Tag Archives: china

Efficiency vs. Fairness – an interesting dilemma

Sometimes, there is a tension between the values of fairness vs. efficiency. It is a common theme in Dilbert, where well-intentioned company policy leads to something ridiculous in a particular situation. We all encounter it from time to time, when we struggle to strike the right balance between same-for-all and right-for-this-situation.

This is an aspect of the cultural dimension that Fons Trompenaars calls “Universalism/Particularism” (or What is more important, rules or relationships/the specifics of the situation?). I believe that each individual’s work culture to a large extent is based on the relative importance of values.

Some people value the rule and the principle of fairness more – and are willing to accept a negative outcome for some specific cases. Other people truly value the individual particular situation more – therefore they feel that rules are there to guide but not to stifle judgement and wisdom.

On a train ride this week, we hit into this dilemma when we took the 263 train (Beijing->Ulaan Baatar).  The 16 wagon train was almost empty. According to our wagon attendant, less than 30 passengers. This is supposedly typical for this season. The train is full in July, but the rest of the year there are plenty of empty berths. The lowest occupancy was last year in December when they drove once the whole way from Beijing to UB with only five passengers. More tourists do go the other way, but even in that direction it is quite empty in the train. Sometimes more personnel than passengers. This time, we were five passengers in our whole wagon.

Our wagon attendant explained that:  “The agreement between the governments mandated that they would always drive 15 sleeper wagons and one restaurant wagon, twice per week in the winter and three times in the summer. And since it is an international agreement – it is important to be fair and honor the agreement.”

Lifting the wagons to change the boogies.
Lifting the wagons to change the boogies.

We spent 4 hours to change boogies (wheelsets) on all 15 sleeping wagons at the border crossing between China and Mongolia. We could have used one or two wagons, and be finished in 30 minutes.

The reason for changing wheelsets is due to the rail gauge – the distance between the two rails. The railway connection between Ulaan Baatar was built in 1956, during a time when the Soviet Union had a strong presence in Mongolia. Therefore, the train tracks in Mongolia follow the Russian standard, which is wider than the Chinese standard. It was impressive and weird to see the wagons lifted up and the boogies rolled away to be replaced with a slightly different width. This boogie dance went on for hours, in the middle of the night – and we were waiting for our passports to be back from the Chinese border police. It was indeed a relief when the adjustments were completed, the passports retrieved and we could glide away into the Mongolian night to cross the Gobi Desert.

 DSC03002 DSC03003 It is an amazing waste of time and energy to do this boogie-changing. Especially for all the wagons that are almost empty. I was crying deep inside my passionate Lean-heart to see all these people doing useless work with excellent execution. There are so many important value-adding jobs out there!

Do you encounter dilemma’s of fairness vs efficiency in your job?

How do you deal with the dilemma of fairness vs efficiency in your organization?

What legends do you have about heroes in the past who broke corporate guidelines to do the right thing?

Air Quality (cough, cough)

The first week of November has been shrouded in a hazy smog. All over Shanghai, the sunshine is dissolving into a colorful sky. It made me want to look at the numbers. It is bad, but how bad?

First of all I looked at the NOx satellite maps from the research institute in Heidelberg. They have published global maps of their measurement results. Up until the 90’s, the nitrogen oxide concentration was the most common metric for air pollution. The NO2 molecules can turn into nitric acid and acid rain.

Global NOx Air Concentration. Holland is close to Shanghai.
Global NOx Air Concentration. Holland is close to Shanghai.

But NOx is not everything. Today we can set up measurement stations to measure particulates (PM2.5/PM10), ozone, SO2, NOx etc, and calculate an “air quality index”.  A few years ago, the American Embassy started to publish air quality measurements on-line, which led to a diplomatic fight. After many rounds, in January 2013 the Chinese government agreed to the publication and started to post data from hundreds of measurement stations all across China. All our Chinese friends have smartphone apps that display the current Air Quality Index. Today it was 224. “Very Unhealthy”.

Air Quality Index smartphone app. We can follow the levels hour-by-hour.
Air Quality Index smartphone app. We can follow the levels hour-by-hour.

There is also an interesting website that publishes air quality across the world, wherever measurements are available: http://aqicn.org/

Air Pollution in Shanghai Real-time Air Quality Index Visual Map - Mozilla Fire_2013-11-08_21-54-38
Shanghai air pollution right now, Friday evening 8 November 2013. (We live next to the 158 sign, center right).

