Terror and Schoolyards

In the Hutong

Shanzhai Memorial Day

2254 hrs.

Han Han – “Children, you’re depressing grandpa”


Reading this piece was thought-provoking, but the following paragraph took me down another track entirely:

In these recent attacks, the twisted murderers have all chosen to attack nursery schools and elementary schools, believing this to be the best way to exact their revenge on society. It has become fashionable to go to nursery schools and elementary schools and kill people. There, the murderer faces the least resistance and can kill the most people, causing us to feel the greatest pain and panic. This is indeed the most effective method to exact revenge on society

Antisocial attacks on a vulnerable segment of the population  conducted in a manner designed to incite fear and insecurity. If the government could find a link between the school attacks and an organized group, would this not then be terrorism?

On a parallel track, there was some reporting done last month in the foreign press suggesting that the government seemed to be putting the kibosh on press coverage of the attacks. The coverage was critical of the move. Nonetheless  I can appreciate the law enforcement reason behind limiting the coverage: the less you cover something like this, the less likely it is that other attention-deprived sociopaths would decide that filleting a group of kindergarteners was their route to a few days of fame.

At some point the line between crime and terror seems to disappear into the sand. The lessons China is learning with these crimes test not only law enforcement, but China’s nascent homeland security apparatus as well.

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Fix Foxconn, But Don’t Stop There

In the Hutong


2246 hrs.

An interesting post that is worth reading in the wake of the recent tragedies at Foxconn.

Child Labor in the Developing World

Kristof makes it clear that just because working in a sweatshop might be more pleasant work than scavenging around in a toxic waste heap it doesn’t justify ignoring the working conditions in sweatshops. On the other hand, he insists that eliminating sweatshops rather than working to improve working conditions there is also the wrong tactic.

For all of the emotion induced by Hon Hai’s Neanderthal handling of the crisis and its (allegegly) reactionary labor management practices, Kristof and de Angelis remind us that the goal is to fix Foxconn, not destroy it. At the same time, they make the point that the issue of labor practices in emerging markets defies the simplistic bumper-sticker solutions proferred by advocates on either side of the issue.

Good solutions demand wisdom and a feel for local realities. That requires constant local engagement as well as credibility ans trust from all parties.  

And, in the end, it requires some customer activism. The way your stuff is made is to some degree up to you. Companies will design products for consumer preferences. The next revolution in consumer goods will be to get companies to design their processes to match the concerns of their customers.  

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Are We Looking at a Slowdown in China’s Outward Investment?

In the Hutong
Sweating, finally
2317 hrs.

Catching up on my reading (I’m waaay behind, but for all the good reasons – work, family, exercise, etc.), I came across a superb op-ed in The New York Times by columnist Philip Bowring explaining why China’s overseas acquisition strategy was not going to grow as quickly as some may have thought:

It will grow as trade relations deepen and Chinese technology and brand names have global impact. But this will be gradual. After a first flush of cash-driven enthusiasm, Chinese firms are proceeding with greater caution, less likely to throw money at countries and industries with which they have scant experience. They are also meeting increasing obstacles in some countries.

In the case of consumer goods companies in particular, many have discovered that their best bet for rapid growth in the near- to medium-term is right here at home. There are exceptions, of course (consumer electronics and white goods leap to mind), but companies like Lenovo, Geely, Li-Ning, Haier, SAIC, and most of the major local online companies – to name a few obvious examples – are making only tentative, careful steps offshore, preferring instead to focus on growing consumer opportunities at home.

Bowring makes the excellent point that the bargain-buying opportunity for Chinese companies offered by the global slowdown is probably over. The bigger issues, in my opinion, are a) that when the opportunity arose, China’s companies were not ready from either a financial or operational standpoint to make the jump, and b) offshore acquisitions have not yet proven to be an efficient way to grow a Chinese company. PRC corporates looking for access to resources – human and intellectual as well as natural – will continue to acquire them, but it seems increasingly likely that China, Inc. will develop its offshore markets more carefully, organically, and methodically in the future.

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Sell Gadgets for What Your Users Want To Do With Them

In the Hutong
Practicing Zen Television Viewing
2234 hrs.

