthink, and someone needs to be able to step back, see the big picture, and convince the group that they're going down the wrong path.  When nobody agrees on anything, everyone has different opinions and data, and someone needs to have a light bulb moment that will identify the truth.  When the instructions and corporate strategy from above you are just plain wrong, and you need to figure out a solution that still meets the corporate goals without breaking the core strategy.  When a customer is complaining about something that is actually the customer's fault, the company has no ability or resources to fix the problem at hand, and management demands that the customer be satisfied because this customer in particular is really important.  Average people can't solve these problems on the fly, and ironically enough, these problems won't be listed in any job description for any job posting.

Having Enough Mental Toughness
Work in a big company can get ugly.  People build their fiefdoms and fight each other over capital budgets, resources, and visibility in the race to get to the top.  Or in particularly brutal and large organizations, just to survive and keep their jobs.  There are lots of reasons why large organizations are dysfunctional, but that's not important for this discussion; the important fact is that they generally are dysfunctional.  And to survive that environment, you need to demonstrate a particular mental toughness.  If you're lucky, you'll have a good manager who shields you from all the crap.  If you're not so lucky, you'll get to experience it all firsthand.  I have friends who even cried from just being blasted by a VP or director level person through email.  The successful ones could pick themselves up and get back at it.  The unsuccessful ones quit if they weren't somehow fired.  And the more you get promoted, the more you'll be right in the middle of it all.  This side of an organization can be hidden if things are going well; it will just happen behind the scenes at a higher level.  But if things are going poorly, you will experience hell.  But if you're a prodigy, you can control all the drama so that you're the calming influence to whom everyone will listen.  That kind of employee is worth their weight in gold.  I've both been that employee and not been that employee.  When you're not that employee, you are contributing to disaster in high pressure situations.

So people who dream about working a good job in a big corporation need to ask themselves these three things.  Do I work hard enough to take the grind?  Am I smart enough to figure out a solution for any problem?  Am I mentally tough enough to take any criticism and drama that comes my way?  If you are, chances are you'd be working for a big company already if you really wanted.  So if you're not yet working at a big company but you really want to, take a long hard look at yourself and ask yourself these questions again.  Even in crappy economies, the truly good people will always have jobs.  Perhaps it's better to say that in crappy economies, only the truly good people will have jobs.

2.  The Superstars
In every company, you'll have your normal high quality people, and you'll have your superstars.  That $6 million offer isn't something that Google would give everyone.  It would have to be a really elite employee, although rumors say that this time it has to do with the employee being a female engineer.  Even if her gender was the catalyst for such a high offer, we can safely presume that if she weren't worth it, she wouldn't be getting the money.  Also consider that Facebook is trying to raid the cream of the crop from Google, so there's a second reason why we can presume she's pretty good at what she does.  So all things considered, is she really worth $6 million?

If she's a top 1% engineer, and a scarce female top 1% engineer at that, why not?  Let's put this into perspective.  How much do the top 1% athletes in this world make?  Millions.  How much do the top 1% musicians in this world make?  Millions.  How much do the top 1% salespeople in this world make?  Millions.  Top 1% real estate agents?  Top 1% academic researchers?  Top 1% authors?  Top 1% fashion designers?  Top 1% playwrights?  Top 1% chefs?  Top 1% journalists?  Even if some of these people don't make millions directly from their jobs, their jobs are the key to enabling them to have patents, book deals, etc, whereby they can get their millions.  And if these top 1% people can get millions, then why can't top 1% engineers?

I think people need to think about how hard it is to get a top 1% person.  Especially at Google, where a bottom 1% employee would likely be considered a top 1% employee at any smaller company.  The case is even more so at Facebook, who is trying to raid all the superstars from Google.  These people are scarce because there are so few of them.  And just like the Vancouver Whitecaps would never even consider me to play soccer for them, big companies are in search of those people who can make them better, not drag them down.  That means you have to be just as good as everyone already in the company, if not better.  And if you want to make the truly big money, you need to be top 1%.

But while finding a top 1% person is hard, becoming a top 1% person is just as hard.  It's easy to be great, but it's hard to be consistent.  The more you get paid, the more you're expected to deliver something amazing day in and day out.  Even lower level people are expected to deliver quality day in and day out.  It's why you get paid.  This never hit home harder for me than when I was working for the Olympics in Vancouver and received some feedback from the same senior guy who had interviewed me.  I was the youngest venue technology manager hired by far, and we were having a conversation about my reassignment to another venue.  He said when they hired me, they believed that I would be either amazing or a disaster, but that it turned out I was neither.  I was simply good enough to do what needed to be done so far, but I still had a lot to prove.  That conversation really opened my eyes.  I thought I was doing amazing.  To be told that I was just average made me realize how hard it was to be amazing in any context.  I still have that feeling today.  It's hard enough to be amazing, but it's much harder to be consistently amazing.

