The China Vortex

Recently I have been involved in setting up an event in Beijing, it is the Result-Symbio Partnership Symposium on Feb. 28 (Thursday).

The CEO of Result, Ola Ahlvarrson, and the CEO of Symbio, Jacob Hsu, got together and decided that it would be interesting to bring technology and business professionals together to talk about how to bring Chinese and European Internet companies together to explore each others’ markets.

Result (www.result.com) is a Stockholm-based Internet consulting firm, and has had a successful track record helping companies such as Skype, Xing and Fon expand their presence across Europe and into other markets. Symbio (www.symbio-group.com) is a software engineering solutions provider which was founded in the US, but now has extensive operations in China.

Jacob Hsu, the Symbio CEO, asked me to help organize this event. Since many of the participants are heavy-hitters in the Internet field, we decided to have two panels in the morning and leave the afternoon open for breakout sessions. The first panel, to be moderated by Ola Ahlvarrson, will be about how European companies see the China market. The second panel, to be moderated by Kaiser Kuo, writer of the Ogilvy China Digital Watch blog will be about how Chinese companies look at the European market, and will include such well-known and respected members of the Beijing digerati as William Moss of ImageThief, Tangos Chan of China Web2.0 Review and Benjamin Joffe, founder of Mobile Monday in Beijing.

In the afternoon, there will be free-wheeling breakout sessions where technology and business people will have their opportunity to list topics they would like to discuss, and those interested will be free to join the conversations. One interesting new Chinese startup is Qifang.cn, founded by Calvin Chin. This P2P financial website was programmed and designed by Symbio’s web services group based in Chengdu, and has already received coverage in TechCrunch in the US. Calvin will be attending the event and will be talking in detail about Qifang.

The venue for the event will be the Beijing Guxiang 20 Club (actually it’s a boutique hotel) in Nanluoguxiang near Dianmen. Recently this neighborhood has become popular with discriminating visitors to China, and there are many small cafes, restaurants and bars in the nearby hutong.

If you are a reader of this blog and are, or will be in Beijing on Feb. 28, and think that this is something you would be interested in coming to, consider yourself invited by me. You can read the online invitation with details for the event here.

Just mention my name at the door and ask for me. I will be there all day.

Look forward to seeing you there!

Popularity: 24% [?]

Technorati Tags: Beijing, China, Europe, fon, qifang, result, skype, stockholm, sweden, symbio, xing

Have you ever wondered what the health and medical insurance industries would look like in the near future?

If you read this article, then this article, you might be forgiven for wondering too.

Popularity: 20% [?]

Technorati Tags: future, health, industry, insurance, medical

Americans are at their best when they use their creativity to solve problems which most people believed could not be easily solved. In my generation, there was the challenge of sending a man to the moon, put forward by President Kennedy in the early 60s by the end of the decade, a challenge which was realized on July 20, 1969, when Neil Armstrong set foot on the moon saying those famous words, “One small step for a man, one great step for mankind.”

Even though many thought that the race to moon was a technological race with the former Soviet Union (politically, it was), we now know that the journey to send a man to the moon brought many economic benefits, not only to the US, but also to the whole world. Some of the technology led to the development of the microprocessor, which has helped and benefited billions of people on earth. Today, I write this article on a MacBook Pro notebook computer, which has more processing power than the Saturn V rocket which carried those men to the moon. In those days, the astronauts calculated their trajectories and re-entry angles with slide rules!

Unfortunately, following that great achievement, the country seemed to lose direction. In the field of science, different administrations questioned the value of a space program which seemed (to them) to offer no great economic benefit, and projects were funded in a very half-hearted way. The tragedies of Challenger in 1986 and Columbia in 2003 forced NASA to engage in some navel-gazing with no clear results. (In my opinion, space exploration and travel should be opened up to civilian competition, something which is only recently happening.)

Politically the US turned inward following the end of the Vietnam war and the politics turned highly divisive and poisonous, especially during the Clinton and Bush 43 administrations. All of this has achieved nothing.

