The 2008 China Games And The ‘Björk Cork’
By Paul Midler | March 13, 2008
Nice article in today’s International Herald Tribune by Howard French. While China insists that the world not make politics out of the Games, China in fact sees everything related as political.
“Foreigners who persist in touching upon what are quaintly known in China as sensitive issues, thereby putting the government on the spot, risk being treated as unfriendly to the country, or even downgraded further to the status of enemies.”
Speaking of those who persist on touching upon sensitive issues, I dropped a quick post here a few days ago, suggesting how ridiculous it should seem that China claims “hurt feelings” over Björk. In the IHT article, French noted that it was simply ridiculous propaganda (I still think it was more interesting that the NY Times reported on “hurt feelings” as if it was news… but let’s leave that alone for the moment):
“This brings to mind a saying about propaganda, which is defined as a kind of magic practiced by people who don’t believe in it for people who do. A crude, practical example of how this all works was delivered last week after the Icelandic singer Björk ended a concert performance of her song ‘Declare Independence’ in Shanghai with the cry ‘Tibet! Tibet!’ Beijing said that act not only broke Chinese law, but even more preposterously, ‘hurt Chinese people’s feelings.’”
Harry Connick, Jr. was in Shanghai this week and was the first to get the “Björk Cork”. Authorities came in an hour before his stage performance and crossed off some musical numbers from his act’s play list. As a result, Connick was forced into performing older songs, some of which his band didn’t know how to play! The audience came away from the performance disappointed - no big surprise there - and the press reported widely on the incident.
Musicians often adjust their act up until the last minute, for any number of reasons, and it is hard to imagine a Ministry of Culture that understands so little about stage performances. Let’s not even think about what any of this says about the future of improvisation (”Attention: All improvisation must be pre-approved by authorities”).
In the run up to the Olympics, the CCP has promised it would loosen up. It has done more on Darfur than anyone ever imagined, and it has made incredible gains on human rights issues (even as the Chinese government has gone all out to denounce the U.S. this week on American human rights abuses). It’s sad to see any artists treated poorly, but this particular incident was telling. Almost nothing says more about the state of things in China in the run up to the Olympic Games as much as the image of Harry Connick, Jr. - an already tame act - forced to play the piano by himself while his band simply looked on.
Topics: China | 4 Comments »
Approval Denied: Sexy “Lust, Caution” Star Banned From TV Commercials
By Paul Midler | March 10, 2008
Chinese censors allowed “Lust, Caution” to play in Chinese movie theaters at the end of 2007, but not before cutting over 13 minutes of sexy screen action. The actress that we saw in so many compromising positions, Tang Wei, was looking to star in commercials for Pond’s, the skin care brand owned by Uniliver. Those plans have been nixed, the commercials all having been pulled by censors. No explanation given.
Many would claim this is about censorship, but I don’t think so. What was her crime? Staring in a film that was pre-approved by Beijing?
This one is more likely about slowing down a successful foreign company in China. Unilever is a $40 billion company, and Pond’s is doing particularly well there. Foreign companies in skin care have reportedly been increasing spending. It’s a hot market, and it depends heavily on marketing and image. Ms Tang was undoubtedly courted by all major skin care companies in China, each thinking that a contract with the “Lust, Cation” actress would be their key to marketing advantage. There are many companies and only so many stars to go around.
Topics: China | 4 Comments »
China Has ‘Hurt Feelings’ Over Bjork - NY Times
By Paul Midler | March 8, 2008
A headline in the New York Times art section on Mar 8 read: “China Hurt By Bjork”. That’s an interesting one. Can a singer on the Z-list take a superpower down a notch with just a song? For those who didn’t catch thew news, during her recent Shanghai performance, the Icelandic singer incorporated a brief political statement about Tibet. I asked a couple of Chinese if they felt their feelings had been hurt. Their only comment was: “Who is Bjork?”
Topics: China | 5 Comments »
Has China Reached The Tipping Point On Software Piracy Yet?
By Paul Midler | March 6, 2008
Software piracy is stifling innovation, claims a recent study commissioned by the Business Software Alliance. Having little confidence that their intellectual property rights are protected, software developers have been reluctant to develop new products from the China market. ZDNet Asia, always a good source for technology news, also points out that reducing piracy can create jobs:
“Commissioned by the Business Software Alliance (BSA) and conducted by research house IDC, the study released Tuesday said the reduction would add highly-skilled jobs to the labor force, support the creation of new companies, lower business risks, and fund government services without a tax increase. Some 435,000 new jobs, over US$40 billion in economic growth, and more than US$5 billion in tax revenues above current projections, could be generated in the region, the research projected.”
