Category Archives: China

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Understanding Our World: 43 Books and Counting

I thought it would be an interesting exercise to numerate the tomes I’ve read over the past 2-3 years that have helped me understand markets, complexity, risk management and global finance.
What’s your favorite?

Financial Books

Risk Management

China

India

Technology

General Management

Psychology and Neuroscience

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“Pricing to Win” Makes Losers Out of Winners

Donald Tuck, Polish Prime Minister, is taking heat for the fiasco of awarding an important highway contract to a low-cost provider who couldn’t deliver. There are definitely lessons learned for every company considering the “too good to be true” contract bid.

The Financial Times posted an article titled “Chinese Hit a Dead End with Road Plan in Poland.” The article cites how the Polish government embarrassingly canceled a contract given to the Chinese Overseas Engineering Group (Covec) to build a highway between Warsaw and the German border. The route is important because it will eventually shuttle traffic between Germany and Poland for the 2012 European Soccer Championships in Warsaw.

The initial bid from Covec was half the price of other bids from European firms, leading to rival charges of price dumping. In fact, competing bidders said it was impossible to build a highway for the price Covec quoted. Polish government officials signed a contract with Covec, and long story short—recently cancelled the project because the Chinese builder ran into financial difficulties when commodity prices increased. Now, the Polish government is relegated to hoping the road is at least “drivable” instead of complete by the June 2012 opening of the soccer tournament.

In the information technology space, the above story reminds me of how some aggressive vendors offer free hardware or software in order to gain entry into an account. Sometimes the special offer is a faster implementation of a complex project by “throwing in double” the consultants to finish in “half the time” of other established vendors.

To be fair, sometimes these “half price or free” deals work for companies willing to gamble. But there’s always a significant amount of risk involved. And of course there is no such thing as free software or hardware especially when maintenance contracts, managerial time, resource training and change management are involved.

So the ultimate question is; “What level of risk (strategic, financial, operational, compliance) are you comfortable accepting?” And selfishly, managers should also think about “softer considerations” such as reputation management as their good names could be attached to failed projects.

Please don’t get me wrong – sometimes “free” or reduced price contracts from vendors make sense for both the companies that offer them, and those who accept. Just make sure to properly assess risks and costs—because there will be plenty of both!

In most cases, there’s a compelling reason why a deal that seems too good to be true, really isn’t worth a second look. Polish Prime Minister Donald Tuck can certainly relate.

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Sourcing from China? Marketers Need to Think Twice, Maybe Thrice

On a cold, blustery day at 1 p.m., your supply chain and operations managers call a meeting to discuss outsourcing the manufacturing of a best-selling item to China. While facts and figures for cost savings and lead-time reductions are bandied about the room, you notice something crucial missing from the conversation: customer expectations and satisfaction. In fact, sourcing from China deserves very careful consideration and isn’t even close to a slam-dunk decision.

If everyone is sourcing from China, it must be a worthwhile endeavor right? Author Paul Midler might disagree. In his tome, Poorly Made in China, Midler discusses Chinese business culture, manufacturer/importer relationships, counterfeiting, and more. Of particular interest, Midler provides a behind-the-scenes look at quality control in a typical factory, where he spots workers sticking their hands in product, problems with substandard and “wobbly” packaging, and the routine shipping of defective products. “Consumer and product safety (are) not large concerns,” he says.

And that’s why, despite initial cost advantages, some companies are finding that it is ultimately a better choice to bring production back home.

A March 2011, Wired Magazine article titled, “Made in the USA,” mentions a case study for Sleek Audio, a high-end maker of ear phones. Every few months, Mark Krywko, CEO of Sleek Audio, would make a trip to China’s factories to discuss quality challenges. And when Krywko visited his outsourced factories “his Chinese partners would assure him that everything was under control. These promises always proved empty.”

According to the article, in one instance, Sleek Audio had to discard an entire shipment of earphones (10,000 in quantity) because they were improperly welded—a mistake that cost the company millions of dollars. Another issue was continually missed production deadlines, which caused Sleek Audio lost profit opportunities.

Fed up with quality issues, Sleek Audio decided to bring production back to the United States. After exhaustive research, Sleek Audio contracted with a Florida company to produce the company’s earphones. Granted, the product cost 50% more to produce in the United States vs. China, but the benefits of increased product quality and faster time-to-market far outweighed an initial up-tick in costs.

And while this is just one case study, the Wired Magazine article notes that many companies are finding that once design considerations are taken into account—to remove as much manual labor as possible—manufacturing in the United States can actually be quite competitive.

Before we get too far ahead of ourselves, let’s be sure to recognize that there are many advantages to sourcing from China. China is still the manufacturer to the world—from shampoos and lotions to high-end technology. And without a doubt, according to a recent World Bank Report, there are few “low-cost” countries that have China’s infrastructure (transportation, electricity, telecommunications, water supply etc.) for making and transporting goods in an efficient manner.

However, as sources from this article recognize, an initial low cost is only part of the overall value equation. The entire supply chain must be considered in addition to the demand chain. It is for this reason then, marketing executives—with a pulse on customer needs and expectations—should be a crucial component of any product or service outsourcing discussion.

Questions:
• Paul Midler writes, “American consumers had once preferred to see the Made in USA tag, but somewhere along the line, made in China began to sound like a bargain.” Do you see a sea change in consumer expectations, or does the mantra “as cheap as possible” still reign?
• Is “paying a little extra” a wise trade-off—not only for companies but customers too?

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Two Key Ingredients for Better Marketing Stories

Marketers inherently know it’s easier to tell a story than sell someone on the key features and benefits of a product or service. As Seth Godin points out in All Marketers Are Liars, good stories “engage the consumer” and “appeal to our senses.” Yet the best story in the world may fall on deaf ears if it doesn’t fit cultural dispositions or lacks authenticity.

