End of the Road

As our China Road comes to an end, it is time for reflection. Today we visited the Summer Palace and the Great Wall, two icons of ancient China. Modern China meets ancient China at these sites, mostly in the form of the people walking around trying to sell us fake watches, postcards, t-shirts, and a plethora of other little knickknacks and souvenirs. When we wrote our first post I was nervous about the food in China and excited for shopping for fake brand name goods. Apparently at the time I forgot to be excited to see the Great Wall and the Summer Palace, which ended the two highlights of the trip for me (along with karaoke). As it turns out I’ve adjusted to the food and I am disgusted by knockoffs.

The Great Wall!

View of the Lake at the Summer Palace

For me, eating in China is about knowing what to order. To that end, it’s nice to eat out with a classmate who speaks Chinese or at a restaurant with English translations or pictures on the menu. Sometimes, though, guessing can work to your advantage, such as when we accidentally ate at a spicy food restaurant in Shanghai and I ordered mutton chops. They were delicious. Two new standards in my diet are hot pot and dumplings. Though I may never get used to seeing hooves and duck tongue on menus, there is usually something there I can order.

Unfortunately I didn’t stop to take pictures in the Silk Market, but the first thing I noticed when I walked in was a giant red sign that reads, “Protect intellectual property rights.” The irony is pretty breathtaking, considering it’s hanging over row after row after row of knockoff products. I just couldn’t do it; the blatant theft was too much for me. In that volume, the magnitude of the problem of IP theft becomes much clearer. First of all, the Silk Market is not the only fake goods market in Beijing; there are at least three that I know of and I am sure there are many more. The Silk Market is just the most touristy of these markets. Second, in this context “market” does not mean “quaint shopping experience.” These markets are 4+ floors full of vendors selling their wares. There is a whole industry in China around selling knockoff goods. It’s incredible. Almost immediately upon entering the Silk Market, I became repulsed by the whole concept of fake designer purses, watches, jewelry, jeans, shoes, sunglasses, etc., and instead I bought silk scarves and ties and some pearls. I’m happy with my purchases and, as far as I know, they aren’t knockoffs of any famous name brands.

The popularity of the Silk Market, though, highlights the challenge China faces in combating its international reputation as a blackhole of intellectual property. While high level issues of property rights between companies, manufacturers, subsidiaries, distributors, partners, etc., is the major concern, the street-level IP theft is a widely-visible symptom of the same problem. It doesn’t seem IP is respected here in China, although there are signs this attitude is changing.

Where are we again?

Many times, we have been asked, and we have asked ourselves, what is China and what is Chinese?  Our preconceptions and expectations about this country have been refuted time and time again since we have arrived.  The China we have seen—Shanghai, Qingdao, and Beijing—has given us a view, completely different, than anything we could have and had imagined.  People everywhere speak English and while some of my classmates may get some strange looks because of their blond hair, I have yet to feel as an outsider.   The cities are very easy to navigate, by cab or by subway, and all the shop owners find a way to understand and sell you their products.

Bright lights and signs covered the street.  Voices shouting to us in English, were coming out of each bar, asking us to come in, telling us that it was Happy Hour and that their bar had the best specials in town.  Where were we?  I thought we were in China, but nothing in our surroundings gave any clue to that.

We tried to go “off the beaten path” and sat in an alley filled with outdoor tables.  Street vendors filled the street and while we were busy looking around guessing what kind of food they were actually offering, we were approached by several beggars who said “hello” in English and shook their money cups asking us for donations.  Where were we again?  In a side alleyway in Beijing or back in the US?

For our next stop, we decided to try a more traditional Chinese bar.  Even though the windows were covered in red neon Budweiser signs and we were greeted in English, we were the only non-Chinese people in the bar.  A punk-looking band entertained the crowd, belching out Chinese pop songs that the whole bar was singing along to.  Then, all of a sudden, the music changed and the song we were hearing was a country song about the great state of Louisiana and life in the South.  The lead singer was performing in perfect English and the table next to us was drinking a six-pack of Budweiser and a margarita.  For a second, again, we stopped and wondered—were we back in Georgia or were we still in Beijing?

What is Chinese and what is American?  Walking through the mall or on the street, signs and advertisements are in English.  American celebrities adorn advertisements on the side of buildings and a lot of products and stores are advertised as “Traditionally American”.  Iphone4’s are as easy to spot here as they are back home, and the fellow MBA students we met at Peking University were just as eager to use them as entertainment during class as any of our classmates.  While from our short time here, I cannot make this statement with complete certainty, it does seem that the traditional Chinese culture is changing and embracing Western values.

Reading Tea Leaves

Our speaker today from CNN compared the way journalists used to operate in China to reading tea leaves; since they were restricted for various reasons, financial and political, all they could do was sit in Beijing and attempt to discern the potential future implications of the few news items they were reporting on.

I think we’ve seen some of this tea-leaf-reading on our company visits. The big question facing everyone doing business in China and, arguably, everyone doing business everywhere, is: What does this all mean for the future of China and of my business? For these businesses, predicting China’s future fate is an essential part of their business planning. At Jones Day today we heard, for at least the second time on this tour, that the RMB will replace the USD as the common currency within five years, and we heard that China’s monetary policy will be opened up, “it’s only a matter of time.” These predictions are widely debated, but the important fact is that the issues are pressing enough to be commonly discussed.

Our CNN speaker today touched on some of the challenges that have the potential to derail China’s astonishing growth. He revisited the topic of harmony in China, one of the government’s main concerns. Coincidentally, minutes before our speaker arrived, my phone dinged indicating I had a new e-mail from NYTimes.com. As it was 3:21PM in Beijing, it was 3:21AM back home, and the e-mail was a list of the day’s headlines. The first one reads: “Inflation in China Poses Big Threat to Global Trade.” I just had time to read the article before our speaker began. As he talked about the wealth gap in China, I had this article in mind.