Piracy used to be a boon for China as the laobaixing benefited for years from lax regulation. It was only through piracy that someone earning US$100 per month could afford Microsoft products selling for hundreds of dollars. The problem is that the economy is now stuck from an innovation standpoint, and China must realize that it makes better sense to support software rights. The question is whether China has yet reached that tipping point. Does China still benefit more by allowing the wholesale piracy of software, or is the practice doing more harm than good now?
Topics: China | 7 Comments »
Bad Molecule: Baxter Points Finger At China Supplier In Heparin Case
By Paul Midler | March 5, 2008
The U.S. company whose blood thinner was responsible for as many deaths and injuries at home is now claiming that the problem originated with a China supplier. Most companies that have taken a hit due to quality problems in China have been a bit more politic, and so have the traditional media outlets that report on such cases. I quite liked the Washington Post’s coverage on this one:
“…Baxter’s high-tech testing of batches of the problem drug found signs of what it called a ‘heparin-like molecule’ - a substance not found in batches of problem-free heparin.”
This business about a “molecule” sounds like science fiction, pretty disturbing anyway. Let’s hope at least that it stirs up discussion on counterfeiting in the chemicals sector. It’s a serious issue for China, though in this case I am not convinced that this was about a supplier trying to copy some molecule out there. From a political standpoint, the finger pointing is going to make for some interesting reactions in China.
Interestingly enough, I ran a post last August titled “China’s Product Recall Guessing Game”. People had been asking where I thought the next product recall was going to come from, as if I had any idea. A few broad criteria came to mind., and I jotted down four things that concerned me, in particular. In my third point, I suggested that importers be very concerned about chemicals. In the fourth, I suggested that they stay away from any China-made products that relied upon FDA approval in the United States.
Topics: China | 2 Comments »
Japan Steps Up Quality Efforts in China Following Gyoza Scare
By Paul Midler | March 3, 2008
Japan Tobacco is establishing a quality control center in China, which will provide frequent checks of food suppliers there. Japan Tobacco imports about US$100 million worth of frozen product from China each year. For those who don’t know what this is about, a shipment of frozen gyoza from China to Japan was found to contain pesticides, and a joint investigation could not find the source of the contamination. Japan is going as far as to take inspectors onto the farms where the produce is grown.
If that’s what it takes…
Topics: China | 3 Comments »
China Mobile Wants iPhone
By Paul Midler | March 3, 2008
China Mobile’s CEO, Wang Jianzhou, has just publicly expressed interest in the iPhone. Though formal talks have not yet been established, China Mobile has given the old winkity-wink to Apple through a leak to the press. Hey, but isn’t that what wire services are for?
“‘We have not yet officially begun talks with Apple over the iPhone problem,’ China Mobile Chief Executive Wang Jianzhou told reporters on the sidelines of an annual parliament advisory body meeting. ‘As long as our customers want this kind of product, we will keep all options open,’ said Wang.”
Back in January, if you’ll remember, China Mobile announced that it was officially breaking off talks with Apple, though it appeared never to have been in formal talks in the first place. Apple never made any statement about China Mobile’s comment, but rumor had it that the two companies had only held one formal meeting.
This latest bit of news is more than likely just posturing on China Mobile’s part. It dreams that Apple is going to come crawling to China Mobile to do a deal on their terms. Don’t do it Stevie! Stick to your guns, buddy!! My goodness, look who I’m talking about. If there’s anyone who knows how to play the China game, it’s old Steve Jobs.
As far as China Mobile is concerned, I don’t understand what all of the pussyfooting is about. You pick up a telephone, and you call Cupertino. Not convinced that revenue sharing works? Get Jobs himself to explain the business model. At this point, Apple doesn’t need China Mobile. The company promised Wall Street that it would ship 10,000,000 units in 2008, and they have announced (not leaked) that they are confident the target will be reached. How many of these will be brought into China through a back door? Who knows. Probably a lot.
Topics: China | 2 Comments »
Heparin Case: China Says Responsibility For Quality Lies With Importing Nations
By Paul Midler | March 2, 2008
While claiming that it attaches high importance to quality standards, China has claimed it bears no responsibility in assuring quality for pharma products leaving its shores. As many as 400 illnesses and 21 deaths have been linked to tainted heparin produced in China. The FDA went to China only after the news of contamination broke, and the plant was said to be in sorry shape. The FDA has not been inspecting China plants often. Here are some numbers to think about…
“The inspection shortfall is particularly acute in China. The FDA has averaged just 15 inspections in China in each of the last five years. Yet China’s fast-growing industry now numbers 714 plants that ship drug products to the U.S. At that rate, it would take the agency nearly 48 years to inspect each plant just once — and well more than that, if China’s booming 17 percent annual growth rate for drug exports is taken into account.”
