RVs in China? Doesn't Make Sense

During my time “deep undercover” in Shenzhen, I saw that smaller Chinese companies really put an emphasis on foreign imported products, especially from Europe and the US. Higher class consumers have a lot of discretionary income and wanted the best products. This meant that imported goods were seen as the best.

This sentiment led a lot of small businesses to register their company, trademark their product and acquire businesses in Europe and the US. Now, businesses can claim that “this is a US product” even though Americans have never seen it. It doesn’t hurt that the RMB appreciation and depression of US/European asset prices are making things a lot cheaper.

China is a potentially huge market for many foreign products. Luxuries goods, cars, airplanes, vitamins, cosmetics, ect.  have all succeeded. This recent exuberance for the foreign products has quasi-blinded some business people in China.

One recent article I read in the LA Times titled "China has burgeoning market for RVs, entrepreneur says" made me laugh. 

China is hungry for the kind of recreational vehicles built in Southern California — at least according to the Chinese entrepreneur who struck a deal with a Riverside firm to build and export $5 billion worth of them.

The Chinese government has placed a focus on developing the RV industry as a cornerstone of the Chinese ideal of the happy home life, said Winston Chung.

"A family with an RV is a family more in harmony with each other," he said, speaking through a translator. "During vacations, people can get into the RV and enjoy quality family time."

Under Chung's agreement with MVP RV of Riverside, the company plans to manufacture the vehicles here and export them to China. However, Chung would not rule out moving operations to China in the future.

Chung spoke about the burgeoning market in China for the motor homes after a news conference with UC Riverside Chancellor Timothy P. White, where they announced Chung's $10-million donation to UCR's Bourns College of Engineering.

In an interview with The Times, a smiling Chung cheerfully detailed his plans to build and export 30,000 diesel-powered motor homes to China, and eventually to develop electric-powered RVs. Chung, 52, is the founder of battery maker Winston Global Energy.

The nascent Chinese RV industry has the potential for high profit margins, despite high taxes on gas-guzzling vehicles, Chung said. He added that the increasing value of the yuan, the Chinese currency, will make buying an RV more affordable for families. 

Yes. These RVs would be more affordable, but who would buy them?? Let's analyze.

• China has 1.3 billion people in a limited amount of space. People all live in high-rise apartment buildings to save space. Even those people who bought traditional American houses are squeezed together to an uncomfortable small area. There is just no room to park these things that would actually make sense unless its in a parking garage - but thats expensive.
• People in the US enjoy RVs for camping and exploring the country - esp in the midwest and western US. It takes advantage of the cheap(er) fuel prices and the interstate highway system with the comfort of your own hotel-room RV. In China, tolls for the freeways are very expensive and the gas isnt cheap either. It doesnt make sense to travel via RVs since trains, long distance buses and plane travel is so convenient and public transportation and cheap taxis are available everywhere. Also, hotels are cheap as well. 
• Mostly older people in the US have RVs. Chinese old people dont know how to drive.
• The people with the most RVs/Trailer homes in the US are for the poor. However, I dont foresee poor Chinese people choosing to live in RVs rather than their houses. 

To me, RVs just does not make sense in China. However, if Mr. Chung and his company, Global Winston Energy bought the company to cut costs and sell to US/Canadian consumers (just like Chinese car maker Geely bought Volvo), that would make some sense.

Otherwise, what are you thinking??

China's Electrical Cars

The New York Times reported today on the future of electric cars in China and the committment to consumer subsidies and investment in safety and technology. At the same time, I started to watch the first commericals on TV for the BYD electric car. How interesting...

China's (Optimistic) Future

During this current global recession and financial crisis, I've had many debates with fellow American friends living in Shenzhen on what will happen in China in the future. My friends (some of them have been in China for more than 5 years now and speak Mandarin fluently) often believe in a similar view as western media. 

"Chinese people let the totalitarian Chinese gov't rule in exchange for economic growth - at least 8%."

If this statement holds true, the current closures of thousands of factories directly linked to the export industry and the millions of workers that has join the unemployed poses a huge problem for the stability of the gov't and society in general. Recent unrest and footage of protesting workers have shown to be initial reactions of this issue. One of my friends even hypothesized that China will invade Taiwan just to distract the Chinese people and to increase nationalism sentiment.

I personally don’t understand where this "trade-off" between the Chinese people and gov't idea came from - because I disagree with it whole-heartedly. Although there have been riots - they have been relatively isolated and usually protesting justified inequalities perpetrated by local officials (often corrupt). In the video above, the toy factory closed unexpectedly and didn’t pay any of its workers. Is that the government's fault?

I personally see Chinese people as hard working, resilient people who have a history of getting through hard times. My parents lived through hard times with rationing and the Cultural Revolution where no one had anything. Just a few years ago, my hometown Harbin, didn’t have water for a week because of a chemical spill upstream that polluted the Songhua River. My extended family and grandparents still live there. Did people panic and riot? No. Everyone worked together to get through it. 

Look at the recent earthquake in Sichuan and the aftermath of that event. China is populated with people pulling together through hard times. In the absense of gov't help, villiagers banded together to help each other. People did what they could. While this happened, the gov't mobilized quickly and was on site immediately to help. Compare this to the 2005 Katrina disaster where the gov't didnt do anything for many days at the same time people were just waiting for people to "save them" at the New Orleans Superdome. 

The definition of a Chinese person's character is that he first blames himself before blaming someone else. He works to improve his own situation rather than waiting for the government to do something (Only when it’s too unfair do people take action). He is adaptive and stable. 

My outlook for the future China has always been optimistic. Here are the steps I foresee:

1. Although Chinese exports industries are getting hit hard; this is a natural situation that will realign the Chinese economy. Different businesses have already started to focus on selling their products, once destined for the US and Europe, in China.

