Air Quality (cough, cough) November 8, 2013Posted by gorancson in Uncategorized.
Tags: air quality, china, environment, sustainability
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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.
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”.
There is also an interesting website that publishes air quality across the world, wherever measurements are available: http://aqicn.org/
So, what if we compare to other polluted cities, like Amsterdam or New York?
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.
Getting to No October 22, 2013Posted by gorancson in Uncategorized.
Tags: china, culture, leadership
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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:
“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 October 20, 2013Posted by gorancson in Uncategorized.
Tags: china, innovation
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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.
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) March 4, 2013Posted by gorancson in Uncategorized.
Tags: cars, china, innovation
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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.
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.
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!
The Car that Changed the World February 22, 2013Posted by gorancson in Uncategorized.
Tags: cars, chery qq, china, innovation
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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 August 31, 2012Posted by gorancson in Uncategorized.
Tags: china, idea, money, real estate
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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.
The Red Wine Cooler August 23, 2012Posted by gorancson in Uncategorized.
Tags: china, innovation
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Living in China is fantastic. One of the priviliges is to experience the optimism of fearless innovation and exploration of new niches. I often see products that I did not know that were needed, but that perfectly fit someone’s needs. It really opens my thinking.
Last week, one of my Chinese colleagues told me that he had bought a red wine cooler. I thought he had misunderstood the concept, and I told him about the 6 degrees centigrades for Champagne Brut, pretending to be something of a connoisseur. Tactfully, my colleague told me that he already had one of those, but now he had felt a need to keep his Bourdeaux at 18 degrees. Living in a flat with intermittent air-conditioning, where the ambient atmosphere approaches 40 degrees, it is a challenge to serve a ruby red at a delectable temperature.
After learning that this product exists, I could not appreciate the Syrah last night as much as I did before. The warmish fluid got the sourly tones exaggerated and the aroma was overwhelming.
Would I be better off not knowing about the possibility of having the reds at the perfect chill? It is tempting, a 12-bottle holder is only 488 RMB (60 euro) on Taobao.com.
I will be considering for myself whether or not to purchase one, weighing the cost and environmental impact on one hand, and the luxury of knowing that a perfect bottle of Las Moras lies waiting for the next barbeque on the other.
Internet is SO Limited in Europe March 4, 2012Posted by gorancson in Uncategorized.
Tags: china, great firewall of china, internet
“Internet is SO limited in Europe!” was what one or my Chinese trainees told me after a few months in Europe. “Nothing works!”
He was used to listen to music – and download mp3′s- for free from google.cn/music and ting.baidu.com. At a computer in Europe he gets the message “This service is not available in your location” – a regional IP blocking. – you can try yourself!
I can testify that the music services in China are much better and cheaper and easier to use than Spotify, and they have essentially all artists.
These are no shady sites run by lowly criminals, but by the top global internet companies like Google and Baidu.
There has been much writing in Europe about the Great Firewall of China, which is blocking foreign news and media. In fact, there was a lot of blocking back in the 1990′s, for ideological/political purposes. However, now I think that most of the blocking is for commercial purposes. Websites with great revenues, e.g. Facebook, are blocked, and a Chinese equivalent is available for the local market (renren.com). Most Chinese have most friends in China anyway, so for the vast majority of the population here it is not a problem. And the revenue goes to a businessman in Hangzhou instead of to Marc Zuckerberg. Same with Twitter, YouTube etc. (It is probably completely in contradiction to the WTO treaties…)
This is why many expats in China have a subscription to a VPN service to tunnel through the firewall to get to Europe/US to access these sites.
However, there has not been much writing about the Chinese abroad who have a VPN subscription to get IN TO China. With a VPN into the China-internet, they can enjoy the freedom and luxury of the China-only Internet Media Services.
Book Review: River Town January 19, 2012Posted by gorancson in Uncategorized.
Tags: china, culture
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Living in China is never boring.
Peter Hessler wrote a book about his two years as a US Peace Corps volunteer (English teacher) in a small town on the Yangtze river. Hessler has a phenomenal skill in bringing to life the moments of laughter, pain, shame and frustration that inevitably arise. The self-effacing style of vividly depicting his own shortcomings make the story more personal and intimate.