It is worrisome that China insists it bears no responsibility. China certainly wishes to assure high quality standards for the products that are produced in its country. It is in its best interest to export only quality goods - regardless of who owns the factory. When China says that it cannot guarantee quality, maybe it means that it is incapable. Question: If China can’t get the job done from home, how successful can we expect the FDA to be in doing the job from afar?
Topics: China | 7 Comments »
New China Books: “The China Price” by Alexandra Harney and “Managing The Dragon” by Jack Perkowski
By Paul Midler | February 28, 2008
Two new books on China business are coming out this month, and I am looking forward to reading both of them!
THE CHINA PRICE by Alexandra Harney
The China Price is on my list because it deals with manufacturing. Ms. Harney, a former journalist with Financial Times, focuses on the human cost of getting products made on the cheap. I was actually interviewed by the author for this book. We met in Hong Kong and discussed a range of issues related to manufacturing. One of the things that came up was the issue of “social responsibility”. Consumers want products that are made in factories where work conditions are acceptable, but it is often difficult to guarantee such standards. Just because a Wal-Mart supplier has gained approval by the retailer does not mean that all sub-suppliers operating under that supplier have been checked. Last year, I suggested that opaque supplier networks are one of the enabling factors in quality fade. The social responsibility angle is an aspect of this issue that is just as important. I am looking forward to this book.
MANAGING THE DRAGON by Jack Perkowski
Jack Perkowski’s Managing the Dragon is the second book on my list. The author moved to China years ago and is the CEO of a company with $400 million dollars in annual sales. He also happens to author one of the more interesting blogs out there (www.managingthedragon.com). His blog has picked up on occasional posts made over at this site, and I have found some of what is written there insightful. Jack has been in China for a long time, and he has hands-on experience. I suspect this book will be valuable to those looking to increase a general knowledge of the market. When it comes to China, you don’t want to have to admit that you don’t know Jack.
Amazon links:
The China Price: The True Cost of Chinese Competitive Advantage
Managing the Dragon: How I’m Buiding a Billion-Dollar Business in China
Topics: China | 1 Comment »
The 2,900 Club: 90% of China’s Billionaires Are Children Of Senior Cadres
By Paul Midler | February 27, 2008
A report on China’s “bureaucrat-capitalist class” explains that nearly 90% of the economy’s billionaires – or about 2,900 - are the children of senior cadres. Collectively, the group is said to have assets worth over CNY2 trillion.
These billionaires are predominantly in: finance, international trade, property development and equities.
Where are they? Here is the breakdown: Guangdong, 1,566; Zhejiang, 462; Shanghai, 225; Beijing, 195; Jiangsu, 172; Shandong, 141; Jiangsu, 172; Shandong, 141; Fujian, 92; Liaoning, 79.
Critics inside the country are upset. Many say the wealth represent corruption. Worse, this is about nepotism. At the start of reforms, Deng Xiaoping said: “Let some people get rich first.” Many are asking now whether “some” aren’t rich enough already.
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[Note: CNY1bn = US$140mn]
Topics: China | 10 Comments »
The Spielberg Effect: China Agrees To Resume Human Rights Talks
By Paul Midler | February 27, 2008
No one could be more proud than Steven Spielberg. With only one letter to the organizers of the games, he managed to accomplished more than untold numbers of leaders have over decades.
Spielberg has expressed regret over his attempt to link politics to the games, but look how things turned out: China has stepped up humanitarian efforts in Darfur, and it has agreed to hold talks on human rights with the United States. All of this accomplished with a single letter!
You almost wish that Spielberg hadn’t done it, though. Now, every celebrity is going to think that they can effect change from Hollywood.
Anyway, not sure what to make of China’s overtures. It could be genuine, or it could be as the NY Times puts it, “a move… aimed at countering criticism from activists ahead of the Olympic Games.”
Topics: China | 4 Comments »
Guangdong Manufacturers: “The Reports Of Our Death Have Been Greatly Exaggerated”
By Paul Midler | February 26, 2008
Ten years ago, there was plenty of talk about how growth on the coastal cities was doomed. Everyone was looking to the second- and third-tier cities, and Sichuan Province was really where it was at, brother. Taking a page from American history, the Chinese government had urged everyone: “Go West!”
The latest buzz is a push into the north, apparently. Guess what: Anhui is the new Sichuan! Oh, my god. Don’t get me wrong. I love Anhui, especially the people. But there is nothing happening there, especially not for those involved in contract manufacturing.