Therefore, I was very pleased to hear that the National Academy of Engineering of the National Academies in Washington DC announced the Grand Challenges of Engineering for the 21st century. According to them, they are:

Make solar energy economical
Provide energy from fusion
Develop carbon sequestration methods
Manage the nitrogen cycle
Provide access to clean water
Restore and improve urban infrastructure
Advance health informatics
Engineer better medicines
Reverse-engineer the brain
Prevent nuclear terror
Secure cyberspace
Enhance virtual reality
Advance personalized learning
Engineer the tools of scientific discovery

When I read the list, I was very impressed. It made me think of the Saturn V project and the dream of putting a man on the moon. Each of the challenges are huge, even immense. But the benefits for all of humanity would be enormous.

This is all the more reason for countries like China and the US to work together. The Chinese have been much more willing to invest in applications which can generate returns in a fairly short time frame; Americans were willing to make investments for the long haul. It would be great if governments could set aside their mutual distrust so that the scientists can do meaningful research which would benefit all humanity.

Wouldn’t it be great if the US was respected again for its leading-edge scientific research instead of its weapons and military might? It would be nice to have a US which the rest of the world could look up to and admire, not out of fear but out of respect.

Maybe it’s all a dream, but dreams can become reality too…

Popularity: 27% [?]

Technorati Tags: 21st_century, challenges, China, economy, engineering, moon, NASA, nationalacademyofengineering, technology, US

In technology marketing parlance, the three screens refer to the television screen, the PC screen and the mobile phone screen. Most marketers and advertisers now recognize that more eyeballs and viewing time are going to the PC screen, and even more will soon go to the mobile phone screen, and the question they are asking is “When will advertising on the PC and mobile phone catch up with advertising on the television?”

This is a question which Kaiser Kuo, publisher of Ogilvy China Digital Watch, asked in his article “Closing the Marketing Gap”. To quote from his article:

The “Marketing Confidence Gap.” That’s Ogilvy parlance for that vexing and persistent chasm between, on the one hand, the high percentage of media time spent by the average consumer online and, on the other, the relatively low percentage of overall ad budgets being directed online.

Kaiser then goes on to point out that when TV was the disruptive new technology, advertisers most likely ran into the same kinds of complaints from what were then mainstream media buyers (print and radio). And that it took some time for the new advertising models for TV to take off and then reach a new equilibrium of general acceptance. The new medium created its own new business ecosystem with the most well-known being the television market research firm AC Nielsen.

The three screens model throws the old model of TV advertising into question. For many video watchers on the PC, the main appeal of watching videos on Youtube or Tudou is because they can watch them anytime, without advertising. Contrast this with the old broadcast model of the 1960s in the US, dominated by ABC, NBC, and CBS and a few affiliate networks. In the 1970s, cable TV began to take off; it did not have any advertising and relied exclusively on subscriptions. Then in the 80s, satellite news (CNN) took off. So the good old days were not really as quiet and stable as some would have us believe.

This is why the relationship between time spent online and advertising does not hold water for me. There is no rule which says that the correlations which applied to the first screen of television should also apply to the second and third screens of the PC and the mobile phone. I would go so far as to argue that disk and broadband prices have dropped so low that the traditional ad agency role of playing matchmaker to ad inventory (advertisers) and media (publishers) have disappeared. My opinion is that the only place where there is any meaningful and measurable matchup of ad inventory and media are done online is with search ad results, with Google the leader in most of the world and Baidu in China.

This is why I think Sam Flemming’s talk about Internet Word of Mouth (IWOM) has hit an important vein which the ad agency’s have failed to grasp. It is an uncontested fact that while e-commerce in China has been slow to take off in China, many Chinese look for information about purchases beforehand by visiting BBSes and seeing what others say about a product. So why is there no way to track the main influencers of buying decisions and rewarding them with money if their recommendation results in a completed sale? To me, this has always seemed like a difficult, but not insurmountable, technical challenge. In the west, there would be complaints about people making recommendations because they want to make money instead of actually having tried and used the product, but in China, I don’t believe that those disputes would be likely to arise.

