The China Vortex

Just as with a master go player, whose moves seemingly look random in the beginning, Apple’s moves in the mobile and desktop space are beginning to come together.

While the iPhone3G was expected, the real aggressive play came with MobileMe, Apple’s completely revamped version of it’s .Mac subscription service.

With Apple’s announcement of the new iPhone3G and MobileMe web-based push-sync solution, Apple further closed the loop on the competition with a complete soup-to-nuts offering for consumers, and now has a strong entry into the corporate market. By licensing Microsoft Exchange to Apple, the Redmond giant gave Apple an entry path into corporations for the iPhone3G at the expense of Blackberry, and the future of its own Windows Mobile platform.

How will future versions of Windows Mobile differentiate themselves in the corporate marketplace, traditionally Microsoft’s stronghold?

Alvin Foo has excellent coverage of the iPhone3G on his blog, and now also provides a robust development environment for mobile developers.

The feature comparison chart above gives some feel for how things are shaping up for Apple, Microsoft, Blackberry, Nokia and Adobe. The immediate pressure is on Blackberry, then pressure will shift to Nokia which has a very wide product line, and is the largest seller of mobile handsets in the world.

Apple and Nokia have two different visions of the future: Apple wants to sync multiple devices including computers and mobile phones. Nokia needs to offer single computing platforms in multiple markets which provide excellent computing capabilities with voice capability as their only computer of choice, making it unnecessary to have multiple computers.

Can Nokia pull it off? Unfortunately Nokia is still too married to the voice phone capabilities of its phones, and has not been able to come up with a single data-centric vision of the future for the OS and applications.

Microsoft’s vision of the future is the same as Apple’s: multiple devices with push-sync across platforms. The trouble is that Microsoft cannot have solutions as elegant as Apple’s. The company is reliant on its strong corporate presence to continue to get revenue, but now Apple has a backdoor entry into that marketplace with its licensing of Microsoft Exchange for the iPhone3G. The next step is for developers to come up with iPhone versions of corporate apps for the iPhone. This will give IT departments an opportunity to evaluate the stability and security of OS X.

Microsoft’s matrix management and multiple business units and product lines make it difficult, if not impossible, to come up with single elegant solutions for both corporate and consumer markets. If Microsoft continues to launch operating systems like Vista on a much slower launch schedule than Apple, their position in the marketplace will continue to erode.

In order to pull off a plan as aggressive as Apple’s, you need a strong division management with limited product lines, reporting directly to The Man, Steve Jobs, who has the vision, and gets everybody in line to execute.

Apple’s loop continues to close…

Technorati Tags: .mac, adobe, Apple, blackberry, chart, comparison, feature, iPhone, iphone3g, microsoft, mobileme, Nokia, stevejobs

In 72 hours, more than 600,000 persons in China, and 6-7M persons worldwide, are going to turn to that little something dearest to them and say those dreaded words, “Honey, you’re looking old”.

I’m not talking about their spouse, I’m talking about something they normally spend far more time with: their iPhones. Within 72 hours in San Francisco, Steve Jobs will take center stage at the Apple Worldwide Developers Conference (WWDC) to announce the second generation of the iPhone, which many refer to as the JesusPhone. We already know that the new phone will include 3G and GPS features.

Hmmmm…. Does that mean we can call the second generation of the iPhone the Second Coming of the JesusPhone?

For China, the big question is whether the new revs of the iPhone will include the Chinese government backed and developed TD-SCDMA technology, which is the local version of the 3G standard, and has now been handed over to China Mobile for care.

China Unicom and China Telecom will support competing 3G standards which are not China developed and are most likely already supported in the current chipset for the 3G iPhone.

The thing to watch for will be whether Apple starts ordering TD-SCDMA chipsets. In the meantime, dedicated users of the Apple iPhone in China will most likely switch their mobile phone accounts to China Unicom and China Telecom if they want to take advantage of China’s not-yet-launched 3G services. The thing that they should remember is that China Mobile holds the vast majority of mobile phone accounts, with China Unicom coming in a distant second and China Telecom just recently starting to offer mobile services. And 3G services have not yet launched in China, though everyone is expecting that to happen within the next six months.