Seth Godin reminds us that marketers tell stories to best sell products and services. “No one buys facts,” he says. “They buy a story—they’re here for the story and the way believing it makes us feel.” Anyone who has seen a marketing brochure or advertisement for Volvo can see how the use of storytelling brings forth the “safety” value proposition much better than detailed specifications of its whiplash protection system or roll stability control.

However, a carefully crafted story that works well for one market may fall flat in another. Godin says that’s because “different people have different worldviews. People can see the same data and come to different conclusions.”

Author Peter Hessler highlights this idea in a New Yorker article titled “Go West.” Born and raised in the United States, Hessler has spent the past 10 years traveling from farm to factory in greater China, so he knows a thing or two about Chinese and American culture. It was no surprise to Hessler how the two cultures uniquely use narrative in daily communication.

For example, Hessler writes that one night he decided to visit a local bar somewhere in Colorado. Hessler relates that within a few moments, a stranger had sat down next to him, ordered a drink, and proceeded to tell Hessler his life story, including the fact that he had just been released from prison.

Hessler contrasts this openness with his experiences in China. “People in China never talked like that,” he writes. “They didn’t like to be the center of attention, and they took little pleasure in narrative. They rarely lingered on interesting details.” It wasn’t necessarily that Chinese citizens didn’t tell stories, just that they told stories about much different topics. “Most Chinese could talk your ear off about things like food, money and weather,” Hessler says. “But they avoided personal topics, and I learned that it could take months before an interview subject opened up.”

Hessler observed that Chinese seemed less willing to talk about themselves. Contrast this with the average U.S. citizen who is likely more than willing to tell you his or her life story and probably has it well-rehearsed.

One narrative technique that seems to work well in Western cultures is the personal testimonial. However, from Hessler’s observations on the uneasiness of Chinese to talk about personal issues, it’s easy to see why a marketing campaign of customer testimonials for a product or service might fall on deaf ears in China.

In addition to cultural nuance, a university professor friend of mine—who is Chinese—says there’s something deeper here on why personal testimonials might not work in China. The larger issue is trust and believability.

In Communist China, billboards with propaganda are the norm, the Internet is tightly controlled, and the government does its very best to control both media and message.  The professor says, “Many believe that stories and testimonials are made up, especially because there isn’t an unbiased monitoring mechanism to convince consumers that testimonials are from real people.”

Storytelling works in marketing. But the most real and believable narrative may fall victim to cultural nuances that predispose your customers to not listen in the first place.

Questions:

• One person interviewed by Hessler says, “An individual with a story is on a higher ground than an individual with an argument.” Do you agree or disagree?
•  Hessler also observed, “Many Americans were great talkers, but they didn’t like to listen.” Is this consistent with your observations?

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The New Risk: Tight Coupling

With the financial crisis of 2008 barely behind us, the wheels of globalization have slowed and, in fact, calls for protectionism are growing louder. However with the global integration of trade, capital, information and labor over the past decade, few people understand that our world is more tightly connected than ever before. In a highly inter-dependent environment, small mistakes can have large ramifications. Marketers, are you prepared for the next big global blow-up?

Leading up to World War I, it wasn’t uncommon for critical information to take hours if not days to reach its destination. Author Liaquat Ahamed cites in Lords of Finance that despite the advent of railroads, steamships and telephone, mail service was the norm for important dispatch, and it took a person five days to cross the Atlantic via ocean liner.

Oceans aren’t much of an obstruction anymore. With transoceanic internet cabling made possible through the birth and death of dot.com businesses, global markets are durably connected. Today, information flows at the speed of light across supply chains, and project work “follows the sun” shifting across various time zones. In addition, velocity is the new normal as the speed of decision making accelerates, and executives must analyze and act faster.

In a tightly connected world, there are the inter-dependencies we can see and document, and those not so transparent.

For example, Morgan Stanley Chief Economist, Stephen Roach, in his book The New Asia comments on how “this new connectivity (has) been amplified by increasingly complex financial instruments (such as derivatives).” Indeed, Roach cites Fed Chairman Alan Greenspan’s belief that the sub-prime contagion of 2005-2008 could be “walled off.” Unfortunately, as Roach points out, it’s only now that the global economy is picking up the pieces from this misconception and economists now understand the deep linkages between the U.S. consumer and the rest of the world.

In a tightly connected world, we live in a complex system that is composed of multiple sub systems. While some may argue the world isn’t quite “chaotic,” it is becoming clear that perturbations (even quite small) can cause quite a ripple in the global pond.

Take for instance, an event that happened nearly one hundred years ago: the powder keg eruption in Europe with the assassination of Arch Duke Ferdinand of the Austrian-Hungarian Empire. Indeed, this one event (momentous in the eyes of those in the Balkans) was thought to be “contained” by European and Asian powers. And it was—for a month. However the linkages and alliances among various countries sitting on the sidelines eventually brought major and minor global powers into the World War I.

Indeed, the world is more complex today than in the second decade of the 20th century. If it is to believed that one shot from Serbian nationalist Gavrilo Princip started a chain reaction leading to the loss of 37 million lives, it’s conceivable that in today’s more tightly coupled world, a single “spark” could have blinding consequences.

Author James Gleik reminds us, “(In complex systems) points of crisis are everywhere—small scales intertwine with the large.”

Today’s marketer is not immune to contagion. Events in the global market rarely happen in a vacuum anymore (much like this domino video). We must account and plan for the things we can control, and prepare for events we cannot.

Questions:

• What is the next global flashpoint that could choke your sales and marketing forecasts?
• What small event—seemingly innocuous—could give rise to massive global turbulence?