China Apprentice

“If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of everyone, and the receiver cannot dispossess himself of it.” - Thomas Jefferson

Photo by Fatty Tuna

China is often admired for its vibrant variety of cuisine, a long and enchanting history, delicate ceramic, silk, and other cultural arts, not to mention, a vibrant street market of cheap copied DVDs, pirated software, and fake designer clothing. The dichotomy of rich cultural heritage based in Confucian and Daoist doctrine paired with an almost flagrant neglect for characteristically “western” values for intellectual property rights (IPR) can surprise the unassuming visitor. The fakes, the poor product quality, and an apparent disregard for IPR make foreign governments and businesses unsure of China’s innovation potential. Understanding the past, present, and future of China IPR is key to successful business in China.

Foreign media consistently overwhelms the international community with impressive statistics of China’s growth. That growth is enthusiastically fueled by continual investment from the world’s multinational corporations in the new “socialist economy with Chinese characteristics.” Depending on the source, China’s GDP growth hovers at just a fraction under 10% year-on-year – a record for a country’s development by almost any standard. The so-called “gradualist-reform” inspired by Deng Xiaoping’s famous Southern Tour in 1992 and subsequent opening of the economy that led to China’s eventual inclusion in the World Trade Organization in 2001 has attracted a frenzy of foreign direct investment and an overall global rush to enter the China market. Annual factory growth, though slowing in recent months, holds steady at around 17% while export growth hovers around 20-30% . It wasn’t long before the world recognized China would become the “factory of the world”. The technical competitive advantages of companies opening facilities in China rolled in on waves of technology and intellectual property transfer. Literally millions of China’s poorest citizens were trained to operate all manner of machinery in order to manufacture anything the world ordered.

The more Gucci pocketbooks and James Bond movies China’s workers manufactured, the more local people realized they might like one or two themselves. After all, a fake Rolex from one of the original Rolex factories really didn’t seem so different from the real thing sold for thousands times the price in downtown London. Fakes and counterfeit products are good export moneymakers too. In fact piracy and counterfeiting has been consistently on the rise since China took the title from Taiwan, Russia, and Southeast Asia. The Geneva Chamber of Commerce claims that 7% of all global trade is counterfeit goods. Estimates put foreign firm’s losses at $20 billion annually with two out of five companies losing more than 20 percent of their local revenue sometimes reaching as much as $150 million annually. And this isn’t just fake CDs and DVDs. Half the motorcycles sold in the China market are imitations of Japanese Yamaha and Honda. 97% of 1300 synthetic medicines produced in China are copies. High-technology items, such as microprocessors, are knocked off as well, modified to accommodate pirated components in video game consoles or computers thereby creating a value-chain based on piracy. There’s often no way to reliably tell if a product is real or not. Of course, most people probably wouldn’t be surprised to know that the “US-based Business Software Alliance claims that 96 percent of China’s software is illegally copied.” A CD of software on the street sells for less than a dollar and legitimate stores are virtually nonexistent. The processes for mitigating the mass IPR problems are weak at best. It can take five to six years in China to successfully remove a bad-faith trademark that violates IPR. Counterfeit products take up valuable Chinese domestic market share and are also aggressively exported overseas creating a real problem for both Chinese and foreign companies trying to leverage corporate intellectual property in China. (more…)

I’m excited to take part in this year’s Lingnan Sun Yat-sen INDUSTRAT competition. Though the course may be an elective and I’ve already taken the required number of MBA elective courses (actually well over the required three), I was compelled to sign up. I’m interested to see what a “capstone” course for an MBA could be all about. I’m also a little scared to think that this intense four-day simulation could test all the things we’ve learned in this MBA over the past year and a half. A guest professor in from Hong Kong coupled with a famous simulation program developed by the great minds at one of the world’s best business schools, INSEAD, makes me more than a little curious about the 2007 Business Strategy Simulation.

I remember it was a mad rush to register for the class when it came available. A new online registration system at Lingnan like any new online system, didn’t work when it was supposed to let us sign up for the course. With suspense building, when the course finally was released to the Lingnan masses, it was a swift dash to find an open cable port for the student’s laptops and log in to the system. I slipped in the course just two people from the course limit.

