Silicon Hutong

China and the World of Business • China Business and the World

Silicon Hutong - China and the World of Business • China Business and the World

Shameless Plug Dept: New Paper on Strategic PR in China

 

Hutong West
The cool before the heat
1855 hrs.

 

Public relations people have a word fetish. We invest the aphorism “words have meaning” with an almost scriptural infallibility. Yet when it comes to terms we use to describe our own capabilities, we become maddeningly imprecise, if not deceptively hyperbolic. The best (or perhaps worst) example of that is the word “strategic,” as in “strategic public relations.” In fact, we use it so much when referring to so many different things that the phrase has almost lost its meaning.

 

In a new paper published last month by Allison+Partners (“Strategic Public Relations in China: Actions, Behavior and Communications”,) I ask the PR industry generally and in China specifically to take a step back. I argue for a definition of strategic public relations that steps completely outside of the communications function: as it was originally intended by the founders of the public relations craft, PR begins with the actions and behaviors of a company, and the obligation of PR counsel to guide them. My point: it is time for all of us to become more strategic, and in no place more so than in China, where so many brands consistently fail to understand, much less live up to, the expectations of their publics.

 

For my fellow PR practitioners and anyone else who oversees a PR function, the paper is available for free download and review on academia.edu. It’s a fairly quick read.

 

 

 

So You Think Apple Should Buy Tesla?

English: Tesla Motors opened its showroom in M...

English: Tesla Motors opened its showroom in Munich in September 2009. (Photo credit: Wikipedia)

Hutong West
Finishing the Table of Contents
1200 hrs., 11 March 2015

So do you think Apple should take some of that massive cash pile and spend it on Tesla? Some shareholders apparently do. And if you did, you might have a point. Who better to finance the disruption of the automobile industry than the largest, most profitable company on the planet?

But for the rest of us, consider this sequence of events that I am betting would take place within 18 months of Apple closing the deal.

Day 1 – Apple buys Tesla

Day 30 – Elon Musk quits, citing creative differences, but attests to his continued faith in Tim Cook and Tesla’s future with Apple. Musk takes his cash hoard and shifts his attention to SpaceX.

Day 60 – Apple hints at major redesign of the sedan by Jony Ive. Tech and automotive media go into spasms of speculation.

Day 120 – Tim Cook takes the stage at the Detroit Auto Show to announce that Apple is dropping the Tesla name. From now on the marque will simply be “Apple.” He then unveils the redesigned sedan, which bears a striking resemblance to the Audi coupe in Will Smith’s “I, Robot.” Except, you know, it’s glossy white. The car will be called the Apple Phaeton, and it will be followed by the Apple Barchetta coupe, and the the Apple Combo crossover SUV.

Day 180 – Apple announces that due to unspecified issues in Fremont, after the first year they will be outsourcing all production to China.

Day 210 – At the Los Angeles Auto Show, Apple announces pricing for the Phaeton and Barchetta, 25% higher than the previous models. They also announce that they are shifting to a proprietary fast-charging system called ePlug. And with the presidents of Exxon-Mobil, Chevron-Texaco, BP, and Valero onstage, announces that all of these chains would begin installing ePlug fast charging systems across their North American units starting that day. Each company agreed to a seven year exclusive with ePlug.

Day 212 – In a class action suit, GM, Ford, and Toyota all sue Apple for violating Sherman Anti-Trust act in gaining a monopoly on electric charging at fueling stations.

Day 300 – The Big Three automakers lose their suits.

Day 350 – Google agrees to buy Ford in an all-cash deal. GM announces that it is being bought by its Chinese partner, Shanghai Automotive.

Day 370 – The Apple Phaeton launches, selling 10,000 cars in its first month.

Seem far-fetched?

Trust me. Remember. I’m the guy who predicted the iPad.

Happy motoring.