2. The Chinese consumer, although not too confident currently, has savings and an ample appetite to spend. As Americans are riddled with debt and are saving more, Chinese consumers are still spending. Just walk around restaurants and malls and you won’t see any signs of recession here in Shenzhen. 

3. Migrant workers who lost their jobs are not going to riot. They are going to go home, start families, start businesses and live life. Less people are going to come back into the urban areas after Chinese New Year. In a recent report, China estimates about 20 million people have returned home.  Most people have made money in the past and have it saved up at home. And since living costs are drastically lower back in the smaller towns and villages, the savings go a long way. 

4. Thousands of 海归 (haigui - overseas Chinese) have returned to China - many with high level degrees. Since opportunities in the US, Europe and other areas of the world are gone, they have come back to China to find jobs. This will greatly enhance Chinese competitiveness and future development. 

5.  Local and provincial governments understand the importance of high tech industries as well as economically sustainable green technologies. This focus will help future economic prospects.

6. The government is trying to aid in everything it can. It’s helping small businesses get loans through banks and helping consumers spend with subsidies. More importantly, the Chinese stimulus package focuses on infrastructure projects that will greatly improve Chinese transportation efficiency. During the last Asian Financial Crisis, China's lead in investing in its infrastructure helped it sustain economic growth for more than 10 years. 

7. As the economy starts to realign away from exports, the Chinese gov't will slowly sell off US debt and appreciate the Chinese RMB to higher levels. With a higher RMB, China will then go buy even more assets all over the world to further its future development. 

The NBA Pushes on in the Chinese Market

The NBA is making a bigger play within the China market. It has announced a venture to build/renovate/create 12 NBA-caliber arenas in China over the next 20 years. There are only 2 NBA-caliber arenas in China currently, the Wukesong Basketball arena in Beijing (host of the Olympics basketball events) and the arena in the Macau Venetian hotel.

As reported on ESPN.com:

The NBA has formed a joint venture with Anschutz Entertainment Group to design and develop about 12 multipurpose arenas in major Chinese cities.

"We think of this over the next 20 years, not the next year or two," he said, adding some would be new arenas and others would be created by renovating existing facilities.

"You're going to see a combination," Leiweke said. "Most of them will be built and designed from the ground up."

"Where feasible, the arenas will be developed in conjunction with surrounding cultural and entertainment districts potentially comprised of restaurants, retail outlets, cinemas, hotels, residential areas, sports training facilities and smaller live entertainment venues," the NBA said in a statement.

The NBA already has a considerable footprint in marketing itself in China.

• Basketball is officially the most popular sport in China.
  
• US Basketball team members at the recent Olympics made a big marketing push in China to promote the NBA & USA Basketball
  
• It also has 3 Chinese-born players in the league, Yao Ming (Rockets), Yi Jianlian (Nets) and most recently, Sun Ye (Lakers) - all in big markets.
  
• "The NBA currently has relationships with 51 Chinese telecasters, including a partnership of more than 20 years with national broadcaster CCTV," the NBA says. This means NBA games are on all the time on Chinese TV.
  

Shezhen Investing $200 Million in Vietnam

For the past year a lot of factors have been hurting Shenzhen factories manufacturers.

1. Huge increases in the cost of commodities, from plastics to iron and everything in between
2. Inflation in China
3. Appreciation of the RMB - making products less competitive when exporting to the US
4. New worker standards in China = higher wages for the same jobs
5. The inability to pass the rising costs to the clients overseas
6. Tax breaks and customs tax rebates to Chinese companies exporting internationally have been repealed

All of these factors have severely hurt once profitable businesses into lagging money-losing enterprises. The owner of my new apartment i'm renting in Nanshan is a part owner of a factory who does business with western clients like Walmart. He said that every month he loses 400,000 RMB on workers salaries and factory overhead costs. However, if he actually worked on any orders, his loses would INCREASE to 600,000 RMB. He loses money if his factory makes product. This means that the factory stays idle while he and his partners look for new sources of income.

In the west, companies are already exploring other sources of low cost labor. Vietnam is supposed to be the Next Guangdong province. A lot of foreign companies have already left China for greener pastures in Vietnam. Realizing this trend, Shenzhen is taking action. In a recent Thanhnien News article, Shenzhen is reportedly investing $200 million in a economic trade zone.

The park, 125 kilometers from the Vietnamese capital, aims to attract 170 Chinese manufacturing companies in the clothing and electronics industries to take advantage of the country’s cheap labor and the government’s preferential policies and tax incentives...

So it seems, not only are western companies leaving Shenzhen for more inland provinces and other southeast asian countries, so are Shenzhen factories themselves. Maybe in a few years, the same factories will be doing business with the same clients only in Vietnam instead of Shenzhen.

I'm Back

It has been exactly 6 months since my last post. Wow, long time.

I would like to first apologize to my readers（atleast I thought I had a few) for my absence. However, I do have an excuse. I started a business with a friend in Shenzhen. So instead of having the ample brain capacity to properly write a blog and worry about our business (constantly), I prioritized my commitments and made a decision.

Not that the business has been created and running with less time commitment, I now have enough time and mental energy to restart my blog.

Here, my goal is to focus on observations, (as I did before) as well as current events and running a small business in Shenzhen.

Inside the toy recalls: Mattel's sins

It's been a few weeks since the Mattel toy recalls first started. Since then millions of toys have been taken off the shelves all over the world, a Chinese factory owner hung himself and the "Made in China" name is being dragged through the dirt in the US media.

Just about everyone in the US has jumped on the hating. There have been countless examiniations into the saftey of everything China makes and an unseen fervor has developed. Democrats and Republicans alike are attacking China as the now "irresponsible" global production machine.

While I can not make any statements regarding food recalls or underware, as a person who has worked in the toy industry (my job was to liason between the factory and the US design staff), I see this situation really clearly:

It isnt really the Chinese company's fault!

