Sunday, June 28, 2009

Exploring International Business

Ever since we retuned from China, I have been exploring ways to expand my international business experience. I have several ideas for new ventures that have an international focus, but I need to find a way to gain some experience in the field to legitimize those potential opportunities.

A few weeks ago, I came across a sister city project between Raleigh, NC and one of Beijing's "star" cities. One of the US principles was Lily Yang of Yang Consulting. I reached out to Ms.Yang to create an introduction, and to explore if there might be ways that I could get engaged in any of her international projects. While I don't have the language skills yet, I believed that there might be some opportunity to offer my experience in strategy, marketing, research/analysis, or social media.
I may not have done this in previous years, but I have been learning a ton about actively networking outside your normal circles from Jack Perez over at Summit Strategy Partners.

I was pleasantly surprised when Ms.Yang offered to meet with me and discuss ways that I could leverage some of the skills and experience I've gained from this International semester towards some of her existing projects. While I don't have very many free hours to offer, I look at this as a valuable internship to get me the international experience that I would not easily be able to achieve in my current position. Just from talking to a few people at school about this, I may have two opportunities to engage new projects with Lily, so maybe I will bring some value to this interaction.

I don't know exactly what to expect from this opportunity, but I feel like it's the first step towards opening some doors that I will need for the rest of my career.

Saturday, June 27, 2009

Crowdsourcing - Part VI - Strategy

Part V - Joint Ventures in the 21st Century?
Part I - The Big Picture

Building on our Global Strategy course this weekend, I have to wonder if Strategy is a crowdsourable activity? On the surface, it would seem to be too complex a task to expect a disconnected group to be able to coordinate. Maybe the high-level strategy needs to be well understood (ie. a framework), and then crowdsourcing could fill in the blanks and shape the direction.

But could the entire strategy for a consumer product be crowdsourced? To a certain extent, this is what happens with consumer surveys, polling and focus groups all the time. But those are typically looking for a level of validation for an existing product/strategy. So how could you interest others to want to create a new strategy?

I'm interested in hearing any and all feedback or experience on this point.

Disruption vs. Shareholder Maximization - Part II

[With our Global Strategy course this semester, I'm going to highlight a bunch of interesting business models and strategies]

"What's very dangerous, is not to evolve.", Jeff Bezos. In a recent interview with Fast Company, Bezos once again talks about how Amazon is using aspects of their core business to disrupt an existing business model (publishing). This time their Kindle eReader is threatening to reinvent the publishing business.

But Amazon is an online store, a reseller of other company's stuff. Why is it trying to compete in the consumer electronics business with a device? Without a massive quantity sold, how can they possibly achieve the same level of margins that the online business does?

Once again, letting NPV's dictate the business can be dangerous to a company's long-term health. Kindle is an enabler. It enables Amazon to make buying books (from Amazon) easier than ever before. It enables Amazon to potentially disrupt the publishing value-chain. It enables Amazon to accelerate the pace at which costs associated with supply-chain for physical reading materials are reduced or eliminated. And it ultimately enables the on-going evolution of Amazon's strategy to be a critical player in the digital economy.

The Kindle may or may not ultimately be the dominant eReading device. It may fail to pass any litmus tests for success (long-term positive NPV; etc.) but the paradigm it has enabled will position Amazon to be a significant influencer in the digital life of consumers for the next decade. That's a position than shareholders of many other companies would highly desire.

Wednesday, June 24, 2009

Searching for Real Experiences - The Flipside of Freemium

I've written about Freemium business models in the past, but this is a continuously evolving model. With Chris Anderson's new book coming out soon, I suspect it will get another round of discussion and scrutiny started since the Web 2.0 world of 2006-2008 is now economically different.

This recent article in Forbes highlights the flip side of freemium that is beginning to emerge as more and more people seek to broaden their experience with the brands they love online. This isn't surprising. Digital connections are about abundance, hence the free price tag. Real connections are about scarcity, hence the price premium. The two models co-exist to provide breadth to the user experience, and in turn they continue to feed both sides of the model.

Just as I believe that the upcoming economy will be filled with 2 Guys and the Internet companies around the edges, I also believe that product-centric companies will be looking for new ways to create the scarcity and abundance models that are highlighted here. It's a natural evolution of brand loyalty, this just extends it to micro-targeting and user opt-in. In the past it was too expensive to allow your customers to associate with the brands they loved (except for fanactics), but now the economics have completely changed.

Not accepting "we've tried that before..."

Kindle wasn't the first eBook reader. It's just the best eBook reader.

Kindle allows Amazon to cut out a major player in the publishing process, the publishing house. They can pick and choose from the best writers, essentially taking away the money-makers from the publishers. They drive the costs of competition down. They can use their built-in technology (Look Inside; User Feedback, etc..) to preview new authors and determine if customers are interested.

All of this happened because Jeff Bezos didn't give up when somebody told him, "but that eBook concept has already been tried and it failed..."

How many times have you kept pushing an idea when the rest of the room told you that it didn't work before? How many time have you ignored the experience of others than tried to tell you what failed in a previous life (that had different circumstances than the current opportunity)?

It's true that those that fails to learn from history are often doomed to repeat it. But that doesn't mean that yesterday's world is the same as today, and it doesn't mean you have to let someone else's past mistakes impede your next great idea.

Redbox

[With our Global Strategy course this semester, I'm going to highlight a bunch of interesting business models and strategies]

This concept was created by McDonalds. They didn't put the boxes in their stores, but rather in grocery stores. I would have loved to have been a fly on the wall when thise discussion happened. Why not in McDonalds restaurants? Do they miss out on too many people shopping after 6-7pm (4-9pm is the prime time for renting movies).

Also love that they are filling a temporary niche, until streaming becomes the primary viewing choice. Redbox could be gone in 5 years. Redbox could be the equivalent to dial-in Internet in 5 years (which still exist). But in the interim, they are capitalizing on a gap in the market between the collapse of Blockbuster and the impending rise of streaming video.

