Doing Business in Asia

– 1.4 billion people in Chinese market
– Chinese interested in transitioning from manufacturing to service-based

Confucius (551-479 BC):
“By three methods we may learn wisdom:
First, by reflection, which is the noblest;
Second, by imitation, which is easiest; and
Third, by experience, which is the bitterest.”

Four great inventions: compass, gunpowder, paper-making, printing

Oct 1, 1949: Mao Zedong (1893-1976) stood at Tiananmen Square and said China had stood up.

Four big things (to own) in the 1950s-1970s: sewing machine, radio, bike, watch

Rule of Man vs. Rule of Law (China has rule of man – judge has power; US uses rule of law)

How can you catch tiger cubs without entering the tiger’s lair?

Chinese Business:
– make educated decisions, gather targeted intelligence
– define success, revisit/redefine plan
– focus on the bottom line (impatient for profit, patient for growth)
– take calculated risks, celebrate successes
– leverage corporate assets and strengths

“Globalization is fundamental change in expectations and values” (Drucker). Not an economic event, but a psychological phenomenon.

“Win-Win” in USA, “Guan Xi” in China (relationships)

Li Ka-shing: “Leave money on the table for your partners. Not only will you be very rich, you will be very happy. If you allow your partners to benefit from the deal, they will always come back and want to do business with you. There will never be a shortage of opportunity.”

Companies whose names/slogans did not translate well into Chinese:

  • Coca-Cola = bite the wax tadpole (changed to let your mouth rejoice)
  • KFC = eat your fingers off (finger lickin’ good)
  • Benz = rushing to die
  • Pepsi = brings your ancestors back from the dead (trying to say: come alive with Pepsi)
  • “It is easy to find a thousand soldiers; it is very difficult to find a good general.”

    Harvard Review says the best attributes for a rising star are as follows. And shortcomings in even one of these three attributes can dramatically reduce candidates’ chances for ultimate success…

    1. Ability
    2. Engagement
    3. Aspiration (degree to which what the employee wants aligns with what the company wants for him)

    Hotel in Beijing: Beijing Shindom – Zhushikou Hotel. With class we stayed at Novotel Peace Hotel. In Shanghai, we stayed at the Central Hotel. In Wuzhen, I stayed at Wuzhen Xicheng Dongjiu Inn

    ITINERARY:

    • Pre-arrival I spent time at the Bookworm (Sanlitun), Qienmen, and the Summer Palace
    • Day 1: group arrived (I got cupping massage)
    • Day 2: Forbidden City and Tiananmen Square (9,999.5 rooms). Tina and I went to lunch and she drew pictures of a pig and some shrimp. Then the Temple of Heaven (animal sacrifice). And group outing to Pearl Market with dinner at some Macau Restaurant in the mall at Wanfujing.
    • Day 3: Great Wall. Then the 798 Art District. There was an alumni welcome reception then dinner at the hotel. Then we hit up Sanlitun and I got to dance to Gangnam Style with a Korean guy in Beijing.
    • Day 4: Presentations at the hotel (3) and then the Beijing Duck dinner in Wanfujing. The group ate scorpions and said they tasted like potato chips.
    • Day 5: site visits including an unending stock of potato chips, oreos, and choc chip cookies with tea leaves in cold water followed by a latte. We had dinner at Element Fresh in Sanlitun.
    • Day 6: flew to Shanghai. Went to Xintiandi and had beers on the patio then dinner at Ye Shanghai.
    • Day 7: people to us then Shanghai World Financial Center and dinner at Din Tai Fung. We went to M2 at night
    • Day 8: site visits then dinner at the hotel. Group really thinning. Alumni event.
    • Day 9: Jade Buddha temple, the Bund, Yuyuan Garden (scissor bridge). Then later the Science and Technology museum.
    • Day 10: Tianzifang then everyone left. I took a bus to Wuzhen and watched death videos in a loop the whole 90 minute ride.