During the design process, there are a lot of considerations for safety. Only certain materials could be used for certain aged kids and the spacing between motorized parts had to be a certain width. Above these basic restraints, all of our toys had to pass a RoHS standard. This applied to the entire packaging, the paint, the materials used, the parts, everything. Before being able to ship any toys, we had to submit them for testing at a hong kong third party. Only with certification from this third party could we ship to Walmart, Target, ect.

In order to pass these tests, we had to control our supply chain. Every shipment of materials were individually checked by our on-site Quality Control team. If anything was wrong with the shipment, the QA team would not accept the entire stock and demand the sourced company to redo it.

In essance, there were atleast 4 different levels of quality assurance: During design, supply chain, manufacturing and third party testing before shipment. Of course not all shipments were perfect and things did slip through the cracks, but no products were recalled when I worked there. None.

So with my own first hand experience, I was terribly shocked when I heard of Mattel's recall. How could the biggest toy company in the US allow so many millions of toys be shipped? What happened to all of the different layers of testing and retesting. Also, why didnt the US media find the real reasons for the problems instead of making China the scapegoat?

Well finally, someone did. Only in today's NY Times has there been any mention of the innate problems within Mattel's business.

Mattel has been manufacturing in Asia far longer than many companies (the first Barbie was made there in 1959). That led to long-term relationships with certain Chinese contractors, many spanning decades. Paradoxically, that appears to have contributed to Mattel’s problems: the longer it outsourced to a factory supplier with good results, the looser the leash became.

During Mr. Eckert’s tenure, the company has scaled back the number of companies it uses and the fraction of Mattel toys that they make, but it allowed its more reliable suppliers to do their own regular toy testing — with spot tests by Mattel only every three months.

The two contractors that caused this month’s recalls were among the most trusted. Lee Der Industrial, the supplier involved in the first recall, had worked with Mattel for 15 years. The Early Light Industrial Company, the contractor that made the Sarge cars in the second recall, has supplied toys for 20 years.

Mattel became so confident in their China production that it basically gave all control to their subcontractors. Instead of making sure they had final say of what toys were being shipped, the left it up to their Chinese counterparts. What responsible company would decide to do that? No smart company would ever think of giving all control for their products to someone else.

Still Mattel execs want to refocus the blame on the Chinese:

“I think it’s the fault of the vendor who didn’t follow the procedures that we’ve been living with for a long time,” Mr. Debrowski said.

I guess Mr. Debrowski has never worked in a Chinese factory (like I have). Maybe if he worked there for 2 weeks, he would see that Chinese employees need constant attention. Only micromanagers with attention to detail can actually confirm that any processes are used. Without this oversight, any "procedures" are just random words on paper.

All in all, the real issue is money. The real reason why Mattel gave so much autonomy to their contractors was because they wanted higher profits. In order to have their own staff oversee and manager the production, QA and other processes, it would cost Mattel much more money. Instead, they calculate the cost and overhead of the Chinese manufacturer, add 15% for the Chinese company's margin and not worry about anything else. For a toy that costs the Chinese company $1.20, Mattel sell it for $4.50 to Walmart. That's quite a profit.

Whey they're making that much money, who cares about a little lead in the paint?

Ultimately, no one is really blaming Mattel for this. If you read the NY Times article, you can see that the underlying tone of it is pro-Mattel. Even the title, After Stumbling, Mattel Cracks Down on China, shows the bias.

The US (and world) media will continue to attack China while the real culprits enjoy their high profit margins. I guess it's just another symptom of globalization.

Chinese Hiring @ the Factory

I’ve been working in China for 7 months now. It’s weird how fast the time has flew by.

When I arrived at Toy State, I worked with 2 other project engineers, working and maintaining all of our new/old projects. In December, one of those engineers was fired. Within one day of being told that this was going to happen, Thompson had already cleared off his desk and left our company. It was a pretty quick turnover.

After Thompson left, I took on more and more responsibilities. Instead of hiring a new person, I wanted to work with my partner, Rosson. I believed that we could handle the work load of our fired colleague. As I got into gear what exactly the job needed, I was able to create different processes and make our efforts more efficient. Within a couple of weeks, we were completely up and running…effectively doing a 3 person job with 2 people.

In the past month, something interesting has happened. After the Chinese New Year, the toy industry effectively starts preparing for the next selling cycle. We have begun a large marketing campaign to develop tons of new projects. This year we were projecting to do130 new projects compared to only 45 last year. This effectively means that the 2 of us have to not only manage a 3 person job, but are now doing 3x the amount of new projects as before. Quite a challenge, ill say.

Realizing the potential need for extra man-power, our higher up management told me in early February that we were going to add 2 project engineers into my department. More than 2 months later, we still don't have any extra people hired. In turn, I’ve been juggling more than 2x the amount of work I’ve had previously.

Human Capital

A week ago, we had a few people go through the interview process. A female graduate student and a male college graduate came in. I was mostly ignorant of the whole thing. For some reason, I had been no role in their interview process or decision of future project engineers (even though I was going to be their boss…???).

After being somewhat confused and having a feeling of disrespect, I approached our COO (a relatively Americanized Chinese with good English skills who used to did my job a year ago) who was spearheading this search: This interaction was spoken in Chinese

Me: Hey [COO], what’s going on with the search? We’re getting swamped over here with all of the increased work load.
COO: It’s going. We interviewed a couple of people last week and really liked a girl. She came in, did the interview thing and we liked her. Before we could sign all the paperwork, we got hung up with her salary requirements…so we didn't hire her.
Me: Oh really? Do you think it will be resolved?
COO: I don't really know…we’ll see.

Pause

Me: I was wondering, for future interviewees, can I have an opportunity to sit down and talk to them for a while. Since the members of this department are going to work extremely close with any future hire, I want to have a feel for the abilities and personality before they are hired.
COO: 不用了, 要不行就让他走. (Translation: No need, if he/she is not good, we’ll just ask them to leave [aka fire him/her])

Our factory boss’s response surprised me incredibly. I originally had the notion that there was a sense of disrespect towards me in not letting me have a say of who I was going to have work under me. Instead, by his statement, all feelings of disrespected disappeared. It was replaced with amazement.