In the meantime, you might not want to tell your spouse yet that she is looking old.

Technorati Tags: 3G, Apple, chinamobile, chinatelecom, chinaunicom, gps, iPhone, stevejobs, td_scdma

This article is a follow-up posting to my previous article about why China Mobile should buy Baidu.

One of the rules for mergers and acquisitions is that if one company wants to be acquired by another company, they have to be moving in generally the same directions. This way, less management attention needs to be spent on changing direction and redirecting resources.

If we take a look at China Mobile, they are a Chinese company which has been looking aggressively outside of China. With 500M+ mobile phone subscribers in China, it has the user base and cash flow to be truly a world-class company. China Mobile is proposing to set up a development lab with Vodafone and Softbank to work on widgets and others services to offer China Mobile and Vodafone subscribers. From the surface, it appears that these two leading carriers are trying to wrestle some of their technology dominance back from Apple’s iPhone, which will offer its own Apple App Store, selling mobile apps directly to Apple iPhone users beginning in June.

Interestingly, Vodafone is helping to bring Apple’s iPhone into the Indian market. According to a recent article, Apple may be discussing launching the iPhone officially in China with China Unicom. (Note: I disagree the author’s tone about Apple not getting it right in selling in China, I think that Steve Jobs knows very well what he is doing, and is biding his time until the 3G iPhone comes out in June. China is another piece on his chessboard, albeit a very important one.)

On the business side, China Mobile has been most agressive in Pakistan, following on its purchase of Paktel in 2007, and has just launched its Mobile Zone in the country. This looks like a test learning market for China Mobile. There are not many companies which can afford to “test” in a country with a population of 180M, China Mobile is one of them.

Based on this, it would be fair to say that China Mobile is leaning forward into overseas markets. It has enough money in its coffers to expand more quickly, but the most serious barrier is lack of international management talent who can execute in non-Chinese markets.

In contrast, Baidu is much more focused on the Chinese domestic market, where it continues to grow and pull ahead of Google. Everything suggests that the Baidu management believes that there is much more room for revenue growth domestically in China. The only tentative step Baidu has taken outside of the China market is with Baidu Japan (baidu.jp), which has only 0.3% of the Japanese search market.

Compared to Google, Baidu still continues to go after the easy money in China. Google continuously introduces and refines it search algorithms which are the secret sauce of its success. In comparison, Baidu relies less on search algorithms, instead using human search to assist in search results.

Baidu’s search results are also fundamentally different from Google’s. While Google’s search results strictly differentiate between unpaid organic search and PPC advertising, Baidu makes no such differentiation. The end result is that unpaid search results are pushed further back in position on the search results pages.

If there is one challenge in Baidu’s reliance on human-assisted search (as opposed to automated search algorithms as Google uses) and giving preference to paid advertising over unpaid in search results, it is that while it boosts revenue in the short-term, it is not extensible outside China, except for some of the other East Asian markets (Naver.com in South Korea is one such example. It would be nearly impossible for Baidu to oust Naver.com from its leading position as the home-grown leader in that very nationalistic market.)

Here lies the challenge: China Mobile is looking outside of China now, and Baidu is still looking to grow revenue on the domestic market, while nearly ignoring the overseas market.

Is there room to narrow the gap and create a new company for mobile search advertising and location services, first in China and then which can be extended overseas?

That is the challenge.

Technorati Tags: advertising, Apple, baidu, China, chinamobile, iPhone, pakisitan, paktel, search, softbank, vodafone

A few days ago I read an interview with Steve Jobs published in Fortune in March. One of the ideas which Steve Jobs put forth is that you really need to understand the technology issues, then follow how they will roll out in order to be successful. Apple has a certain advantage because it owns the operating system and the hardware. This means that the hardware and technology can be integrated much more tightly together.