Tuesday, June 23, 2009

Disruption vs. Shareholder Maximization

[With our Global Strategy course this semester, I'm going to highlight a bunch of interesting business models and strategies]

I don't think I made too many friends in our Strategy class this weekend when I called the b.s. on two of the foundational principles of MBA programs: Accept all positive NPV projects and Shareholder Maximization Theory. I understand the concepts, and I understand the techniques. I'm just not convinced that it's the right guiding culture to build long-term companies. As Dr.Baliga stated this weekend, "too many times, those projects start with budget and then get wedged into strategy after the fact". I couldn't agree more.

Here is a good example from a recent article about Netflix, and how they are once again innovating to change and disrupt the market.But this time, they are not only disrupting the market with streaming video, they are potentially disrupting their current business model. I suspect that Netflix probably has positive NPV projects (today) that have values greater than their streaming projects, but are they aligned to help Netflix avoid the inevitability that all media will move online? The streaming project would eventually get funded using traditional approaches, but they would probably get started two years late and Netflix would be watching a streaming-only company pass them by.

The "E" in EMBA does not stand for Entrepreneur

I really enjoy the WFU MBA program. The level of learning and discussion is excellent, and the quality of the people (classmates & faculty) is outstanding. But the conservativeness of the majority of the group is one aspect that frustrates me every time I drive back to Raleigh on Saturday evenings.

I understand the root of it - a bunch of successful people that have gotten to a decent level in their companies, have families and mortgages, and are happy with where they are today. So they bring their conservative mindset into the classroom, and it shows in many of the discussions we have about company strategies or business models. From talking to friends in other programs, I don't believe these characteristics are unique to the WFU MBA program.

The white elephant in the room is that almost all of my classmates have another 20-30 years of work left in their careers. And on top of that, most of their companies and industries will either not exist or be radically changed in the next 5 years.

I can't tell anybody else how to think or act. But it seems to me that the classroom would be the perfect place to experiment with thinking about innovation, business disruption, new business models, and new forms of risk. Maybe the downturn in the economy will push some people to consider looking at ways in which they can adapt to the changes that will confront us over the next 20-30 years.

Sunday, June 21, 2009

Crowdsourcing - Part V - Joint Ventures in the 21st Century?


I've written several times about my belief that the 2008/2009 econalypse and losses of thousands of jobs will be the tipping point to drive companies to move to a much more distributed model of business interaction. I call it "2 Guys and the Internet", and it's focused on the concept that it has become so easy to interconnect your business with others that have expertise that you do not need to have in-house.

Crowdsourcing Question - If you were starting a new company today, and had the option of creating a joint venture between several smaller (existing) companies, or using the "2 Guys" model, which would you choose, and why? The joint venture would bring together expertise in several critical areas for this market (distribution, sourcing, industry knowledge), but does the value of the JV outweigh the challenge of integrating those management teams? Which way would you go?

Crowdsourcing - Part IV - Recognizing Value


How much an ounce of gold is worth is a function of supply and demand at any point in time. You can easily look up the going rate for gold from any financial information source. But what can you create with an ounce of gold? How many bracelets or earrings or electronic connections? Answering those questions is much more difficult unless you specialize in products that include gold.

When jewelers sell gold jewelry, they rarely sell it based on weight. They sell it based on quality or craftsmanship, and appeal to the desires of the wearer to look glamourous.

Crowdsourcing Question - In an industry that sell healthy values by a quantity measuring system, how would you go about changing the rules of the game to better highlight the value of the product to improve healthy lifestyles?


Saturday, June 20, 2009

Crowdsourcing - Part III - Educating Customers


Some products, such as wine or art or luxury sports cars, require a sophisticated understanding to truly appreciate the differences between greatness and mass-market products providing somewhat similar utility. The time required to develop these levels of expertise or appreciation can often take years or decades, and require users with deep pockets to continue to fund their trials and experiments to learn the skills required to appreciate the greatness.

Crowdsourcing Question - Without diluting the product or the experience, how might you attempt to reduce the time cycle required to educate your customers about the uniqueness of the experience associated with your product?

Crowdsourcing - Part II - Healthy Lifestyle

If you're spent any time in Europe or Asia, you quickly realize why the media (and Asians and Europeans) like to portray Americans as overweight. As a whole, America has a tremendous obesity problem. But the lack of a healthy lifestyle has not escaped all Americans, in fact, there are many groups of Americans that are as fanatical about health, fitness and diet as anyone in the world.

So my first crowdsourcing question has to do with healthy lifestyle products. In many instances, healthy lifestyle products (diets, exercise routines, etc.) often struggle because they seem complex to start or maintain. They appear to take quite a bit of time to use properly (ie. additional food preparation or unique food shopping). We live in a culture where speed is everything, and people are already overloaded with activities that compete for their time.

Crowdsourcing Question - Given all the benefits that are associated with healthy lifestyles (physical, emotional, financial, sexual, etc.), what are the main areas you would focus on if you were trying to bring a new product to market that created healthier lifestyles for the consumers?

Crowdsourcing - Part I - The Big Picture

Before I ask anyone for insight, it would probably help to give some idea of what the big picture is for this project. OK, here goes...

This group would like to bring a new product to market. The product(s) are all about creating a rich, healthy, thought-provoking lifestyle. The high-level belief is that the target customers will not only consume the product, but also adopt various aspect of the lifestyle to broaden the overall effects.

The market for these products exist today. It is an extremely competitive (overall) market, but certain niches of the broader product category have yet to be well developed or well marketed. They plan is to bring these new products to market within one of these under-developed niches.

The product(s) are imported. The importation process is relatively well-known (been done for several years), but it's filled with potential problems that could effect quality, frequency of delivery, fraud.