When I went through the job search as a senior in college, I developed (what I think is) a pretty clear perception of the relationship between the employee and the company. I feel that companies look at their hires as investments, or human capital. These individuals, with their skills and potential have the capabilities to help the company with their knowledge, ideas, know-how, ect. with proper training from the company. Since a lot of time, energy and money is spent on training these people so they can succeed in the future, companies try their absolute hardest to make sure the candidate is as strong as possible. This is why there are multiple rounds of interviews and extensive review processes at most places.

I admit that our company isn’t the big corporation with tons of resources for hiring people. I do think, however, that there are a lot of small things that can be done to do a thorough job of whatever we can to make sure anyone new will be successful here. If it is so easy for the company COO, who is relatively westernized, to say…hey, if it doesn't work out, we’ll just let him/her go, then he definitely has a different understanding of what human capital is.

Colleges and its Graduates

A couple of weeks have gone by and still nothing. The previous candidates who were possibilities were not able to resolve their contract negotiations…meaning I’m stuck with an overflow of work in a relatively quiet time in product development.

Seeing a potential for “disaster” if we didn't get someone in here soon, I have recently made a revived push for locating new hires. I have talked to the HR department, their boss, my boss, the COO of the factory, just about everyone I can think of to help in this pursuit of someone new. If we don't get this person soon, we won’t have enough time to train him/her for the next round of high demands and tight deadlines.

After talking to the HR department, I realized that we could change our description of skills/requirements so that more people would apply. Currently, we’re requesting college graduates who have backgrounds in engineering and a high aptitude in English. As an Mechanical Engineering graduate, I can say that technical knowledge and background isn’t as essential to the job as English skills are. I think that if we found anyone with a good English background, they could successfully learn the more technical stuff on the job.

I approached the COO about this and he said he would consider it and see if we could find more people to come in for interviews. We then had an interesting conversation about the state of the Chinese job market. Again, this conversation was spoken in Chinese.

COO: Did you know that we have been trying to find good candidates for project engineering jobs consistently for the past 2 years? It is really difficult to find good prospects.
Me: Wow. Is that true? What about the millions of jobless college graduates I keep reading about in the media?
COO: That population isn’t reliable. Colleges and Universities are everywhere and more and more people are going to them. However, it is hard to judge what these students learned when they were there. While these graduates have questionable academic backgrounds, they are also demanding higher-paying jobs and more respect from possible employers because… they graduated from college and they spent a lot of money there. We’ve interviewed 50 people since December. As you can see, none of them have been hired.
Me: I guess we’ll see what happens with the change in job requirements then. Hopefully we’ll have more people coming in for interviews when we change it.
COO: I don't know if it will be successful. If someone is good in English, they have a higher likelihood to work for one of the big western corporations that are expanding into China.

Higher education in China has become a big business. New schools are popping up all over the country…many of them without any good faculty or educational standards. Some of these schools have formed alliances with more brand name schools. The new school requests to be a separate campus of the well known school. This means that the new school will have a good name (ie. Beijing University in Shenzhen) and their students (at some schools and not at others) get the same diploma as students at the regular campus.

Affluent students who don't score high enough on the national college entrance exam to get into the school on merit can then go to a good university. They are considered “private” students and pay higher tuition. Through all of this, it is still unclear if there is an academic standard of the separate schools or a governing body who monitors and accredits it. Of course, not all of these schools are bad, but the current practices are chaotic without conformity in standards.

I don't know who knows about this in the western media. I do know that there are countless and reoccurring stories about college students not finding jobs. This is probably one of the causes.

With this understanding in the questionable quality of the Chinese graduate, I think it’s even more important to push them through a detailed and involved interview process. I don't know if the other managers see it that way.

That being said… what matters is that I still don't have another project engineer working under me. Therefore, it is becoming more and more apparent that I will be overloaded at work for the foreseeable future.

Arguments @ the Factory

I truly believe that we have a good and decent atmosphere of professionalism at the toy factory. Mostly all of our employees try to work as a team and coordinate a lot of things with each other (This is called配合 peihe.) Although there might be some conflicts that come up from differing points of view, everything is done on a cordial level.

That being said, in the 6 months I’ve worked here, I’ve witnessed many big arguments in the office, while only participating in 1 of them. Although I would say, it’s much more interesting to be in the argument; nevertheless, they are extremely interesting to observe as well.

Arguments:

• They involve at least 2 people to as many as 4 people.
• The people involved are all high-level managers who are at least a department head, both men and women.
• They start quiet and end loud…really loud.
• They usually involve one or more of its arguing parties making outrageous comments like: Do you want me to jump off a building?...Because jumping off the building wouldn't get it done any faster. (I heard that today) And… I could do it faster if I were blind and mute. What disability do you have?
• They can start in a flash, and can take place anywhere and everywhere in the office.
• They have a halftime. This is when one of the parties attempts to walk away. After a 5 second break in the action, either the person leaving turns back, to continue the argument, or the person being left chases the person leaving to continue it.
• The employees within hearing distance of the argument don't move. They are basically invisible and don't react at all to it. No one looks, no one talks. Everyone is quiet and steadfast.
• The people who are above the arguing parties don't say anything either. They don't get involved at all.

I seem to be the only one who visibly recognizes that an argument is happening. And since my department is in my own room, I tell my secretary to close our door to the outside whenever I hear it escalating. To me, there’s no reason to get upset at work anymore…and I’ve been in the work force for only 6 months. Come on, it’s work.

Although I have never actually worked at an American company (I’ve only interned at companies), I would assume I would never see the same type of arguments in a US office. They might happen in the board rooms, or behind closed doors, but never in the open as they are here.