 

 

 

 

 

 

 

 

 

The Confucius Institute Question

To: Dr. Gene Block, Chancellor, University of California, Los Angeles
From: David Wolf, California taxpayer, UCSD alumnus, UC Davis alumnus UCLA extension alumnus, and son of a UCLA alumnus

Dear Dr. Block:

I know that you are busy, so please pardon my intrusion into your holiday week. I have a concern I need to raise with you.

You have enough money in the campus budget to teach Afrikaans, Ancient Near-Eastern Languages, Arabic, Armenian, Czech, Dutch, French, German, Greek (Ancient and Modern), Hausa, Hebrew, Hungarian, Quechua, Iranian, Italian, Japanese, Korean, Latin, Polish, Portuguese, Romanian, Russian, Swedish, Norwegian, Danish, Serbian/Croatian/Bosnian, Hindi, Vietnamese, Thai, Tagalog, Indonesian, Spanish, Portuguese, Swahili, Turkish, Uzbek, Azeri, Ukrainian, Yiddish, Yoruba, and Zulu.

But when it comes to teaching Chinese, the language spoken by more people on the planet earth with the exception of English, you find it necessary to go begging to the Chinese Communist Party – via the Confucius Institutes – to adequately fund and staff instruction in that language.

This is, at best, a misallocation of priorities. If there are three languages that should be taught at your institution, they are English, Spanish and Mandarin Chinese. All of those should be funded as a matter of necessity. Choosing to fund staff in French, German, and Norwegian over Chinese suggests that the university might be losing touch with its core mission.

At worst, this compromises the independence of a public institution of higher learning. The Chinese government official charged with the oversight of the Confucius Institutes is not shy about her goals.

May I respectfully suggest that the university seek a way to fund instruction in the Chinese language and literature that does not entail a dependence on the funding of a foreign government with complex motives? And may I further suggest that such alternate funding not come paired with implicit leverage that might be used to undermine the political, philosophical, and behavioral freedom of the UCLA community?

Many thanks,

David Wolf

Lu Wei’s Facebook Gambit

Hutong West
Writing the Book
0935 hrs.

In all of the brouhaha around Facebook founder Mark Zuckerberg’s pandering comments to Chinese Internet czar Lu Wei recently, the China commentariat are lining themselves up on both sides. One side is morally outraged at what Jimmy Sonni at the Washington Examiner called “Zuckerberg’s efforts to ingratiate himself with an authoritarian regime – a regime that Facebook has an enormous incentive to placate…” The other side rejects the moral outrage. They believe that Zuckerberg should be applauded for attempting to position Facebook as a means to give Chinese more access to the global Internet.

Both sides (ostensibly) share a disgust with the regime in Beijing. One seeks to undermine it via isolation, another by assimilation. Yet both are naive; isolating China’s internet, thus compelling China to develop its own social media will no more back China into a corner than did compelling it to develop its own newspapers and television networks; similarly, the belief that the Party will sit back and allow foreign social media to undermine its position belies history and underestimates the efficacy of the Party’s methods.

If Mark Zuckerberg wants to help Facebook make a fortune in China, all while serving the interests of the Chinese people over those of the Party, he start by asking himself a hard question. Why did Lu Wei really come visit Facebook?

Because it is entirely possible that Beijing needs Facebook almost as badly as Facebook needs China. Lu Wei is a good poker player, and he is surely not showing any of his cards, but it may be that in order to accomplish the Party’s goals, it needs Facebook’s cooperation and assistance, willing, witting or otherwise.

Zuck needs to pull his best, smartest people together and think this through. Because if they figure it out, they may not have to behave like lickspittles, handing over the keys to the empire in return for a handful of vague promises. Instead, they can improve their negotiating position and either stroll into China with heads high, or walk away knowing that it was the best alternative to doing so.

There is much more too all of this than meets the eye. Facebook’s fonder has the wherewithal to suss this out. He should do so, and soon, before the company finds itself a pawn in somebody else’s game.

