Friday, May 16, 2008

Room to Grow

I am going to share with you today’s observation of China. Close your eyes and envision a map of the United States. Okay, now open your eyes and keep reading… You’re going to point on that map to these locations as I list them: New York, Los Angeles, Chicago, Houston, Philadelphia, Phoenix, San Antonio, San Diego, Dallas, San Jose. These are the Top 10 U.S. Cities by Population and Rank. You may have noticed your finger stopped in about every major region of the country and crossed the continent at least 3 times. Further down that list you’d touch Detroit, Memphis, Jacksonville and Seattle at 23.

Now, the Top 10 Cities in China are Shanghai, Beijing, Shenzhen, Guanzhou, Tianjin, Nanjing, Dalian, Hangzhou, Shenyang and Harbin. If you were to do the same mental map-pointing with this country, you’d find your finger never strayed from the east coast. In fact, you’d find that most of these cities, 8 out of 10, cluster like shotgun fire to within 2 hours of each other.


China is a huge country, roughly the same area as the United States, but with more than four times the population. Across such a broad expanse of people and geography, one expects the country to have developed several distinct and unique cities and cultures. In the US, for example, we have Northerners and Southerners, we have City People and Country People, but we also have Suburbanites, Rednecks, New Englanders, Westerners, Mid-Westerners, Snow Birds, Beach Bums, Grunge Rockers, Cowboys, and Californians. There are lots of different lifestyles with different cultures and values, but these groups are dispersed across the length and breadth of the country. From what I can tell, China does not work this way.

In China, the businesses, industries, infrastructure, government, and foreign political influence—not to mention the wealth and leading founts of culture—are all located on a stretch of the country’s east coast spanning from Beijing down to Shanghai, the rough equivalent of the state of California. Meanwhile, the western portion of the country, perhaps 90% of the land area, is occupied by about 60% of the population and responsible for less than 25% of the GDP.

So, why does this strong disparity between East and West exist in China? Similar to that of the industrial North and agrarian South in the antebellum US, the cause is the drastically different cost of doing business in the regions. “The government is doing things to move China west,” said Randy Creel, a logistics expert at a major MNC in China. “The hesitation is the lack of infrastructure and its effect on logistics costs.” Effects on logistics costs that work out to about 200% more investment per mile for companies to run their businesses in Western China. China is on a self-perpetuating cycle of eastern growth and western lag that will require more than government incentives to Western businesses and FDI spenders. It may require an all-out reallocation of infrastructure build-up that the country has never before undertaken. At least not until the 2008 Beijing Olympics. --Shawn Butler

Alibaba’s Forty-four Hundred

We arrived at the world headquarters of Alibaba.com in Hangzhou to a fanfare of music--music that could have come from the soundtrack to the original Super Mario Bros. Across the less than 1,000 sq. foot office floor, the 115 employees stood inside their 4x4 ft. cubicles and stretched their arms in the air. Then, in unison, the entire mass of twenty-somethings began doing jumping jacks. They continued their group exercises while our group of MBA students was escorted past the cube-clusters into a large meeting room.

The calisthenics are but a small, visible piece of the unique corporate culture of Alibaba Group, an English language web-based business-to-business eCommerce and eAuction service specializing in connecting international buyers and small- to medium-sized Chinese sellers. Our guide quickly made us aware that the company knew it was unique. “For most companies,” he said, “employee culture is like a cliché or a joke.” Well, it is not that way for the employees here. “Everybody is happy,” he continued. “It is our environment.”

We were then given a rough translation of a company joke that concerned a stubborn donkey in a mill that refused to work for his master. The master enticed the donkey to do his work at the mill by threatening to send him to work for Alibaba.com. “Here we all work like donkeys!” he announced as the punch line. Indeed, the word “work” actually appears in 2 of the 6 points of their printed company motto. So, are hard work and teamwork the strong points that make Alibaba such a successful company? Or is there more to this unique start-up’s corporate culture?