Watching at home on TV, we scream when a multi-million dollar athlete doesn't score points every single night to win our hometown team a championship.  And while we may not scream if the lowest paid player on the team doesn't score points, we do scream when the lowest paid player makes mistakes that cost us the game.  The highest paid people are paid to be consistently amazing, but even the lowest paid people are paid to be consistently reliable, if not amazing.  This goes for both professional sports and any corporation.  And as mentioned before, the problems that everyone faces in a big company aren't easy problems.  So while they might bring in the top 1% guy when things are in flames, they're depending on you to not screw it up to that point first.  If you experience difficulty and crap, you need to suck it up, because you're not volunteering your time; you're getting paid.  You can get all starry-eyed when you hear about the top 1% employee's new offer, but have some humility to remember why you're not that person right now, what you need to do to become that person, and that you have your own job to do right now.

I think that the attitude that many people have about working in big companies can be summarized by a LinkedIn status update I saw recently, written by Marcin Janowski:
"There are two kinds of people: those who want to go work for a company to make it successful, and those who want to go work for a successful company." I'm proud to be the former.
If you're not yet working for a big company but want to, this is probably what separates you from those people who got in.

Now of course, there is a separate set of people that is even above the top 1%.  These are the guys who have what it takes to be the top 1%, but choose to blaze their own path.  Some call them revolutionaries.  Some call them hackers.  They eventually become entrepreneurs.  These are the guys who aren't satisfied with how things are, turn our world upside down, and create a better new world in the process.  They take risks that corporate junkies would never imagine taking.  The sad thing is that there are too many people who think that they are better than they are, and not enough people who believe in themselves as much as they should.  In which group do you belong?  Having tried to go this route myself before, even though I could never be considered a top 1% guy (maybe a top 10%), I can testify that it's crazy risky.  The venture world is truly a meritocracy, and maybe that's what makes it so alluring: the opportunity to develop and prove that you are more than a job description.  Eventually, being a top guy in the corporate world is too bureaucratic, political, and constraining.  One might even argue dehumanizing.  But the average person on the outside looking in wouldn't understand this.

Friday, November 19, 2010

That's enough excitement for today, let's go home

We just had an earthquake.  People as far as Futian felt it, so that's the only explanation that makes sense.  The floor shook for a few seconds.  Everyone stood up and rushed to the windows.  I guess there's no earthquake procedures here to hide under your desk for 1 minute.  My co-worker tells me that Shenzhen never had an earthquake before.  You know what's ironic?  We're scheduled to have an evacuation drill in 2 hours.  Don't tell me they were testing some kind of crazy secret military weapon, and it was a trial run for the evacuation drill later this afternoon.  Is this how the military tests all its secret weapons?  I'm just joking.  But seriously.  Crazy.

Update:  The evacuation drill was such an awesome show.  After I walked down 11 flights of stairs and walked out of the building, fake police cars with Styrofoam siren lights came and stopped in front of us.  They did mock fires, brought out the water hose, blasted the building, put out staged fires in the lanes, tended to the mock wounded, and did a lot of running and marching.  We all just lined up on the grass, took attendance, and watched.  A bunch of official looking people, including police and probably the building management, sat at a big head table to the side and watched as well.  Meanwhile, an announcer had a sound system up and running and did a play by play commentary.  Chee, how come evacuation drills are never like this back home?  :)

China Plays Chicken with the Economy

I've written a couple of items on how China is growing, but at the same time has some tricky things to figure out.  The biggest issue is how does China keep growing the economy?  Previous years count the lucky number as 7: the Chinese government estimates that a 7% annual growth rate is necessary to keep the population happy.  The world complains that the RMB is undervalued, which unfairly enables Chinese-made products to cost less than products from other nations in the international market.

The thing is, while economic health is an important issue in most of the developed world, it's perhaps more important in China because it's commonly believed that annual 7% economic growth is the only thing that keeps China's population from mass riots.  China has almost no social safety net, despite being a Communist nation (or as many economists might say, due to being a Communist nation, but that becomes less and less an argument as they transition more and more to capitalism).  There are a bunch of factors that ensure that China's future long-term success is not a sure shot.

Firstly, relying on the economy to keep people happy and fed is hard because much of the growth just can't be sustainable.  You know that things are out of control when normal middle class people start pulling every trick in the book to get on the train before it leaves the station.  Like getting a divorce just to be able to qualify to get a second home?  Those restrictions were put in place to cool down the real estate market.  Instead, it just keeps heating up.  What happened to buy low, sell high?

Secondly, inflation is going insane.  It's nowhere yet what Germany experienced in the 1920s, but it certainly is worth noticing:
Since the beginning of 2010, the price of sugar has increased 100 percent and the price of garlic ten-fold in some regions of China. Hot pepper rose from 4 yuan ($0.60) a kilogram to 40 yuan in May in Beijing, and the price of potatoes surged 84.8 percent from January to June.

Prices of pork, eggs, ginger, silk, mung beans, cotton, soybeans, bean oil and even apples have also jumped month by month, earlier reports showed. 
(quote found courtesy of China Hearsay)
When inflation is going wild like this, people's income is worth significantly less.  For a nation that depends on economic health for the happiness of its population, this is a bad thing.  The biggest example for me is in the bottles of Minute Maid.  I swear that a bottle of Minute Maid orange juice in China was a lot bigger in April than it is now.  And it's still the same price.

Thirdly, the wealthier folks are feeling the pressures/risks that arise from income disparity, and are turning to private bodyguards for protection.  This trend has been increasing for a few years now.  It demonstrates two things: firstly, people don't trust the government to be able to keep order.  Secondly, people don't trust their fellow members of society to be nice.  That can only entrench the idea of an unstable society.