This makes me think that one of the issues with the current media and advertising space in China is that there is not enough understanding of the integration of the hardware and software. Basically, DoubleClick came up with the idea of the banner ad, then Google came up with the idea which came from came up with the idea of PPC advertising on the search results page, and the algorithms which would optimize the system to become a money machine for Google. For too long, players in this space have come from the media space, offering a “me too” solution full of buzzwords but with little real content to differentiate.

What did Google do which was so different from Yahoo!, the leading Web 1.0 portal? They got very close to the technology, to the point where they built the servers and disks, and created MapReduce, Google’s search technology which could run on huge clusters.

Now, I hear a lot of talk about all the startups in China, but most of the time, I don’t see how any new technology is used to take a whole new look at how advertising should be delivered over a complex network. Most are consumer plays which do not deliver anything spectacular. That would not be an issue if they had a good feel for the marketing process, but more often than not, they do not. As a result, most advertising buys gravitate to the big online media companies, which include Sina, Sohu, Netease and QQ, as Kaiser Kuo frequently talks about in his blog at Ogilvy China Digital Watch.

In fact, we are just at the beginning of a whole new wave for technology and advertising: this is the mobile wave. Handset makers now only pay US$15 per handset for software, and with the upcoming development and launch of Google’s Android, per handset payouts are going to go down even more. This means only one thing: there will have to be a steady advertising revenue stream to finance all the content. The mobile network though is not one network, it will have to be two:

• The search and search results network including GPS location-based detection
• The network delivery system

In software development, there is the MVC or model/view/controller system for software design. The rules are defined at the model level, there is the presentation end for how the viewer sees the content (Apple is now taking a grab at this with the Apple iPhone) for view and the controller, which connects the rules at the model level with the view, and handles delivery.

Basically, Apple is trying to leverage its control of the iPhone audience at the view level to get leverage with the carriers, who act at the model level. In some markets it has been successful, but not with China Mobile so far. The handset makers such as Nokia, Samsung, and LG have solutions, but since their product lines are spread across so many products, they have little leverage unless they came up with their own operating system and hardware as Apple has. What are the chances of that happening? Microsoft has a solution with Microsoft Windows Mobile, but it is just one among many players and does not have a dominating position on any of the model, view and controller levels of the mobile network.

China Mobile has made no secret of its plans to control the platform as much as possible by virtue of its near-monopoly role in this space. Ultimately, it will have to make marketing choices about what audience it wants to serve: the casual youth market or the productivity worker, and how to maximize revenue from the market they choose. The only way for them to avoid having to make this choice is to offer contextual advertising on the mobile network. It would make a lot of sense for China Mobile to buy Baidu to protect its mobile advertising revenue stream from Google, and then make a serious technology effort to combine improved search algorithms with location services. Search technology involves a great deal of non-trivial technology which cannot be easily replicated, even by a company as huge as China Mobile.

As for smaller players, they will have to come up with ways to get revenue from a market which has been bombarded with a huge amount of free content.

Google has a tremendous advantage with the Google Android operating system, which will have hooks built into it for search and location services. If you think that they are giving a mobile phone OS away for free just because they are nice people, you are delusional. They are offering a new mobile ad platform with other services to attract developers.

I expect that the mobile network will very soon become the “smart network” compared to the PC-based network, which will become the “dumb network” because it does not have location sensitivity. (Of course, newer computers will have location sensitivity. This will then combine with Google’s current services to deliver ads which will make the current ad networks look like something from the Stone Age.) The PC network will continue to be good for banner and brand advertising, but if you really want smart contextual advertising which operates on a PPC basis, mobile will be the leader.

The smaller mobile players will have to pay “toll fees” to the model (China Mobile, China Unicom, etc,.) and view (Apple) players. It will be much harder to get onto the technology ramp for mobile than it is for the PC, at least in the beginning.

Technorati Tags: android, Apple, baidu, China, chinamobile, doubleclick, google, gps, iPhone, lg, microsoft, Nokia, samsung, search, stevejobs, yahoo

If you are interested in the kinds of social networking applications Chinese are now using today, David Feng offers some ground-level observations in this article. I’m a great fan of first hand research and observations and David offers some excellent observations.