 

The Apple Pay Early Adopter Problem

In the Hutong
Fighting Sleep
24 October 2014

English: People pay tribute outside the Toront...

English: People pay tribute outside the Toronto Apple Store. (Photo credit: Wikipedia)

I am caught in the heart of a swirling vortex of work at the moment and getting ready to fly this weekend, which explains my slow posting of late. More announcements on that soon. In the meantime, I’m going to be firing off a series of short posts on things that I have been itching to share.

Let’s start with Apple Pay.

Arguably the most interesting and revolutionary announcement tha Apple made at its product launch gala this week, Apple Pay promises to finally put the US on the long pathway to doing away with fat wallets, something that has been happening in Hong Kong for nearly two decades and in Australia for almost as long. It is also being touted as the big differentiator for the Apple Watch, and an important one for the iPhone 6.

I have two reservations.

First, I think we all need to take a deep breath and think carefully before entrusting our financial information to any large company. That’s not luddism, that’s wisdom. The recent series of security breaches at major retailers alone should give us pause, and Apple is no exception: a company that has shown itself incapable of protecting Jennifer Lawrence’s photo album has to prove to us that it can be trusted with our wallets.

Second, the high profile of this announcement will surely pique the interest of just about every hacker on the planet, from the kid down my block to certain military units operating from Shanghai suburbs. Even the best systems tend to have hidden vulnerabilities, and those of us who can wait for Apple Pay should do so if only to allow the engineers to discover and addres its most blatant vulnerabilities.

These aren’t deal killers for Apple Pay, but they do suggest that most of us should venture carefully into this new system.

 

Wanda Arrives Arrives in Beverly Hills

“China Developer Buys Robinsons-May Site in Beverly Hills”
Julie Makinen
Los Angeles Times
August 8, 2014

The Times scored a win in picking up this story about how Chinese development giant Wanda is raising its bets on US real estate. Based in Beijing, Makinen can be forgiven, though, for not addressing what the real story is likely to be: the challenges the company is likely to face in gaining approval for its project.

Wanda has yet to reveal plans for the site, but the location has some particular challenges familiar to locals. Traffic is already very heavy going into the area on both Wilshire Boulevard and on Santa Monica Boulevard, which border the site, and during large parts of the day the proximity of Century City makes Santa Monica Boulevard a parking lot for several miles of its length. The development of a high-density complex on the eight-acre site would only exacerbate the problem.

That issue alone is likely to provoke public opposition to a sizable development. The NIMBY factor in the area is high. I know: I grew up three blocks away, and worked at the recently-demolished department store between college and grad school.

If Wanda is wise, it will embark on a campaign to woo local residents, most of whom live in homes with values far in excess of $3 million (and who are accustomed to wielding political clout with the local government,) as well as the Beverly Hills City Council. It will have architects focus on creating a site that integrates elegantly with the Century City, downtown Beverly Hills, with the Hilton, and with the elementary school and neighborhoods to the north.

If the project is clearly woven into the broader fabric of Beverly Hills, seeking to update an enhance rather than just plonking another Chinese multi-use center like it created in Beijing, Wanda will wind up with a flagship property and the respect of the business community in Southern California.

That costs money, of course. But Wanda has plenty of money, and it has every reason to make nice in the US as it diversifies its portfolio beyond China’s increasingly uncertain real estate market.

China’s Hidden Health Crises

Hutong Forward
Contemplating Anacostia
1940 hrs

I have done a lot of work over the past several years with companies in different parts of the healthcare industry, each seeking a way into the China market. Almost every first meeting entails the client bringing up China’s current Five-Year Plan, and trying to figure out how to capture opportunities around the nation’s healthcare priorities as laid out in the plan.

Unfortunately, everyone does that, so the result is that the entire industry is chasing the same set of opportunities. In healthcare, that’s shortsighted. The best opportunities lie outside the stated government priorities, in part because the field is less crowded, and in part because those are usually the problems that the government finds most embarrassing and is anxious to address quietly.

