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…)

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…)

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…)

This is an analysis of the Chinese insurance market and the opportunity for foreign direct investment. We begin with a look at one American firm’s successful entry into the Japanese market and then address the feasibility of expansion into the Chinese mainland. We welcome your feedback.

Aflac Japan

In the 1970s, Aflac Inc, a U.S. insurer, proposed to enter the Japanese market with a great idea. Selling cancer insurance in a relatively new market for American products was a concept that everyone seemed to think was a “wild idea” – even Aflac’s Japanese competitors in the target market, Japan. This is probably one of the best advantages a firm can have when considering Foreign Direct Investment (FDI) – having an idea that is so great yet so apparently crazy to domestic competitors that they let your company try just to watch you fail. In Aflac’s case, of course, that freedom was an unrestricted path to capturing a large portion of Japanese consumer market share.
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Nurses are the engines that drive hospitals’ daily operations. However, maintaining the right hospital nursing staff can be a challenge. Temporary staffing agencies around the world are revolutionizing the way hospitals and clinics deal with unpredictable surges and lulls in their service sector. With epidemic diseases hitting the Chinese mainland every few years, such a business concept might be cost effective and even profitable.

In 1980, Patricia Kathleen Sheerle founded American Nursing Services (ANS), Inc., a supplemental staffing agency. After nine years of ups and downs in this industry, American Nursing managed to grab the first position in market share in New Orleans and Shreveport and ranked among the top five firms in each of the other cities it served. Temporary nurses under the management of ANS would change the face of the nursing industry in the United States forever. Could such a temporary staffing concept work in China? We think so.

In general, the business model of ANS is feasible in China but the business should be limited to the tertiary sector without adding complicated services as in the domestic industry.

American Nursing is a regional supplier of nurses and other health care service personnel on a temporary basis. It needs to match the need of hospitals and the supply of temporary nurses. This also closely matches the labor market situation in China. This makes the concept of this kind of business model likely easily accepted in China among both hospitals and nurses. The government tax rate is also favorably lower for this business than other industries because it helps to relieve the pressure of social unemployment.

From the temporary worker’s point of view, there are three main reasons why they would support the ANS business model. First, most of the Chinese people facing economic pressure are also currently hunting for part time jobs. An increasing number of people are tired of the regular work schedule and want to have the option to flexibly manage their own time by providing temporary services. Furthermore, a temporary nursing agency is able to keep the temporary workers informed of the work opportunities at the time they are needed, provide the appropriate training, and ensure the worker’s rights and interests are addressed. All these reasons are more than the average Chinese hospital can provide to its staff.

As for a company or hospital hiring temporary workers from such an agency, it has at least three reasons to welcome this business model. First, this model allows management to be flexible in terms of the number of employees at any given time in the company. In other words, the company can hire temporary workers from the agency during peak demand, while laying them off without compensation when demand decreases. Second, since the company does not need to recruit the temporary workers independently and pay hourly wages, the total labor cost is relatively lower. Finally, the introduction of temporary workers hastens the internal competition among the regular employees since nobody wants to be replaced by a temporary worker in future.

As far as the agency is concerned, this business model is also feasible. Initially, the agency needs very low capital allowing easy market entry. Moreover, advanced technology facilitates effective communications among the stakeholders anywhere and anytime at low cost. Thirdly, asymmetric information strengthens the bargaining power of the agency with either the supply group or the customer.

From the above analysis in terms of different stakeholders in the “ecosystem”, we can generally draw the conclusion that the business model of American Nursing is feasible in China, but the business should be limited to the tertiary sector excluding complicated services like in the domestic industry.