Maybe it’s been a reaction to some of media coverage of everything which has been going on with the coverage of China and Tibet, but I have been diving into technology lately. Specifically, I have been digging deeper into Apple’s frameworks for development on the Macintosh and iPhone platforms.

Here are some of my observations:

– Everything’s an object, and everything’s object-oriented. Think of actors on a stage, and passing data to objects, which act on them. All the time.
– The MVC (model, view, controller) analogy is used throughout, which makes it natural for Macintosh developers to make the leap over to Ruby on Rails development and other non-Ruby frameworks such as Django;
– While Microsoft has worked on developing new languages such as ASP.net and C#, Apple has stuck with one: Objective-C, which has roots in NeXT and OpenStep. (For instance, all classes begin with NS. What does NS stand for? NextStep.)
– Apple’s efforts, in contrast with Microsoft’s, has been on developing frameworks;
– Think of the frameworks as sandboxes which Apple provides for you to play in, which you can gradually grow and develop with, and then later contribute to;
– Cocoa and Cocoa Touch are frameworks of classes, all based on Objective-C. You use these classes to instantiate your objects;
– Instead of thinking about writing code, you spend more time thinking what you want your objects to do, and objects messaging each other;
– Apple provides many sample applications and their code. You learn by making minor changes to the code and seeing what happens;
– There is a small and very dedicated community made of Apple developers. Very smart people.
– The documentation is REALLY good, and includes videos which you can download into iTunes, online documentation, and documentation in Xcode, the development tool. It is clear, sharp, concise and jargon-free.
– Every Macintosh ships with all the development tools you need, including Xcode, Interface Builder and Dashboard so that you can develop native apps or web apps right out of the box.

After some play with it, I’ve come to the conclusion that part of the reason there are relatively few developers working on the Objective-C/Macintosh/iPhone platform is because it completely rejects procedural programming as a development model. In fact, procedural programming would most likely be a handicap in shifting to the Macintosh programming model because it basically requires programmers to relearn a new programming model.

If you embrace object-oriented programming and agile development as a model though, it’s the best.

Technorati Tags: agiledevelopment, Apple, cocoa, cocoatouch, Dashboard, development, Interface Builder, Macintosh, microsoft, next, nextstep, objective_c, openstep, rubyonrails, sns, socialnetworking, software, Xcode

The past week has shown that the subprime credit mortgage crisis in the US has metastasized into something bigger, and is spreading into other parts of the economy, and is now beginning to affect bond markets in the US. This is a worst-case scenario gradually unfolding before our eyes, and the Fed under Bernanke and the politicians seem unable to do anything to stop it, which is why they talk so little about it.

The issue made me think about something. Several years ago, a report was issued (I believe it was Goldman Sachs), which said that the Chinese economy would become the same size as the US economy by 2040 based on current trends. The key term here is “based on current trends”, something which almost never happens, as things almost never continue smoothly in politics and economics.

The present crisis in the US is causing what I call a double shrinkage. The size of the economy is shrinking as highly-leveraged credit derivatives are slowly worked out of the system. As these derivatives, which were as good as cash just two years ago, creating more money in the system than the Fed are worked out of the economy, the GDP of the US economy will shrink. It is not a question of whether it will shrink, it’s just a question of how much. That is something the market, the politicians and policy-makers are figuring out.

But it does not shrink just on the GDP level, it also shrinks on the US dollar level, which has been losing value steadily, and will likely continue to lose value as US interest levels fall. (The problem for the Fed is that although interest rates have fallen, US banks have tightened up their lending qualifications.) This means that US goods will become cheaper, and more foreigners will go to the US to buy real assets.

Roger Ehrenberg has written an excellent article about what US headlines will look like over the next 2-3 years on his Information Arbitrage blog. No wonder that even companies like Apple are looking overseas for sales growth in the face of slow growth in the US market.

This takes me back to the report which talked about China overtaking the US economy by 2040. The report did not take into account the shrinking of the US economy on both the GDP and currency levels. If the Chinese economy continues to grow and the US economy shrinks, isn’t it likely that the Chinese economy will overtake the US economy much sooner than 2040?

