Come to China: Get On the Grind

There is so much chatter now in the international business world about new business opportunities in China. A primary reason for this is that the Chinese domestic market is so damn huge, and consumers in China are increasingly demanding more, newer, and better products and services.

Retail sales in China are growing by a whopping 15% a year. Currently 12% of the world’s luxury goods are bought by China, and Ernst & Young predicts that by 2015 this figure will reach 29%. Although there are pervasive issues surrounding distribution of wealth, social injustice, and poverty—especially among migrant workers and in China’s Western provinces—as a whole, standards of living are rising, per capita income is increasing, and Chinese consumers are becoming more sophisticated and demanding. Savings are diminishing and spending is snowballing, especially among China’s emerging middle class which is larger than the entire population of the United States. In the past 5 months, the GEP class has met many successful entrepreneurs that have struck it big in China: with import-export, real estate, cars, pharmaceuticals, French wine, digital advertising, high-tech tracking products, and a sprawling gamut of commodities and consultancy services. China’s domestic market is the next great frontier for international companies to conquer, and all of the corporate cowboys and trailblazers are going out East for a piece of the rewards.

Some cautionary tales from American companies in China: this March, Mattel closed down its flagship Barbie store in Shanghai because Chinese girls simply weren’t interested in buying overpriced, blonde American dolls;  Home Depot shut down its Beijing outlet because in China, labor is relatively cheap and the notion of DIY is almost nonexistent; this January Best Buy announced that it would close all of its Chinese stores since the Chinese electronics appliance market is already saturated with cheaper local competitors like Guomei and Suning. There are common motifs to these Chinese failures: sometimes it’s entering late to an already developed local market, but most of these corporate botches are due to a fundamental cultural misunderstanding of Chinese consumers and an inability to localize.

US companies that did strike it big in China were exemplary localizers:  KFC—with the help of Taiwanese management—designed a menu of congee, sesame-seed cakes, and spicy chicken rice, which Chinese can’t get enough of; Wal-Mart has also succeeded spectacularly in the East, expanding into the grocery business and selling popular fresh produce. China’s domestic market is full of opportunities, but it seems that if companies want to make their millions, they must recognize the complexity of China and adapt their products to the market—not try to adapt the market to their Western bestsellers.

Since the first capitalistic reforms and its opening up to international business in 1978, China has become the ‘factory of the world’…a place of sweatshop conditions and an army of cheap workers, environmental degradation and lax regulations…where any multinational could manufacture their products for cheap and undercut the suckers still basing production in their home countries. As a consequence ‘Brand China’ was not known internationally for its rich history, or scenic beauty, or for being the ancient technological pioneers of the world…but rather as a cheap factory for economy goods, a massive corporate playground that could be ravaged for its natural resources and desperate people that would work for near slave-level wages. The same sad story of supplier nations and developing countries all over the world…

But things have changed… Chinese companies like Gilee (which took over Volvo), Lenovo (which acquired IBM’s PC division), and Shanghai Tang (internationalizing high-end fashion), are revolutionizing the way China is perceived globally. China is not just the place to produce your products—which is becoming more and more expensive, and multinationals are beginning to infiltrate new production bases like Vietnam and Laos—but a place to sell them. As China is now the largest recipient of FDI in the world, it is clear that many foreign entrepreneurs and companies are setting up shop here to take advantage of this country’s alluring domestic market.

So down to the matter at hand… as a GEP class—a pack of 59 supposed international entrepreneurs—what have we done about the opportunities at our doorstep in China? How have we taken advantage of being immersed into this promising and lucrative business scene? Will we start up in China?

In short…I can proudly say that we’ve done a lot! And despite being thrown into a completely different culture, and being stuck in punishing classes for so many hours, many of us have gotten our hustle on and seized opportunities and really tried to get things started in China.

On that note, I’m going to dedicate some of the next posts to celebrate our grind as true entrepreneurs... To praise some of the entrepreneurial initiatives and business ideas that have come out of our GEP experience in China.

Look out world, here we come…

-Seb

Chinese Auto Industry: A Growing, Complex Battleground

Cars in China are hot! China is the largest automobile market in the world, with sales rising 32% y-o-y to $18.06 million. In China, cars mean status—and the bigger they are, the better.

There are big opportunities in China for international car companies. Since cities like Shanghai and Beijing are already chock-full of smog-spewing vehicles, companies are growing their sales successfully in second and third tier cities, increasingly in the rural markets. Throughout the country, long cars are cool, imported cars are perceived as quality and symbols of wealth, and there is a growing niche among young, internationally exposed Chinese that want stylish, smaller cars. The Electric Vehicle (EV) market is now booming in China, with HSBC anticipating China’s share of the global EV market to rise from 2.7% in 2010 to 35% by 2010. The Chinese government is also heavily supporting this eco-friendly auto sector, encouraging EV production in pilot cities with incentives, and forcing government employees and taxi fleets to use green cars.   