Since the Chinese government only has the economy at their disposal to keep order peacefully, they're caught between a rock and a hard place.  A lot of China's growth has been in real estate, but you can just feel that there's something wrong with this real estate picture.  A friend of mine recently invested in a condo with another friend.  They plan to flip it in a few years.  But they don't want to rent it out to anybody in the meantime because the wear and tear from living in it would decrease the condo's long-term potential value.

Likewise, in Beijing after the 2008 Summer Olympics, there were many buildings that were made for the Olympics, but absolutely empty with no purpose afterwards.  The government is investing everywhere, but governments are highly inefficient at allocating capital.  So both residential and corporate real estate are skyrocketing, but with no real tenants.  It's a ponzi scheme where owners just hope they can sell to another sucker before it all comes crashing down.

Hey, we've seen this movie before, haven't we?  The USA kept investing in real estate and even started handing out bad loans so that people could afford to buy homes they couldn't afford, because they incorrectly assumed that prices would always go up, enabling an easy refinancing of loans when necessary.  And we know how that movie ended.  Actually, no we don't.  Maybe we're only in the middle of that movie, and there are more disasters to come.

A just economy is the foundation for a healthy economy.  I attended a seminar today put on by the Swedish Chamber of Commerce on business corruption in China.  The speakers were comprised of the head of a Scandinavian security consultancy based in Beijing (the guy used to be the head of security for the royal family in Sweden, how cool is that?), and a Swedish lawyer based in Hong Kong.  I came away from this seminar with five main points:
  1. If you want to do business in China, you need people on the ground that you can trust.  And you can trust local Chinese people to do the job for you, you just need to find the right ones.  In fact, hire a security consultancy to do some due diligence for you.  Even if the firm, bank, or factory comes highly recommended.  Yeah, OK, I was sold very well.
  2. While the central Chinese government is hardcore about stamping out corruption, China's a big country, and Beijing is far away from everywhere else.  The stuff that happens on the ground can be horrible, and you can't walk in blind and naive.  Imagine being unable to leave for your home country for a business trip or vacation, just because you didn't pay someone a bribe for your business operations.  And it doesn't get resolved until 5 months later, despite intercession from your embassies.  All because of a small town judge living in a conspiring world.
  3. Guanxi (the power that arises from having strong relationships) does not equal corruption.  People give each other gifts and take care of each other because of guanxi, but guanxi is about true friendship.  Corruption is when money is passed to get something done that would not have been done without the money.  Admittedly, it's sometimes hard to differentiate between the two scientifically or in a court of law.  It may be one of those things where only the people who are directly involved can really know and understand what's happening.
  4. You can't brush all of China with one stroke.  While there are plenty of stories of corruption and bad things, you can't paint all of China with the colours of just a few experiences.  Again, Beijing is far away, and many people and companies are experiencing good success in China.  Stereotyping is like driving through a gang fight in LA and thinking that everyone in the USA shoots guns at each other all day long.  It's just not true everywhere just because you can cite some examples.  But the examples do give you reason to take the risk seriously and prepare for it well.
  5. People aren't afraid of using physical violence to make their point.  Especially if everyone stands to gain from the "protection money" (looking at the cops).  One business executive was brutally assaulted for just switching suppliers.  He felt his old supplier wasn't paying enough attention to quality.  So the supplier got some hoodlums to go after him.
The fact that corruption still exists in vast quantity is poison to China's future economic health.  Eventually, a business has to decide whether the risks are worth it, and if so, fully commit to investing in the proper things to do things properly.  However, point #5 is the most relevant for thinking about what happens if China's economy crashes and is unable to recover.

Maybe, just MAYBE, China's middle class will continue to grow, China will be able to move up the value chain, and China will be able to start developing real heavy duty sustainable consumers.  However, if they don't and the house of cards comes crashing down, what will happen?  What happened with any extremely upset population throughout history?  Revolution.  It's a scary thought.  In the most extreme case, the Chinese government could implement martial law.  I've seen the military out in force before in rural regions where there was risk for unrest; it quiets things down in a hurry.  But then the question arises whether it would escalate to civil war.

When China's trying to keep its economy growing at the expense of other nations, it's true that it wants to be #1, it's true that it wants to be king, rather than the servant.  But perhaps it's more that they're just scared to death that if they don't keep this economic engine going, they'll see the worst riots in their history.  There is no safety net here.  The Chinese government can't be flippant and say, "Let them eat cake."

But what about things that are more foundational?  What if there's something to change the fundamental aspect of why China believes that economic prosperity is its only weapon against potential unrest?  I've never been broke or homeless before.  But I've met people who have been in such a destitute state, were able to survive it, and then recover and thrive.  What I've learned from these people is that you can't let your self-worth depend on your wealth, success, or happiness.  Those are forever effects, not causes.  Your sense of life, purpose, and attitude needs to be rooted in something much stronger and long-lasting.  For me, that's my faith.  For China, that's... what?  I think that's the question that China must answer, because if they can't, they might not be able to survive any crash that might come their way.  And I'll posit that God is the only final answer that can withstand any test.  In my experience, he can change people's hearts for the better too.  And judging from the stories of these people I know, that kind of inner strength and hope is the most important thing for surviving a major crisis and then recovering from it.