Of course, there are a lot of variables. Can China continue to grow at a brisk pace without a healthy US consumer economy buying Chinese exports? And what can the Chinese government do to curb inflation, which is growing faster than in the past 15 years?

We will find out…eventually.

Technorati Tags: , Apple, bonds, credit, derivatives, economy, GDP, informationarbitrage, mortgage, subprimemortgage, US

In Sept. 2007 I wrote an article about how Apple’s global marketing for the iPhone was attracting and creating a new user base in China. Now, we know that there are more than 400,000 unlocked iPhones in regular use in China.

Since Apple gets recurring revenue for the iPhone through its contracts with the operators, many analysts have said that these unlocked iPhones represent lost revenue for the company. In China, China Mobile gets all the revenue spent by users for moving data up and down from the cracked iPhones, and does not have to share any of the income with Apple. And the statistics show that iPhone users consume much larger amounts of data than competing mobile phone platforms.

Obviously this is a serious loss for Apple.

I say “Not so fast!”

Today, Apple just announced its new iPhone SDK. Now, the Apple iPhone will talk with Exchange servers, morphing the Apple iPhone from something corporate IT departments viewed as a consumer toy, to a full-fledged platform on a par with Blackberry, Windows Mobile, Symbian and Linux.

As in most Apple presentations, the most important stuff always get buried close to the end of the presentation. That was the announcement of the Apple App Store, which will allow developers from all over the world to build and sell their iPhone applications. Developers will be able to charge any price they want, and Apple will keep 30% to cover hosting, distribution and credit card fees. The App Store will be available as a new button on the iPhone beginning in June. Presumably, this download will work on all iPhones, including cracked and jailbreaked iPhones.

Make no mistake about it, this is truly revolutionary news. The iPhone platform has taken over the role which the carriers once took for themselves. Today is as important a day as when Apple announced the Macintosh platform in 1984, singlehandedly launching the desktop computing industry.

Today Apple launched the mobile applications industry. When the Macintosh platform was launched in 1984, it led to the growth of Microsoft with the Office applications suite, which was developed for the Macintosh before the PC platform.

Now, do you think that Microsoft will have enough sense to develop apps for the Apple App Store, or will they continue to stick to developing for the Windows Mobile platform only? My feeling is that if Microsoft developed for the Apple App Store, they would get traction very quickly, if only they would let their developers develop.

Make no mistake about it, today, Apple launched the mobile computing industry with the iPhone computer SDK which user statistics show, is the favorite platform among consumers, and is gaining headway in the corporate space.

Even in China, where it is not officially sold and supported yet.

With the iPhone computer SDK and App Store, along with Apple’s excellent development tools, any developer with any sense will start building apps for the iPhone computer.

Including in China.

So where does this leave China Mobile? Much press has been devoted to Apple’s unsuccessful negotiations with China Mobile to distribute the iPhone in China.

In reality, the interests of the companies are aligned.

• Both China Mobile and Apple want the mobile computing industry to succeed.
• Both stand to make MUCH more revenue when the platform takes off.

Right now, they are just jockeying for position in this new business ecosystem. Where they rub against each other is on the applications platform level, which China Mobile wants to control as much as possible, and on the revenue share level, which China Mobile wants to control, and does not want to share with anyone.

Today, Apple just won on the application platform level round on the rapidly growing iPhone computing platform.

But I predict that China Mobile is quietly pleased with all the extra revenue data consumers on the iPhone computer platform have been generating, and which it does have full control over. Have you noticed that China Mobile has not broken out those revenue numbers yet? When the Apple App Store launches in June, those numbers will shoot up even higher.

You see, there is nothing wrong with being a commodity data mover when you run into the ideal data platform for users.

Round two will be about who will define ad standards and specifications for the iPhone platform (Apple), and how advertising revenue will be shared in different markets on this platform.

Technorati Tags: advertising, Apple, applications, China, chinamobile, computer, consumer, corporate, data, iPhone, microsoft, office, sdk

It has been some time since I last posted an article, so I thought I better give you a pretty good excuse.