China has a unique retail phenomenon called tuangou 团购. This is groups of individuals and families who meet each other in the BBSes and who are planning on purchasing the same big-ticket items. Then, they go and negotiate volume discounts with individual retailers, eventually selecting the retailer who gives the biggest discounts. I have never heard of this phenomenon anywhere outside China.

There are plenty of opportunities in China; it’s just a question of how you see the challenge.

Popularity: 32% [?]

Technorati Tags: abc, advertising, cbs, China, iwom, marketing, mobilephone, nbc, ogilvy, PC, retailers, television

“If I were to wait until the Chinese government said I could do something, I’d never be able to make money.”

This is a line I have heard on many occasions from different Chinese entrepreneurs.

In China, there are many areas which are not strictly illegal, but they’re not legal either. Most of the time, these involve fields which are too new for the government to regulate. Any government is a slow-moving giant; they are not renowned for their quickness and being smart. In this business ecosystem, the advantage lies with the fast-moving entrepreneur who can identify a need and move in quickly.

By the time the government has figured out the industry and begins to regulate it, the major players are already established. This is how the online gaming industry started in China with Shanda, and how Giant Interactive became successful with its pay-for-play online gaming model.

When Americans and Europeans go to China, they go out of their way to make sure that every “i” is dotted and every “t” is crossed in all their legal arrangements with the Chinese government. Each executive is effectively protecting himself from litigation and any bad news from the Chinese government.

This is like going to church and asking the priest if you will get eternal salvation by going to church every Sunday and donating one million dollars every year.

In doing so, they are basically asking for Chinese government regulation. Now, do you think the Chinese government is going to favor a foreign competitor or local Chinese company, even one which pushed the boundaries of government regulation in China?

This is one of the great ironies in China.

It’s a little like being a parent; who do you love more, the loyal son who does everything you say but is not creative and imaginative, or the smart son who sometimes frustrates you by coming home late, but is brimming with all kinds of insights and creative ideas and dates all the smart beautiful girls?

If you asked the Chinese government, or at least watch what they do on the policy level, they like the smart and sometimes naughty son.

Unless he gets too smart for his own good, in which case they smack him down.

Popularity: 36% [?]

Technorati Tags: , americans, China, Chinese, entrepreneurs, europeans, giantinteractive, government, lawyers, legal, litigation, regulation, Shanda

I was recently interviewed by Christine Lu of the China Business Network re the issue of China-India software outsourcing which I had earlier published a white paper about. If you would like to download the white paper, you can get it here
.

You can download and listen to the podcast here.

This article touches on the number of Chinese visitors to India, and Indian visitors to China. The number of Indian visitors to China outnumbers the number of Chinese visitors to India by more than eight to one. This is quite a contrast to the huge numbers of Chinese who are now moving to Africa.

Any way you look at it, there is tremendous room for growth.

Popularity: 27% [?]

Technorati Tags: africa, China, india, outsourcing, software

More frequently now, US-based (mostly Silicon Valley) tech and business professionals are contacting me, asking how to find work in China. The business people usually want to get paid US salary to stay in the US and do some BD work for a US or Chinese company. The technology people usually want to find work in China.

For the most part, it’s very hard to find work which requires that you stay in the US paid at US salary. I have never heard of a Chinese company hiring someone on the recommendation of a senior recruiter without first meeting senior and executive management over a period of time. I know of one VP in a gaming company who came back to China, was hired and worked in China for nearly a year, and was then sent to open up their new US west coast office. Of course, a job like this requires working with a very Chinese company, which means that you need to know Chinese. And you need to prove yourself in the home office before you will be sent to the US. So, it is not easy…

For technology pros with 10+ years’ experience, my advice is that they take a few months off to come to China, and network as much as possible. Paul Graham puts it very well in this article about web startups. Beijing is a very vibrant startup hub and its tech grads from Tsinghua University offer the cream of the crop; generally speaking people are very friendly and open about what they are doing.