I'll leave it at that for now. Follow-on posts will dive into specific issues that I'd like to get input from the crowds.

Crowdsourcing a New Project

I've written about the power of crowdsourcing before, but other than a children's book that I'm trying to get created via Facebook friends, I've never really put this into practice. We do quite a bit of pseudo-crowdsourcing at work for minor ideas and feedback, but nothing that truly goes outside the walls of the existing organization.

One of the projects we have this semester involves some research into an aspect of international business that we could apply back into our existing business, or possibly use for a future business. My project involves potentially two real businesses, neither or which I am directly involved with, but at least one has several elements that would be core to something that I am very interested in starting in the near future.

The challenge of this project is that there are elements where I believe I can bring quite a bit of value and expertise, but other elements where I am really not confident that my instincts are on the right track. My gut tells me that I'm letting some (subconscious) preconceived expectations restrict my ability to see a bigger picture. So instead of making a mistake from lack of exposure, I thought I'd open this up to the Internet and see what comes back. I have no idea what sort of response I'll get back, but maybe 300-500 followers on Twitter, LinkedIn and Facebook can share a few ideas that will point me in directions I had never imagined before. Let's hope so.

The one caveat I have is that I'm under NDA for this project, so I'm going to need to be somewhat vague about certain specifics. I don't think this should be a problem, as most of my questions are broad and could apply to several markets or products. I'm hoping that this doesn't become too restrictive to creative ideas.

All ideas are welcome....

Thursday, June 18, 2009

Award-Winning Classmate

Congratulations to classmate Gregg Lewis and his wife Jennifer, co-founders of SmithLewis Architecture. Their work on Roanoke's Claude Moore Education building was selected from over 2000 finalists to receive the Green Building of America Award.

This is not the first time Gregg's work has received national prominence for Environmentally-Aware Architecture. He first exposed our class to his activities to drive Cradle-to-Cradle principles in the Fall, and continued to enlighten us on architecture as we traveled across China last month.

Reinforcing my "2 Guys and the Internet" model

A little while back I wrote that the likely outcome of this latest econalypse is that corporate jobs will not return in mass, and that a freelance model ("2 Guys and the Internet") or Hollywood-style coordination model would emerge. A study released today from The Kaufmann Foundation shows data that supports that theory.

It also highlights that the average age of entrepreneurs in the US was 39. This is encouraging news for all the students in the executive program that may not love their current position but are concerned about the safety of leaving the existing paycheck. If you start something now, you won't be alone in taking the risk to start that opportunity which might better align with your passion. And since there are plenty of entrepreneurs out there with distinct skills, there are more opportunities to connect with them to provide a broader range of products or services.

Tuesday, June 16, 2009

How Media will Impact your International Interactions

Clay Sharky discusses how Cell Phones, Twitter and Facebook can make History

A lot of this we discussed in StratMktg last semester, but some interesting examples of how some of the usages and shifts are happening from "the simple or disadvantaged" as opposed to from the powerful nations. This doesn't discuss the election in Iran, but it's use of social media and the internet might end up making the Obama campaign's usage look like child's play.

Follow-Up: Failure & Growth in China

In previous posts, I've written about growth and failure in China and the role that both of them play in their economy and culture. One of the things that Americans tend to do when confronted with the thought that China or India will potentially (or eventually) overtake them as an economic power is to point to their lack of innovation. Mike Lord referenced this during our International Business course this past weekend, but then reminded us that many of the early American settlers made copies of everything they knew from their homeland in Europe. The easiest way to gain expertise in a new area is to copy what others have done. What you do with it from there really determines if you will create a culture of innovation, and hence a culture that can create sustainable value over the long-term.

Maybe another data point to consider is the Israeli technology markets and their level of innovation. He is a highly-educated population, that has expertise in various areas of technology, and considerable need to solve economic and cultural challenges. Put they haven't been nearly as successful as their American counterparts in creating sustainable new businesses. One proposed reason for this is their "failure is not an option" mentality in the Israeli culture. I bring this up not as a way to highlight American success, but to highlight another culture that punishes (or discourages) failure, similar to what has been discussed in the past with China.

The US still has challenges to overcome in their education systems to remain competitive in the global economy, and we should not rest on our past success. But I believe innovation and the culture we have that encourages success, failure and resulting innovation is the strength that we need to enhance. The foundation still needs to be there via math and science and creative thinking, but the culture also needs to be encouraged. It is the strength that we have which gives us the ability to overcome the population numbers that are in India and China's favor (at least in some aspects).

Monday, June 15, 2009

Another Facebook + HS Reunions update

As part of my How Facebook Could Make Money series, I talked about ways to leverage the nostalgia generated on Facebook for reunions. Well, apparently I've identified another market in transition, Alumni Associations. It's exciting to be ahead of the game at seeing market trends. The fun part happens when trying to come up with ways to be the counter-party that takes advantage of the new rules to create new forms of values.

Still trying to figure out Audience Targeting





















These are some pictures of user maps from this blog, (Top-Bottom) oldest-to-newest over the past 6 months. In terms of density or quantity of visitors, the site has made some progress. It gets anywhere from 5-25 visitors a day. This makes sense to me as I've learned a few tricks about cross-promoting it on Twitter or LinkedIn. But the slight demographic shift from Europe to Asia still has me somewhat confused. Obviously I get a little more traffic because I've been writing so much about our trip to China over the past month, but I'm not sure where all the European visitors came from previously. Other than "WFU MBA" or "bgracely", almost none of my topics or keywords would trend high enough to make the first couple pages on Google.

This is still in experimental mode. It's nice to be able to experiment and learn while doing something you love to do (writing), which is maybe the best lesson I should be learning from this. Find something you love to do, and then figure out if you can earn any money from it. I make nothing from this now, but hopefully I'll be able to translate some of the learnings from this digital identity experiment into something more sustaining over time.