Can China learn the lesson that money can't buy everything?  Or will it continue to play chicken with the economy and just hope that everyone survives?

Monday, November 15, 2010

5 Differences between Shenzhen and Hong Kong

So I went to Hong Kong for the weekend to visit with various friends.  Here are the five starkest differences I've seen between Shenzhen and Hong Kong.  There are obvious differences before you even arrive (eg. the HK dollar is 0.85 of the Chinese Yuan).  But here's maybe some stuff that people can only understand if they're there to see it for themselves.

5.  HK is definitely more of an international city.  You see it in the restaurant diversity, even in the most local Chinese places.  On Saturday, I had Singaporean for dinner.  On Sunday, I had Thai for lunch.  You can't find that easily in SZ.  In HK, there are a bunch of options in many locations.

4.  It was surprising that very few people in SZ seem to speak Cantonese fluently.  It's Guangdong, so they should speak Cantonese, right?  Well, correspondingly, it's surprising that very few people in HK seem to speak Mandarin fluently, even though mainland China is right there.  This isn't to say that they don't speak Mandarin.  But my HK friends tell me that many HK people struggle with Mandarin.  It seems similar to a Canadian in Quebec struggling with English. I will say this though.  Mandarin with a certain type of female HK accent sounds really nice.  Like you're in a dream listening to mellow music.  Hey, I was asking for directions, OK?

3.  The streets seem safer in HK.  People drive and walk more safely in HK.  Seriously, it seems like traffic moves more slowly and orderly than in SZ.  Plus, they drive on the left side of the road.  Correspondingly, the people in HK obey the traffic and walk signals.  I sometimes found myself to be the only one walking across the street when there was a Don't Walk sign, despite there being no traffic at all; the rest of the crowd would be patiently waiting on the sidewalk.  It took some focus to get out of Chinese walking mode.  Finally, is it just me or are there no mopeds and motorcycles on the roads in HK?  How come I couldn't see any at all?  But in SZ, you see them everywhere.  Electric, gas-powered, even normal bicycles.  In HK, it seems to be either only cars, taxis, or public transit.

2.  Talk about bright lights.  I can't remember if it was like this the last time I was in HK.  But in Mongkok, the lights were so bright that it might as well have been daytime, not 11pm.  Seriously.  Daytime.  If it weren't for the fact that it were artificial lighting, you seriously would not have thought that it was evening.  I can't think of any location like that in SZ.

1.  The public bathrooms in HK malls, restaurants, and offices are planned better.  In SZ, you have lots of bathrooms where you open the door (or worse, there's no door), and the urinals are in plain view of everyone outside, including the women who walk past to enter their own bathrooms.  The women's bathrooms are similar, but they don't have a big problem because they don't have urinals, they just have toilet stalls.  However, in HK, the bathrooms are more western in design.  They're planned so that the urinals aren't so easily seen by people outside the entrance.  That's thinking ahead.  I think this is interestingly indicative of where the Chinese mindset is and where it needs to go (and is going).  Learning by rote doesn't teach kids how to think ahead.  They only learn how to get the task at hand done, but not how to contemplate future problems and prevent those problems from becoming reality.  Things are very reactive, rather than proactive.  So next time you want to see how proactive a culture is about its thinking, go look at the bathrooms they design for high-traffic areas.  Unless the culture values voyeurism, then you just have to change your own worldview first.

Thursday, November 11, 2010

Quirks that may not last in China

As China continues to grow, I wonder how much I'll continue to see this kind of stuff...  I'm thinking possibly not often.  And that kinda makes me sad.  What will China be if it can't be quirky?

5.  For the last few hours, there have been these people on the roof of the Toyota building across the street walking around and waving flags.  I have no idea what they're doing, but it looks like they're practicing for a performance or a parade?  I'm not sure....  Now they're in a big crowd talking about something.  I don't think they're actually Toyota employees, just the building is a Toyota building.  I think?

4.  So I went to buy a rice cooker, right?  The one I wanted wasn't in stock, so they promised to order it in and call me when it arrived the next day.  I didn't receive a phone call, so I went to check it out.  They said sorry, it hasn't arrived yet, they'll give me a call.  It's been maybe 2 weeks now.  I don't think I'll buy that rice cooker anymore....  Maybe I'll just go to Walmart, they had some for 200RMB.  But it was fun to try to shop for one with my Mandarin level.  :)

3.  Went to visit a friend at the airport.  While riding the bus back from the airport (only 6RMB or something like that, thanks), I looked out the window and saw... 3 guys riding a motorcycle.  The guy who was sitting at the very back had his head on the middle guy's back and was happily sleeping away.  It also looked like his butt was about to fall off the motorcycle.  Now, given my own recent experience of riding a motorcycle to get somewhere (the buses were jam packed that evening, and I've always wanted to ride one of those things anyway), I don't see how this guy could sleep without a care in the world like that.  I couldn't keep my eyes closed on the motorcycle I took for fear of... well, something happening.  There were so many cars all around us, and I think I almost clipped a few.

