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.

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.

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?

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?

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.