An example is the scourge that diabetes has become in China. Before Johns Hopkins and the China Center for Disease Control and Prevention released their report last week, few had an idea of how large diabetes had become in a relatively short period of time. China now has 114 million diabetics, a third of the world’s total and representing 11.4% of the adult population – a higher rate than the US (11.3%). What is more, Chinese are developing diabetes at a lower body mass index than the US, so the rate of growth of the disease is not likely to abate soon.

China’s problem with diabetes: medications and treatment are more expensive than the average patient can afford. The obvious opportunity, then, a less expensive treatment regimen aimed at China’s massive population.

The upshot is this: global healthcare firms are going to find their best success not in chasing the obvious opportunities with remedies created for developed markets, but in addressing the health challenges that remain largely hidden from public view, and doing so with drugs and regimens that fit China’s local conditions.

Yahoo! China According to Susan Decker

An Insider’s Account of the Yahoo!-Alibaba Deal
Sue Decker
HBR Blog Network
August 6, 2014

American businesswoman Susan Decker, president...

Susan Decker at employee all hands meeting in Sunnyvale, California. (Photo credit: Wikipedia)

If you have not yet stumbled across Sue Decker’s article in the Harvard Business Review blogs, please read it. Decker, who left Yahoo! in 2009 after being passed over for the CEO post in lieu of former Autodesk CEO Carol Bartz, delivers her view of the investment that effectively saved Yahoo!, and her role in it.

First person accounts are always suspect: one is never certain about how much of the history so presented is objective and how much is subjective. Thus, it was reassuring that the editors of the Harvard Business Review chose to publish it as an interesting curiosity rather than a definitive account or a case study. Still, the article made me a bit uncomfortable, for a few reasons.

The “Everyone Failed” Gambit

First, the author frames an eloquent but ultimately unconvincing defense of Yahoo!’s failures in China (in essence, everything the company did except the investment in Alibaba) that can be summarized in as “yes, we failed badly, but so did everybody else.”

That’s partly true: the list of US Internet companies that tried to make a go of it in China and failed is long and distinguished. But the ledger is not quite as one-sided as Decker implies that it is. 

Google had a viable business in China before it chose to stare down the Chinese government. Amazon has a business and is still in the game, despite having to go head-to-head with China’s 900 lb. e-commerce gorilla, Alibaba. Evernote and LinkedIn are making headway with tightly defined value propositions that make sense for China and the rapid refresh cycles that local users demand. And let’s not forget little South African NASPERS, a firm largely unknown to Valleywags that somehow managed to run circles around everyone else, making a brilliant early investment in Tencent that may ultimately outshine even Yahoo!’s windfall on Alibaba.

Decker suggests that the relative success of each of Yahoo!’s moves in China can be explained by the degree of control exercised over the China venture by Sunnyvale. The less control Sunnyvale tried to wield, the more successful that venture became. If that explanation seems a bit too neat and simplistic for you, join the club. I’ll come back to it shortly.

The False Management Paradigm

Second, the author skims over the fact that the joint venture with Alibaba failed to produce anything of value aside from Yahoo’s partial ownership of its partner. The joint venture did not save Yahoo!’s China business: the company’s China operating unit, valued in negotiations at $700 million, sank quietly beneath the waves soon after the agreement that handed operational control to Alibaba was signed. If anything, the Alibaba agreement destroyed Yahoo!’s operating business in China, or, perhaps more generously, sacrificed it in the name of a harmonious relationship between the parties.

Given the outcome, one might be inclined to say that the sacrifice was worth it. Perhaps. But neither we nor Decker should harbor any illusions about what this means for Yahoo!: that the company failed as an operating business three times in China, and that despite her assertions to the contrary, the degree of control exercised by Sunnyvale had no influence on the final outcome. Tight control, loose control, or no control, all three models failed. The one management lesson she tries to deliver in the article is a canard.