From what I remember of all of the meetings I had in college (from the clubs, groups, classes and fraternity), that NEVER were there people raising their voices. Everything was kept at a comfortable level. If any disagreement escalated to a high point, they would be immediately dissolved by the other people in the meeting, or by a superior. That definitely doesn't happen here.

I wonder what will happen when the current employees (who are patient and quiet) are put into managerial positions. Will they act the same way as managers do? Or Will they be less aggressive (as they are now)?

There are definitely more questions to ask, but I really need to get back to work...or else someone might start an argument with me.

Business Ethics @ the Factory

It’s been 6 months since I started working at Toy State. Theres been highs, there’s been lows. However, today was the first time I felt disappointed in the ethics of how we conduct business.

Our company is a well-functioning, comfortable and has definitely a western feeling. People are relatively friendly, able and professional. The office is bright and clean (There is a strict no-smoking policy, unlike a lot of Chinese companies). People are treated with respect and the company, in general, cares about its employees. We’ve had numerous company dinners and retreats for our employees. We pay our workers more than the similar companies around us and have even constructed a brand new cafeteria building to make sure our workers eat in very clean and sanitary conditions. Although the company is far from perfect, it most definitely tries…which is good.

Every new project that we work on has specific packaging requirements. While a large amount of our toys are shipped in boxed packages, a growing amount of smaller toys are being packaged in plastic hanging packaging called “blisters”. Since it is my responsibility to arrange the packaging, I need to help implement the blister designs that our marketing team gives me. This means I need to work with a variety of blister companies.

When I started 6 months back, all of our prototype blisters sucked. They were dull, thin and generally, looked bad. In addition, the blister engineers that made them were rude, not attentive to details, and slow in their prototypes. We had a very bad working relationship, and every blister-making process was filled with annoyance and frustration on both sides.

After a while, we were able to find a new company that made blisters. After a few instances, we noticed that this new company was much better on basically all aspects. They were nice, professional and knew what they were doing. They were quick and efficient with their prototype development, and could basically meet any deadline given to them. Most importantly, their blisters looked good…like production quality.

For the past 3 months, we have been working with this new company in creating samples of all of the new toys we’ve been developing. They’ve been helpful, cooperative and a good partner to work with even though we haven’t given them any real orders or business.

Finally, in the recent weeks, we’re finally going into production on a major new toy we’re making that a lot of US retailers picked up. It was a great chance for these blister company to finally reap the rewards for their constant and consistent efforts for the past few months.

Just before we go into production on any new toy, we go through a process where the engineering department reexamines our packaging to make sure that they will pass all of the various safety and drop tests needed to make on it. In this process, it was decided that we would not use the current blister in production and we would need to redo it.

What made everything suck was that a different company was chosen to make the new blister arrangement. Now, this company was getting fucked over. After 3 months of hard work, they received no real financial benefit from our company. In addition, they were pushed to the side on a project they’ve worked on since the beginning. Blah.

I tried to fight it. I tried to convey how good these guys were and how important they were to my department in regard to our packaging efforts. It didn't matter how many people I talked to. Nothing is being changed. There are some hidden stuff going on... i dont know what.

However, what it means is...not only is it going to be that much harder to meet my deadlines but we just screwed over a great company that’s been the best for a long time. They even gave me a nice calendar for the Chinese New Year.

AaahhhHH!! This sucks.

The Entrepreneur Spirit: Part 1

Recently, I had a conversation with a couple of friends on the possibility of starting a business. (I don't want to get into the specifics since my friends might still want to do it).This business idea was something that I thought was a viable option for a good and profitable business a while back. I liked it enough that I even wrote up a Western-style business plan of what was needed to do to get it started; what the minute details were to make it successful, how to get other people on board, ect. However, since I didn’t have the energy, time, connections and capital, I kind of just let it go and moved onto other things.

A few days ago, a couple friends of mine came to me wanting to do the same idea, I was happy that they wanted to pursue it and felt I could contribute a lot to the process.

Last night during dinner, we sat around the table eating Mongolian bbq and slowly discussed (谈一谈) the business. After 5 minutes of conversation, I knew we were not going to get anywhere. After the initial exchange of “wow, this is a great idea… I think we could make so much money,” I wanted to get down to the important details of the first step of concrete tasks needed to be done. All we had at the time were broad generalizations.

As I listed out the issues that needed to be addressed for me to succeed (on my end), I was given a feeling of hesitation and almost annoyance. My friends didn't want me to talk about the details. They just wanted me to say “yes, I’ll be awesome and everything will be taken care of.” In a perfect world, that would be the case. I would love to make a grandiose statement of what I will accomplish immediately without worrying about actually performing. However, in the real world, I want and expect to discuss the weakness and threats of the idea as well as the strengths and opportunities (thank you SWOT analysis).

Well, this didn't fly. So, instead of having a productive business meeting (in my eyes), we were all halfway annoyed and disappointed in the other side. Before finishing up this issue, my friends described how they approached business.

“You need to learn on the fly while you are doing your business. Forget all the details, worry about them when they appear. Go for it.”

Although I would agree with the adventurous spirit, as well the how useful learning by experience is, (I talked about this briefly in Money Money Money), one can only get so far with that approach. When a large amount of time, energy and capital is invested in a project, I will absolutely attempt to find all the potential problems and iron out all of the details before I get too far.

After I tried to explain this mindset (and hopefully other people’s mindset as well), I was still greeted with hostility from my friends. They didn't need or have to do this. It was almost like it was their destiny to succeed and be successful. They were unwavering and had the utmost confidence in their ability to deliver in whatever venture they set out to do. Nothing could and would stand in their way.