There is a lot of money to be made in the Chinese automobile industry, and global players within the industry like Audi and BMW are positioning themselves to take slices of the pie. However, the car game isn’t always easy…there are always requirements and obstacles to overcome. As a foreign car manufacturer that wants to enter China, you have to partner up (50-50 Joint Venture) with a state-owned car company. This arrangement isn’t always easy, and as the state owned companies usually manage the distribution channels for vehicles, they always expect to get a piece out of foreigners’ money-making. Government restrictions on the amount of cars registered in major cities like Beijing and Hangzhou also put a cap on potential car sales. But China’s market is incredibly vast and segmented, and many car companies are smartly concentrating on traditionally overlooked markets in smaller cities and rural areas.

Internationally, Chinese car companies are also starting to make a big name for themselves: exports are likely to continue rising after increasing by 64% in 2010. Promising companies like Chery and BYD (whose EV division received a $230 million investment by Warren Buffet) are making major sales abroad, especially in developing countries. Last year, Gilee—a Zhejiang-based company with an entrepreneurial history—made the game-changing acquisition of the Swedish car company Volvo. The Chinese auto industry is dynamically changing, growing…and whether as a manufacturer or market for cars, Chinese cars are on the cusp of dominating the globe.

So opportunists welcome! There is plenty of cash to be made in the Chinese car market. But be warned…if you want to get a piece, you will have to deal with hefty government interventions, and the competition (from international players, the state, and private companies) is incredibly fierce.

-Seb

Going to Guilin

April 26th

We continued drifting…tickled by a slight breeze, alongside the green bush, and stone huts, and sun-beaten rice farmers standing on the river banks. We had lunch on a rustic patio overlooking the ravine…the food was great: Li River fish with a pork-veggie salad. Hunchbacked women with earnest faces tried to sell us oranges; stray dogs roamed around, all foamy and mangy and cute. Zhenzhen and I went for a walk into the mountainside…up stone trails, with jungly underbrush on either side, past gardens and lonely wooden houses—hidden amid that labyrinth of deep emerald green. We stumbled onto a farm house that seemed abandoned, except a cow was still tethered to a tree. I pet it, and the beast nuzzled me thankfully. I imagined buying a house here someday, disappearing from the world and just writing, and wandering…dying a happy man.

We re-boarded our bamboo vessel and were crisscrossing the Li River again. There were farmers and oxen, toiling in the sun, feet and hooves splashing in the marshy wetlands. We saw the ‘Rock of the 9 Horses’—a cliff-face where Zhou Enlai (The Republic of China’s 1^st Prime Minister) famously discerned 9 stallions from the rocky splotches… but they just looked like splotches to me. We reached a view of the river that was replicated on the packaging of a local Guilin cigarette brand… Then we surveyed the river from an angle that was exactly replicated on every 20 Yuan bill… I had been looking at this place for months without even knowing it. Guilin scenery is nestled deep into the subconscious of, and used by, each of the 1.3 billion people in China. It was impressive…

We finally scraped onto a distant bank, said goodbye to our charming boat driver, and took a car to a nearby ancient town that Zhenzhen knew about. The town was old and beautiful…roofs splintered and dilapidated, leaning houses made of stone and wood, humble Buddhist enclaves inviting in devout rural farmers. I imagined the place was the scene of some traditional ceremony, or age-old feud, or epic Kung Fu battle. Zhenzhen and I took a path into the woods, and now I felt like I was truly in the countryside. We greeted a few men swinging pitchforks into the dirt, saw orange peels being dried in the sun for medicinal uses, and walked by a dingy hovel with a pack of old men playing cards—“Hello!” one said, welcoming me to his town.

It was all very touching, and beautiful…and disgustingly hot. Beneath my load of backpacks I was sweating profusely. We walked out of the ancient town, through a more modern bit, and hopped onto a bus that would take us to the center of Yangshuo.

-Seb

Going to Guilin

April 26th

I woke up at 5am, fumbling around in the darkness for my pants. Zhenzhen—my Chinese friend from my old University—was coming early, and I had to go scoop her up at the station. I found her at a street vendor’s stand, slurping noodles and smiling. Zhenzhen is an awesome girl: proudly Chinese, totally uninhibited and joy-seeking, and always happy and carefree about what anyone thinks of her. We walked back to WADA where I scarfed down a Western breakfast and packed up my trampish possessions. It was a crisp morning: at 7am the streets were already bustling and we caught a bus to Yangshuo—where Zhenzhen said the real beauty of Guilin was hidden.

Rumbling along the highway, past green mountains and countryside, the bus stopped near a river that slithered between the cliffs. As we got off, elderly ladies tried to sell us wooden ducks, trinkets and squirt guns, but we marched straight past to the riverbank where we rented ourselves a bamboo boat.

Drifting off into the scenic Li River, craning my neck around at the front of our raft, I was awe-struck by the quiet beauty of this place... The mountains looked like gelatin drops frozen in place, their green and rocky brown contours dripping off them like piles of gigantic dough…the water lapped around us, rippling into millions of diamond rivulets… It was a prehistoric beauty, like floating into the set of Jurassic Park, or exploring James Cameron’s Avatar world, or sailing down choppy Amazon waters towards the secrets of a vast Incan jungle.