So, what if we compare to other polluted cities, like Amsterdam or New York?

Amsterdam/Rotterdam areas today.
Amsterdam area, and some Antwerpen 8 Nov 2013.  Very few measurement stations in The Netherlands.
New York Air Quality 8 Nov 2013.
New York Air Quality 8 Nov 2013.

Unfortunately, I could not find a live station in my old hometown Gothenburg, but a report stated that the year-average is 15-20 there.

The fact that numbers on air quality are published creates public awareness and political pressure to improve the situation in China. I predict a legal ban on petrol cars in the biggest cities within five years. Just like there was a ban on petrol scooters 10 years ago.

Today it costs nothing to pollute. That is a problem. This is arguably the most important challenge for Economy as a “science”, to create metrics for “externalities” and to find ways to measure and control destruction.
Part of the price for “Made in China” is the health effects and the environment impact here.
Next time you buy some cheap stuff, remember who pays.

Death rates due to urban air pollution, from WHO.
Death rates due to urban air pollution, from WHO.

Getting to No

In the West, there is a very popular management book about negotiation that is called “Getting to Yes” by Ury, Fisher and Patton, indicating that the most difficult aspect in a discussion or negotiation is to get agreement. In China, the challenge is the opposite. As I learned from my friend Linus [with intense Guangzhou experience], yes can mean many things:

A Yes is a Yes is a No? (picture from http://efc.web.unc.edu/files/2013/04/Yes-No-Blog.jpeg)
A Yes is a Yes is a No? (picture from http://efc.web.unc.edu/files/2013/04/Yes-No-Blog.jpeg)

“Yes, I understand and I agree and I will execute immediately.”
“Yes, I understand but I do not agree”
“Yes, I hear that you are speaking, but I do not understand”
“Yes, I am still alive, but I have no clue what you are talking about”
It is not very often the first one, and unfortunately not the second either.
Therefore, asking yes-no questions are of limited use in China. [footnote: I understand that this is similar all across Asia, but I do not have enough first-hand information about other places. In Japan I had this much less, but I did not spend much time there.]
Quite a few times, I have found myself asking yes-no questions, always getting yes, and scratching my head afterwards with puzzlement and disappointment why it did not work out as we had decided. “Will you finish the report before Friday? – Yes.”

The words “yes” and “no” have no direct synonyms in Chinese. Therefore, the best translation into English of how a Chinese would answer a question from a boss is: “Yes,….”, which means more or less, “Ok, …”. The negatively posed questions are especially tricky, like “Will that not work out?”.

The way to get around this linguistic artifact is to pose a different set of questions, sometimes called open questions: “When will the report be finished?”, “What do you need to finish this on time?”, “Which problems could arise?”, “Why are you convinced that this will work out?” etc. etc.

I have hit my head so many times, that I am getting allergic to “yes”. Whenever I realize that I accidentally placed a yes-no-question in the conversation, I regroup and launch a new question based on what, and I try to forget the first answer. It is not easy, and I still often run into the trap, but it is getting better and better. It goes both ways. I get better at crossing the inter-cultural chasm, and my Chinese engineers find new ways of reaching out in my direction. We try to work with humor and laugh at our misunderstandings, but it is never easy.

The challenge is: Getting to No!

China Innovation

China is famous for cheap manufacturing. We all have stuff at home that is Made in China.
Acceptable quality at an attractive price. Like your iPhone or your garden parasol.
This is obvious for everybody.
What is harder to see from the outside is that innovation is bubbling in China. Contrary to popular belief, there is a lot of new thinking going on here.

  • Low start-up cost for companies and production
  • Fantastic E-commerce infrastructure
  • Plenty of people with nothing to lose
  • A lot of people with cash to spend

Setting up the legal structure of a business is very simple in China, especially if you are Chinese. Low cost for the initial establishment reduces the cost for expensive bank loans and lowers the threshold and the risk for the founders.

The Taobao/AliPay platform makes it easy and cheap to show your products to an audience of a billion internet users in China. Taobao is a combination of Ebay and Amazon – a strong platform for displaying goods and allowing the users to order what they need. The AliPay platform is a banking layer that channels the money from buyer to seller, like PayPal but better.

I would like to give an interesting example of this.

The solar-powered-bicycle-tail-light. It is a combination of existing technologies into a new product that I have never seen before. Solar cell + Battery + LED lights = maintenance-free light for my bicycle. It is obvious that the value is that you wont have an empty battery when you are heading home in the dark.

