The New Value Economy Arrives

What a difference a month makes!

Just a little more than a month ago, China was basking in the afterglow of the Beijing Olympics, and the US still had an investment banking sector. Now, all China news has been taken up with tainted milk scandal, and the US consumers have changed from spendthrift junk-buyers into wondering whether they will have enough money to buy Campbell’s soup. (Last Monday, when the Dow went down 777 points, Campbell Soup was the only stock to go up. Can you say dark days ahead?) At the same time, Americans have come close to openly rebelling against the Bush administration-backed Paulson plan to bail out the banking sector and create liquidity in credit markets.

In the meantime, economists and politicians are debating whether this is the beginning of a recession or depression. Let’s just say that it’s going to be bad.

In China, the bad has different roots, in how the dairy industry has been systematically thinning milk, then loading it up with melamine so that it doesn’t look protein-deficient (it is). In fact, the problem is systemic, and is not just limited to the dairy industry. This is something which runs throughout Chinese society on a wide systemic basis because local officials are judged only on quantitative results instead of quantitative and qualitative results.

Wall Street and China took different paths, but both ended up with the same sack of shit. The trouble is that this sack of shit affects the whole society in both the US and China, and the rest of the world.

Now, if the problems were not systemic, all you would have to do is hire a PR firm, and they would quickly put together a PR campaign, the public would gradually forget, and everybody would get back to their merry business.

But it’s not that simple.

Recessions/depressions are like forest fires; they destroy a lot of the accumulated undergrowth and excess, providing an opportunity for new growth. We are now going through such a forest fire. It is likely that it is only just beginning. But it is worth thinking about what are the new flora and fauna which will grow and flourish in the environment which comes afterwards.

Here are my thoughts:

  • Transparency will be the rule instead of the exception. Instead of talking about quality, companies and government officials will need to show it.
  • The Internet and modern IT will turn into a transparency enabler. Think of webcams in dairy processing and manufacturers’ plants in China which anyone can log into anytime. Think of US members of congress listing all the contributions they take and publishing their meeting calendars, live and online.
  • For companies, proof of quality. This means that it won’t just be ads and PR. They will need to show how they create quality. A big question for service companies: “How do we show quality in what we do for our customers?”
  • Creating quality is no longer a one-way communications process, it will be two-way. Consumers will challenge the companies and governments, and they better have good answers ready. Smart companies will think of ways to weave some of the criticisms into product/service input and incorporating it on a near real-time basis.
  • We are witnesses to the crumbling and collapse of an old way of doing things, and the rise of a new way. Education systems all over the world have not prepared people for this, especially the business schools. If you are a newly-minted MBA, good luck!
  • An awful lot of companies in China are not going to make it. Many of them don’t deserve to make it. But there will be refreshing new companies with new ideas and who are committed to quality and value. Most of them will come from the private sector. Keep your eyes on Zhejiang for new ideas, companies, products and services! In my opinion, Beijing and Shanghai are vastly overrated and are not truly representative of China. They are still like the Treaty Ports of old: they have enough Chinese to make westerners feel like that they are in China without having to make a major adjustment in lifestyle, and enough ministries and public buildings to make the Chinese officials feel comfortable and in control. The relentless drive to lopsided urbanization at the expense of the countryside which Yasheng Huang puts forward in his book Capitalism with Chinese Characteristics: Entrepreneurship and the State, is a view which is sometimes discussed among Chinese, but which most westerners are not aware of. China is just now beginning to pay the very high price of this lopsided development.
  • There is going to be a lot of money to be made in helping the old companies make the transformation to the new value economy. Most of them won’t make it, but they are going to spend a lot of money trying. If you’re in change management and know how to market, you’re going to make a killing.
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5 Responses to “The New Value Economy Arrives”

  1. Sean says:

    We can all dream..

  2. David says:

    Certainly it has to go deeper than a PR campaign, but you have to admit: none of the above will work worth a damn if it is not accompanied sophisticated communications efforts from both enterprise and government that would be unprecedented in scope and scale.

    It also means that the accepted practices of PR in China such as paying, badgering, and even intimidating journalists, paying for “advertorials,” or simply cranking out reams of laudatory copy is going to have to change.

    My problem in this, and indeed in everything above, is that all of this pre-supposes that the executives running these firms are going to get much more sophisticated about a lot of things almost overnight. I think this is optimistic.

    I agree that what you say will take place, but I think this process is going to take a very long time – five to ten years at least – and it will coincide with the seating of a new generation of leaders at the top of China’s major enterprises.

    In the meantime, I expect a “flight to (perceived) quality” among Chinese consumers, especially urban-dwellers along the coast and in select inland cities. This means upticks in the sales of imported products – especially foodstuffs – that is going to show up in the trade figures starting in Q4.

    Davids last blog post..Story of a Small Giant

  3. Scott Pack says:

    I am feeling better informed with each blog post I read on here.

    Thank you.

    Scott Packs last blog post..The Land Of Make Believe

  4. […] • The wealth gap will become wider over the next 10 years between the cities and the countryside, then stabilize for five years, then shrink as the city worker bees retire in 15 years. Rural infrastructure is less developed, and so far, the Chinese government has made all the wrong moves in rural development by not supporting the development of rural collectives for the farmers. There is an excellent article (in Chinese, h/t to Stan C) about the failure of China’s rural development, and how Chinese rural development will look like the Philippines with large food processing companies employing poor farmers. This organization is partly responsible for the Sanlu tainted milk scandal, and is copied from the US. But the US has a surplus of land and shortage of farmers, while China has a shortage of land and excess of farmers! If you are interested in macroeconomic issues, this is worth more study. Its view converges very well with the view of Yasheng Huang in his new book Capitalism with Chinese Characteristics, which I have also mentioned in my previous article. […]

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