And I’m glad I made it. It was enough to pique my interest when I first received the preparatory course materials for this course – 孙子兵法 or The Art of War by Sun Tzu (full text translation). A longtime enthusiast of Chinese philosophical thought, I was delighted to learn this strategy course wouldn’t be all about western ideas but would focus on possible the father of all strategic thought, Sun Tzu.

I’ve advocated before that I think Lingnan should focus more on some of the decidedly Chinese contributions to management theory and practice. The emphasis these days in MBA programs is so much focused on the ideas of a bunch of gray-haired white guys. The world is waking up slowly to the fact that China has a lot more to offer to the greater education community. This course is just one example.

The professor, 赵越 Oliver Yue, got me interested the minute he walked in the room and started to introduce himself. I was particularly inspired by what he claims is a theme in his life stemming from the repetition of a particular Chinese radical in his name, 走 which means to go or walk or otherwise indicate movement. Whether inherited from birth or motivated by the aspirations of his parents, Dr. Yue, makes a point to live his life reflecting a common Chinese proverb, 读万卷书，行万里路 or read 10,000 books, travel 10,000 miles. I don’t know about the books (though a PhD probably gets close), but he’s certainly made his round of travels. He’s been to all seven continents and snapped some fantastic photos along the way. Now, a man who lives by such mantra, enjoys the art of photography AND studies the application of ancient Chinese philosophy to modern business is a man of interest in my book.

In fact, not only do a frequently quote the same Chinese proverb and take gazillions of travel photos, but it was just yesterday that I gave a very similar final presentation in my Strategic Management class on the management interpretation of The Art of War. I was surprised to learn that the Dr. Yue’s lesson preparing us for the first day of simulation drew some very familiar connections in strategy with Sun Tzu.

In many ways I agree that a war’s battlefield can be much like the business environment （孙子管理思想？）. Perhaps Sun Tzu’s most famous line 知彼知已者，百战不殆 epitomizes the importance of having valuable information both about your own company and your competitors (to include customers, users, key actors, suppliers, etc.). To evaluate yourself, your enemy and the environment, Sun Tzu tells us凡此五者，将莫不闻，知之者胜，不知者不胜.

There is no general who has not heard of these five factors. Yet it is he who masters them that wins and he who does not that loses. When assessing the outcome of a war, compare the two sides in terms of these factors and appraise the situation accordingly.

The five factors he refers to are now often quoted in business strategy texts. 故经之以五事，校之以计而索其情：一曰道 – The Way, 二曰天 – Heaven, 三曰地 – Earth, 四曰将 – Command, and 五曰法 – Doctrine.

Modern theorists (relatively modern that is compared to 300 BC) have developed strategy frameworks that conveniently match some of The Art of War’s basic ideas. 天者，阴阳，寒暑，时制也. Dr. Yue highlights the relationship between Master Sun’s factor of “heaven” and David Baron’s market and non-market environment summarized in the acronym PEST – political, economic, social, technological not to mention the public and the media. Not only do these aspects affect the “business climate” represented by the heaven factor but we can also consider Michael Porter’s 5 Forces - Suppliers, Buyers, New entrants, Substitute Products, and Competition.

Modern theory coincides even more with Sun Tzu’s famous work. Henry Mintzberg’s Five P’s, Perspective, Position, Ploy, Pattern, and Plan match almost perfectly with Sun’s 5 factors, respectively. 道者，令民与上同意也。故可以与之死，可以之生，而不畏危. The Way can be compared to modern corporations’ core competencies and social responsibility. 地者，远近，险易，广狭，死生也. The idea of Earth representing distance, terrain, land, and place can be related to the company through internal analysis of resources, labor, capital, transportation, etc. Jay Barney uses such a resourced-based view to evaluate a firm’s financial, physical, human, and organizational capital thereby helping companies capitalize on resources with value, rarity, imitability, and organization. 将者，智，信，仁，勇，严也. Command, on the other hand, is the ability of the company leadership to implement strategy using the five characteristics of a general that also apply to any organization’s leaders:

Wisdom – recognize changing circumstances, active involvement in planning process
Sincerity – towards employees for soliciting their feedback and input
Benevolence – incentive system
Courage – no hesitation to make decisions which capitalize on an opportunity
Strictness – discipline for self and others

法者，曲制，官道，主用也. The last of the five factors, doctrine, is modifying the structure of the organization to facilitate strategy. This must happen at all levels of the organization: corporate, business, and functional. Though Sun likely didn’t have common business-level strategies in mind when he penned his words, concepts of specialization, diversification, integration, outsourcing, and strategic alliance are found in cryptic form throughout the text. Gary Hamel’s idea of Business Concept Innovation (BCI) is but one way to create a unique strategy that creates competitive advantage over competitors.