It was a different world in the end of the nineties – almost no internet and telephone fees were exorbitant, so the isolation was stronger. Nevertheless, many things are the same today, even in a world-city like Shanghai. So many things that I recognize from the last few months here; a common conviction that Chinese culture is the best culture, Chinese food the best food, uncritical party members, free thinkers in taxis, conflicting rules and regulations, meaningless garden maintenance, the exodus of farmers’ kids to the cities, the stupid personality of me speaking Chinese…
It is somewhat remarkable how openly the system is criticised and that Hessler was allowed to spend another ten years in China. Sometimes the government can handle criticism, sometimes not. As Hessler writes, there is no humour in the system.
Mr. China – Book and Idea Review November 23, 2011Posted by gorancson in Uncategorized.
Tags: business, china, culture, dreams
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This book is the fantastic story of Tim Clissold, spending 248 Million Dollars of someone else’s money in corporate industrial Joint Ventures in China in the 1990′s. Most of the money was lost forever.
Clissold narrates his adventures with the legendary Wall Street investor Jack Perkowski during some intense years, just as China was opening up to foreign investment. They got screwed in every possible way and I think that they learned more than anyone else. One of the companies I work with today is a reminiscence from one of the joint ventures in the book, so I feel much sympathy and gratitude towards the entrepreneurs who went in first in China.
The book is a collection of hilarious episodes of improbable encounters and unfathomable opportunities, painted with a backdrop of tragedy because we know that this business will fail too in the end, despite the heroic efforts from the team to make it fly.
He describes in a very personal and revealing way the dream that many of us nurture, to become “Mr. China” – the one who knows the mystic ways of the Middle Kingdom. I was also seduced by the magical characters that turns any street into a mystical land when I walked around in Beijing in 1994. 厕所 looks so much more exciting, promising and spiritual than the sign “WC”. In my eyes, it could just as well be the entrance to a lost Buddhist temple, if it weren’t for the smell of course.
But the point that he makes is that we want China to be special. I think this is very important. We want to be seduced and mystified and to stop thinking. We want to believe that all Chinese are spiritual and long-term-thinkers and different from us.
In the end, we are all humans, and I am deeply convinced that the similarities are larger than the differences.
Plastic Policeman September 10, 2011Posted by gorancson in Uncategorized.
Tags: china, culture, travel
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On the cover of the excellent “Country Driving” by Peter Hessler, there is a photograph of a plastic policeman along the road in a desert plain of North West China. It looks so silly, with a life-size replica of a policeman staring straight in front of him on an empty piece of road. Why would you do that? Would it incite the drivers to hit the road in a more responsible fashion?
Is a policeman just a symbol, a puppet in a ritual?
In Shanghai I never saw this, so I thought it was only something done in the deserts of Gansu. Until one day, a few weeks ago on a holiday to Jiuzhaigou, Sichuan, when the plastic policeman appeared at the corner of a winding mountain road. And a kilometer further on yet another one. And another one.
The plastic policemen were guarding the bends in an otherwise desolate forest, surrounded by mighty spruces and grazing yaks, adoring the scenery.
Larger Desk is Better September 8, 2011Posted by gorancson in Uncategorized.
Tags: business, china, culture, power
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We are starting up the R&D center in temporary offices inside of one of our factories, while waiting for the new building to be ready. Due to the expansion, we needed to set up some new cubicles etc, to pack as many as possible into the new space. One in my team was leading the layouting and communicating with the suppliers of cubicle furniture and office equipment, and I was following up regularly.
All of a sudden, the four-seat cubicle, where I had marked my desk as one of the twenty or so similar ones, was transformed into a larger three person cubicle, where two of the seats were traded in for a large woodden desk.
“This is better for us”, was the response. “Then the people from the other departments see who is the boss.” And the larger the desk, the more important the boss. And that makes many things easier for my team.
This is something I have to get used to…
Starting to Work in China May 19, 2011Posted by gorancson in Uncategorized.
Tags: business, china, culture
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Shellshocked after two weeks of frenzy at the office and home I am now starting to get back on the ground. Fortunately I have two more experienced guys from the European organization in my team whom I can lean on when things get strange.
First thing that happened was that our office was full, so we need to move to another location in the same building. Fortunately, due to other circumstances, we could only start the moving after four weeks, so there was a few days of slack to do layouting of our new premises. We have a completely cubiclized floorplan, and I would take a seat like everybody else. However, all of a sudden, the proposed layout from the cubicle-carpenter’s side included a broad dark desk instead of a cubicle seat where I had indicated that I would sit, occupying at least two seats, maybe three.
As my Chinese colleagues put it: “Otherwise the people from the other departments do not know who is the boss. It is better this way.”