For whatever reason, people like to talk about the demise of Guandong Province (h/t CLB.com). We’ve been hearing it for years. The factories are moving to Shanghai, or else they are heading inland, or they are off to Vietnam. What most fail to understand is the value of manufacturing clusters. Numerous economists have described the phenomenon, and it is why industry is not going anywhere anytime soon.
Consider that in order to get a products made, factories need a critical mass of sub-suppliers and service providers. If you’re making shoes, for example, you need to be able to pick up the phone and quickly get any number of people over to your office immediately: Leather vendors, adhesives suppliers, machine repairmen, a supplier of cardboard boxes. There are dozens of behind-the-scenes players who are necessary in a production process like this one.
On one project I was involved in, there was a problem with some packaging labels. The factory called the agent who provided the labels, and he was there in no time flat. He also knew what he was talking about. There were many different types of adhesives, which went on the back of the labels. Long story short, it makes a big difference that you have a critical mass of game players there all in the same space.
Companies that do not rely upon clustering and its benefits may move inland, but there is no way that entire industries - whole clusters – are picking up and moving to another region. When the regions clusters were originally formed, it had a lot to do with a tremendous cost differential. Today, the incremental benefit – if there even is one – is marginal at best. Whatever savings there are in labor are typically eaten up by increases in logistics costs, I am afraid to say.
The title of this post is a quote from an aging Mark Twain, who was very much alive at the time he said it: “The reports of my death have been greatly exaggerated.” This one applies to Guangdong Province and its robust manufacturing sector.
Topics: China | 5 Comments »
Apple in China, Part 2: Could Apple Help Reduce DVD Piracy?
By Paul Midler | February 24, 2008
As you may have guessed, I am an Apple customer, which is another way of saying that I belong to a religious cult. It’s not as bad as it sounds. There are some benefits…
Recently, I started renting movies through iTunes (which is also available on virus-compatible PCs). It’s an amazing experience. You scroll through and pick the movie you want to watch. With a stable Internet connection, you can start watching the thing immediately. The cost for most movies is $2.99.
Now, for only three bucks, why would you ever buy another pirated movie?
Most of the copies that I’ve purchased in China were those annoying dianying ban, the ones shot from inside a movie theater. The quality is so bad as to make the movie unwatchable, and occasionally you can actually hear the guy who is holding the video camera chewing popcorn. The others are often what the guys in the shop call deeweedee ban. It has the quality of a DVD thanks to someone cracking the software code, but then for some reason the damn thing stops somewhere in the middle. Not knowing how a movie ends is a terrible experience.
The counterfeits are cheap, but who cares. For three bucks, I’d rather get the real thing. Apple ran a special around Valentine’s day. They were showing Breakfast at Tiffany’s, I think, for only $0.99.
Companies like Prada and LV don’t want to lower the price of their luxury handbags from $1,000 in the hope of minimizing the price differential between the real thing and the price of a knock-off product. But reducing the price of movies and making them very easily accessible might actually help combat piracy.
About the only problem with the offering is a poor selection. The movie studios have given Apple permission to run with titles that did not do particularly well in the theaters, at least that’s the impression I get looking at the selection. They probably have some concerns with online rentals, no doubt.
I wonder what would happen if cell phone customers in China had access to the full range of movies available on iTunes. The Chinese government is carefully controlling the amount of Western films that enter China. Could iTunes really sell any Hollywood movie it wanted to in China?
Topics: China | 5 Comments »
Apple in China, Part 1: Apple Takes An Unfair Beating On iPhone
By Paul Midler | February 20, 2008
China Mobile announced last month that it ended talks with Apple on a deal involving the new iPhone, and analysts came out in full force to say it was Apple’s problem. Some went as far as to accuse Steve Jobs of misfeasance and suggested that he brush up on his China deal-making skills. Didn’t he realize the potential of the enormous market?
While everyone was slamming poor old Steve, I wished to congratulate him at least for holding his ground. So many have gone to China and given away the store, and here you had a guy who knew where he stood, someone unfazed by all of the China hype. Bravo!
When he delivered his recent keynote, I caught the updates in real time on TechCrunch.com and noted he has done deals with some of the the largest companies around - Microsoft and Google were two names that came up. If Steve Jobs was willing to shrug off a deal with China, maybe he knew what he was doing.
Despite a no-go with China Mobile, an estimated 400,000 iPhones have made their way into China via backdoor channels. The total number of iPhones sold worldwide outside of formal partnership programs is actually closer to a million – or more than 25% of all handsets sold. Because they got it so wrong before, of course, analysts came out - again - to declare the latest news as further proof that Apple doesn’t know what it’s doing in China. Ha!