The Forgotten Brand Problem

Third, there is no mention in the article about what happened to Yahoo! and its family of brands in China. The brands that Yahoo! owned during Decker’s tenure – including the “Yahoo!” brand itself, each represented a repository of goodwill. The Yahoo! brand in particular initially occupied a position of great respect among Chinese netizens, both because of its success and because of Jerry Yang‘s Chinese heritage. In the process of thrice failing to make a go in China, Yahoo! squandered that goodwill, and thus destroyed the value of its brand in the largest online market in the world.

As a senior finance officer, Decker certainly understands the value of goodwill, as does Yahoo!: much of what they paid for their acquisitions was based on the goodwill and the brand value of the firms acquired. Any reckoning of the net value of Yahoo!’s investments in China must therefore take into account not only the sunk costs and the book value of the assets written off, but also the brand value it destroyed in its largest addressable market.

That this issue remains unmentioned in Decker’s article is, to a marketer like me, a final though perhaps unnecessary indictment of Decker’s narrative. In the end, her piece is not the full account of the deal from the inside promised in the title. It is, rather, an effort both to stake a claim of some credit for Yahoo!’s Alibaba windfall and to exonerate Yahoo!’s leadership – including herself – for the company’s poor operating record in China during her tenure.

Decker richly deserves her share of the credit for the deal: in the end, it saved the company. What she cannot claim for herself or her colleagues any credit for operational success in China. Porter Erisman, a former Alibaba Vice President who recently released a documentary about his time working inside the company called Crocodile in the Yangtze offers this thought on how to assess Decker’s legacy and her account of Yahoo!’s success:

How Yahoo! performed as an operator and how they performed as an investor are two different questions. If we evaluate Yahoo! as an operator (both inside China and outside,) I think we can all agree that their performance was poor. If we evaluate Yahoo! as an investor, we should take into account their entire history of investments and not just cherry-pick one investment that paid off. On the whole, Yahoo! did well as an investor over the years (due to Alibaba) despite some obvious failures. But people investing in Yahoo! didn’t do so because they believed it was a private equity fund. Luckily, the Alibaba investment turned out well and made up for Yahoo!’s failures on an operating level.

Erisman makes a superb point: Yahoo! did brilliantly as a private equity fund and poorly as an operating company. Nowhere was either more true than in China, so I suspect that if we – or Marissa Mayer – are ever to understand what makes Yahoo! tick, we will find the answers in a thorough, unbiased, and balanced account of Yahoo!’s China odyssey.

We will have to wait for someone else to write that account. In the meantime, please read Ms. Decker’s article. If nothing else, it is a valuable contribution to the oral history of American business in China.

If you’re in or near Shanghai and interested at all in the issues raised in my post on China’s evolving approach to Internet governance, you definitely want to catch “Who Controls China’s Internet,” a talk being given by Professor Mark Grabowski of New York’s Adelphi University on Monday, August 11 at 7pm at C3 Cafe. Grabowski, who has focused on the Internet and media, is working to help frame a viable scheme of Internet governance that would head off the possibility of fragmentation – a path towards which China’s policymakers appear to be treading. Go if you can. huang pi south road 700, building A, room 105 上海黄浦区黄陂南路700号A105(过 合肥路)
Shanghai (map)

Beijing’s New Internet Buzzphrase

Hutong Forward
Planespotting at Reagan National
1655 hrs 

In a ten minute speech last month in London at the 50th Meeting of ICANN, Lu Wei, the Minister of China’s Cyberspace Affairs Administration, introduced a set of seven principles under which, according to him, the Internet should be governed. While not much attention was paid Mr. Lu or his speech outside of the confines of the attendees, we can assume that it was an official statement of government policy, and therefore worth understanding, analyzing, and discussing.