Jeff Jarvis tweets: “Many early adopters recognize no distinction between what you *can do* with a device and what it’s *made for.*”

My response: most early adopters ignore what a device is “made for” and spend more of their time figuring out what you “can do” with it. And that’s a very good thing for the rest of us.

I’ve seen many device manufacturers create gadgets with one usage model in mind, and early adopters (being the obstreperous nonconformists that they are) ignore that and instead wind up using those devices for the purposes for which they are actualy best suited. I wound up using my Palm, my iPod Touch, and my Moto BACKFLIP for purposes other than those advertised. I’m not alone. Short message capabilities in mobile phones were an afterthought, but that they became the most popular mobile data application for pre-3G handsets, especially in Europe and China, to the extent that many people text more than they call.

Wise device manufacturers, in my opinion, will recognize this reality and create and market devices accordingly. What delighted me about the iPad from the beginning was that Apple seemed to be saying “yeah, this beast can do some cool things, like email, music, browsing, books, and games, but we know you’re going to be the ones to actually figure out when, where, and how this device makes your life better. And you’re going to do it by playing with the thing. We’re just going to sit back and watch.”

Make no mistake, taking such an approach is inherently risky, and cannot be used with every device. Even the iPad had (and still has) its share of detractors who wonder what use the thing is, anyway, because a clear compelling usage model was not spelled out for them in 25 words or less. Yet I suspect Steve Jobs remembers another generation of detractors (including some brilliant and successful computer engineers) who couldn’t figure out why any normal person would want to have a personal computer.

Going with what the users want to do with your device seems an obvious approach to marketing gadgets. Sadly, it seems only a few really excellent companies are tuned-in to that reality.

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Dealing with China’s “Soft Protectionism”

In the Hutong
I am not a tuna
2017 hrs.

Stan Abrams makes an astute observation about Chinese industrial policy in a recent article about China’s clean energy market: while the central government welcomes high-tech firms from overseas, the implicit quid pro quo for market access is technology transfer and local manufacturing, and it has always been this way.

Somewhere on the road from China’s Reforming and Opening in the late 1970s to the decade following the nation’s accession to the World Trade Organization in 2001, global businesspeople lost sight of that fact, or believed that it had somehow quietly changed.

It hasn’t.

Across a host of industries, China continues to pursue – and hone – policies designed to give its companies a competitive advantage both at home and abroad. China is not alone in this regard: Japan, Europe and arguably even the United States have been doing the same for years, and they’ve been doing so as full, developed-nation members of the WTO.

Even if time-consuming WTO actions against China’s most eggregious protectionst policies eventually succeed, Beijing can (and likely will) continue to draw from a playbook of industrial policies written in Paris, in Berlin, in Washington, and in Tokyo. The global powers that forged the world’s trading system left for themselves sufficient wiggle room to accommodate their own favored industries. China knows where those loopholes are, and with good reason expects to use them with virtual impunity.

Chinese industrial policy – or what I would call “soft protectionism” is not going to go away. As a result, two things need to change:

  • First, businesspeople facing China as a market or as the cradle of competitors must expect that China will do everthing it can short of a blatant abrogation of its international agreements to foster and support champion industries and companies. If you are in any doubt, assume your industry is a potential Chinese champion: even if you are wrong, you will come out ahead.
  • Second, the WTO’s remit must be expanded beyond trade in goods and services to encompass a global agreement on foreign direct investment. FDI restrictions have become a popular non-tariff barrier to equal market access among all of the major powers. If the world wants China to allow open investment access to its industries, all nations have to drop their own efforts to restrict foreign investment. Of course, this presumes political will to do so. Ask yourself – is the United States prepared to sell the Port of Long Beach to a Chinese state-owned enterprise in return for open access to China’s clean energy market? If not, we had best be prepared to take other steps.

So letting the issue lay may not be a bad idea. We have to recognize – without being dismissive – that a strong industrial policy does not a global competitor make. Good companies benefit from government largese, but lousy companies with lousy products are not made better by government coddling.

China’s pursuit of industrial policy is but one of a host of factors that foster world class companies and products. If we allow ourselves to focus too much on government policy, we will lose sight of the other drivers of competitiveness, like innovation, a tolerance for failure, creativity, and speed.

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Is Legend Abandoning the PC Fight?

In the Hutong
Testing the Ale
1933 hrs.