Sunday, June 14, 2009

2 Million Minutes

I had not heard of the 2 Million Minutes project before, but coincidentally for many of the Executive MBA students on the China trip, this was the topic of conversation during many of our bus rides and meals. Seeing the pace of growth in China, it was hard not to envision how much this would effect our young children. Several of the exPats told us stories about how their children spoke multiple languages and how they embraced traveling to various countries in the region, learning about their cultures and differences. That's something that we don't expose our children to enough here in the US.

I plan to watch this documentary soon. I don't know if I'll have much of an opportunity to change the education system presented to our children, but I do have the opportunity to educate them on the world and give them additional opportunities to expand their views of the world.

Business School is like Business Books - Useful in Snippets

Let me preface this by saying that some (or much) of this may not make sense to many people reading it. I have a strange way of processing information. I'm sure there is a psychological name for it, but I've never found it. It essentially goes like this.
  • Read a lot, almost anything you can get your hands on, in all formats (newspapers, blogs, magazines, books, etc.). Sometimes read the entire piece, and sometimes scan it.
  • Listen a lot, to people from many of different backgrounds and social levels.
  • Ask questions that sound broad, but are typically only looking for a partial answer.
  • Do not consciously coordinate the things you read or hear or ask.
  • Periodically have a whole bunch of facts, ideas, concepts, quotes and other relevant pieces come together into ideas or pictures. Scratch your head wondering how they all came together.
This piecing together sometimes happens on purpose, like when it's time to finish a paper or analysis. And sometimes it just "clicks" in the middle of a sentence as I'm talking to someone. The latter are the ones that I can never quite figure out, but occasionally I let it flow and it sounds like a reasonably intelligent set of thoughts (note: that's not bragging...I honestly don't know how it pieces together).

So what's the point? So what? Hang on a second, I'm getting there.

As I mentioned before, I read quite bit. Since I pay my mortgage by doing things that are semi-business related, I often read books on business. I'm currently reading Made to Stick, Innovation that Fits, and Free. I'm also reading Serve the People and The Blue Sweater, not so much for their business content but rather as a way to gain some inside into foreign culture to help augment this semester. Each one of those books is sitting on my nightstand, and each one is somewhere between 10% and 60% finished. I rarely seem to finish the books, but I always find a few interesting snippets from one that relates to one of the others. It's my favorite part of reading these various types of books, when one snippet connects to another and seems to create something new. A new idea, or a bigger concept.

As we've moved farther into our MBA program, we're now at that stage when more and more snippets from various courses or experiences are piecing themselves together in my head. The broader concepts these create are becoming interesting, useful and fostering a bunch of ideas for new businesses.

I'm not sure if this is the case for many (or any) of my classmates, as I often get blank stares when I try and explain some of these conjoined snippets. I'm not sure if they don't see things the same way, or if I still needed to work on explaining the new concepts, or if I'm just off base. Many of them are incredibly knowledgeable about specific topics, so it's quite possible that it could be the latter.

Either way, more and more pieces are starting to connect with each other or are at least in each other's gravitational field. For me, this is when fun stuff happens. Now the challenge becomes not over-thinking things.

Textbook Rant

Thank you, Seth. I couldn't agree more!! And this isn't strictly a Marketing course problem, it's an issue for 99% of the courses. I have a pile of books that I lug around each semester, and they will eventually take up space in my home office, and I can't remember one moment over the past 12 months when I was class I had a textbook instead of an electronic copy of something. Not once!!

[UPDATE - In all fairness, I need to note that Dr.Iacovou did conduct our ITMgm't course in an all electronic format. This approach seemed to be well received by at least 75-80% of the class, so consider that a step in the right direction.]

International Learnings - Page 2 ("China Growth")

One of the great things about MBA programs is the opportunity to learn, fail, make mistakes and be humbled without too much loss of political capital. It's even better when you get almost immediate feedback on an area where you missed the mark, or visualize the concepts in the context of the bigger picture.

A couple days ago, I wrote about my initial thoughts about China's Growth and their ability to sustain it over the next couple of decades. Much of it was based on our experiences from our company visits on the China trip, and multiple discussions with classmates on the subsequent bus rides around the country.

Much of class yesterday, in International Business, was focused on analysis of New Ventures and Corporate Expansion into foreign markets. So I went back and looked at some of the analysis models and compared them to what I had written. Needless to say, much of my initial thoughts were predictable and did not look at the connectedness of the bigger picture. Let's highlight a few of them:
  1. Demand for Goods, Worldwide - I said, "...they pay their workers in Mexican plants $13/hr, but pay their workers in Singapore/Taiwan/Malaysia $0.21/hr, so it's hard to make the math of the stimulus work unless people in the US wanted to start paying $200 for a pair of blue jeans." This is a classic mistake of looking at just one element of the end-to-end supply chain for bringing this textile good to market. Stepping back to look at the bigger picture, I may have found that shipping costs from Asia to the US have risen dramatically, or that new plants in the US are taking advantage of tax incentives to educate out-of-work furniture laborers, or some other element that could have made the overall business model work. But instead, I allowed myself to be fixated on a single, seemingly tanglible (and easily understandable) cost element.
  2. Failure to Consider Shifts in Capital & Investment - Nowhere in my analysis did I look at the possibilities that Chinese investment would flow directly into the US to take advantage of low-cost workers, or better environmental conditions, or attempts to gain a foothold within the country like Honda, Toyota, Mercedes and BMW did with plants in the US.
  3. Failure to Consider Shifts in US Opinions - I mentioned that in "Made in China" sometimes carries a stigma, especially when child safety issues arise. But I failed to look at attempts by Chinese companies to reduce any backlash towards a foreign company or brand.
Those are just a few misses. Needless to say, there is a lot that I still don't understand. But the good news is that the learning is in an environment that encourages mistakes. Now it's up to me to figure out when to ask question, what questions to ask, and when to realize when I don't know what I don't know.