This got me thinking:

• I can not believe how confident my friends were. Even though they were all relatively successful businessmen, isn’t too much confidence just cockiness?
• Is their confidence real or fake? Chinese people, particularly northerners, (and especially my family… I was born in Harbin) love to boast (吹牛). We love to exaggerate when talking. It’s just how we do it. My friends that I was talking to were all northerners as well.
• Is it just too easy to make money here in Shenzhen? If its true that 10% of Shenzhen people between 20 and 60 want to open up their own business in the next year, they must have a lot of success in doing business to give them the reasons for starting businesses. It could be the chicken and the egg.

• Entrepreneurs come to Shenzhen to start businesses.
• Business is good.
• More Entrepreneurs come to Shenzhen.

I’m going to let this one marinate a little bit and come back with a couple of examples in part 2.

I Want Delivery!

I really like my Shenzhen apartment. It is nice, clean and just the right size for me. It has all of the appliances and furniture that I need and even a nice sized gym on the 5^th floor (I live on the 27^th). It is a 10 min walk to the pedestrian-only shopping area (老街) and the bus to work stops immediately outside the building. Oh yea, I almost forgot… check out the view.

My only complaint about my apartment is the lack of restaurants downstairs. There are a couple of mom & pop noodle places but that’s about it. To get any selection of restaurants, I need to walk at least 5-7 minutes away. Most of the time, a 5 min walk in China isn’t a big deal. However, when I’m hung over and don't want to get out of bed (like most Sundays), I just want something, anything.

Solution: Delivery.

Before living here in China, I had thought that delivery did not exist here. I have a lot of family who live in Beijing, Harbin and Shanghai. I have never seen any of them order delivery and/or even have delivery menus. I was pleasantly surprised that it at least exists in Shenzhen. Because labor is so cheap here, many restaurants have a couple of people specifically for delivery purposes in the neighborhood. Although I don't imagine it to be Justin-Timberlake-popular, like it is around the Columbia University campus (oh how I miss eating Chinese Wai Lee) it is still most definitely needed.

Every couple of days when I’m walking in and out of my building, I see delivery people bringing food in. As a relatively new resident, without any knowledge of which restaurants deliver, I make an effort to talk to these delivery people and get a menu from them. What’s interesting is that after talking to delivery people on more than 40 different occasions, I have only obtained 1 menu.

Only 1. That’s it.

What are these people doing not carrying menus around when they’re fulfilling an order? I don't understand it. In a selfish sense, I want the added convenience to get some food without getting out of the apartment. But from a business perspective, how can these restaurants not require these people to carry tons of menus on them. This would not only be a good way to market their restaurant, but it would give the non-cooking population somewhere to order from.

Above all, how has any restaurant owners recognized that no one else is doing it and they can almost corner neighborhood market for delivery? My neighborhood has 4 buildings, 26 residential floors in each building and 12 apartments on each floor. Assuming that there are 2 people living in each apartment (a low estimate) the total number of people is 2500 in this building complex alone. Combine the 5 other complexes around me together, and it’s a sizable customer base for a small restaurant.

As a veteran of Columbia University fast food, I can only describe the competition for take-out as a war.

Here are the details:

• Basically all of the restaurants post on online menu websites like dogears.net, menupages.com, so that people can have quick access to their menus.
• Some places even list on services like Campusfood.com where the order can be made directly online, quickly and easily.
• Restaurants advertise on billboards, newspapers, ect.
• Every order has at least 1 menu in the delivery package.
• Some restaurants even use their menu as an invoice/bill for the customer with the ordered items highlighted.
• All delivery people have menus with them at all times. They place these everywhere, especially at the outside door to an apartment building.
• Rivalries and aggressive tactics were used by the 3 local Chinese delivery places. Every time one place made a delivery to a dorm building, they would take all of the other 2 restaurants’ menus and replace them with their own. Talk about cutthroat.

All of these practices in Columbia University and NYC in general are geared to maximize the exposure of the restaurant in a competitive landscape as well as make it convenient for the consumer to order delivery. This is life in a mature marketing environment.

Now if only any Chinese companies can take a hint and figure stuff out, I might be able to order from them instead of going to McDonald’s.

McDonald's: Super Sizing the cute Chinese Kids

I love McDonald’s. I have since I was a little kid. I can still remember my mom taking me to the McDonald’s on High Street right next to the Ohio State University campus as a little kid. Tuesdays, 19 cent hamburgers, 29 cent cheeseburgers. MMmmmm.

Fast forward 15 years later.

I was a little sick yesterday so I took off work and stayed home for the day. When I was young, it seemed that every time I was sick and went to get McDonald’s, I would get better immediately. That has now transformed into a tradition. Instead of having Chicken Noodle Soup when I’m sick, I have a Big Mac extra value meal with a sprite. Conveniently so, there is a McDonalds within a 5 minute walk from my current Shenzhen apartment (I can actually see it out of my window) when I can maintain this habit.

Although I do eat fast food, I do not consider it to be as bad as what’s made out in the 2004 documentary Super Size Me. In this documentary, a guy eats McDonald’s food for breakfast, lunch, and dinner for 30 days straight as an experiment. The results were surprising and interesting. To briefly summarize, after 30 days, the guy became depressed, had lost his sex drive, gained 20 pounds, and had liver issues, ect. (Please check out this documentary if you haven’t seen it. I own it on DVD (not even bootleg) and have watched it more than 5x.)

In my opinion, eating anything each and everyday could have adverse effects on the body. Many vegetarians and vegans don't get enough protein. People in China don't get enough calcium in a typical Chinese diet. It is important to have a complete diet with a variety of foods. Like my mom says: Eat at least 15 different types of foods a day (beans, rice, beef, carrots, ect.) and everything will be ok.

So back to the story,

Yesterday, I walked over to the place at about 12:30pm. I saw something very interesting before I arrived. This McDonald’s is right next to what I call a “spider overpass” (the 4 corners of an intersection is linked by 1 common overhead walkway) There were 2 young McDonald’s employees handing out discount coupon sheets on this walkway. Of course, for anyone who knows China, these discount coupon sheets are very common. Various companies and restaurants give them out very often to promote as a marketing too. What was interesting about this marketing drive was that it perfectly coincided with the lunch break of an elementary school less than 50 yards away.