TIME Magazine’s May 10, 2010 article on Lenovo (“Lenovo’s Legend Returns“) was a well-written and long-overdue review of the company’s internal challenges since its purchase of IBM’s personal computer unit in 2005. What the article does not do, however, is instill confidence in the future of Lenovo as a computer company.

Giving Up on Globalization

While the top of the article suggests that Lenovo is trying to reform itself to blaze a pathway to globalization, a careful read makes it clear that the return of company co-founder Liu Chuanzhi means something else entirely: he wants to create a diversified Chinese industrial conglomerate, focusing the company on up-leveling management skills across a range of industries, based on the computer maker’s parent company:

He intends to transform Legend Holdings — an investment firm that is Lenovo’s largest shareholder — into a holding company, which, through acquisitions, would collect a stable of firms in industries such as energy, biopharmaceuticals, information technology and environmental protection. Then Liu and other lieutenants at Legend would work with the executives at the acquired companies to help them raise capital, strengthen strategic planning and improve everything from supply-chain management to human-resources practices. “For the Chinese economy to really rise, one of the key drivers will be capital from the private sector,” Liu says. “We can find and identify the best people and use our funds and our experience to help them so their companies will grow very fast.”

On the one hand, I have to applaud Liu’s domestic focus. Given the company’s current and foreseeable management skills, and keeping in mind that the Chinese economy looks more promising than just about any other in the medium term, Legend Holdings is better off focusing on opportunities in the market it knows best.

Deserting Lenovo

On the other, I cannot help but worry about poor Lenovo. While Liu has eliminated one leadership issue by returning cultural homogeneity to Lenovo’s executive team, he stands on the verge of creating another by spreading his limited management resources across a wider range of businesses. Instead of keeping himself and his best people focused on beating Apple, HP, Dell, and Acer, he will spread their attention across a half dozen complex and  highly competitive industries.

Even worse, Legend does not look like it plans to use its cash to bolster Lenovo’s strength as a computer manufacturer. Instead, it seeks to divert its capital and profits into the acquisition of other businesses that bear little relation (and can offer limited help) to Lenovo’s business.

Lenovo’s efforts to improve its products and its focus on mobility are all good signs, as is the 58% annual jump in PC shipments in the first quarter of this year. An optimist might suggest that Lenovo can build a decent run on this. But Liu’s planned long-term strip-mining of Lenovo’s brains and cash suggests that Legend’s leaders have already decided that the company’s future does not lie in computers or consumer electronics. Instead, they are giving up, and getting ready to take their ball and go play somewhere else.

Adíos, ThinkPad

I am not a big fan of the conglomerate as a business structure, for both business and personal reasons. Yet I am willing to grant that diversificiation may be the right path for Legend, and that a sober assessment of the direction of the information technology and consumer electronic industries may have led Liu and company to conclude they could not or should not be a computer company.

This cannot be encouraging news, however, for companies in China and around the world who are staking all or part of their future on selling Lenovo products, and I suspect Apple, Dell, HP, and Acer are getting ready to divide the spoils as Lenovo retreats.

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If They Want It, They’ll Get It

In the Hutong
Prepping for lunch with Imagethief
1023 hrs.

Fun article on how 15,000 Chinese managed to bypass the block on Twitter, motivated not by high-minded ideals, but by a popular Japanese porn star (link is suitable for work, but barely.)

My take, from the article:

“It’s simple for someone with some minimal technical acumen” to scale the Great Firewall, said Wolf. “But that means that it’s too difficult for most of China.”

The interesting question, of course, is how long that will be the case. The paradox for the government is that whenever they wall-off content or services that people in China want to use, the  more wall-jumpers (armed with aforesaid minimial technical acumen) they create.

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Science Fiction made Krugman an Economist

The New Yorker’s profile on Paul Krugman in March quoted Krugman as saying that he became an economist because he read Asimov as a boy. For Krugman, the key is that science fiction delves into the “why” and the “what if” about humanity and society in a way other genres do not. Ask those two questions, and new realms of possibility open up. Here is my question: would China be more innovative if more kids here read science fiction? Or could Chinese society tolerate the disruption of millions of young people asking “what if” and “why?” http://amplify.com/u/5wgo

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Chinese rock scene is about fashion, not music. But that’s okay.