    BEIJING PEOPLE TO US:

    • Bill Bishop: Sinocism – Recommended book by Damien Ma called: “In Line Behind a Billion People”
    • Peter Schloss: lawyer
    • Rich Robinson: Yulu
    • No shows: Philip Qu (TransAsia Lawyers) and Allison Friedman (Ping Pong Productions)

    BEIJING SITE VISITS:

    • Kaiser Kuo: Baidu. kaiser.kuo@baidu.com – said that in the west we fear Nazis and in the east they fear chaos. Writes a column for the magazine The Beijinger called “Ich bin ein Beijinger.” He was in China’s first and most successful heavy metal band (Tang Dynasty) and was also in dirty Deeds (AC/DC cover band) and Chunqiu (Spring & Autumn). Has a podcast called Sinica.
    • Edward Tsia: Qihoo 360. Fed potato chips and cookies to a humorous degree.
    • NBA China: 27x bigger NBA fan if you play ball yourself. NBA = nothing but attorneys.

    SHANGHAI PEOPLE TO US:

    T.R. Harrington: Darwin Marketing
    – Amazon has 7% of it’s market in the USA; Alibaba has 70% in China
    – SEO: George Bush on Google: “miserable failure”
    – recommended Kunming in the SW of China (perpetual springtime and where he went to language school)
    – BAT: Baidu Alibaba, Tencent
    – Amazon had gotten 3x more search traffic on products than Google, so Google opened shopping option.
    – Netscape: original VP of international affairs (?) wrote an online manifesto about being visited by aliens while a VP of a publicly traded company. thewordistruth.org Joe Fermage?
    – worked at Red Gorilla
    – Alibaba wants retail data. They have e-commerce data, want retail
    – Tencent went from 5% of market to 20%, crowding out the other two tier players under Alibaba by buying a failing e-commerce business and using it to launch their platform. They lost no money and grew to the 20% (kind-of like how PayPal built through eBay)
    – Tencent did a big campaign for Chinese New Year: red envelopes given. Just need to sign up for their platform.
    – Mobile companies make revenues by games (60% of the profits), payments (30%), and advertising (10%). In China, 10cent is #1 in games, #2 in payments, and companies are dying to give them ad money. For ads, they had one company change its logo during Chinese New Year because their logo was red (and that’s reserved for CNY). Companies had to commit 10 million RMB (about $1 per 6 RMB) without any say in when their ads would be published or any content promises.
    – Said nationally, across all industries and positions, turnover is 40-60% annually; at his company it’s 15-30%. Also, people shift addresses and email addresses all of the time. The only way to capture their data is to get a mobile number. Some Dutch company (TNT?) ignored him and spent millions on a consumer data campaign. Within in 18 months, only 30% of the list was good.
    – Lots of platitudes and smiles, but you have to listen to body language, not the words
    – A client had an employee come in with a doctor’s note saying she was preggers and needed to be off work, effective immediately. The client was screwed because she couldn’t replace her. To get around the headcount issue, TR suggested the client pay him an increased consulting fee and he’d take on the new hire, sending the new hire to the client to work.
    – Escrow or inspect product shipments – don’t sign off or release $$ until you’ve fully inspected product. Someone is trying to fuck you in this country.
    – such a difference between the regions; China is more like Europe than the USA. you’re not marketing to just one type of person.