Sun Tzu tells Generals to evaluate the competition with the five factors by asking a series of questions. These questions can be directly related to key business strategy concepts:

Vision/Core competencies - Which sovereign possesses more moral influence?
Leadership - Which general is more capable?
Market/Resources - Which side has the advantages of heaven and earth?
Organization/Structure - Which army is better disciplined?
Competitive advantage/training - Whose troops are better armed and trained?
Incentives/Vision - Which command is more impartial to meting out rewards and punishments?

Even though we may evaluate our company today based on these questions and factors and then create an ideal strategy, tomorrow the environment could change. 夫兵形象水. 水因地而制流，兵因故变化而取胜. As the water changes its course in accordance with the contours of the terrain, so a warrior changes his tactics in accordance with the enemy’s changing situation. A business must have similar flexibility to realize strategy is fluid and ever-changing.

It’s amazing a text from over 2000 years ago still holds such significance in world affairs. The interpretations and applications of this little book are very practical for any business, small, medium, or large. I look forward to analyzing this simulation more and finding inspiration in this ancient wisdom.

An analysis of the space tourism industry using Porter’s Five-Forces Model
A relatively new industry called Space Tourism is proving that motivated private investors paired with creative and talented engineers may now be able to accomplish what only governments were previously capable of. In 1961, supported by massive government funding, research, testing and operations, the USSR successfully launched the first human, 27 year-old Yuri Gagarin, into space on the Vostok-1 spacecraft. The world watched as this previously earth-bound human ventured into a truly heavenly place where no man had gone before. This journey caught the adventurous spirit of billions back on the planet. Now almost 50 years later, people are yearning for their own space experience. Private corporations are making this possible through what they hope will eventually be a profitable industry in Space Tourism.

Stephen Hawking, the famous physicist known for his work in space-time theory, has warned that,

Life on Earth is at the ever-increasing risk of being wiped out by a disaster such as sudden global warming, nuclear war, a genetically engineered virus or other dangers … I think the human race has no future if it doesn’t go into space.

Several entrepreneurs with seemingly bottomless pockets and unwavering determination seem to have heeded Dr. Hawking’s cautioning, and are now working with fervor to make a bit of money off what promises to be an eventual mass migration into the cosmos.

Wealthy multi-billionaires are financing what is now turning out to be a new commercial space race. First governments were in on the act. In 2001, the Russian Federal Space Agency sent the first private citizen space tourist, Dennis Tito, up for a ride in the Soyuz craft with a stop at the International Space Station all for the modest price of $20 million. Then in 2004, backed by Microsoft’s co-founder, Paul Allen, and led by aerospace guru, Burt Rutan, Scaled Composites launched and landed the first private privately-funded manned space flight subsequently winning the $10 million Ansari X Prize.

That was just the beginning. Since the inaugural Scaled Composites SpaceShipOne flight, the company has been acquired by Northrop Grumman and is now in cooperation with eccentric British millionaire Richard Branson and his company Virgin Galactic. Virgin has reportedly attracted up to 200 clients who are each paying $200,000 for a short weightless ride in SpaceShipTwo, Mr. Rutan’s new 6-seat spacecraft. The Washington Post reports that “Virgin Group expects to invest a total of $240 million by 2013” in the company’s bet on space tourism.