(A little background: In Chinese secondary education, it is normal to have school be divided into 2 parts, a morning and afternoon session. Students are allowed to leave campus for lunch to eat at home.)

Of about 90% of the students leaving for lunch walked on this “spider overpass” to get to various destinations. The 2 employees had a stack of coupon sheets at least 10 inches high. They knew exactly what they were doing and made sure that every one of those kids received one.

In Super Size Me, one of the main things they narrated was the strategy of McDonald’s and fast food in general. The ultimate goal was to get the kids hooked on this stuff. Examples of this included a scene where 20 elementary school kids were shown pics of various famous people and Ronald McDonald, the McDonald’s mascot. Of course, everyone knew who Ronald was and no one knew anyone else. Another scene described the design of McDonald’s and its playground area and success in birthday parties as ways to lure kids in. Just look at the happy meal. McDonald’s invented kid’s meals.

I definitely believe in this hypothesis.

Here’s what I’m thinking:

• China creates a good opportunity for this because more kids are responsible for their lunch. Yesterday in the McDonald’s, of the 200 people there, over 80% of the consumers were under 25, at least 60% wore the little blue/white school uniforms. Many of these kids were carefully browsing the coupons they just newly received. I guess this strategy is working.
• Another good strategy for fast food companies like McDonald’s in China is to give away student discount cards that last for a year. These cards give about a 20% discount on selected items for the student.
• I didn't see KFC representatives out in force like the McDonald’s employees. Even though KFC has a bigger market share than McDs in China, I wonder what their kid strategy is and its importance. I do know however, that they give away student discount cards as well.
• McDonald’s creates such a fun and embracive atmosphere, that kids love it. Yesterday, I even saw a few kids help the hand out the coupon sheets to their friends. That’s just marketing at its best.
• I guess I’m a product of the “luring of kids”. I was lured in as a little kid and I’m still a consistent McDonald’s consumer as a yuppie.

Although I have been "lured" in, I have an athletic background and try to watch what I eat as much as possible. As a disciplined adult and someone with a diverse palate, I would never go on a Super Size Me-esque binge. I will however, enjoy a Bic Mac or 2 once in a while.

What is difficult to see is how Chinese kids will be able to control themselves. These kids are being sucked in every single day. Let's just hope that McDonald's don't form an alliance with the schools and make it mandatory for kids to stay at school for lunch.

Has anyone tried their new mini Chicken wraps? Those are hella good too.

The Perfect Red Storm

In my February 24^th post entitled Money Money Money, I attempted to discuss Shenzhen and its unique-ness. As everyone might already know, Shenzhen was a fishing village 20 years ago. Now it is one of the biggest cities in China with an average income comparable to that of Beijing and Shanghai.

With a combination of a favorable political environment, location and local culture, Shenzhen has become a bustling metropolis that is comparable to just about anywhere in the world.

Here’s an excerpt from a recent Bloomberg article:

World's Factory

Shenzhen became the world's factory because Deng, then the paramount leader, selected it in 1980 as the launching pad for his open-door policy. Driven by his vision, the municipal authorities put in place the key amenities long before international investors took the bait.

What in 1979 was an agrarian backwater of 300,000 people is today a bustling metropolitan city of 11 million.

Shenzhen now has the world's fourth-busiest container port and China's fourth-largest airport. Expressways connect the industrial areas to a vibrant downtown. A subway system became operational in 2004. New towns are constantly being built, distances are getting squeezed.

This description of Shenzhen (as well as others like it) is just the tip of what Shenzhen is. In a recent Shanghai Daily article, Shenzhen was mentioned again. This time it was compared to Shanghai.

The Shanghai Labor and Social Security Bureau surveyed 23,000 city residents aged 16 to 64 in their homes last December about their attitudes towards starting a business.

The number of respondents who had opened their own company by the end of last year - 5.01 percent - was up slightly from 4.9 percent at the end of 2005.

By comparison, only 3.42 percent of respondents to a similar survey in Beijing said they had started a business, while a whopping 10.49 percent of those surveyed in Shenzhen, Guangdong Province, had opened their own company.

Wow.

Shenzhen’s population is 2x more likely to start a business than the people in Shanghai, and almost 3x more likely than Beijing. It’s amazing what the last 20 years has done here in the Pearl River delta.

Here were my thoughts on Money and Shenzhen:

• I often try and think/develop business ideas. Moreover, I have a few possibly successful ideas that I’m working on.
• This is why Guangdong province is so incredibly successful in the world stage. This is not only where Chinese people who want to make money (whether it’s migrant labor trying to get ahead, HK businessmen with capital, ect.), but it is where the world is coming as well. Of course its location and proximity to HK has something to do with it as well.
• I wonder if the culture is similar in the Shanghai region as well. Can anyone who knows about Shanghai add their 2 cents?
• This entrepreneurial spirit feels like pure excitement. There are so many opportunities in China for anyone with a good idea. It is the ability as a person to take advantage of these opportunities. This is a big difference from the seemingly repetitive life of the US and even NYC.

I guess the Shanghai Daily article partly answered my question. Even Shanghai, the financial capital of China, can't compare to Shenzhen when it comes to the entrepreneurial spirit.

Just to repeat this point and beat it over the head:

Shenzhen is a place like none that has ever existed in the world. Its unique combination of culture (or lack there of), government regulation, people, location, resources, ect. have created a place where capitalism is existing in an almost pure form.

It might as well be the Perfect Red Storm.

Chinese Small Business Taxation

For those of you who haven’t lived in the UWS of Manhattan or haven’t gone to school at Columbia, you probably don't know that much about Koronet's pizza.