His principles, as I heard them, are:

  1. The Internet should benefit all mankind and all of the world’s peoples, rather than cause harm;

  2. The Internet should bring peace and security to all countries, instead of becoming a channel for one country to attack another;

  3. The Internet should be more concerned with the interests of developing countries, because they are more in need of the opportunities it brings;

  4. The internet should place emphasis on the protection of citizens’ legitimate rights instead of becoming a hotbed for lawbreaking and criminal activities, let alone becoming a channel for carrying out violent terrorist attacks;

  5. The internet should be civilized and credible, instead of being full of rumors and fraud;

  6. The Internet should spread positive energy, and inherit and carry forward the outstanding culture of human beings;

  7. The Internet should be conducive to the healthy growth of young people, because that concerns the future of mankind.

There is a lot to grist in these, but what jumped out at me was this catchphrase “credible Internet.”

There is a ring to it that suggests that we are going to be hearing this much more in the coming months, but the aim seems clear. While in the past the boundaries of online expression have been defined by prurient content on the one hand and seditious content on the other, there is now a third piece to that troika: rumors.

This is worrisome: “non-credible” content implies a much wider scope for restriction than the modus vivendi we have enjoyed in the past, and opens to official censure a vast swath of online content. You can avoid posting prurient content rather easily by avoiding adult themes and illustrations. You can dodge seditious content by steering clear of domestic political issues. But “non-credible” content is in the eye of the beholder, and can easily extend to commercial content and company web sites as well as posts on Weibo or WeChat.

Watch this space, as I suspect we are going to learn more about where the authorities are going to be drawing the line. In the meantime, any company or individual producing a content-laden Chinese site or posts on Weibo or WeChat should err on the side of caution. Chinese law is unkind to those whom the authorities accuse of spreading rumors, and demonstrable veracity may not be enough to keep you out of the wrong kind of spotlight.

“The mechanical value of the automobile is falling, but the electric value of the car is rising.”

– Amit Gattani, Micron Technologies

Let’s take Amit’s point one step further: the trajectory of automotive development is such that the car is evolving into an oversized piece of consumer electronics. If there is a single factor that inveighs in favor of China eventually becoming the automaker to the world, this is it.

Edelman, Rui Chenggang, and China PR

Hutong Forward
In the Shadow of the Pentagon
1710 hrs

As more details about ties between the China operations of Edelman Public Relations and erstwhile China Central Television (CCTV) anchor Rui Chenggang are released, a wave of schadenfreude has risen amongst both Edelman’s rivals and the detractors of public relations. As happened when Edelman was caught in a similar ethical imbroglio when it hired ostensibly independent bloggers to post on behalf of Wal-Mart, PR‘s detractors believe that ethical lapses suffuse China’s public relations industry, while practitioners who don’t work for Edelman see this as a large, hubris-laden market monster getting its due.

Both are wrong.

Ethical lapses are common in PR in China, but “common” is a far cry from endemic. There are PR firms, executives, and teams in China who insist on the highest possible ethical standards. Rather than going broke, they discover that while some clients will shun them for these reasons, a growing number of clients, particularly MNCs, are insisting on high ethical standards and are willing to sacrifice short-term results for a clean reputation. Clean business is good: not only do these PR firms keep very busy, they have to turn opportunities away.

But while these firms are the future of the business, they are still the exception that proves the rule, and no agency executive or corporate PR manager should guffaw too loudly at Edelman’s expense. For far too long as an industry and a craft we have turned a blind eye to practices considered unethical, immoral, or even illegal in more developed markets, failing to see that China was developing and that a reckoning was coming.

Two issues prevent widespread improvement in PR industry ethics in China. First is a persistent exclusivist belief that because this is China, things are done the Chinese way, and always will be. Operating ethically is seen as naive at best, and culturally imperialist at worst (“how dare you impose your values on us!”)

The second issue is fear. PR executives and their agencies believe that if they don’t take advantage of every opportunity, however morally ambiguous, they will lose revenue and clients to competitors who lack – or opportunistically ignore – their moral compasses. The pressure is greatest among the larger agencies where the focus is exclusively financial performance. The accountants calling the shots in New York and London are not measuring ethical compliance: they measure revenues and profits. Faced with the choice of losing a sizable client or cutting some ethical corners, there is no contest.

