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.