Alice Xin Liu makes a convincing case in the Huffington Post that the vibrant Chinese popular music scene is more about hipster chic than the music. That may be true, but that’s not necessarily a bad thing. Music scenes in any country or culture evolve, they do not simply emerge. As that evolution takes place, the music becomes more diverse, and the sophistication and preferences of listeners grows. China is in the very early stages of this process, and it will take at least a generation for the country to develop a music scene and industry that would look remotely familiar to those of us who have grown up with a dozen different flavors of rock music. In the meantime, let’s enjoy and celebrate what we already have, which is a huge leap ahead in diversity and commercialization over what we had two decades ago. http://amplify.com/u/5wg3

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Unionizing MNCs in China: Accept or Leave

Costa Coffee, PCP Beijing
Manic Friday
0953 hrs.

The Economist does a superb write-up (“Join the Party,” May 6th) on China’s growing effort to unionize the China staffs of multinational companies in China. Most apt is the magazine’s recommendation to the leaders of MNCs: accept unionization as inevitable.

The New Reality in China is that the nation’s leaders see the participation of foreign companies in as less and less vital to China’s economy. (I respectfully disagree with them – I think the importance is changing, but not declining, but leave that aside for the moment.) If foreign enterprises aren’t being tossed out of China, the government is determined to strip away the special operating conditions to which companies from overseas have grown to feel entitled.

We are in for a long sequence of these measures. Tax holidays, special services, foreign enterprise service companies, and the other explicit and implicit special conditions afforded to foreign enterprises are all being pulled. And with them are going many of the special privileges foreign individuals have enjoyed over the years.

The best we can hope for is equal treatment with local enterprises, but I suspect that the direction of the pendulum is going to take us into discriminatory territory: the government is going to be tougher of foreigners than the locals, and this is going to have personal, commercial, economic, and political ramifications.

The “good old days” aren’t coming back. Ever.

But that doesn’t mean China should be permitted to discriminate against foreign enterprises in violation of its international commitments and, more importantly, its own enlightened self-interest. It does mean that we are now going to have to start making a consistent and convincing case for a long-term role for foreign enterprise in China, and each enterprise is going to have to make its own case to be allowed into China, or to be allowed to continue operating here.

The extent to which this case comes from credible local voices rather than indignant foreign sources will determine its palatablity to local leaders and to the Chinese as a whole, and will thus determine its success. This means we have a profoundly challenging effort ahead of us.

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Dreaming About the iPad – in 2007

In the Hutong
Watching “Amok Time”
2137 hrs.

Moving my posts from my TypePad site to this my WordPress site, I came across this post, “Cupertino Dreamin’” from December 2007. I explained what I hoped Apple would introudce the following month at MacWorld January 2008.

One wish was for an Apple Tablet computer. Check out the name I suggested – and the specs. I got some of it right, anyway.


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China’s African Honeymoon is Over

China Tightens Purse Strings in Guinea and Other African Nations

China’s approach to securing minerals in Africa has been to sign agreements to build huge projects in exchange for minerals.

But that formulation has proved problematic in an economic downturn. African governments are now realizing that these deals are in essence loans against future revenue, and falling prices could leave them saddled with giant piles of debt.

China, Inc. is starting to realize that the road to globalization for Chinese enterprises does not begin with Europe or North America, but with emerging and developing  markets like the nations of Africa.

They are also starting to understand that winning friends, influencing people, and building markets demands more than dumping a few fat wads of cash on the natives. The problem is that few of these companies – if any – know what to do to arrest the tattering of their image in their most promising markets.  

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You Need Us: Making Room for NGOs in China

There is a cottage industry taking root around corporate social responsibility in China, and over the last six months, I have picked up amongst their numbers a growing concern about the health and prospects for non-governmental organizations (NGOs), especially those not directly chartered and managed by the government.

Normally I might have taken this as sour grapes: CSR is not growing as quickly as it should in China, and the people who have devoted their lives to getting corporations to “serve the people” have been having a hard go. But then I talked to some NGO administrators, many of whom have been here for a while and all of them involved in organizations largely in sync with China’s policy priorities, and I started to hear the same thing.

Then The Washington Post noted in March:

This month, [the government] announced regulations designed to make it harder for China’s fledgling community of nongovernmental organizations to get financial support from overseas.