I trust them. They know what works and what does not here in the land of influence. The crab has his ways and the shrimp has his, as one of my colleagues put it, while explaining why a certain procedure did not work as expected. There is a positive and a negative side of this flexibility, I guess, but so far I have mainly seen the plus side.
There are lots of things to fix both at the office and at home, one thing at a time. Our hot water stinks, for instance. It smells of glue. There have been five people watching, checking, tasting, discussing and not doing anything. I need to find an expert, but it is not so easy. I am sure there are hundreds of qualified people who could fix it, but there are twenty five million other people in town who cannot. Fortunately, I often have good help from my local colleagues, among others to get supplies via Taobao, 360buy and Newegg. Mother’s Day is better with a new Saeco Espresso Machine, directly delivered to our home (Well, to be honest I ordered it late and it was not really on time…). I hope my colleagues can also find a suitable plumber to fix the hot water. In the meantime we smell of glue after every shower.
Country Driving – Book Review April 19, 2011Posted by gorancson in Uncategorized.
Tags: china, driving, factory, Great Wall, village
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Peter Hessler spent years in China, first for the US Peace Corps and then as a journalist and a writer. This book is a collection of stories about three of his adventures: Driving along the Great Wall, Renting a week-end house in a village north of Beijing and following a bra-supply factory in Zhejiang.
The Great Wall is tracked and traced both with the vehicle and throughout history. This artefact of Chinese Imperial defence is often used to symbolize lots of things – anything that is positive and Chinese. However, the real stories behind the building of the many walls and fortifications in Northern China are not often told. Hessler sheds some light on the multitude of walls and on life along the edge of civilization. Almost abandoned towns called “Butcher-the-Enemy” enjoy a visit of the tall American in his rented Chinese Jeep. Almost seduced by a drunk Mongolian guide in a fake museum about the “Great Chinese Hero Genghis Khan”, Hessler escapes to continue the tracks.
The village north of Beijing goes through a fantastic transition during the years that Hessler spent there. He recounts of local Party committee politics and the rise of economic activity and tourism. The road even got paved all the way! The change in lifestyle and food patterns come at a breathtaking speed and many struggle to keep the bearings.
Hessler describes his joyful weekends with hiking along the trails in the mountains and recovering from the Beijing bustle in this mountainous hardship resort. It is very inspiring to see what possibilities exist outside Shanghai!
The third story is about a factory producing bra-rings in Zhejiang. Cunning engineers and ingenious entrepreneurs push the limit of everything they can to press out a profit in this minuscule segment of the global supply chain.
The stories come interweaved with anecdotes about driving in China. Many stories could sound strongly exaggerated were it not for the fact that I have witnessed many similar situations just in the past year. Backwards driving from highway ramps, overtaking everywhere and crossing double lines… Going to work I sometimes feel like I am inside a computer game like Grand Theft Auto, where cars are moving like crazy. It is often scary, but so far so good…
Factory Girls – Book Review April 14, 2011Posted by gorancson in Uncategorized.
Tags: book review, business, china
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This is an extended reportage book about the migrant population in south China. Leslie Cheng ventures south on business from Wall Street Journal writing articles and collecting memories which are later used to build the story of this book. It is a compelling mix of autobiography, where Cheng searches for her own Chinese-American roots, modern history account and intimate portraits of the lives of some random individuals turning friends over the years.
It is hard enough to understand the staggering numbers of migrant workers: Each year 10 million move from the countryside into the hundreds of swelling million-count cities across the coastal provinces of China. The last 30 years it adds up to 300 million. Even more difficult is to imagine what it means to the individuals in such a malstroem of new jobs, houses, foods, purchase possibilities.
The timescale of a career is measured in years, not decades. Education and specific professional training is hard currency and payback time is counted in months. The teachers today were novices a year ago. The building where the training is held did not exist last year.
Chang shares her encounters and reflections upon what it means both for the individual and for society. The incidental individual experiences are recounted with a backdrop of research about the bigger picture. It is deeply enjoyable to read, I could not help but laughing out loud while reading the chapter about the English-teaching machine. At the same time I learned a lot about contemporary China. One of the books that Chang describes, “Square and Round”, was referenced yesterday by a Chinese colleague, and it helped me a lot to understand some office politics thanks to the introduction given in this book.
The lemming trek from the Chinese rural plains into the exploding mega-cities will continue for years, so the book is likely to stay relevant for a long time.
Idea and book review – Cost Innovation April 11, 2011Posted by gorancson in Uncategorized.