2.  A lot of skinny girls here all seem to comment something I never thought I'd hear: "I want to be fat."  What??  Say again??  And after extensive conversation with them, I'm sure they know what they're saying completely.  Not that I understand them.  I tried to explain that my usual experience is that girls want to lose weight and become skinny.  Not the girls here.  It has something to do with wanting to be stronger.  But again, after extensive conversation, I'm pretty sure they are talking about fat, not muscle.  Don't ask, how can I explain if I don't get it?

1.  Several times now, I've seen cars trapped on a one-lane street when two cars in the middle couldn't figure out how to pass each other.  Then there's a big symphony of car horns as the drivers all along the street get frustrated with whatever's keeping the line from moving.  Yesterday morning, I saw this walking from the bus stop to work.  Except, I saw it twice on the same street.  That is, there were two mini-jams within one street.  It was only possible because of a car coming in where there was a T-intersection.  I'd have to diagram it out to explain it properly.  Suffice it to say... this is why certain streets in downtown Vancouver are designated one-way streets, huh?

Thursday, November 04, 2010

Did Facebook Just Kill Groupon?

Quote #1:

At TechCrunch Disrupt, Benchmark Capital's Matt Cohler said he wasn't sure if Groupon would succeed over the long term. I asked him if he wished he was an investor in Groupon:

That question keeps me up at night. the question for me is…if you look at it from a purely academic point of view, there are neither barriers to entry nor are there switching costs in that product. Typically when a product has those characteristics margins tend to collapse over time. In theory the only thing stopping that from happening is Groupon's brand…It may turn out that daily deals are ad units, and lots of different products can apply that ad unit.

And here's another key: Facebook CEO Mark Zuckerberg noted that Facebook is not getting paid at all for these deals. They're just doing them because they're great for users and businesses who use Facebook. (He did leave open the possibility that some partners may choose to advertise with Facebook, but that's not the main intent.)

I was really surprised and interested when I read someone like Matt Cohler citing academic business strategy principles to raise questions about Groupon's business model.  I mean, he's not an MBA type, right?  But there you go.  Wonder how Groupon will respond to Facebook's new initiative and how it'll all turn out.  But long-term, the only way Facebook can keep up something like this is if they have another way to make money on the side.  But the same could be said about most of Facebook's products.  And Google's for that matter.  Both are essentially just advertising companies that approach advertising with different strategies.  Very high-tech intelligent strategies, mind you.

Saturday, October 30, 2010

The Changing Chinese Mindset Towards Product Quality: How China Is Looking for Its Place in This World

Given my love for sushi, the prediction that saltwater fish will be extinct by 2048, and the poor reality that we suck at protecting the natural habitat of seafood, I am left with two questions.  Firstly, how do I gorge on as much safe yummy sushi as I can while I still can?  My short-sighted rationalization tells me that it's OK, future generations wouldn't know what they'd be missing anyway; in fact, they'd just be very sad and upset if they did.  Those stupid ancestors!!!  All kidding aside, a second actually important question is: will anything fill the gap?  Maybe, maybe not.  So it was with great interest that I read this article about how China could take over the global (or at least the US) fish market by using landlocked fish farms.

For the record, I've eaten luofeiyu (or tilapia, as it is termed in English).  In fact, I had one for lunch a couple of days ago.  My first experience with luofeiyu was in 2005 in Xichang, Sichuan.  Xichang is perhaps most famous for being the location of China's spaceport.  It's the capital of the Liangshan Yi Autonomous Prefecture in Sichuan.  They happen to love their luofeiyu and seem very proud of it.  They have restaurants that are dedicated to luofeiyu.  So this article is a tad incorrect when it seems to say that Chinese in general hate the fish.  The fish itself is fantastic when barbecued with Sichuan spices.  However, when I ate it for lunch recently, it was broiled and not very seasoned. As such, I could see what the article was saying when it described the fish as bland.  I much prefer it barbecued on a stick on a street or lakeside in rural Sichuan.  Seasoned correctly, it's unlike any fish I can eat in Vancouver, and ranks among my favourites.  It's just too bad that it doesn't have any omega-3 oils.

But this blog post isn't about fish, is it?  It's about Chinese products and what Chinese people are starting to look for.  I want to talk about quality standards in China, and what I think it means for the world.  Two passages from the fish article really struck me as being the dichotomy for how western folks view Chinese products.

The view that Chinese products suck and are dangerous (i.e. why countries should import less from China):
A report last year from the U.S. Agriculture Dept.'s Economic Research Service called into question Chinese safety standards for farm-raised fish and seafood. "Fish are often raised in ponds where they feed on waste from poultry and livestock," the report said. Meanwhile, environmentalists are concerned about the impact of China's fish farms, as water filled with tilapia feces is flushed from the ponds. They also worry about the invasive nature of the species in the U.S. (Last year in Louisiana's Plaquemines Parish, for example, officials used poison to kill off tilapia in the area's canals and ditches.) "In theory there is quite a lot of regulation in place," says Pete Bridson, aquaculture research manager at the Seafood Watch program in Monterey, who traveled to China last year to visit tilapia farms. "But the environmental side of the regulation is not enforced very well."