My fantasies were interrupted by a peasant woman scrubbing her clothes in the river, and a little girl spraying water over the reeds.  I felt so lucky to be here.

-Seb

A New Entrepreneur for the Future

During this week I have heard about two scandals. One happened on an international level and another one in Russia. The international scandal was regarding Apple and its lawsuit against Samsung for copying its products – iPhone and iPad. What was more interesting is that another scandal appeared after somebody discovered that Apple has a special device on its iPhone. It collects information about the location of cell phone users and sends it to Apple’s center. Company management said that they need this data in order to improve the products quality.  Not of course all of the information is secured and Apple will never use it illegally…they say.

Another scandal happened a few days ago in Russia. The CEO and a number of other managers from one of Russia’s banks were accused of stealing money from the bank customers’ accounts through online banking.

This news made another idea come to my mind concerning entrepreneurship. We all know that there are three types of entrepreneurship; social entrepreneurship and individual entrepreneurship are most common.  I am sure you also remember that we have intrapreneurs too, those who are desperately hired by big corporations but still know – deep inside -that they are “entre”.

So, we have three types of entrepreneurs: social entrepreneurs, intrapreneurs and the classic individual entrepreneur. Classic entrepreneurs are generally not concerned about the social benefits their business creates. They do not see helping those people who are dying somewhere on the planet, as a core goal for their business. They do not put anywhere in their business plan milestones like, “building a church as soon as I break even.”  What they are really concerned about is how they will make money and who they will have to pay their debts too. They plan their business without thinking of society, environment and the etc.  Well so what?

I do not see the egoism concerning all these peoples understanding of responsibility when they do business: responsibility for securing all the information about me traveling around the world with my iPhone, my money in their banks, or possible radiation coming from a product they offer.

When we talk about being social, I suggest starting first from understanding the responsibility that comes with launching a start-up.  If you are lucky enough to find or be the IT guru introducing a new product that will significantly enhance the quality of all human life, yet you just need all of my bio information to do so, I want you to understand that you need to take full responsibility for anything that might happen afterwards with access to that information!

Let’s imagine that you are a smart kid. You have read a bunch of books about entrepreneurship. You have listened to a bunch of lectures about the subject. You have been acknowledged as one of the best students in the class. You have seen great opportunities. You have developed a promising business model. You have found resources: money, people, and so on. You are doing great! Except that you do not understand that having started something (a business) makes you responsible for all the consequences that come out of it.  If you do not understand that, you should be afraid of the unnecessary “business” that may come to you… business that not only endangers you, but more importantly me as a customer.  

I do believe that social entrepreneurship is a good thing, but I believe as soon as we start talking about responsible entrepreneurship we will see a significant increase in the social benefits our businesses bring to consumers. 

-Dasha

Confessions of a Drifter

Day 2 - January 27th, 2011

I walked slowly past these statues, observing their caricaturish facial expressions…

In all of the temples there was at least one monk guarding these spiritual palaces. They were much friendlier than the monk that had rejected us on the first night…greeting with a smile, bow of the head and clasped hands, wearing a brown over orange outfit… I imagined that some of these men would become Buddhist saints someday, and earn their place alongside Buddha, encased in gold forevermore for their extraordinary acts.

I’d heard of some pretty incredible tales about Buddhist monks: surviving without food or jackets for months in a cave during merciless winter—in a trance-like meditation; telepathy and telekinesis; a few Shaolin monks defending their monasteries from hordes of enemies with the bad-ass Kung Fu skills they’d invented.

These men had a reserve of spiritual power that I could perceive… I could feel their energy somehow just by walking by. I made a few friends among the monks, communicating with my more than broken (shattered) Mandarin, telling them where I’m from and that their temples were very beautiful.

-Seb 

Confessions of a Drifter

Day 2 - January 27th, 2011

After every hundred steps we would come onto a temple - sometimes they were simple, humble little enclaves within yellow walls; other times more extravagant, big wooden structures with pointed roofs, statues of Chinese dragons, colorful red and turquoise ornaments, with towering incense burners on the outside...

Visiting the insides of these temples was also awe-inspiring. There was always a golden centerpiece in front of the entrance—usually either Dizhang or a Buddha.

After the Teng Dynasty, most Chinese Buddhist temples honored the Chinese interpretation, also known as, 'future Buddha' in Indian Buddhism.  This is the Buddha I think we are all most familiar with in the West: a smiling face (happiness), long ear lobes (signifying longevity and long life, since the earlobes are the only part of the human body that never stops growing), and a big, fat belly (signifying prosperity). If you rub it, it brings you good luck!

The Buddha statue is almost always accompanied by a statue of the 'defender of Buddhism' (a scary guy with a sword), and by a series of 'Buddhist saints' - monks that held an important place in the history of Buddhism, but didn't quite make it to Nirvana.

-Seb