Tags: business, china, cost innovation, innovation, manufacturing, price
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Ming Zeng and Peter Williamson have researched the phenomenon of Chinese low-cost high-performance products. Twenty years ago, that was a paradox, almost a joke. However, not many are laughing at Maytag Refrigerators when the Chinese Haier delivers superior quality and broader product range to a lower price. The same goes with upcoming world players like Huawei, the world leader sea-container producer CMCI etc. They wrote an intriguing book about it: “Dragons at Your Door”.
The recurring pattern is that these Chinese companies are able to manage products and production in a flexible way to achieve mass-production costs (low cost) with a broad range (low volume per product type). Zeng calls it “Cost Innovation”. Part of the cost advantage is of course the lower salaries and lower taxation in China, but after comprehensive research, the authors conclude that this is of minor importance. More important is that the manufacturing system is designed for flexibility and low capital investment. Furthermore, the product development is fully adapted to the manufacturing capabilities: The standard question is “what variants can we make with no change of machinery?” In a sense, most innovation has been in manufacturing and in organization structure.
[As a contrast, at my company, we are setting up a product development center thousands of kilometers away from the nearest factory. The research center is in a different country far away from any manufacturing site. The interaction between product and production is minimized, which sometimes leads to miscommunication and delays. We have some things to learn from our Chinese competitors! ]
Zeng shows in a convincing way that the Chinese companies have been able to catch up quickly thanks to modularization and standardization of components and technologies. A key question is what happens right now when these companies take the lead in their respective niches? One of the recurring newslights in the last year have been acquisitions of medium sized European technology companies by cash-heavy Chinese competitors, to get access to brands, technologies and market channels. Is this incidental or will it continue to increase? We will see…
Thanks to the authors unique insights in the researched companies, the book is full of concrete examples how specific problems have been resolved in innovative ways – very inspiring!
The Gas Station in China April 4, 2011Posted by gorancson in Uncategorized.
Tags: business, china, price
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Look at the picture and see what is different from any gas station you are used to from Europe or the US or most places in the world. Of course the Chinese characters are different, but that is mere cosmetics.
I think the most interesting visual item of the gas station as a roadside landmark is the absence of price. It is nowhere written how much the gas costs. Because it is the same everywhere.
In Sweden, where I grew up, the gas price varies around 5-10% between different gas stations, and it is a convenience trade-off, whether to take the full-service gas station along the highway with it’s cozy shoplet, or to stand in the wind at the JET station with no human being in sight. Convenience for cash, as the universal trade-off.
Not in China.
The ministry sets the price for each type of fuel, and that is that. No matter if it is a Sinopec, CNOOC, or any other “branded” gas station, the price is not theirs to determine. Therefore, neither for the customer or the gas station owner, there is any interest in displaying the current gasoline price.
One Billion Customers – Book and Idea review February 17, 2011Posted by gorancson in Uncategorized.
Tags: book review, business, china, organization
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The wet dream of every retailer – a single market with one billion craving customers – is shredded to pieces by McGregor in his witty account of his own adventures during twenty years as journalist and business leader in China. The concept of a “market” as it is traditionally used implies that it is easy to move goods around at a low cost and that the customers are a somewhat homogeneous group. China is more like a continent with vast cultural, legal and physical differences which makes the unity of the market an illusion – a fata morgana luring at the horizon with uncountable riches.
McGregor experienced from the frontier the intense power struggle between government agencies, the party, market actors and local chiefs. All scrambling to get ahead and to increase their influence. His accounts of his own experiences are the most hilarious and warmhearted parts of the book. However, the many likely hiccups are not explored in great detail. I think it is a difficult dilemma while writing a book like this. On the one hand, including personal weaknesses and failures makes the book more interesting. On the other hand, the author wants to look like a leading expert and resourceful adviser – the book serves as advertisement for his own consultancy services. We all want to believe that the advisers we hire are fault-free and perfect, after all the fees are substantial…
I wonder what I would choose to present in an account of my own adventures near and far? Would I dare to include the intimate shameful moments of my own weaknesses? The mistakes and fiasco’s? Wasted money and time and naivety? I am not so sure. Probably I would pretend that everything was well planned and went smoothly.