A global aquaculture industry dominated by China worries Mike Picchietti, president of Regal Springs Tilapia, a company based in Bradenton, Fla., that operates tilapia farms in Indonesia, Honduras, and Mexico, and is a supplier to Costco (COST). For instance, he says Chinese farmers save money using fish feed only when the tilapia are bigger. When they're still young, he says, farmers toss animal waste in the ponds and allow the tilapia to feed on the algae bloom that follows. "They're able to cut their feed costs because they're able to use manure," he fumes. Raised-in-China tilapia are therefore much cheaper, according to Picchietti. "The Chinese are able to use cowshit," he says, "and I can't." Chinese tilapia growers deny Picchietti's claim.

The view that Chinese products strike an excellent balance between cost and quality (i.e. why everyone manufactures everything in China):
Other plants follow similar procedures. At the one operated by HQ Sustainable Maritime Industries, an Evergreen rival with offices in Seattle and Hainan, the clean suits are color-coded: Visitors wear white; assembly-line workers, blue; managers, red; quality-control supervisors, yellow. On a recent visit to the factory, plant manager Wang Fusheng points to a yellow-suited officer roaming the fluorescent-lit room. "That guy is powerful," he explains. "He can stop anything right away." Before HQ's fillets go into cold storage, the fish pass through a metal detector, just in case any stray flecks of a filleting knife have made their way into the product. "Every day we account for how many knives we've given to workers," he says. "If one knife is missing, you check everything."

Executives with tilapia processors in China point to such requirements as examples of their determination to maintain product safety. Chinese government labs regularly inspect for melamine and other banned additives; some Western buyers have their own quality inspectors or rely on third-party auditors to test the fish. Given the frequent inspections by Chinese officials and Western nongovernmental organizations, HQ Sustainable Chief Executive Officer Norbert Sporns rejects accusations that Chinese tilapia is substandard. "China is the most scrutinized export market in the world," says Sporns. He's a six-foot-seven former immigration lawyer from Montreal who got involved in Chinese aquaculture in the late 1990s; his wife, HQ Chairman Wang Li, is the daughter of a former chamber of commerce chairman in Hainan. Sporns compares Chinese tilapia farms favorably to catfish farms in Louisiana, where he calls conditions "despicable." "Our standards," he says, "are way, way better."

Despite the fact that China manufacturers most of the electronics, clothing, and everything else consumed by the rest of the world, China still has a global reputation of manufacturing and consuming shoddy products.  How's that work?

Honestly, it's more correct to say that Chinese brands have a poor reputation worldwide.  The products that get manufactured by China for western brands are fine.  So China is trying to change their image as they look to move up the value chain.  One of the big topics that kept coming up again and again at this year's APCAC conference in Beijing (organized by the American Chamber of Commerce in China) was how China wanted to move up the value chain.  China wanted to stop being viewed as a white-label manufacturer used for outsourcing and start flexing its muscle as both a consumer and designer of products.  Manufacturers are servants.  The customer is king and the designer is the king's prime minister.  The servants are still servants.  If you get my drift.  And I would argue that being a major consumer and being a major designer are very symbiotic subjects for China.

China becoming a heavy-duty designer is an audacious goal.  But China becoming a heavy-duty consumer is now very viable.  In fact, it may even be necessary, simply because the economy is being squeezed on three sides to go in this direction.  Firstly, as the economy has grown, so has the wealth per capita.  There is a growing middle class that has discretionary income to spend on nontrivial luxuries.  And these people demand quality.  Secondly, as wealth per capita has grown, so has labour cost.  While labour is still relatively cheap in China compared to western nations, it's increasingly more expensive.  Thirdly, as China has grown to become more of a player in the global scene, there's this ferocious hunger in China to be recognized and considered among the world's elite.  Elites aren't forced to serve.  Elites are the ones being served.  The difference between China and other Asian elite-aspiring nations like Singapore and South Korea is that China has the mass and momentum to be taken seriously.  The four horsemen are BRIC: Brazil, Russia, India, and China.

Evidence for the ability to consume is in the people.  One day while looking for a restaurant where we could eat lunch, a friend pointed out a shop where I could buy some cheap stuff if I wanted.  But she also said the quality is so bad that she doesn't buy anything there herself.  Some other friends told me they were going to Hong Kong this weekend to shop, mainly because Hong Kong had better quality for the kind of stuff they wanted.  Just today, I went happily to a big outlet sale organized by my bank for a customer appreciation day.  Thousands of people thronged an exhibition hall browsing racks of Hugo Boss suits, Gucci bags, Nike microfibre windbreakers, and the like.  I didn't buy anything because the cheapest pair of pants I could find cost about $25 (that's Canadian currency); I saw suits on sale that came to about $2000.  I was disappointed because I thought I'd be able to find a ton of name-brand stuff cheaper than I would in Canada.  I was wrong, it was the exact same price.  And thousands of people filled the exhibition hall buying this stuff.

Clearly, this growing middle class cares more about what they buy; it's no longer about the cheap fake knock-offs.  The big light bulb moment came when I saw all these photos of people lining up to purchase iPads at the new Apple stores in China.  So how's that iPed doing, eh?  Yeah, iPad may be designed and sold by Apple, but it's manufactured by Foxconn right here in Shenzhen.  Two products manufactured in the same city, but only one is viewed as a product that people aspire to have.  People in China are starting to have money and want to strut their stuff.  This is both good and bad.  It's bad because maybe too many little emperors (a social effect of the one-child policy) will may end up feeling way too entitled about everything, making for a society that is unable to meet the expectations of its population.  As well, you only see this kind of consumer behaviour in the major urban centres.  In the rural areas, it's much less developed, and the economic disparity poses risk for civil unrest.  This is definitely also a cause for concern.