Space tourism market still suborbital

Allen, Branson, and Rutan are by far the most visible in the still very “virgin” space tourism industry. There are a handful of other wealthy entrepreneurs that are all vying for their piece of the potential market. Among them, Amazon.com founder, Jeff Bezos, with Blue Origin, Jim Benson’s Space Company, as well as other companies like Space Adventures, Space Island Group, and Bigelow Aerospace. Traditional government-funded efforts still haven’t folded their cards yet either. Boeing and Lockheed recently signed a monopolistic “United Launch Alliance” to supposedly cut costs in the rocket booster industry. NASA created Commercial Orbital Transportation Services (COTS) agreements with several companies to spur private sector R&D. The Russian Federal Space Agency is still sending tourists into space like the first privately-funded Iranian-born Ms. Anousheh Ansari. Also, the European aerospace agency, EADS Astrium, “unveiled plans this summer to develop its own four-seat space plane, with tickets to sell for around $150,000.”

What investors and potential market entrants are now predicting is a rapid market “explosion” in space tourism. Although skeptics say these companies “will merely provide rich people with a good view of the atmosphere that their carbon-hungry trip has just helped to destroy - the ultimate 4×4 experience”, others are betting on a larger, more mainstream tourism market.

In the years 1908 to 1912 the world went from a grand total of just ten airplane pilots to hundreds of airplane types and thousands of pilots in 39 countries. It is hoped that the X-Prize [is providing] a similar jumpstart to the space travel industry.

The difference is that instead of leaving the development of this new industry to slow, risk-averse government organizations, risk-taking private investors are providing the much-needed venture capital and corporate vision. The cumulative investment of $1 trillion that has been made by governments in space technology development has yet to earn a commercial return. NASA currently spends $100 million or more per space launch and many of those don’t even carry humans. Perhaps the forward-looking business strategic environment that focuses on cutting costs and turning profits is what could bring a sense of purpose to the often criticized over-budget NASA.

What’s different today is we have more millionaires and billionaires than ever before, and we have the analytical tools, computational tools, where a single individual can finance it, and a team of 20 can design and build a spaceship that used to take a major first-world nation to support.

Taikotourists

The market worldwide is certainly growing. As people see the prices come down from the millions to the hundreds of thousands to the tens of thousands, the demand will continue to outpace the supply. According to research by Patrick Collins presented at the 1997 IEEE Aerospace conference, “some 80% of young people up to the age of 40 would like to [travel to space], and even some 30% of people in their 60s and 70s say they would like to … a majority of those in favor say they would pay 3 months’ salary; about 1/4 say that they would pay 6 months’ salary, and some 10% say that they would pay 1 year’s salary or more.” Those statistics reflect a welcome climate for potential investors. The European Tourism Research Center says that “perhaps most exciting speculations about future travel involve the idea of space travel becoming commercially available to the public.” Futron, a market research firm, predicts that “as many as 14,000 space tourists will be heading into space each year by 2021, generating annual revenue of more than $700 million” says the International Herald Tribune. Demand is expected to grow to more than 1 million passengers/year if the cost can be reduced to around $20,000 per person.

And if there’s a significant market, we can be assured that the world’s most populous nation will be interested in the business. Merrill Lynch reports there are over 300,000 millionaires in China. In fact, Hong Kong businessman, Jiang Feng is reported to be paying $100,000 to take a suborbital flight. Just recently, an undisclosed entrepreneur in Zhejiang province became the first mainland Chinese to sign up for a seat onboard Mr. Branson’s ship. Chinese technology and companies may also even be players in the space tourism market before long. According to Wired News magazine, “Space Adventures will consider the Chinese Shenzhou vehicle once it has proven its reliability.” Realizing the potential for domestic interest in space flight, NASA administrator, Michael Griffin, predicts “China will be back on the Moon before [the U.S.]” (more…)

Ok, so this has been circulating around the internet for many years. If you’ve never seen it and you’ve been to China, then enjoy. Or just read it again for nostalgia. It makes me smile every time. Can you think of more???

1. You’re at an expensive western restaurant and don’t even notice the guy at the next table yelling into his cell phone
2. You enjoy karaoke
3. You walk backwards in the park listening to a transistor radio
4. The China Daily is your source for hard hitting, fast breaking, investigative journalism
5. You smoke in crowded elevators.
6. All white people look the same to you
7. You like the smell of the bus.
8. You find state-employed retail staff helpful, knowledgeable and friendly
9. You no longer need tissues to blow your nose
10. You find western toilets uncomfortable (more…)

Cultural differences between the US and China as observed after a 2-year hiatus

Some people say the culture shock you go through when you move overseas can be tough. Others say the move back home is equally if not more difficult than adjusting to a foreign country. After my longest stint overseas (right now at 24 months) so far, I’m headed back for a brief recharge in my home country for a couple weeks. I have a good excuse. It’s my little sis’ wedding and we welcome the opportunity to travel the 15+ hours to help her celebrate and see what all we may have missed back home.