This is going to be a fun semester.

Saturday, June 13, 2009

Making Sense of the Tremendous Growth in China

Towards the end of last year, my team wrote a paper about the tremendous growth in the UAE, analyzing the region as a potential location for Foreign Direct Investment. With oil above $120/barrel and tremendous growth in both India and China, it was fairly easy to see that the UAE was well positioned to become a new powerful economic center between Europe and Asia.

Then the econalypse of 2008/2009 happened and the sands that all that growth was built upon quickly shifted, leaving many of those towering buildings in Dubai empty or partially completed. The center of the world for crane rentals suddenly faced the realization that comes with $40/barrel oil and the interconnectedness of our global economy.

Throughout our visit to China, we were constantly stunned by the pace and scope of growth throughout the country. Every city we visited was filled with cranes and construction crews, often working until well into the night (3am in Shanghai). New freeways, subway systems, waterway tunnels. 50, 100 and 150 story office buildings. High-rise apartments packed densely into every corner of the city. And this wasn't just a building here or a building there, this was the equivalent of 10-12 Winston-Salem's being added in all directions of almost every major city.

During our visit with the CITIC Group, their Chief Economist told us that the State Government had set the mandatory GDP growth rate at 8% in order to sustain the level of employment required to meet their goals and sustain a harmonious society. As I've mentioned before, the Chinese economy is still much smaller than the US, but 8% growth is an enormous number for a country of 1.3B people. Over the past decade, the Chinese economy has averaged between 10-11% growth per year. But given the resetting of the global economy, it's worth examining if this rate of growth is realistically sustainable over the next 5, 10 or 20 years.

So where will all of this growth come from? Let's take a look at a few potential areas of growth, as well as some factors that could limit the growth if not addressed and corrected.

Growth Areas

Demand for Goods, Worldwide - While consumer's bank accounts, 401(k)s and home values have all fallen over the last 12 months, it hard to believe that regions with traditionally strong consumer demand (US, Europe) will stop buying goods. If anything, they will continue to move towards low-cost goods, which can only favor Asian manufacturers and sourcers. When visiting one of the Garmet manufacturers during our trip in Hong Kong, someone asked if they expected many factories to be reopened in the US (or North America) given the stimulus from the US Gov't. The response was that they pay their workers in Mexican plants $13/hr, but pay their workers in Singapore/Taiwan/Malaysia $0.21/hr, so it's hard to make the math of the stimulus work unless people in the US wanted to start paying $200 for a pair of blue jeans. At another factory visit in Xi'an, the Operations Manager told us that more and more factories are moving to the western part of China because the costs in the eastern plants are growing too fast. He said that for every 500 miles they move west (with Xi'an being the western gateway today), their labor costs drop by 50%. And China still has 25% of their population (450M people) living in western providences and areas. Many of those people make less than $5/day, with over 100M making less than $1/day. Those types of numbers say that it will be very difficult for the US to get back any of the jobs that have gone overseas in the last 1-2 decades.


Demand for Goods, Domestically (in China) - The GDP of China has risen from $2/person to $2,300/person over the last 20 years, and is expected to rise to $5-6,000/person in the next 3-5 years. After the economic collapse in 2008, the Chinese government quickly realized that it was too dependent on exports, with only 30-35% of GDP going towards internal consumption. With all the growth and opportunities within China, there is quickly developing a growing middle-class that is seeking additional goods, services and comforts in their lives. Many of the changes in the middle class are trending towards Western ways of consumerism. Just as the middle class became the backbone of growth in the US since WWII, there is an excellent chance that this same growth will happen within China over the next 10-20 years. Ironically, one of the things that many people have identified as coming out of the Tiananmen Square incidents in 1989 is the liberalization of China, which is creating greater economic freedoms from small and medium sized businesses.


Innovation - China graduates 600,000 engineers from university programs per year, while the US only graduates 60,000. Its elementary school children are in classes at least 6 days a week and are typically bilingual at an early school-age. While it's true that the US has been the center of 21st Century Innovation by some standards, others believe that the US stumbled or wasted the past decade and is failing behind in driving innovation in key technology areas. But once again, the massive numbers will drive the need for changes and innovation. Cleaner environmental conditions, renewal energy, greater food production, next-generation mobile communications - all of these challenges will spur innovation internally, and it will be subsidized by the State Government who has declared those all to be challenges that could impede China's sustainable future. Does this mean the US will stop innovating? No. But this should be a wake-up call to the US that our ways of looking at superiority or value-creation may need an overhaul. More and more major companies are locating R&D facilities in China, and it's only a matter of time before the innovation created in those labs spurs local entreprenuers and scientists to go out on their own and create the next Google or Genentech or Toyota or Airbus.


Government Influence - It my seem ironic to think that government influence could drive greater economic growth, but it's very possible that the isolationism and single-party system in China could provide the stability between market cycles to help guide China into areas that will allow it to continue to growth at such a rapid pace. Whether this growth is via tax incentives to critical Chinese industries, or through fiscal policy and stimulus, it's very possible that future growth will drive their political policies more so than in the US where party politics and re-election strategies often have more influence that long-term country growth.


Potential Stumbling Blocks

US Consumer Spending - Just as the Chinese are not going to be able to radically shift their culture to become greater consumers of goods overnight, neither will Americans be able to drastically reduce their addiction to consumption. But there is a possibility that the latest downturn, just like a bad result from a doctor's exam, will provide shock treatment to many Americans and begin a cycle of reduced consumption. The days of the House-as-an-ATM are gone (at least for a while) and many people are out of work, so the cash to spend is just not there. Whether this will change long-term is still to be determined. The possibility of a newfound "Buy American" sentiment could also arise and put a dent in Chinese exports to the US.