Shanghai is a more western style city, and the mentalities of the people are very different from Beijing. A rough analogy would be to say that Beijing is like Silicon Valley + Washington DC, and Shanghai is like Los Angeles or New York when it comes to mainstream media.

If you are a tech pro with 10+ years working in Silicon Valley, you really should be thinking more in terms of startup than about joining a company as an employee. There is an upfront sacrifice in terms of time, but in the end you will be happier, and at least you will own a piece of a company. If you are younger, you can afford to make a few mistakes in your early startups; if you are older, you want to choose more carefully. The good thing about doing a startup is that even if it fails, you are likely to make excellent acquaintances which will help you in the future.

One reader of my previous article Is It Possible For A Western-Managed Company to Succeed In China? mentioned that I made it sound very hard for a westerner to succeed in China. Well, yes and no.

Over the weekend, I came across an interesting announcement on Danwei from Praxis Language, the parent company of Chinesepod, an online Chinese-language learning program. The company is based in Shanghai and is headed by Ken Carroll. I met Ken in 2005 at the first Chinese blogger conference, which was held in November of that year in Shanghai. I have never used Chinesepod, but I have heard many favorable comments about it from westerners who want to learn Chinese.

The announcement, which is on Ken’s blog, mentioned that the Chinese government agency in charge of the government-operated Confucius Institutes, had approached his company about partnering to create an online presence for their institutes and helping to teach Chinese to non-Chinese using the Internet.

Think about it. The Chinese government partners with a non-Chinese headed company in Shanghai which knows something about language teaching online to help them promote the teaching of Chinese online around the world.

So, if you are good in your field, of course there are opportunities for western-owned startups in China.

Popularity: 36% [?]

Technorati Tags: Beijing, business, China, Chinese, chinesepod, confucius, confuciusinstitute, management, paulgraham, praxis, shanghai, technology

One of the most popular cliches in the west about China is that Chinese are generally good and reasonable people, but when it comes to nationalism, they are unreasonable. On the political level, national sovereignty is not negotiable, and when it comes to business, you need to realize that nationalism is a wildcard, and can throw a monkey-wrench into your best-laid plans. Put into this context, the 2008 Beijing Olympics is all about righting past wrongs, and showing that China is now an equal, maybe even a leader, in the world stage.

Like all bad cliches, this cliche contains a kernel of truth.

In my previous article, I mentioned why it’s so important for any business to be successful in China, decisions must be made locally by local management; it cannot be micromanaged from the US or anywhere else. Established business sectors such as finance, banking, retail, and fast moving consumer goods (FMCG), all understand this very basic rule of international business.

In the venture capital field in China, there has been a large influx of companies and partnerships which have opened offices and partnerships in Beijing and Shanghai. These companies understand that good investment decisions must, for the most part, be made in China where the local partners can understand the business environment, the competition and perform the due diligence to make the right decisions. Smart decisions cannot be made outside China.

And even that is not necessarily enough. Now more companies are going into the Chinese tier 2 and 3 cities and they are realizing that Beijing and Shanghai have more in common with New York, London or Tokyo than with other Chinese cities.

So why do so many US technology companies continue to try to second-guess and micromanage their China local management?

This is a mystery to me, and I continue to be befuddled by it. How can intelligent people continue to make and repeat over and over again mistakes which others have made before?

And then, when the Chinese local management complains that they are not empowered, sometimes they dismiss it as the Chinese “going nationalistic”. Never mind that the people questioning the Chinese management in the US do not speak, read or write Chinese; never mind that the people coming into China spend only a few days on the ground in China and think that they have China “all figured out”, yet they continue to do this over and over again.

Does this make sense? Any sense at all? And should there be any surprise that leading US companies including Yahoo!, eBay and AOL have failed in China?

And yet, these people control the budget and resource allocation for China. Should there be any surprise at all that US Internet companies have not been able to be successful in China?