Already, I think we’ve really fully adjusted to our Chinese way of life. Gone are the days of never-ending frustration and confusion. We can say with confidence that we’ve settled into China and are comfortable where we are. But that doesn’t mean we haven’t learned to adapt to certain things that are just a way of life in China.

As we repatriate over the next few weeks, I’m keeping a running list of the things that jump back out at us about the differences between the “new reality” and what it used to be like.

Thermostats – It’s funny how I’ve actually started to feel guilty about turning on my A/C units in the Chinese apartment. It must be something about the fact that my fellow classmates all live in the dorms and have nothing but a rotating fan all summer to keep them cool in the 40+ degree Guangzhou heat. In fact, they’ll even forgo lights during the day to save electricity. But, I’ve really forgotten what it’s like to have a good night’s sleep where I don’t wake up with frozen feet, a sweaty pillow, or a dry hacking cough. The A/C units (if you’re “privileged” enough to have one) are normally free-standing or mounted on the wall. They’re all remote-controlled but each-one is regulated by its own thermostat. The heat ensures they never really throttle back and certainly never turn off. For the first time in 2 years, I slept in a thermostat-controlled, central-air cooled room on a mattress that wasn’t harder than the floor. Ahhh, repatriation.

Fast food - food that is really cooked fast - particularly that food that isn’t a chain store like McDonald’s or Carls Jr but more like a small Mexican restaurant that whips up authentically tasty tacos in just a few minutes. Then being able to pick up your food and eat it on the run.

Common courtesies - opening a door, crossing the street, picking up a heavy bag, etc. We find we’re downright rude to retail store employees. We’ve learned to ignore the pestering hawkers in stores all over China.

Cell phone coverage - amazing what a communist regime can do for cell access A N Y W H E R E in the country. The US wireless competition seems to guarantee that you won’t get good access in 95% of the places you travel in the USA and even indoors. China’s mountain peaks all have 4-bar coverage!

Anxiety about petty theft - we’ve been trained through experience in China to always be suspicious of everyone - you can lose your cell phone or wallet just turning your head. The average citizen appears to be a lot more trustworthy in the US.

Traffic - even the busiest Chinese cities don’t have nearly the volume of parking lot traffic in America’s biggest cities like Chicago and D.C. Hundreds of days worth of time are wasted in an American’s life just sitting in suburban traffic.

Salad - more specifically food prepared raw with fresh ingredients - minus the gut-wrenching sickness afterwards

Bathrooms - the almost guaranteed existence of soap and paper towels. I find I’ve developed an instinct to avoid searching out a bathroom while outside the home in China - the conditions are never satisfactory in China and the chance of having to squat is very high - I avoid it like the plague.

Automatic things - faucets, escalators, and DOORS - I’m continuously surprised when a door opens automatically at the supermarket or hospital.

Farts - finally, something in the food in the USA, gives me (and perhaps others) frequent and potent odorous flatulence. Dunno why.

Cheap stuff - that isn’t so cheap. Things like key chains, magnets, stickers, buttons, etc. are all made for cents in China is sold for a killing in the USA. Managed to blow a total of 100 USD on “cheap souvenirs” for my Chinese colleagues!

Currently sitting in Delaware via St. Louis, Alabama, and D.C. Patiently awaiting a flight to Turkey via Germany. Plenty of time to continue observing these foreign Americans!

Image courtesy of inthesetimes.com

What’s a five letter word for eminent domain?

L-E-A-S-E. And that’s the Chinese approach to it.

Every few days there’s another pundit broadcasting his or her advocacy for revaluation of the Chinese currency. Despite a trend bringing the RMB more value every day, the bickering is about how slow it’s happening. Almost in the same sentence you’re bound to hear a comment about the rights of Chinese citizens or apparent lack thereof. Loudest of all on these issues is undeniably the USA harboring over 1 trillion USD in Chinese-owned securities. As the Olympics draw nearer, this rhetoric is only increasing in volume.