Long story short: I have said goodbye to my old Windows (Averatec) laptop, and have bought and am using a brand new MacBook Pro 2.4G 2/250 15″ laptop running OS X (Leopard), which I bought directly from Apple. After buying the laptop, I swapped out the 2G RAM for 4G, so now I have one sweet top of the line Mac. Right now, I’m basking in the moment since I’m sure that Steve Jobs will introduce something more cool at Macworld 2008.

Oh well, that’s the Apple tax…

My first computer, bought in 1989, was a Macintosh SE 4/40, which had its operating system on a floppy disk. From 1989 to 1997, I used Macs, and owned about eight Macs. In 1997, when I moved from Taiwan to the US, I moved to the Windows platform because the Office suite on the Macintosh was not compatible with the Windows version. At the time, Steve Jobs had just returned to Apple as CEO (for several years he preferred using the term interim CEO, or iCEO, because the company was in such bad shape.)

For a long time, I was a satisfied user of Windows. Unlike many Mac users, I don’t think that Microsoft is evil, and overall, I believe that the company has tried to develop and launch decent products which bring value to their customers. But I think that there are problems.

First of all, Microsoft has too many product lines and business units. The end result: there are too many mini-business kingdoms fighting for their piece of the pie. Apple does not have this problem; it is run by only two people, Steve Jobs and Jonathan Ive. By any definition, they are very smart, even brilliant. Ultimately, they make the call about every product and service Apple ships. This means that there are no mini-business kingdoms at Apple.

Unlike Microsoft, Apple is run by designers. Engineers are interested in technology and features; designers are interested in how to make technology usable. For designers, user experience is everything. Jobs and Ive are designers, not engineers. Most people are excited by design and usability, not by technology and features. Since Apple controls the hardware and software, Jobs and Ive are in a unique position to control and shape user experience in a way no other company, not even Microsoft, can. This is why the iPhone has been a runaway success, not just in the US where it was first launched, but all over the world. When it comes to the space where technology and design meet, Apple is in a league all its own, and the market is now rewarding it.

But Jobs doesn’t just understand design, he also understands marketing, which is all about managing peoples’ expectations and perceptions. Even though he is widely respected, he never hogs the spotlight; by saying less, he puts Apple’s products and services in the spotlight where Mac aficionados can work themselves into an excited frenzy and become evangelists for the company. By saying and doing less, Steve Jobs does more for the company.

Enough big picture stuff; let’s talk about the experience. Long story short: I love it. The OS feels mature, and it does everything I want it to do, and fast. I tend to be a fast thinker with bad short-term memory; when I want something I want it to happen right away. There is a Chinese saying xinxiang shicheng which means “to get something as soon as you can think of it”. That was always the ideal when talking about computing for me; why couldn’t the computer do what I wanted it to do NOW? For the first time, I feel that I’m close to that goal.

While Windows has been generally satisfactory, I have never been satisfied with Windows registry. While a new Windows computer was snappy, it would quickly decay into molasses mode when the registry got all gooked up. During the ten years I have been using Windows, I have used several different versions of Windows (Windows 95, Windows 98, Windows 98 Second Edition, Windows 2000, and Windows XP). And this does not include the software patches for all the different versions. From a business and customer point of view, it makes no sense that Microsoft could not take care of the registry problem over the past ten years. During the same ten years, Apple has been able to shift to an all-new Unix-based operating system which is rock-solid and continues to improve in performance.

At the same time, with Windows I still have to put up with some DOS commands and foibles such as the backward slash for directory navigation, instead of the forward slash used by Unix, and Windows failure to differentiate between upper- and lower-case in naming conventions. (I have a real problem with the backward slash “\” even though Bill Gates invented it himself.) If I’m spending most of my time on the Internet, why not just deal with Unix on the computer’s OS, which is the native language of the Internet?

Microsoft should be more like Apple and just explain to their customers why they are phasing out a lot of the obsolescent stuff including DOS commands and navigation, and should bring Windows naming conventions in line with Unix.

I bought and installed a copy of Windows XP so that I could run my favorite Windows application, MindManager Pro 7. Since Mindjet also makes a Mac version, I have downloaded the trial version and have been using that. Result: I haven’t been running Windows XP at all.