But the persistent idea that China is an island untouched by ethical standards for the conduct of public relations is now demonstrably so much cow manure. Those who cling to such exceptionalism – and you know who you are – are dinosaurs whose time in this business is limited, regardless of the success they appear to enjoy today.

What happened to Edelman could have happened to any of dozens of local and international PR firms. Rui had made himself a target, and Edelman is the largest PR firm in the world. But the rest of us have now been given a shot across our bows. Either we bite the bullet now, change course and adopt ethical tactics and practices, or we leave our firms, our people, and our livelihoods at the mercy of government caprice. If we don’t, this will happen again, and when it does we will all find that it will not be a single firm in the spotlight – it will be every PR practitioner in China.

China Goes West: The Coming Rise of Chinese Brands

China Goes West: Everything You Need To Know About Chinese Companies Going Global
Joel Backaler
Palgrave-Macmillan
May 2014

If there is one question that vexes many observers in China, it is this: how can Chinese companies begin to build – or become – global brands? Thirty-six years after the beginning of reforming and opening, only a handful of Chinese companies – Lenovo, Huawei, Haier, Tsingtao – have made the leap to global leadership in their sectors. This invites a rude comparison: 36 years after it was flattened by the US Army Air Corps, Japan had already produced dozens of leading consumer brands – Sony, Panasonic, Toyota, Honda, Canon, Nikon – that were disrupting industries around the world. Why has China not produced a similar – or even larger – crop of world leaders in the same time frame?

In an intriguing new book, China Goes West: Everything You Need To Know About Chinese Companies Going Global, author Joel Backaler offers us a glimpse into why there are so few Chinese global brands. And some of the reasons will surprise you. I won’t spoil it for you, but the reasons go way beyond marketing competency.

Backaler, who has spent the better part of a decade studying Chinese business and is the author of a highly respected blog on the subject, was given unprecedented access to the companies and their executives, and tapped the knowledge of some of the wisest observers of Chinese companies.

Through the stories of these firms, Backaler explains what drives Chinese enterprises to even consider going global in the first place. He describes the painful path that China’s pioneering Champions followed to get there. And he leaves you wondering why, despite the potential rewards, an more than a handful of Chinese companies would bother.

But Backaler pulls no punches – he clearly believes that we are on the cusp of a major change, one that will see a rash of Chinese companies go global, and in the process disrupt global markets much the same way the Japanese did in the 1980s. You may not agree – but Backaler’s makes a persuasive case, and he makes some pointed suggestions on what the rest of us should do in response.

China Goes West is not a marketing book, but it is a book all of us must read for a simple reason: it describes how China will build global companies, and it gives us the strategic insight we are all going to need to either help them – or to help their competitors stop them.

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Bet the Farm, Or Settle for Table Scraps?

In China, Go for Broke or Accept that Less Is More
Franc Kaiser

Harvard Business Review
April 4, 2014

Nanjing Road pedestrian mall, perhaps the busi...

Nanjing Road pedestrian mall. (Photo credit: Wikipedia)

In this intriguing essay, Shanghai-based consultant Kaiser suggests that for foreign companies, the glory days are over, and the only two strategies left are to either fight for one of the top two positions in your industry (against what might be brutal competition) or accept that your market in China will be modest, picking up what others cannot.

I really enjoyed the essay, because I like contrarian thinking on business in China. But I have a couple of problems right out of the gate.

First, I find it hard to accept that all companies in all industries face such a stark, binary choice. Airlines and banks do not face the same challenges or opportunities as McDonald’s or Intel.

Second, Kaiser’s choices seem better suited to Fortune 500 multinationals with a single line of business. Many large companies will do very well being modest players in multiple markets or product lines without ever being a market leader or settling for modest returns, and many small- and medium-sized businesses will gorge themselves on a modest market position.