Rising Environmental Costs - As we experienced in Beijing, Xi'an, Shanghai and Hong Kong, the skylines of these major cities are badly polluted. With the growing presence of cranes driving new buildings and factories, this challenge will only get worse in the near term. The massive use of coal to power the country leads to polluted water, polluted air, and contributes to the loss of "green" space around the country. Finding alternative energy sources is one challenge facing the government, but also taking on the cost of cleaning their environment to sustain food and life will become an increasing burden. These costs will take away from GDP production.

Product Safety Costs - The recent problems with lead paint on toys shipped to the US highlighted another lack of control that could have a long-term impact on their ability to export. When safety issues directly effect children, the sentiment grows loud to associate "Made in China" with potential harm for children around the world. Trust is a commodity that is not easily replicated or imported, so the Chinese will have to increase their adherence to commonly used guidelines for safety and inspection, adding new costs to their products. These additional costs represent capital that will not be available for GDP production.

Growing Population Costs - Similar to the US, China has an aging challenge with it's population. The greying of their population will increase costs for healthcare, home-care, pharmaceuticals and all other aspects of extended life. How these added costs will be absorbed is still to be determined, since China does not provide a public safety-net similar to the US with Medicare, Medicaid and other programs.

The Laws of Big Numbers - 8% growth (or anything near that level) doesn't happen in developed countries. At some point in the near future, China will begin to face the challenge that all large organizations face, trying to navigate a giant ship in an ever-increase competitive world. Changes won't happen as fast. Competition from outside China will learn from their success and improve on their processes. Countries or businesses considered about the growing might of China may look to hedge their futures with goods and services from elsewhere in Asia, Eastern Europe, Africa or South America.

By no means does this short list of possibilities and challenges tell the whole story of what may happen with Chinese growth over the next couple of decades. The growth China is experiencing today is not only massive on a global scale, but its impact on the rest of the world will resonate for generations to come. Will they be able to sustain it in a way that ultimately creates more value than destruction? We'll have to wait and see. But if they can coordinate their economy in a manner that is anything like we saw at the 2008 Opening Ceremonies, the odds of success are a distinct possibility. It will take Olympic-like precision to get past some of their growth challenges, but whatever happens, the world will be deeply impacted.

3rd Semester begins - 6 months to go!!

The thirty of us remaining in the WFU MBA 2009 program returned last night from our international trips and a couple weeks off. It was good to see everyone again and catch up on their trips. The mood seemed to be slightly less intense than semesters past, partially because the weather is so nice and partially because it's been six weeks since we were here in Winston-Salem and everyone is trying to get back into a groove.

This semester is about all things International. We have three classroom courses and the International Practicum, which included the two week trips to either China, Japan or South America. The classroom courses this semester are all only six weeks (instead of eight), which means they consolidate quite a bit more reading into each session.

International Financial Management is being taught by Dr. Bruce Resnick. The course will focus on FX Markets, differences between Domestic and International Finance, International Strategy and overall International Portfolio Management.

International Business Management is being taught by Dr. Mike Lord. Mike was the lead for our China trip. The course focuses on a broad range of topics (Cultural, Economic, Political, Geographic) that effect how companies engage in international expansion and operations.

Global Strategic Management is being taught by Dr. Ram Baliga. The course focuses on many aspects of strategy as it relates to products, operations, M&A, market entry and competition.

The international trips seem to have changed the overall perspective of the world for many of my classmates. They seem to have a better understanding of how much bigger the world in terms of opportunities and competition. They seem to have a better grasp on how Finance, Culture, Government Policy and Global Economics fit together. And they seem to have a new sense of what to explore and question as they try and make sense of how they are going to fit into the global economy.

We still don't know what we don't know, and but this semester should help to fill in the blanks on a few questions. The courses are all in English, but there is definitely a different set of languages being spoken in class are still a little bit foreign. Hopefully the learning curve moves faster than my attempts at Mandarin.

Wednesday, June 10, 2009

Value creation through the dip

Following up on my post yesterday regarding the phases that hype, technology and value-creation go through, I thought it might be useful to dust off the questions I typically use to determine if a new innovation is a fad or if it has a chance to survive long-term. This seems to align to Fred Wilson's take on adoption of new innovations.

1. Can I explain the benefit of the technology (or vision) in 1-2 sentences, or do I need to ramble through some story?

2. If I can explain it in 1-2 sentences, do semi-technical or non-technical people understand it, or at least ask good questions to clarify?

3. If this technology was open-sourced, as opposed to being controlled by a single company (or a small number of companies), are there enough interesting aspects to get communities of developers to engage with it?

4. If it’s not happening already, what is going to be the “ah ha” moment when people will actually start valuing it enough to pay for it, or at least associating valid business models with it? If this is consumer-oriented, why would they include it in their life?

5. If it went away tomorrow, would anyone really miss it within 3-6 months?

Tuesday, June 9, 2009

We live in a world of Twitter-time value creation

If you haven't been paying attention, this little thing called Twitter has been generating quite a bit of buzz over the past 6 months. Regardless of if you're a Twitter fanboy, hater or just trying to understand it, it's been incredibly interesting to watch not only the growth of the service, but also the huge range of opinions about whether or not it creates any real value. One day it's a life-changing technology, the next day it's dead!

Twitter has obviously changed the game in terms of how we can now consume information. It's no longer measured in days or hours, but instead it was become instantaneous. But does this create new value? For the average user, it may create more distraction than the value the instant information could bring. But it is starting to bring value to new technologies that are leveraging Twitter APIs to take the feed of information and turn it into something new.