I can see that I’ll be doing some prototyping and maybe even development on this computer. For this reason, I’m keeping the configuration relatively simple and clean. Web servers use port 80; since Skype uses port 80 too, I’m keeping it off this machine. I’m thinking of getting a new ASUS Eee PC to cover that.

But then, maybe not. I have also bought an iPod Touch and a Nokia e61i.

They should keep me busy for a while…

Technorati Tags: Apple, billgates, design, e61i, experience, iPod, ipodtouch, jonathanives, macbookpro, microsoft, mindjet, mindmanager, Nokia, OSX, stevejobs, Unix, user, windows

One phrase I have heard frequently from well-to-do Chinese business people is 钱无祖国. Roughly translated into English, this means that “capital has no homeland”; it largely goes wherever it can get the best return for its owners.

The flip-side of this statement is that the nation-state, this political entity which has been so important for the past 500 years, is gradually losing power and influence. As technology enables individuals more and more, governments and large organizations lose power, influence and attraction.

How many bright young people have you met who said “I want to work for a large organization?” In the tech sector, the number is small; most prefer to work at startups. I predict that this trend will soon spread to media and other fields. It’s just easier to get things done and you don’t need to share the profits among as many people.

This is what those who criticize the article about sovereign wealth fund stakes in Google and Apple don’t understand. When a corporation’s shares are traded on the open market, a corporation is no longer just a national entity, it is a global entity. Apple and Google are global corporations, not American corporations. Their owners, shareholders and employees are global, not just American. They just happen to have their main domicile in the US and were first incorporated in the US and are subject to US laws, but that’s it. Only if capital restrictions are put in place can you prevent anything like the scenario I have put forward from taking place. If the US were to do that, it would amount to the US government admitting that globalization, a policy that all US administrations have pedaled to the American people for the past 50 years is wrong and is bad for America.

Doug Rediker has an excellent article about the difference between how national banks and investment banks see this trend.

If there is one area where many Americans have fallen woefully short it has to do with educating themselves about the importance of managing your finances in a smart manner. Roger Ehrenberg draws an excellent picture of how the subprime mortgage mess grew, and how most Americans are responsible.

The same rules of economics which apply to individuals also apply to countries and nation-states. Foremost among these is the rule that if you remain a debtor over a prolonged period of time, you lose control of your own destiny, and become subject to the whims of others.

The pendulum has now swung in China’s favor; in the 19th century and first half of the 20th century, China was the economic basket case. For the most part, Chinese have learned the importance of savings and not going into debt. Will the next generation of Chinese remember this lesson? Time will tell.

Americans need to face up to this unpleasant reality, and the sooner the better. The first step to recovery is to recognize that one is in trouble and needs to change current behavior.

The old ways just don’t work anymore.

Technorati Tags: Apple, business, capital, China, Chinese, economics, globalization, google, nation-state, subprime, technology

Over the past few years, one subject has dominated Chinese thinking on the government and enterprise levels: how to take Chinese brands global. During the runup to the Beijing Olympics in 2008, and then the Shanghai Expo in 2010, this subject will become even more popular, as China’s economic power grows and the US’s economic dominance gradually recedes.

So far, the thinking is that Chinese companies, with some degree of Chinese government assistance, should buy leading US brands and manage them. This was the thinking, for example, behind Lenovo’s purchase of IBM’s money-losing PC division and the Thinkpad brand in 2004. It was also the thinking behind the aborted CNOOC purchase of Unocal, an offer which had to be withdrawn because of heavy US congressional pressure over security.

Outright purchases of foreign companies, in the form of hostile takeovers and mergers rarely go well, even when the cultures of the two companies are close. When they are as far apart as Chinese and western companies, the odds are overwhelmingly stacked against success.