But it's also good because it demonstrates economic progress.  And in a strange way, I think this demand for high quality global brands is good for China, because it will force Chinese companies to get their act together in order to compete.  If Chinese citizens are demanding high quality products, then Chinese companies will not be able to compete with shoddy products.  This is the link.  This forces China to think more like an original designer than a cheap me-too copycat.  Chinese brands are going to need to figure out how to increase quality and customer service, eliminate all the product safety scandals, earn consumer trust, and develop noteworthy brands.  Once they are able to achieve this, only then will Chinese consumers be able to jump for joy when purchasing an iPed instead of an iPad.  And when Chinese brands are able to win over consumers on their home turf, that's when Chinese brands can start trying to compete on the global market as respected players.  In the worst case, they'll be pushed back and remain #1 only in China like Baidu and Tencent's QQ.  That's still a step forward because it's better than seeing BMW and the like slap around Chinese luxury autos in their own backyard.  Quality and market success needs to start at home before similar achievements can even be contemplated worldwide.

So things are changing in China.  In fact, wages are rising so much that it was discussed plentifully at APCAC 2010 whether it was viable for China to retain its manufacturing strength, with companies even starting to choose Vietnam instead of China for manufacturing facilities.  The general response from American business leaders was that although Vietnamese labour may be cheaper, Chinese labour is more productive.  As well, China has the opportunity to increase its industry out west, a region that has not seen a lot of attention until now, since the government wanted to modernize the major urban centres out east first.  So despite the higher wages, China is somehow maintaining its luster and may be able to have its cake and eat it too.  And get seconds.  With the higher wages and consumer demand for higher quality comes a correlated societal demand for respect.  The Foxconn suicides did well to highlight important issues about business practices in China.  Many people cried out against Foxconn and decried the "sweatshop conditions" allegedly typical of Chinese manufacturers.  I agree that this was an issue for sure in the past, and can still be.  But people don't understand the significance of this quote:

Hon Hai and the Hong Kong-based Foxconn unit have struggled this year with the fallout from a series of suicides that focused international attention on labour practices in the region.

The issues prompted the company to raise wages and were a trigger for a series of labour disputes over working conditions in a region dubbed the world's workshop.

The practices of manufacturing companies in China is one thing.  However, the work conditions are far greater influenced by a single factor: western consumerism.  Western consumers have only been able to have such a nice life because they've outsourced all the nasty bits to cheap labour in other nations, including China.  Fake Steve Jobs said it best:

We all know that there's no [bad word] way in the world we should have microwave ovens and refrigerators and TV sets and everything else at the prices we're paying for them. There's no way we get all this stuff and everything is done fair and square and everyone gets treated right. No way. And don't be confused — what we're talking about here is our way of life. Our standard of living. You want to "fix things in China," well, it's gonna cost you. Because everything you own, it's all done on the backs of millions of poor people whose lives are so awful you can't even begin to imagine them, people who will do anything to get a life that is a tiny bit better than the [expletive] one they were born into, people who get exploited and treated like [expletive] and, in the worst of all cases, pay with their lives.

You know that, and I know that. Okay? Let's just be honest here. Just for a [bad word] minute, let's all be honest.

China's got money now.  The world has been feeding it for years to get cheaper products.  All this huge investment and growth happened despite the fact that the social infrastructure may not have been ready.  They still may not be ready.  There are still a lot of issues.  But now China has scale and resources, so they're coming for the rest of the world.  It's payback time and China wants some recognition; they are flexing muscle.  They already have the most foreign ownership of US debt and according to some were instrumental in saving the euro from collapse.  And fortunately for China (and unfortunately for other nations), China is seen as a huge growth market where everybody wants in.  This gives China ridiculous leverage to negotiate deals that allow Chinese industry to accelerate its progress in the goal to become a house of globally respected brands and designers, not simply manufacturers used for outsourcing.

Japan and South Korea traveled the same road in trying to build their products into globally respected brands.  The story of how Samsung grew its brand in the US is a fascinating story; I heard it firsthand from the consultant who headed up the market entry strategy on Samsung's behalf.  It was just too difficult for Samsung to establish a noteworthy beachhead in anything until these consultants came in and recommended attacking cell phones, which was still a nascent market in North America at the time.  All the incumbent players in mature markets were too strong to displace.  After they established themselves in cell phones, the Samsung name was more recognized and acceptable in consumer eyes.  Then they started being taken seriously in other electronics.  Meanwhile, Sony is spelled with a Y because it made the brand name look more non-Japanese, an important factor back when Sony was trying to enter the US market.  I remember seeing old 80s newscasts of American rallies against Japanese products, even smashing and destroying Japanese-made cars in an exuberant rage of America patriotism.  Now we're seeing similar rhetoric in the US against China and Chinese products, though I don't know if it's to the same degree.  But if South Korea could create globally respected brands in the last few decades, I see no reason why China cannot within the next few decades.  Japan is special in terms of culture and creative output, so it cannot be compared.