Koronet's Pizza- between 110th and 11th on broadway is THE best pizza in nyc. TRUST ME. just go there. their pies are about 3.5' in diameter, and the slices are almost two feet long... fun! cheap! a definite neighborhood hangout if there ever was one.
http://www.citynoise.org/article/71

This place is small, cozy and friendly. The Hispanic guys behind the counter are quick and efficient and after a couple of drinks themselves, they become very generous. The best part about Koronet’s (aka K-nets) is that during the weekend, it is open until 3am. During my college days, I definitely made many a trips there for a last minute pit-stop before going to bed after drunken night bar-hopping the Columbia neighborhood. In fact, the first night I spent at Columbia included drinks at the West End (RIP) and pizza at Koronet’s. That greasy pizza just hits the spot.

The Chinese version of Koronet’s pizza is the neighborhood sidewalk barbeque. These are small mom and pop operations on the side of the street where all they need is a makeshift grill, meat and veggies on a stick, and a few chairs and tables. No matter where you go in China, you’ll find these little operations EVERYWHERE.

Last night I was walking around with my cousin, Simon, just south of the Shanghai Hotel (上海宾馆) in Shenzhen. We had already been drinking for a while, but wanted to go buy some snacks for the night. After getting our assortment of chips, crackers, cherry tomatoes and tangerine oranges, we started walking back to the KTV room all our friends were at.

In the middle of our walk, Simon decided to stop at one of these little bbq places and get some chicken wings. While waiting for the thing to cook, we hung out and chatted. The husband/wife team operating the place were very nice people. They gave us chairs while we waited and chatted with us. Being interested in their little business, I asked them about how easy it was to make money. It turns out that the margins were decent 30% to 40% but most of the profit depended on the volume of sales. In a given weekend night, they could sell as much as 700 yuan worth of food (remember: each the individual bbq skewers cost between 2 and 5 yuan. That’s a pretty decent side business for migrant workers trying to make a buck or 2 at night.

Before we were done with the conversation, we discussed the costs of the coal, the veggies and meat, ect. The highest costs came from the meat they buy as well as their makeshift bbq grill. Each one of these stainless steel U-shapped sheets cost about 3 yuan each. However, they prepare a lot of them each night.

Without understanding the reasons behind that (I was a little tipsy), the husband, who was in charge of the grill quickly took the top grill piece of and placed it (with the meat) away from the grill. A split second later, a pickup truck/minivan with 3 guys quickly stopped right next to us. A person came quickly came out, went over to the makeshift grill and dumped the coals on the ground. In my confusion, I thought these people worked for the little business and were going to help them change their coal to a new batch. However, after the guy dumped the coal out, he went back into his car and drove off.

What just happened!?!?

“Why did a guy jump out and dump your coal on the ground?” I asked.

The husband/wife explained that those guys were cops who’s job was to enforce business permits. Since they did not have one and were doing their own thing on the street, they were something illegal. Who knows what kind of “cops” they were.>

Not completely understanding, I asked, “why didn't he just destroy your stand and throw your food on the ground?”

It turned out that these police never were violent, but only confiscated the different 3yuan makeshift grills. Without going into too much detail, the couple just continued saying how difficult it was to make money, while simultaneously placing the dumped coals back into the makeshift grill to finish our chicken order.

Before our food was done, the same truck made a U turn and came back in our direction. I could see it coming for a ways away and I became quite nervous for the couple. They don't make that much money in the business and have to constantly look over their back in search for police who could, at any time, screw them over.

After Simon’s chicken finished cooking, were continued walking back towards our private room singing KTV. Before we could walk too far, a different van pulled over. This time, the husband quickly ran over to his supply of grills to replace the one that was about to be confiscated. While stopped to watch from a distance, the husband quickly went back to his stand with his brand new grills before the police even left.

“What the hell is he doing,” I asked Simon. “Isn’t his new grill going to be taken away too?”

Before he could answer, the husband walked over to the police man who was confiscating his grill and GAVE him his new one!

WHAT JUST HAPPENED?! WHAT IS GOING ON?!

While walking with Simon and talking about this, I finally understood what was going on:

• The police officers could never arrest any of these people because there are just soo many of them. In the general area I was in, there were at least about 1000 different little bbq’s being run at that time of night. The jails can’t hold that many people.
• It was not in the officer’s interest to tear up the stand. It’s his job to deter these kinds of business, but in actuality, these officers were probably from the countryside as well and knew how hard it was to earn money.
• The business owners know that the officers have a certain “quota” for confiscated grills per night. Therefore if they just gave the officers the grill and extra ones, the officers would 1. leave them alone, 2. leave others alone and 3. not come back in a while. I kind of compare this to American State Troopers and their monthly “quota” for speeding tickets.
• A specific system of conduct has been created for these interactions…a social contract, if you will, between the illegal businesses and the police.

A couple of hours after this event, I revisited it with Simon while we were playing pool. He added something very interesting to the situation.

It seems that after the teams of 3 would confiscate about 50 grills per night. Afterwards, they would SELL the grills back to the operators of these businesses the next day for 3yuan!

HAHA. How crazy is this? It kind of reminds me my senior year International Politics class when we analyzed the illicit economies in Kosovo in the late 1990s. (If you don't know, a black market was formed where one side was basically supplying the other side with weapons that was shooting back at them.)

I really think this event shows how business is done in China. Of course, it’s true that not all business leaders and government officials are corrupt, but from my experience, it seems semi accurate.

For any business to be able to operate properly, it needs

• to find a good market (people wanting munchies after going out at night)
• to make decent margins/profit
• to work within the establish social standard of interaction between the government and the specific industry
• to “pay off” the proper people, whether its for building permits or restaurant licenses (the 3 yuan grills) so that they don't bother you too much

Ultimately, its true that the officials always have the upper hand. In this story, they confiscated the grills and resold them back to the businesses, only to confiscate them later…a revolving cycle. The funny thing is that this governmental advantage is very much part of the Chinese tradition where the government will, do and should profit from any of its businesses making a profit. Think of it as a tax…