So I have to ask a few simple questions:
  • Do we have any sense of what value is anymore?
  • Does long-term value exist anymore?
  • Is all value going forward going to be measured in Twitter time?
  • Is technology moving so fast that we won't recognize that we need additional value, or new value, until the technology is upon us?
On our trip to China, our new friend Joost at Volvo mentioned that if we wanted to come do business there, that we'd better have a business model that expected products & services to be copied in 90 days. Maybe that's the new duration of value creation. It's been about 90 days since Oprah first joined Twitter, the user count soared, and now it's coming back down to earth.
Or maybe there will now be phases of value created, like rounds of venture funding. Maybe Twitter has now been through it's adolescence value-creation phase, and over the next 90 days (or maybe 6 months, or maybe 12 months), it will have to decide if it's able to move into it's 20'something value-creation phase, or it's adult-maturity value-creation phase.

We live in interesting times. Fast moving times. Sometimes it's very difficult to not only keep up with the pace, but determine if the thing in front of you is valuable or not. I don't know the answers to my questions, but I do expect that they will flip the business world on its head over the next couple of years. Are you creating long-term value, or Twitter-time value?

Monday, June 8, 2009

China (Overall) Notes

These were point-in-time notes as we went through various areas of China. Some of them I still believe, while my opinion on other areas was changed as the trip went on. I'm including all of them to help me remember how my mindset changed throughout the trip and after I returned.

Asia - 3B people, 20% of global GDP

Surface tradition; govt or society defined rules; no enforcement penalties; no rules for business in the "get it done" levels

Not about thc great people or ideas, the average / above average people and the masses at the bottom, hungry to get out.

US rules don't apply to business models or practices. One man's profit is another man's business model.

Growth model is not sustainable (questionable) and doesn't create real value, sustainable value (need to dig into these stats). Need to rethink this thought. The pace is face and destructive, but it may be moving value from other parts of the world.

Go back and study the evolutional of American economy (from 1900s) to have a viewpoint on how China & India may evolve.

Remember GaFe's viewpoint, it's about a long-term partnership, not adversarial. Let govt fight about keeping score.

Stop trying to defend why the US is better. Start thinking about better partnerships or ways to succeed within the new rules.

China ambitions are something better every 2 years (promotions), and salary/costs are rising 100% y-over-y. Think about how you'd structure your business within those models.

With China growing this fast, they don't have the legacy technologies...leapfrog to latest stuff.

Little Emperor syndrome, similar to US helicopter parents and Milenials

Go with the flow on new stuff.

SMB is difficult to create because their sense of size & scale is so different. Technology is a possibility, otherwise consider JV.

Just as other countries have strived to speak English to study the US, it's time to begin learning Mandarin to communicate and understand.


Xi'an Notes

I found these on my iPhone, which I was using as a notepad during the various bus rides and business tours on the trip. I've been reading back through these to get perspective on how my mindset changed throughout the trip and after I returned

Original capital of China
Northwest part of China
8.3M people
No subway system - original line in 2011
Natural gas cabs

Beginning of Silk Road - China to Europe
Terra Cotta Warriors

Well balanced workforce, industry, infrastructure. Gateway to the west. Parallel to US Western expansion?

JV opportunities because of workforce education? Concerns about govt intervenion (IPR issues) because of aerospace industry.

Energy center; Chemical center

Volvo JV: (Joost)
- IPR - copy yourself or done within 90 days
- Supplies from state owned partner
- Top down management (only)
- Prices fall every year - China doesnt follow world market prices (govt subsidies)
- "hourly capital" - lean manufacturing
- 1/3 temporary workers, compete for jobs with others
- Attempts to reduce required floor space by 10% each year.
- Every 1500km west, labor costs drop 50%

Environmental - big difference between regulation & enforcement


Beijing Notes

I found these on my iPhone, which I was using as a notepad during the various bus rides and business tours on the trip. I've been reading back through these to get perspective on how my mindset changed throughout the trip and after I returned

15M people; 85% non native to Beijing
City wall - stones for houses - eventually the stones from the City Wall were used to build 1000s of local houses
10,000,000 bicycles - lose one, steal one
4 walls surrounding the city (old)
3.5 M cars (no carpools)
Huge change in Chinese culture in last 20-30 year
Small house destroyed for large buildings
40,000 yuan per 10 sq ft (business center)
1976 earthquake - buildings with white columns - reinforcement
Before 1980 - no buildings above 10 stories
90 universities

80% of trees removed from 1950s to build farms
Renewal of trees with last 10-15year
Great wall of trees - Green Wall

No receipt, don't pay taxes - sometimes you can ask locals for the "no receipt" price to get better deals

Coal mine owners are the riches segment of the country, behind the government
"Managing the Dragon" , "Mr. China" - books that explain this concept

For the good of China...don't harm the environment...use resources from other countries - a comment from CITIC on the State policy of using local natural resources vs. buying them from other countries

No appt. for medical services. Go to hospital (stand in line). Pay service fee. Dr. gets commission from prescriptions, so they typically over-medicate. TCM - Chinese Traditional Medicine. Wholistic medicine. No testing of drugs. Contrast vs United Family Healthcare. Life expectancy is similar to US...walking, biking, green tea. Tamaflu based on TCM.

Disregard for IPR (Intellectual Property Rights) is incredible. No morales for ideas. Copycat culture. Nothing sustainable. 20 international films per year. - later in the trip I learned more about their IPR laws vs. IPR enforcement, as we all the attitudes towards not caring about "YOUR" IPR if a copy can employ 100s or 1000s of Chinese workers.

Greg's analogy of the winding road system to the overall system of controlling the population - these was never a direct path to get between places in Beijing. It felt similar to waiting in line at an amusement park, where they have the long, wrapping lines to better handle crowd control and queuing. Driving anywhere in Beijing felt like this.

Thursday, June 4, 2009

FAILURE (or "I Failed")

In talking to many different people in China, from various backgrounds, one word that I heard quite often was "FAILURE". The context was typically something like this, "Before doing , I worked as a , but I was a failure." The Chinese seem to have a binary view of activities. You're either extremely successful (most popular, most famous) or you failed.