Third, the market is immense, and opens the door for a wide range of niche and multi-niche strategies that would be incredibly lucrative, especially for small- and medium-sized businesses from outside of China.

Finally, and perhaps most important, Kaiser implies that there is but a single motive that brings companies to China: profits from China operations. For many companies this is true, but for others, being in China offers other rewards. Companies in the mobile industry benefit from participating in the largest, most lucrative market in the world; other firms are in China so they can better defend against Chinese rivals elsewhere; still others could care less about profits, as China drives volume that supports lower unit costs in more lucrative markets.

One reason there are few good “China strategy” books out there is that there is no good, blanket approach for China that spans across a wide range of companies and industries over a modest span of time. Corporate strategy is bespoke, like the course for a ship. When we write books, we can talk about avoiding storms, rocks, and shoals, and we can talk about the processes that lead to great strategy or effective implementation. Everything else is situational.

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China and “Datathermal Energy”

Hutong West
Letting the Sunshine In
0909 hrs.

Much of my March was spent working with clients who are thinking through some of the issues facing the growing data center market in China. For the uninitiated, a “data center” is a place that houses anywhere from one to tens of thousands of servers. This blog sits in a data center, your bank information sits in a data center, there are a lot of them, and these places are growing.

Little wonder. One delightful quote from Smithsonian.com suggests why.

“From the year 2003 and working backwards to the beginning of human history, we generated five exabytes–that’s 5,000,000,000 GB – of information.

By last year, we were cranking out that much data every two days.

By next year, we’ll be doing it every 10 minutes.”

That quote was from two years ago. Draw the curve in your mind, and you can figure that, conservatively, today we could be generating five exabytes of data every five minutes. Not all of that is going to sit in phones, laptops, external hard drives, thumb drives, or those little SD cards that we stick in our digital cameras. Much of it has to sit in data centers.

The Great Heat Sink

Which is fine, until you consider that data centers suck energy the way blue whales suck krill: in massive quantities, and with large amounts of undesirable waste at the end of the process. In the case of data centers, that waste comes in the form of heat, which then demands more energy to power cooling, which in turn generates heat. The bigger data centers get, the more heat we are talking about. And data centers are getting quite large indeed, measured in millions of square feet of servers stacked like so much electronic cord wood.

Some data centers have started addressing heat as a resource, rather than a waste-product: IBM’s Swiss data center heats a pool; Telehouse in the UK is heating homes in London’s Docklands district; and Notre Dame’s Center for Reserch Computing is heating the flowers of a local municipal greenhouse with the heat from a rack of high-performance computing nodes.

Not everyplace where there are data centers needs heat, though. Some places simply need energy. As any engineer will tell you, where there is heat, there is potential energy. The key will be to capture enough heat so that it can be efficiently turned into energy, for example through steam turbines. Energy generated like this – through the waste heat of data centers, we will call “data-thermal energy.”

Data-Thermal China

China is a natural place for the development of data-thermal energy. The country is early enough in the cycle of development for data centers to start designing its largest server farms to capture and channel heat efficiently. And scale will not be an issue in China. Leaving out government-run data centers entirely, some commercial data centers, like one 6.3 million square-foot beast under construction in Langfang just outside of Beijing, will have more floor space than the Pentagon.

The ability to capture and use waste heat efficiently also opens the prospect of cutting down on air-conditioning costs. If the heat can simply be blown – or sucked – away from the servers and into a central collection point for energy generation, the need to actually cool the air should abate a bit.

There is considerable engineering work to be done, but this is a worthy (if not essential) direction of thinking for the people designing and growing China’s server farms. It will demand imagination and discipline: the old way of doing things – stack ‘em high, chill ‘em down, and blow the hot air out the window – is cheap and pervasive. As the costs of energy grow and sustainability becomes more important, however, Big Data will need to start seeing itself as a utility, not just a customer.