Despite persistence in internet censoring, the things to which Chinese are entitled are also gradually showing improvement as the government passes new laws granting more … little by little. We see this especially in the property market. Already, laws are in place restricting the amount and degree of foreign investment in the property sectors. By limiting foreign involvement in the market, the government hopes to both control skyrocketing real estate prices, stifle speculative investors, and allow everyday Chinese citizens a role in their own property market. March saw a historically significant legislative event in China with the first law granting a step towards something resembling property ownership as opposed to the previous 70-year lease that existed on farms and homes. With the new land use law now a Chinese “lease” is “automatically renewed” after the 70 years. More here about the new changes.

But the USA continues to complain that this just isn’t quite all there yet. Real ownership shouldn’t have such restrictive caveats, they say. However, sometimes the US all but forgets that a few short centuries ago back in its “developing” stages, the States also went through an all-too-familiar period of transfer of ownership from government to people. Lest we whine too loud, we ought recall our own history.

Here is a bit of history to remember. (more…)

Our friend is launching a most ingenious and magnanimous venture. It’s not of the type that you read about every day in MBA case studies. Sure, it’s still about making money. But this money is for a great cause.

Anyone who’s traveled outside of China’s biggest cities is abruptly shocked by the abject poverty of the people in the thousands (millions?) of small villages. Many have missed the China fast train to development. Lonnie over at OMBW, the famous American Professor in China, is behind this effort. Through the support of various charitable contributors, The China Dreamblogue is raising money through advertising for students in China and all over the world. Lonnie’s idea is a noble and novel concept that draws on his expertise as an SEO pro and his connections with influential bloggers, educators, and professionals all over the globe.

I encourage you to check out the site and become a regular visitor/contributor. The Dreamblogue is something that could really happen with the support of a social network of cyberspace billions. Here are some details from the Dreamblogue site about the project:

The Dreamblogue is a simple concept. After a specified period of time (maybe once a month or once a quarter), we’ll select a contributor who will win a prize donated by one of our charitable sponsors. We hope to give away vacations to China, scholarships to study abroad, technical equipment, software and cutting-edge gadgets that will appeal to our broad demographic. We want to attract a Postsecret-type http://postsecret.blogspot.com interest in our blog that will drive enough traffic that we can generate advertising revenue to give to educational and medical concerns. All of the money generated from these sources will go directly from Feedburner and Blogads to the 501(c)3 charities we support—we will never directly handle the money. Funds will go to our partners The Library Project, which builds libraries in orphanages and rural schools all over China and Asia, and to The Reading Tub, a charity that promotes children’s literacy in the United States.

对中国世界的人有什么意见？看这里。

Pew Research Center in Washington just released a “47-Nation Pew Global Attitudes Survey” titled “GLOBAL UNEASE WITH MAJOR WORLD POWERS. Below are some excerpts from the survey summary that relate to China. The full 129-page report can be found here.

A 47-nation survey finds global public opinion increasingly wary of the world’s dominant nations and disapproving of their leaders. Anti-Americanism is extensive, as it has been for the past five years. At the same time, the image of China has slipped significantly among the publics of other major nations. (more…)

要了解美国总统候选人是什么样的？用英文写的，你可以看这个网站。他们研究每个候选人的对中国有什么样的看法。到美国选举还有一年所以候选人都开始做活动发布他们自己的战略。美国总统候选人对中国的情况肯定都有不同的意见。这个网站总结候选人的讲座的特意说中国的内容。如果根中国有关系，这个网站都记录了。用英文在这里可以看到。

例子：Hillary Clinton

Sen. Clinton (D-NY), unlike many of her fellow candidates, has chosen to focus a significant portion of her campaign rhetoric on China’s economic impact on the United States, which she says is causing “a slow erosion of our own economic sovereignty.”

In February 2007, after the Dow Jones Industrial Average dropped by 416 points as a result of a “scare in the Chinese stock market,” Clinton wrote a letter to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urging them to take action to reduce Chinese-owned debts.

She is also concerned about China’s economic practices, including the revaluation of the yuan, saying in a CNBC interview that she wants “the countries with whom we do business to have protections for intellectual property; I want them to have a rule of law that is enforceable; I want them to not manipulate their currency.”