McGregor weaves into the story the larger sweeps of modern China and a handful of illustrious examples of winners and losers in the wild-east era of the last decades. The story behind famous (in China) brands like Wahaha and Unicom gives a wonderful account how government relations can help and hinder but that the market pull is the real force today. It also shows that the organizational maturity of most companies today are in a similar position as the companies in the west were fifty years ago – completey dependent on the founder/leader. It is a lean and fast way of running a company, but with a single-point-of-failure, it is not robust. It is the startup-model.
An inspiring book and I am excited to experience first hand collisions with bureaucracy and government activities in Shanghai!
Book Review: Poorly Made in China January 6, 2011Posted by gorancson in Uncategorized.
Tags: book review, china, quality
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“Made in China” is transforming the world as we know it. When I walk into a hardware store, computer shop or shoeshack anywhere in Europe, more than half of the items are made in China. This was not the case when I was a kid! The export from China to the west is 100 times larger today than when I was a child (http://www.fas.org/sgp/crs/row/RL33536.pdf). Most my toys and clothes were made in Europe. I believe that this shift of production power and knowledge is one of the major events in modern history.
Paul Midler is one of the numerous players who have been enabling China to export their goods in the last decade, and he wrote an entertaining account of his experiences. Speaking Chinese and with an American business degree, he worked on the ground to help American importers to find manufacturers for their various goods. Midler shares hilarious anecdotes and sobering reality checks from encounters with the human traits of greed, naivety, disrespect and short-term thinking, both with the Chinese as well as the foreign partners. The book is written in an unusually open style, exposing the author’s personal impressions, which makes the story stronger and it is a joy to read.
From my own experience, I know that not everything in China is poorly made, so I have my reservations for the title of the book. However, there are structural problems related to short-term thinking due to e.g. unpredictability in the legal system and lack of transparency, which make the temptation to take shortcuts almost irresistible. There is still a lot to do before “Made in China” gets similar connotations as “Made in Japan” has today.
Book Review: The Coming China Wars December 7, 2010Posted by gorancson in Uncategorized.
Tags: book, china
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Peter Navarro: The Coming china Wars
Where they will be fought and how they can be won
Why is it that men like to read books about war?
When I was a boy, my favourite books were in sequence “Biggles in Finland”, “The Cannons of Navarone”, “The Lord of the Rings” (an epic war story), etc., etc... However, the more I learned in the army, the less inspired I am by the so-called heroes of the battlefield. The most paradoxical book on war I find “The Art of War” by Sun Tzu (Sunzi), which focusses on identifying conflicts and resolving them without battle. It repeatedly makes the point that war is horrible and counterproductive. Nevertheless, what led me to read the book was the title that allured to some primal male driver to learn the secrets to conquer and win.
Peter Navarro continues in this ancient Chinese tradition to explain in great detail where potential conflicts are likely to arise in the coming years, where China will be involved. Just like Sunzi, (but contrary to the official sub-title printed large on the cover), Navarro suggests way to resolve the issues to avoid war.
The conflict areas are too many to recount, but they range from environmental issues (water scarcity, pollution, land degradation and desertification) to social tension induced by demographics, income distribution and urbanization. Some darker sides include the growing HIV epidemics, international drug trade and counterfeited medication finding its way around the globe.
Navarro has chosen to research the problematic issues one by one, with numerous details and facts, which makes the book very convincing.
However, I think he misses the systemic structural problem in China today – the disfunctional feedback mechanisms in society. Due to the nature of the current political system, information is sometimes hidden behind layers of secrecy and distorted by propaganda.
Democratic societies have the advantage of transparency – many eyes look at issues and feedback mechanisms are in place to identify problematic areas and address them. It often works, but not always, of course.
In centrally controlled regimes, the well-intentioned planners only have access to part of the information and become a bottleneck in the dynamics. Even though they can act with more force and momentum, they are locked down by their relatively small numbers and the time delay in the feedback.
Some of the problems described in the book are related to resource depletion, which can be described by a typical first order differential equation with delay. The longer the delay, the larger the probability of catastrophic failure. One very readable book that describes the dynamics of resource depletion is “Limits to Growth”, by Donnela Meadows, published initially by the Club of Rome, which takes on a global perspective. I am sure that the same type of analysis can be done on China, and quantify the detrimental effect of the delay and distortion of the available information.
This year, the prices on grocery soar, to which the party officials react by blaming speculators. I doubt that is the root cause.
By knowing what is going on and increasing transparency, I think China will be able to tackle most of the issues raised by Navarro. )They could start by removing the block on the PeterNavarro.com website.) But not all can be handled by China alone. For the future of our planet it seems again that we have to collaborate and act on information!