So.  Is China going to be the next superpower or is it a house of cards being built ever higher and higher just waiting to be knocked flat?  Japan never did fulfill its hyped potential against the US.  But then again, did the US face as many problems back then as it is suffering now?  Fun times, where's a guy supposed to put his money for safekeeping?  Last quote:

VK: Sure, the growth you see today in China is there, but it's not a sustainable growth. It's not a growth that you'll see a few years from now. That is an important point for readers to understand.

TCR: Why is it not sustainable?

VK: Because the growth is being induced by government spending, by a misallocation of capital.

I'll give you an example. The vacancy rate on commercial real estate in China is fairly high, but they still keep on building new office buildings because they think they will always grow. So therefore as long as they keep building, that activity will be registered as growth, until they stop. And when they do stop, they'll drown in overcapacity, and they won't be building new skyscrapers for a very long time.

TCR: We read that note you sent about the South China Mall, which is pretty stunning. It's the second largest mall in the world but is mostly empty.

VK: That's right. But as outrageous an example as the South China Mall is, there's an even more outrageous example – namely that the Chinese built an entire city, Ordos, in Inner Mongolia for 1.5 million residents and it is completely empty. These are classic examples of the sort of excesses going on in China.

TCR: The equivalent of building bridges to nowhere, but on a very large – Chinese – scale.

VK: Exactly. There are no shortcuts to greatness. As long as they keep building new bridges, the economic numbers will register that there is growth, but at some point the piper will have to be paid, and these projects have a negative return on capital.

It would be a pity for China if the Chinese economy comes crashing down before Chinese companies are able to figure out how to create good products and establish good global brand presence.  Remember, for South Korea, it was a multi-decade process.  Or maybe that's when we'd see China's best.  The greatest stories are always built in the midst of adversity.

Monday, October 25, 2010

Wednesday, October 20, 2010

And this is why I read TechCrunch. And this is how I know I'm in China

There are several reasons I love reading TechCrunch for all my web/tech news.
  1. Breaking news.  They seem to be often the first to break a significant story.  And if they're not, they're very on the ball to catch up.
  2. Great roster of internationally-focused writers.  Whether it's guest authors from other continents, international beat reporters like Sarah Lacy, or diversity-conscious academics like Vivek Wadhwa, there's great content that's open-minded, insightful, and always strutting to their own tune.
  3. Overall, despite all the haters and accusations of bias (which sometimes admittedly does come out), I usually find the content quite fair and level-headed.
And then every now and then, someone writes a piece that is completely awesome in its points.  Wow.  This one coming from the writer who is perhaps the most vilified of all the staff.  Well written.  I have nothing to add to it, and it made me realize the limitations of my own brain.  I should have been able to think of everything that was written there, but I didn't.  Read it, it's well written.

Well, want to write lots of posts, but no time.  So here's another list of various things that make me go "hmm" in China.  :)

5.  I bought a wardrobe/closet today.  It's a steel frame covered by a cloth exterior.  I've never seen that in Canada.  And it cost only 69RMB.  That's crazy.  Maybe I should go buy one more.  You can never have too many closets when you want to protect your clothing from the nasties on the floor, right?  Right?

4.  The air here is full of static electricity or something.  There's nothing else to explain how all the hairs on my body can feel all prickly.  At first, I thought it was bugs crawling on me, and then I realized there were no bugs.  It's such a weird sensation.

3.  Did I mention this one already?  The sidewalks can double as parking lots, so you have cars and people walking on the same sidewalks.  Really, I think it's wrong to term them sidewalks; rather, they're just parking lots on which people happen to walk.  But parking lots are usually squarish or rectangularish, no?  These things are long and narrow, and separate from the roads, so they carry a lot more people than they do cars per minute.  Who has right of way?

2.  I can download all the music I want for free legally through Google Music.  But you have to be located in Shenzhen, China for this to work.  Yeah, like, seriously.  I just downloaded U2's Best of 1990-2000 album.  I am now listening to Beautiful Day.  You can listen to music streaming straight from the website as well, if you wish.  But since I have an 8mb ADSL pipe, it downloads blazing fast.  Might as well get the MP3s to put on my MP3 player.  If this isn't proof of the music industry's inability to hold on to its old model of making money, I don't know what is.  The music labels are being forced to innovate in the face of disruptive change that is chipping away at their power.  And hopefully, this will allow artists to thrive in the long run, as the power of traditional music labels diminishes such that those same labels are forced to work within new realities.  Will other nations also see similar innovation in the music industry?  We're seeing some interesting things like Spotify, Pandora, and iTunes, but it seems you need a very special consumer demographic, national legal framework, and market environment to be able to force something like unlimited advertising-based downloads to be agreeable to the labels.  The question is... is it sustainable?

1.  My mom made a comment while visiting.  It's easy to clean the floor here.  You do it with your feet.  Just walk around barefoot, and your feet will pick up all sorts of dust.  Then you hold your feet over the garbage can to rub all the dust and whatever else off.  This is when you haven't swept the floor for a few days.  I guess she saw me cleaning my feet over the garbage can a lot.