Solar powered rear light for bicycle.
Solar powered rear light for bicycle.

This product is available on Taobao.com for 15 RMB + 5 RMB shipping. (total cost to the consumer 3 euro/4USD).

 (and for consumers outside China, check out AliExpress, $50 for 10 pcs, free shipping)

One question is then, how about IP protection, patents and copyright law? Is this product infringing on some smart American inventor’s patent?
Actually, no. There is a patent for this product, filed 1990 in Korea and China by Yu Gunjong and Kim Yonggab at Yukong LTD. The patent has expired and everyone is allowed to make and market this product.
There have come a host of newer patents, mainly from Chinese inventors in the last five years for new functionality.

Innovation is booming in China – and all of society enjoys the benefits!

The Car that Changed the World (part II)

A new car has been born. In the Shandong backwater province, halfway between Shanghai and Beijing, a revolution is unfolding.
This will change the world. Again.

Ten years after the unexpected success of Chery QQ, a new generation of cars is being created. Light weight, compact cars with 100% electric drive.
By radical re-thinking of how cars are used in cities, they have developed a concept for mobility based on medium speed (<80 km/h) and very low weight (<500kg). This makes it possible to use all the technology from the electric scooter revolution.
By re-using these mass-market components, reliability and low cost is achieved. A complete electric car is yours for less than 2500 euro.

(In 2002 petrol scooters were banned in the 10 largest cities, and a mass-market for electric scooters was created almost overnight. Today there are more than 100 million electric scooters on the streets in China, and the price has dropped to 90-200 euro, depending on model. More about this another time.)

The electric carlets are officially recognized in Shandong province, where the first wave is rolling out.
In other provinces they are popping up like mushrooms.
However, there is no nationwide launch planned yet. The legal boundaries are still murky whether it should be counted as a scooter or a car. As soon as this is clarified I predict that there will be another hundred million electric vehicles on the streets a few years from now.

Electric 2-seater (hyev.com)
Electric 2-seater (hyev.com)

(www.hyev.cn)

Most traditional car-makers in Europe and America are attached to all the ideas and concepts of what a car must be, with comfort and gadgets and a powerful engine. The modern car is developed for a suburban environment. Large loading capacity and higher speeds were necessary.
However, since this year, more than half of the planet’s population live in cities where speeds are low and space is limited. Therefore it is imperative to look for new solutions to the mobility problem, and an excellent proving ground is China, where hundreds of millions of people would like to have something better than a scooter.

Of course a 450kg thin-steel-and-plastic car will not survive a head-on collision with an SUV, so safety is a concern. However, an enclosed compartment is probably better than an open scooter. It all depends on what you compare with. And sooner-or-later we should probably separate traffic by weight.

Electric four-seater "SMRT".
Electric four-seater “SMRT”.

This year, city air quality and air pollution has come to the top of the political agenda due to the fact that the municipalities have started to publish the air quality measurements on-line. Everyone I know has an App on their smartphone that displays the air quality index. The school of my kids keep all children inside during recess when the levels are particularly bad.
I strongly believe that these light-weight mini-cars is part of the solution. If Beijing would ban petrol engines inside the ring-roads, the local air quality would certainly improve.

I dare the European Union to ban petrol scooters. I dare you to endorse these electric mini cars.
Europe should not miss this round of mobility revolution!

Family electric car from Haima.
Family electric car from Haima.

The Car that Changed the World

Chery QQ - the car that changed the world
Chery QQ – the car that changed the world

I am convinced that Chery QQ is the most influential car from the last 10 years.
“Which car? Why did I never hear about this one?” I hear you thinking.
Still they have produced more than a million of these cars in the last few years.
This year, Chery was exporting more than 400,000 cars to Asia, East Europe, Africa and South America.

Some background first. Chery started out as a license-producer, making Seat cars in 1999, in the backwater town of Wuhu. Nobody noticed. At that time, there were ten car factories in China, most of them 50/50 joint ventures with Chinese government owned car plants with multinationals. Most successful ones were First-Auto-Works-VAG producing Audi in the north and SAIC-VAG “SVW” producing Volkswagens in Shanghai.
Ten years ago, in 2003, when the story begins, cars were quite expensive in China.
It was a very profitable, but small market, dominated by a handful players – all joint-ventures with foreign companies.