Now there is renewed interest in buying western companies for yet another reason: the Chinese government is sitting on US$1.3 trillion in foreign exchange reserves, and with the dollar falling against the euro and other major currencies, there is strong pressure to invest this money in something else besides US dollars, which will continue to depreciate. In order to slow down this depreciation, the Chinese government has announced that it will establish a Chinese sovereign wealth fund to invest about US$200-300B in higher-yield investments. Within the past year, sovereign wealth funds have proliferated as foreign governments seek to diversify their foreign-exchange reserves out of US dollars, especially as the US subprime mortgage lending crisis has spread overseas.

For the Chinese government, which likes to do great projects which it can then use in PR to the Chinese people, there is a fundamental bottleneck: there are not enough Chinese who have international experience managing global companies. And those who do have the skills usually decide to spend their time and effort in the private sector where their skills are more needed. In one article some time ago, Business Week claimed that China needed about 75,000 international executives while there are only 5,000 available.

There is another problem with creating global brands: in most sectors, it takes an awful long time to create them. If you look at Toyota in the automobile sector, it has taken the company mostly since the period from 1945 to become established as a leading quality maker. When it comes to manufacturing, global brands are not made, they are earned on the basis of quality products.

The place where brands have sprouted relatively quickly are in the computing and hi-tech sectors. Apple has been around since the 70s and has undergone a dramatic rebirth under the tutelage of its founder, Steve Jobs, who returned in 1997 after Apple’s acquisition of NeXT. Since his return, he has launched the iMac, iPod and now iPhone lines, all of which have won critical acclaim from users worldwide. Steve Jobs has shown that he is that rare type of executive, someone who learns from his mistakes and is passionate about creating excellent products. Now, even for dedicated Windows computer users, Apple’s products are something worth thinking seriously about. When it comes to evoking pure passion among users, there is no company like Apple. The way Apple has launched the iPhone globally has shown that it fully understands how to use the power of the Internet and the media to create global attraction for its new products at very little cost. On October 26, the company will launch its latest version of the OS X operating system, Leopard.

The company’s success has been rewarded on Wall Street; the company now has a market cap of more than 148.2B and its shares are trading at $172.

Another company which has succeeded in creating a global brand in a relatively short time is Google, which was founded on September 27, 1998. Google started as a technology company, and has morphed into a company which understands, and is now revolutionizing the media business. Coming from a very strong technology core base, they like to constantly talk about their technology, even though that is relatively unimportant backend stuff to most people. Very early on, Google figured out that as computing, and now mobile computing grew, more and more data would be accessed from online. The question was: “What was the economic/business models which would support it?” The answer is first search, and then other formats of online advertising. Google strived to make advertising more relevant and less disruptive, and strived to do this all with its Adwords solution.

It has also been a success on Wall Street. Even though expectations were high, it blew past the estimates with its recent earnings announcement , growing the company at twice the growth rate of the growing online ad market.

While Google has continued to have a hard time succeeding in China because of strong competition from Baidu, it is performing exceptionally well in other markets. Compared to their smaller local competitors, US companies continue to have a hard time succeeding in China. Nevertheless, Google continues to make inroads in China.

When talking about large investment amounts, it is easy to forget that the most important part of the equation in brand-building is always people, not marketing dollars or yuan. Buying into Apple and Google would get an inside view into how these leading companies are run.

So what is the best, the smartest way to buy into these companies?

My guess is that the smartest way is to buy Apple and Google shares on the open market and gradually build up enough to get a board seat, where the sovereign wealth fund’s proxies could quietly learn how these companies perform, and find out who are the people who really make contributions to the company. Steve Jobs likes to create the persona that he is Apple and Apple is Steve Jobs, but the truth is not that simple.

Be a smart passive investor, not a dumb active investor. Learn to walk before you run. While it may seem a longer, slower process in the beginning, this is actually the faster, smarter and more economical way to go. Can you think of another way where you earn money while you learn instead spending big chunks?

So to sum up, the benefits of buying into Apple and Google are:

• Great place to park those extra depreciating dollars and get some appreciation
• Great way to learn how digital online products and brands are made
• Great way to find out who the smart movers and shakers are
• Great way to learn how to become a smart passive investor

If the sovereign wealth fund is doing what they were set up to do, they are already buying Apple and Google shares.

Now that would be real smart…

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