What value do these people contribute to the success of the business in China? I can’t see any. Then when the company fails, it isn’t because headquarters slowed down the decision loop; it’s because of “poor performance by local management”!

They have set up Chinese local management to be the fall guy even before they started!

If this thinking were only confined to Internet companies and startups in China, it would be bad, but in the overall economic picture, it wouldn’t be that important.

The problem for the west is that it isn’t.

It has affected the west’s popularity in Africa because China offers aid without strings attached. In the mainstream media in the west, this is depicted as a cynical attempt by the Chinese to curry favor with regimes which behave badly.

But could there be more to it than meets the eye?

Could it be that the Africans don’t like to have someone dictate loan and development terms from Washington DC, London or Paris, and setting performance benchmarks for them without understanding the context of development in their own countries and region?

And could it be that the real reason for the popularity of the Chinese is that for better or for worse, they have gone local, setting up their own businesses and factories in Africa instead of trying to dictate terms from Beijing?

Definitely this is something worth pondering…

Popularity: 39% [?]

Technorati Tags: africa, AOL, beijingolympics, business, China, ebay, economics, economy, internet, london, management, paris, US, washington, west, yahoo

For many westerners and western companies, it’s hard to figure out why some Chinese have gone to the US for their graduate degrees, worked at name technology companies such as Intel and Microsoft, then come back to China, their homeland, start their own businesses, and fall flat on their faces.

How is this possible? They had everything going for them; they had the best education the US had to offer, worked in a great company, were smart and entrepreneurial, know the language, have connections, and they failed.

More often than not, these people have been away from China for a long time. Over time, they have become used to the American way of life, and while they keep up with what is going on in China, their knowledge and understanding of the country has gone stale. Gradually, they are more at home in America than in China. They jump on the China bandwagon because it is in the media all the time, and they hope to strike it rich.

Then they return to China and discover a country which is not the China which they grew up in. Compared to when they left, the role of the government is much smaller, the country has become more market-oriented in most sectors, and they may have lost many of their former connections. Worst of all, they look at the country through American-tinted glasses and use American society as a point of reference, something which does not work in China at all.

For any business or individual to succeed in China, you must understand China on Chinese terms.

This failure to understand China on Chinese terms is, in my opinion, why so many western Internet companies have failed in China. Moreover, the constant need of local management to report to headquarters outside of China, and to report every purchase they make, and more often, to explain what they are doing, puts a fatal hindrance on the decision-making process because the management is constantly tied up in knots educating someone in headquarters about China.

This makes for another very important point: No successful company in China can be successfully run from outside China; the key decisions and decision-makers must live, breathe, work and sweat in China every single day to make it work.

The single most important bad decision western companies make in China is to force the local China management to consult with headquarters about every matter; this makes the local management look weak in the eyes of their own staff. After all, what is the point in staying with a company if they do not have the power to make decisions even if they are sitting in the corner office?

It all comes down to how empowered people are to make their own decisions, and to be held responsible and accountable for them.

It makes much more sense for them to break out and start their own company, often taking the idea the western company had, but was not able to implement in China because they were constrained by headquarters’ indecision. In the Internet sector, where change is happening so fast, it makes no sense to sue and countersue; that would only make the lawyers happy and not solve the basic issues.

This just scratches the surface of why being Chinese is no guarantee of success in today’s China. Put simply, the society has changed too much too fast, and unless outsiders live here and deal with local Chinese who have never been outside China and speak only Chinese on a daily basis, they will fail.

In business, success cannot be guaranteed, but failure can…

Popularity: 34% [?]

Technorati Tags: business, China, Chinese, entrepreneurs, intel, language, local, management, marketing, media, microsoft, US, western

In my previous article I talked about how skill demand in startups in China was changing, and that the skills needed from both local and non-Chinese had changed considerably.

This article from the Asia Times talks about how immigration and hiring trends are beginning to change in China and India. Regardless of whether you agree or disagree with it, it makes for interesting reading.

Popularity: 22% [?]

Technorati Tags: asia, China, education, employment, immigration, india, skills, startups, trends