When nobody was looking, Chery launched a car on the market with a very low price under their own brand. It was a rip-off/copy/shanzhai of the Daewoo Matiz/Chevrolet Spark, but at an even lower price.
Here was a small four-seater at a price HALF of the second cheapest car on the market.

Within a year, car prices fell with 30% all across China in response to the very low price alternative of Chery QQ.
After two years, Chery was exporting hundreds of thousands of cars across Asia.

There has been much media attention in the last five years for the Tata Nano, the affordable micro-car that would raise the living standards of the masses.
However, it has been a commercial fiasco. Millions of dollars invested, and sales are less than 10,000/year.
In reality, the real affordable microcar, giving automotive power to more than a million families across the world is the Chery QQ, starting at 2,100 euro.

The second effect of Chery QQ is the snowball effect. They showed the world that anybody can build a car. If they can do it in Wuhu, Anhui, they surely can do it in Chongqing, Dalian, Shenyang and Wulumuqi, right?
There is a lot of prestige in car-factories.
Every governor of a province in China wanted to have his own car factory.
Therefore, starting in 2005, there have been car plants sprouting out of the ground all across China.
The new thing is that all these are fully owned Chinese companies, some private but most are partly owned by the province/municipality.
Today there are 38 Chinese brands of cars, most of which have not yet been signalled outside of China.
The innovation is bursting and new variants of small, medium and large cars appear every month.
There is an enormous overcapacity, which drives the prices to the bottom, so there will be consolidation in the coming years.

The coming ten years will be the Decade of the Chinese Car.

Cash from Bricks

How to turn clay into cash – an introduction to monetization.
 – or why there are forests of empty apartment blocks around every city in China…

One fantastic part of the China Story today is the way the liquidity was created. According to the legend, Deng Xiaoping sent out a group of economy whiz kids on a Journey to the West to figure out where all the cash was coming from. They returned with the surprising observation that alot of it came from houses. On average, houses and other real estate in the West had a hypothecary loan to half of the property value. This is considered a low-risk loan, so the interest rate is low, close to zero, when compensating for inflation. This money was available to the house owners as “free cash” to buy cars and televison sets. Remember, this was in the end of the eighties.

Unfortunately, there were two obstacles from duplicating this in the China setting:
1. All property was owned by the state, who would not have any benefit from the liquidity.
2. The valuation of the houses was very, very low.

Therefore, the China government set out on a plan to eliminate these obstacles, and introduced a right-of-use ownership-light for real estate in the city areas. Formally, the right-of-use is temporary for 70 years, but most observers think that it will be extended into real ownership. But anyway, who knows what the world will look like in 2060?

The next move was to increase the valuation of the houses. This was done in a way that is not well reflected in the press coverage in the West, by eviction compensation. Whenever a motorway was built, or a Hutong was razed to give space for a shopping mall, the previous residents were paid a generous compensation. The logic was that the government only needs to pay one house-owner a good compensation, and then automatically all the houses in the neigbourhood would be worth the same or more. A driver of a friend in Beijing cashed out a million RMB for a shed, and used the money to move up the value chain and started a transportation company.

It has worked wonders. Real estate prices have soared with 15-20% increase year after year for decades, and a deluge of cash has resulted in a flood of iPhones and Audi cars.

Unfortunately, it has now gone too far, as clever entrepreneurs have found ways to abuse the system. What we see now is that you can build a house for a million, and get it “valued” to 10 millions. Then you take a 5 million RMB hypotecary credit with low interest rate, as the amount is only 50% of the house value. For the money, you can pay back your first inserted million, and you have four millions for consumption. Or for repeating the trick and building four more houses. Cash is generated, even if nobody lives there! Around every Chinese city, there are thousands and thousands of houses standing empty, in some areas whole cities without inhabitants. It has been a terrific boom for everybody selling bricks, glass, construction machines and door handles.

Two cornerstones of the scam are the shortsighted valuation process and the lack of transparency at the banks. Both these processes are completely opaque and there is really nobody who has a short term interest in slowing down the dance. This year it is slowing down a bit, as the government is trying to reduce the craze, without killing consumption. Good luck!
– afterthought -
I think that this scheme leads to a huge waste for the society, especially since many of the houses are poorly built and will have to be torn down, maybe even before somebody has ever lived there. On the other hand, ten million people move in every year from the countryside to the cities, and as most of the statistics are secret, it is hard to predict how long time it will take to fill up the houses with migrant workers.