I wasn't exactly sure how to interpret this.
  • How long do they typically give themselves in a certain activity before it is considered a failure?
  • Are they better than Americans at getting out of a bad situation? I know plenty of people in the US that dislike their job but stick with it because it pays the mortgage.
  • Is their concept of failure considered a black mark on their career (or resume), or like a badge of honor, similar to how failed entrepreneurs (or NFL football coaches) are revered in Silicon Valley?
  • Does their lack of creative thinking (vs. analytic thinking) lead them to consider activities failures earlier than they might if they stepped back and looked at alternative strategies or options more often?
I need to speak to some of my Chinese-American friends about this aspect of the culture in more detail. I need to better understand if this is a widespread mindset, or just a coincidence that we experienced during our two weeks in China.

Tuesday, June 2, 2009

The Golden Rules of China

Professor Mike Lord shared various tidbits from his previous travels with us throughout the trip. In an email today, he shared with us a list that he and several other exPats (and MNCs) have been developing since their visits in the mid-1990s.

Golden Rules of China

1. Everything is possible.

2. Nothing is easy.

3. Western business logic does not apply.

4. It is a fun project if there is no deadline.

5. You must persist – things will come your way – eventually.

6. Patience is the essence of success.

7. “You don’t know China” means they disagree.

8. New regulation means they found a new way to avoid doing something.

9. “Internal regulation” means they are mad at you.

10. “Basically, no problem” means BIG problem.

11. When you are optimistic, think about Rule 2.

12. When you are discouraged, think about Rule 1.

Feedback on Netbooks & Mobile Computing

Before our trip to China, I wrote about the 9" Asus Eee PC netbook that I would be taking to assist with blogging. Having discussed the product in ITMgmt class in the Spring'09 semester, I got a good chance to experience the difference between a netbook and a full-blown laptop.

Here's my thoughts...

Size & Weight - Considering that I carried this around in my backpack for 14 days, the weight and form-factor were perfect. The keyboard took me a few days to master, and it helped that I'm a two fingered typist. My roommate Gregg had a difficult time on the keyboard using traditional typing techniques. The screen size is obviously smaller, but this tradeoff was more than acceptable for the weight.

Usability & Mobility - I opted for the Linux version, instead of the Windows version, to get the true netbook experience. I wanted to focus on using applications that reside in the cloud, as opposed to local apps (MS-Office, etc.). Most of the applications I needed (Firefox, Skype, etc.) come pre-loaded on the machine, and they worked perfectly. Internet from the hotel rooms was decent, not exceptional, which sort of surprised me. What I didn't find much of was free WiFi access in coffee-shops, and netbook did not have any built-in 3G access, so the mobility aspects weren't something I could experience. WiFi worked fine at home in the states, so I'll give that a pass.

Cons - For the most part, it's a very useable machine and a great mobile computing device. But the one thing I truly disliked was the interaction with the mouse and trackpad. It was very inconsistent (mouse and finger-swipe movements) and the click-button was too stiff and very loud. The noise isn't that big a problem, except in quiet rooms. I think I woke up my roommate several times when I'd get up to write in the morning.


While the netbook seemed to be a decent platform for the trip, I eventually had to compare to using my iPhone. It was somewhat of a difficult comparison in China because the international data rate from AT&T were obscene (20Mb for $20). The netbook had the storage I needed to download picture and videos, and supported Flash for applications that required it. But if I could had gotten US rates for 3G data access, I think I could have been just as happy using my iPhone for all my mobile computing except for data storage.

Overall, mobile computing has come a long way in just a few years, with netbooks beginning to fill a niche in size, weight and functionality. The iPhone fills another niche, and I think there may still be room for an in-between form factor (or a storage add-on to the iPhone). I still had to carry my FlipVideo and others used their digital cameras, so the all-in-one mobile device still doesn't exist. And of course, ubiquitous & cost-effective mobile bandwidth still has a little way to go.

The Chinese seem to do everything from their mobile phone, so I wouldn't be against that form factor. A world without wires is critical, and the instant reponse times possible with a phone-like device make business in China move at the pace it does. Innovation in this area still has a alot of potential to drive huge amount of revenues and business opportunities.

Monday, June 1, 2009

Why China isn't the next Silicon Valley!

This is an interesting article by Sarah Lacy. I'm not sure how many times she has been to China, nor do I claim to be an expert with my visit count at a whopping "1". I find her viewpoint interesting, but not surprising. How could anyone but America, and especially our innovation mecca of Silicon Valley not be the home of the next great invention? I'm ashamed to admit that before our trip a few weeks ago, I would have thought the same thing. China is great at copying stuff. They are great at completing tasks that the brilliant and creative Americans assign to their low-cost workers. They all skipped the creative classes in school to take an extra math class.

Boy was I wrong about that. Its hard to explain without visiting, but there is definitely a culture of innovation in China. You can't build the cities that dominate their landscape without some creativity and strategy. You can't create business models that allow your companies to grow, when faced with a copied product within 90 days, if you don't have creativity and innovation. At this stage the innovation may not all be about new technology, but it is definitely about operational excellence, business model creativity, and a good bit of raw determination. Call it survival innovation. It's what motivates you to move from $1/day to $40/month to a high-rise in Xi'an, to a 100M RMB villa outside Beijing.

I'm looking forward to seeing if China becomes another Silicon Valley. But from the little bit I learned about Chinese culture, I doubt they want to become another anything. They will want to create a uniquely Chinese mecca of technology and innovation, or maybe a half-dozen. I'm hoping to find some ways to be part of that growth. I that for the next 5-10 years (or more), it will be a partnership play for those willing to create win-win situations in both countries. I don't believe it will be a zero-sum game with only one winner. As we've seen from the current econalypse, neither current can succeed if there is only one winner.

btw - kudos to Ms. Lacy for working on her Mandarin. I've been trying for a few months and not having as much success as I'd like. If she needs a study partner, please let me know. Or if she learns any tricks to learning it faster, I'd welcome those as well.