    Steve Mushero – ChinaNetCloud
    – used to work at Tudou: which is the pre-youtube version that is better than youtube
    – “naked quitting” = quitting without another job lined up. very frequent in China
    – uses non-anonymous surveys to get info out of Chinese. They’ll write down what they won’t say out loud
    – when evaluating how an employee feels, he tries to ask 3 people to give their take (a co-worker, the cute girl down the hall, the boss – whoever). Needs to hear the whole story from a variety of sources
    – part-time work is kind-of illegal, working two jobs is kind-of illegal. have to stamp their communist work books.
    – is the norm to ask women if potential hires are married, pregnant, etc. In fact, they pay doctors to give them a pregnancy test during a physical.
    – there are limits to the amount of milk powder you can purchase in UK/France/etc because they know you’re importing to China; US baby powder milk formula is huge emerging market in China because people trust their standards

    Tao Wu, PhD: The Gallup Organization
    – China’s wellbeing is relatively flat. Even though there’s been a dramatic rise in GDP ($3,599 in 2004 to $11,524 in 2014), life satisfaction hovers around 5. (4.5 in 2004; 5.2 in 2014 – and those mark the highs and lows) – but Chinese corporations don’t currently care about employee wellbeing.
    – To buy property in China, you must show that you’ve lived in the city for 5 years and show tax payments. 82% of people own property in China; 65% of people own property in US.
    – They market to people who purchased an iPhone in 2007 – you can tell who they are by their phone numbers. 70% of mobile purchases are done on iPhones.
    – Thoughtful China podcast

    SHANGHAI SITE VISITS:

    William Bao Bean, Managing Director at Chinaccelerator
    – There are over 100 mentors here. They invest $60k for 7% equity of each startup. They’re seeding early-stage startups that have the potential to expand globally. They bring them in for 3 months (twice annually) and it ends with public demo day where they pitch a small group of invited investors
    – Their goal is to generate venture style returns, not to make money off of rent or fees
    – IRR = internal rate of return which is the fund’s measure/how much $$ you make per year after fees, taxes, and salaries are deducted.
    – Most VC funds fail, but they’ve got 36% IRR over 13 years, putting them in the top 300 globally.
    – Fund started at $5 mil and grew to $235 mil, including $50 mil last year
    – There are others like seedcamp, making 2800 total accelerators but they’re the only one in China
    – 2 and 20 = (didn’t quite hear him….) 2% of profit for office space… profit share is 30%
    – First question they ask is: what problem are you trying to solve. The applications need to come from a team of people. He looks for passion as it’s the #1 determinant of success. They invest in slightly insane people
    – there’s a speaking series called “Startup Grind”
    – mobile first mobile only
    – Foreign Corrupt Practices Act (not allowed to bribe people)
    – they look at a person’s social footprint to determine the best call center employees
    – when you sell you’re company, you have what’s called an “earn out” – you don’t get the money and run; you have to work for 2-3 years and earn your way out
    – if you make 10-30x investment, you’re doing well. 60x is really, really good. In the US, you’re making 10 investments and hoping for 1 winner. China is a true capitalist society.

    Melissa Lam, general manager and chief rep at Education First

    Tim York: head of strategic planning at J. Walter Thompson
    – Talked about guan xi (gwan shee). In China, health used to be sacred because it meant the ability to work. Now people are beginning to have more leisure time, so they are focusing more on fitness. There’s a need to protect status (the old way) versus the need to project status (bling bling new way). There’s actually a Baby MBA, where a toddler gets a head start on business knowledge. Ding Xiaoping said: “getting rich is glorious.” Population of Shanghai is the same as the population of Australia. “stand up but don’t stand out” = be noticed but don’t draw too much attention. Chinese project status in a number of ways, including having successful kids and belonging to exclusive clubs.

    Hong’s Shanghai Recs…

    Arts:
    1. Honqiao Redtown
    2. Moganshanlu, Putuo District
    3. Tianzifang (Taikunglu), Luwan District

    Fun Places:
    1. Xintiandi
    2. French Concession Area (subway: Shanghai Library, Hongshun Rd, Changshu Rd)
    3. Korea Town: New Star Spa
    4. Xujiuhui subway station: Ganghui Plaza
    5. Laomaton (fake beach) No. 458 Wuima Rd Huang Pu District
    6. Yu Garden

    “Eat Bitter” – chir-koo – must suffer some pain to be successful