When China Mobile broke off talks it was supposed to have been because the company had a problem with giving Apple 20-30% in a revenue-sharing scheme… I guess China Mobile didn’t mind losing the other 70-80%. Seriously, who lost? Who gained?
Consumers who got their hands on one of the new phones didn’t need to go with China Mobile. That was my understanding anyway. At the very least, they were not forced into a premium level phone plan. The phone simply works as any phone does: You put the chip in and go. The value of the iPhone as a status symbol is in the phone itself, not in the service, and consumers are happy to use the phone for its basic functions. For this reason, I suspect that Apple sold more units through the backdoor than they ever would have through a partnership deal.
Apple is earning well on the sale of its phones to China, and don’t believe for a second that the company didn’t anticipate the benefits of a distribution plan that included formal and informal channels running simultaneously. Seriously, did analysts think that a million phones went missing in some kind of accounting error?
What interests me is how this will play over the long term, and I am reminded of something Peter Drucker once said: “The purpose of a business is to create a customer.” Not a product, mind you, but a customer. Isn’t that exactly what Apple is doing in China – and without anyone’s help? The China consumer first falls in love with the iPhone, and the next thing you know they are looking at other products made by the same company. Converting informal customers to formal customers is a business strategy familiar to another technology giant, Microsoft.
In the 1990s, Microsoft allowed its operating system to be pirated, and almost overnight the company achieved near total market share. The press cried back then about “billions in lost revenue”, but consider the end result: The average PC user in China is accustomed to Microsoft’s operating system. The company has only to convert remaining bootleggers into paying customers, and it has virtually no competition in China – at least not yet.
One thing the iPhone will likely do is introduce the Chinese to Apple products, including the competing – and better – Apple OS X operating system. What I like about Steve Jobs is that he doesn’t look at the business on a quarter-by-quarter basis. He’s smarter than that, and I expect Apple will do particularly well in China.
Executives at China Mobile must be feeling pretty lousy at this point. The iPhone is a hit, and they had nothing to do with it. And for a company that is convinced its competitive advantage has something to do with its role as gatekeeper, we now have evidence to suggest that they don’t control anything.
At the very least, it was a missed co-branding opportunity for China Mobile. Steve Jobs himself probably couldn’t care less. He cracked the China phone market - and without any help. It is very likely that China Mobile will go to Apple and try to put the deal back together. My bet is that they are already mobilizing (pardon the pun), and that we can expect a deal to be announced in the near future.
Topics: China | 22 Comments »
Food Safety: China Goes Big, USA Goes Small - And The Imported Candies Now Contain Metal
By Paul Midler | February 18, 2008
CLB.com raised an issue I’ve been meaning to cover with its recent post on food safety. For anyone who has not been following, last year Trader Joe’s announced it was phasing out single-food products sourced in China.
The Chinese themselves are concerned about food safety, and interestingly enough they look to products made by larger companies as a way to reduce risk. Chinese trust larger firms because they believe big companies have more to lose. It’s the smaller player that is more likely to play games with quality, that is more often less careful.
It’s the opposite in America. We suspect large corporations of delivering a product that is not healthy for us. Processed foods made by the big companies are part of the reason Americans are obese, and how do they get a Twinkie to stay on the shelf for so many years anyway? When it comes to looking out for our health, we tend to trust niche players more.
Whether Trader Joe’s understands the issue well or not, single-food imports are more than likely to have been handled by smaller players in China. It’s not the food conglomerate that sells a bulk shipment of nuts; it’s the smallish trading company. Single-food items – i.e., bulk items – do not show any brand in the store, and they are also imported without brand. And if the Chinese don’t trust unbranded food products from China, neither should we.
CLB.com asks whether we should be more worried about food products from China than from other countries. There is no need for a comparative study as there is already plenty of evidence to suggest a problem. In May 2007, Rick Weiss of the Washington Post wrote an excellent article on food safety in China. He reported that in the first four months of 2007, inspectors rejected 298 separate food shipments from China. My own advice regarding imports from China has long been: If it goes in your body, or involves extended physical contact, do not source the product from China at this time. For now, China is characterized by quality problems. If it wasn’t, the economy would not need as many western QC professionals as it does.
On a final note, a friend sent news about candies from China that contained small metal shards. It started off a single incident, but the news has just come out that the number of candies said to be contaminated is up to twenty! This case is obviously about quality standards, and it should be a part of any discussion on food quality standards in China.
Topics: China | 5 Comments »