The impetus for the article is the Chinese central bank’s recent decision to raise reserve rates. One reason the article gives for the rate hike is that it is meant to curb bank lending. This stuck out to me because our speaker at Citibank spoke at length about the lack of a culture of consumer borrowing in China; the idea of borrowing money just to spend it is still pretty alien here. Clearly there is a difference of opinion between our Citibank speaker and the author of the article.

The second point that struck me when I read the article was, I think, the author’s intended point: what happens in China affects us all. The author writes: “…money problems here can reverberate from Wal-Mart to Wall Street and the world beyond.”

If I were to summarize all of our business visits so far in one quotation, that would be it. It summarizes the massive economic power of China and our (America’s, the world’s) reliance on it for continued growth. Simultaneously it is a reminder of the fragility of that growth. If the central bank cannot control the rampant growth of China, or at least minimize inflation, the chance exists for derailment. The importance of maintaining harmony in China is closely linked to the importance of maintaining stable economic growth. The article points to the challenges of not having a single leader of the central bank in China a la Ben Bernanke. This was a point I had not yet considered, and it is an added layer in the challenge to form China’s future monetary policies. The article also highlights a fundamental contradiction: reigning in inflation requires slowing economic growth, which could lead to unrest; not reigning in inflation leads to rising prices and runaway growth, which could lead to unrest. I believe this is what Dr. Olson would call an adaptive challenge for the Chinese government.

Reading the tea leaves, it is hard to see how China could not be the new economic center of the world. At the same time, it’s hard to see how this train could not derail. Coming to China has confirmed for me my impression that this country is the future… except for the times when I read news reports like this one from NYTimes.com. Then I see that the future might be less certain than we would like to think.

Slowly, but Surely

Our visit to Wheelebrator on Friday only solidified the importance of green energy, environmental protection, and innovation in China.  The company has found a way to use waste as a sustainable resource, and the government is backing their efforts by providing tax incentives and additional money per kw/h of energy.  Their relationship with the government, the necessary guanxi, is what allows them to maintain operations and to prosper.  Much as we discussed with YRC Logistics and even Ford, your level of government support can have a large effect on how you do business across China. 

On the same note, we met an amazing Qingdao local this weekend, “Julia”, who showed us around the city and took us to some of her local hangouts.  We talked the places we were going (or had been) with the program and she would jokingly reply, “Get me a visa!”  She told us that guanxi is as important as the companies suggest, and it’s just as important for individuals.  She sees the US and Europe as a place where people don’t really need guanxi, but rather a place where you can be yourself, choose your job and the person you want to marry—choose your life.  While we all agree that things are changing in China, and probably headed in that direction eventually, they’re not there yet.

We sat at some of the local bars, watching the table beside us go through a couple of bottles of Johnny Walker Black while at another table a group of students (it seemed) displayed a myriad of accents and facial features from all over the globe.  After we left the bar, “Julia” took us to a line-up of red tents along one of Qingdao’s streets.  After several kabobs of “surprise seafood”, cow tendon, crunchy organs, and lamb we were full and happy to have donWe may be eating different things, seeing different sights, and meeting different people in China, but many of us are thinking the same things; most of us want the life that we dream about.  Unfortunately, in China, in may take a little longer for some, but the government is trying to change.  As we assured “Julia” that we enjoyed our visit, she said she wished we wouldn’t leave (or that we’d find her an American husband!).  “I love my country,” she said, “but not the government.”  Even with all their efforts to improve innovation, business, and living standards, they will have to change so much more to transform the minds of the people.

“If I would have asked people what they wanted, they would have said faster horses”—Henry Ford

Dealing with change was the central theme of our day one company visits to Ford Motor Company and Continuum Innovation.  The challenges and opportunites presented by the Chinese and Asian market were the core of our discussion at both companies.

At Ford, we had the pleasure of speaking with Randy Creel, the China Director of Service Parts Purchasing.   The main issues he discussed were system integration and communication between divisions and departments.  He shared the rising problem of “parts tourism”:  a part manufactured in location A was shipped to location B, only to be then shipped to location C—a mile away from location A!!!  This incidence is due not only to the lack of integrated systems but to the challenge presented by the rapid growth experienced by Ford and lack of available storage space and available personnel.   The main challenge faced by Mr. Creel and his team is gaining commitment and embracement of change by top management.  Ford is embracing the opportunity to grow in the Asia Pacific and South Africa market by eliminating duplicative processes, paying close attention to parts prices and sticking to a 5 year systems integration plan.

At our second visit was with Continuum Innovation, a design and innovation consultancy firm, we were greeted by Michelle Cheng and Marcus Lui.  They discussed their company, one that the general public may not be familiar to many but a company that has been an integral part behind many innovations we take for granted.  Through ethnographic research, Continuum is able to find the driving forces behind what consumers truly want (even if they are not yet aware of it themselves).   From creating a brand new product for Procter and Gamble the “Swiffer” to designing a hospital room geared to faster patient recovery, Continuum addresses not only what people want but the motivation, emotion and context behind those unrealized needs.

Disruptive change is a central part of staying competitive.  Both Ford and Continuum stressed the importance of gaining top management support, user commitment, inter department communication and collaboration and adequate user involvement.   Both of the presentations were “real world” examples of the case studies from our IT for Process Innovation class from the Rio and Atlanta modules.  Thanks to the clever and innovative teaching approaches of Dr. Noguiera and Dr. Truex, our class was better able to understand, appreciate and absorb the first company visits of our China Business Tour.