The lobby of HQ is decorated in orange scarves and bright orange hanging plastic fruit. And one other ubiquitous decoration—photos of company founder, Jack Ma. Ma is the poster-child of the New Chinese, the modern entrepreneurial self-made success story that this newly-capitalistic nation adores. And he is on posters. Giant reprints of the man’s photo adorn 2 out of every 4 walls in the building and line the staircase up to the top floor. In ’88, Ma was an English teacher fresh out of college. 11 years later, after a visit to Seattle and a crash course in computers, Ma was founding his own eBay-esque business. Then, 8 years later, he took his company public on the HKSE to raise $3 billion USD and become the IPO with the greatest increment in stock price at first trading in 2007.

Jack Ma’s influence is everywhere and his success is a model to the employees of his company. “He has us call him Kwai Chang, from the TV series Kung Fu,” our guide told us. During our tour, every action and idle quip of the 43-year-old founder was revered as holy writ, and even offered as justification for the “spirit” that prevailed there at the company. When asked what he thought Alibaba would do to maintain its growth and close the gap on rival companies Google and Baidu, our guide’s response, stars nearly visible in his eyes: “I can’t answer that. I’m not Jack Ma.” --Shawn Butler


Alibaba.com's oddly unrecognized logo, and CEO/Founder Jack Ma

Tuesday, May 13, 2008

My First Day in China

Well, it is a beautiful morning here in Shanghai and crowds of nearly-identical brown-haired and beige-skinned people pass below my second-story window of the Charms Hotel in cars, bikes and mopeds. Just as our professor told us, there is English—-or attempts at English-—written all over the place, but there are still plenty of unintelligible signs that feature characters made up of dashes, lines and boxes with no translation at all. This is definitely the most "foreign" of any country I have visited.

There are twenty-two of us including my program director and international business professor. We travel on a chartered bus and remain fairly sheltered from the realities of this, the most populated city in the most over-populated country in the world. We arrived after an 11 hour flight from Paris, on Sunday morning and cleared customs around noon. The time change was six hours from France, but a more convenient 12 hours from EST. Monday morning, at our first company visit with US Commercial Services of our own Nat'l State Dept., our guest speaker told us that Shanghai's population of 20 million people was like fitting the population of Texas into the state of Delaware. He said that this is a problem that many non-Chinese companies have when they come here, that all they see is a bubble of untapped population or an open market of 1.3 billion potential consumers. They don't see the reality that over 3/4s of this giant population is living on around $1 a day. The savage need for survival overshadows the wants for the people of most of this subcontinent.

On that note, we enjoyed a quick lunch at McDonald's; Big Mac, fries, and Sprite for under $2.00, thanks to the PRC's valuation control of the RMB, keeping the Chinese currency's exchange rate artificially low. And MickeyD's proves its core-competency of reproducing consistent "quality" in every venue worldwide. I can attest that the sandwiches served up in cardboard boxes are just as bad in China as they are anywhere in the States.

Yesterday afternoon's schedule took us to a field trip of Shanghai Krupp Stainless Steel, a Joint-Venure of ThyssenKrupp and the Chinese government that manufactures flat-rolled stainless steel for all sorts of stuff, knives, pots, car exhaust systems... Their British GM gave us an overview of how the German company was sorting out issues with Chinese government regulations and the oddly over-priced yet inexpensive Chinese labor. They are some of the lowest paid nationals in the developed world, but they work a full week and require 3 times pay for overtime and holidays. It's definitely an interesting system.

It was during our tour of the pounding and thrumming steel presses on the factory floor at about 3:30pm local time that the earthquake hit. And being less than 100 miles away from the epicenter of a 7.8-measured earthquake, it is lame to report that we didn't feel a thing. The news told us that "Skyscrapers swayed in Shanghai," and there are skyscrapers a-plenty in this city, but we were not in one at the time of the quake. So, sorry, not much to report there. The tour did get exciting when they used an overhead crane to haul a two ton roll of steel past us to load it on the press. I thought, "Hmmm, Jeff might have really enjoyed this little tour." My friend in the program, Jaime LaTorre, a GT engineering grad., said he thought it was a great factory tour. I admit I was rather bored.

Last night, we went to dinner at another Chinese food place that served us stir-fried vegetables, pork and rice that tasted like anything I could have ordered up from any mall-chinese restaurant in the US, but I did drink a delicious lemon-watermelon juice with it. So how's that for exotic Far Eastern cuisine? I’ll have to push my little horizons a bit further for meals tomorrow. --Shawn Butler



The Pearl Tower in Pudong District and Shawn Butler at People's Square

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