Non Sequitur

It would be easy to read into these regulations any range of motives, but I think what is happening goes deeper than some short term policy change, and is rooted in a deeper discomfort among policymakers with NGOs. I would argue that a growing part of the challenge NGOs of any stripe or origin face in China is that there is no ideological framework that would make a place for those organizations within the Chinese system.

At the core of modern China’s social contract is that the government, the Party, and the Army, either directly or via the work unit, are supposed to provide all of the social needs of the people. This is not purely a “communist” thing: paternalistic governments have been a part of China since before Master Kong wrote his Analects, and the government serving in loco parentis has become a core assumption of many of Asia’s political systems.

Theoretically, then, there should be no need for NGOs: it is the job of the government, Party, and Army to provide.

At best, once again in theory, an NGO with a social mission operating in China is a de-facto indictment of the government and Party, an implicit admission that the government is not fulfilling its moral role. At worst, the NGO is the seed of a rival center of domestic political power, or (like many pre-liberation missionary groups) a subversive element or tool of a foreign government. There is no conceptual framework in the Chinese polity for a private institution to take a social role, and even the social role of work units has been reduced over the past thirty years to little more than a basic benefits package. And without a clear, articulated (or at least understood) place for NGOs in Chinese society, each organization represents latent disruption inimical to a Harmonious Society.

Leaders of China, We Are Not The Enemy

In order for NGOs to take their full role in Chinese society, NGOs themselves are going to have to first make a case that civil organizations have a necessary and proper role in Chinese society, one that fits within Confucian ideology and that implicitly legitimizes rather than indicts the government that accepts them. This means making an ideological case – not just a practical one – that carves out a legitimate niche for NGOs as serving a role that government or enterprise are not only unable to fill, but that they should never have been expected to fill in the first place.

The best scenario to make this happen would be for NGOs to team with respected party ideologues at the Party School to make the case by drawing from the foundational documents of the People’s Republic. The NGOs would then work with those ideologues to help create a legal (read “constitutional”) role for NGOs in society, rather than muck about with trying to get a single law passed that could be negated by policy.

Of course, I’m not betting this is going to happen anytime soon.

Fighting Inactivism

First, for many people who staff and support international NGOs, doing or saying anything to legitimize the Chinese government would be a non-starter. That is sad, but understandable. It would gall not a small number of them to have to argue for their role in a society where the need is ostensibly plain to see, in a polity many of them see as morally bankrupt, or worse.

Second, we have to consider the possibility that whatever framework would result from such an approach would involve a loss of some of the autonomy NGOs are used to experiencing elsewhere, especially in the Anglophone world. Most NGOs guard their independence with ferocious jealousy, and would be hesitant to surrender that which they believe makes them most effective.

Third is what I would call “The Google Trap.” In making concessions to government control or oversight to facilitate operations in China, NGOs would put at risk their global support ecosystem, from contributors, staff, partners, beneficiaries, and other NGOs to government and the media. Whatever the prospects in China, no NGO would put its global operations at risk by compromising on their principles in China.

All of this leaves NGOs waiting for China’s leaders – perhaps the next administration, perhaps the one after that, or the one after that – to reach the conclusion that it is beyond the abilities of government, Party, Army or enterprise to carry the full burden of China’s social challenges, and to conclude that there is indeed a role for non-governmental “social organizations.”

All fine and good. But what happens in the meantime? Given that many issues addressed by NGOs are attached to a ticking clock, can NGOs afford to wait? When faced with the prospect of compromise vs. inaction, does it not run counter to an activists’ creed to accept the latter? This is the hidden conundrum facing NGOs in China, and until it is addressed the social action sector will find itself increasingly hemmed in by policies and regulations made by regulators with an incomplete appreciation of the role NGOs can – indeed, should – play in the Chinese system.

But first, the NGOs themselves have to figure that out.

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Is Susquehanna’s Call on Baidu Overly Optimistic?

In the Hutong
Writing is Freedom
2100 hrs.

Susquehanna Financial made a bold call last week on Baidu’s share price, targeting $1,000 per share for Baidu. Ignore for a moment that SFC actively seeks to do business with the companies it covers, thus tainting the analysts’ independence. Instead, let us ask whether Susquehanna is underplaying the risks, which they think are primarily:

1) Customer growth slower than expected; 2) Market overly pricing in impact from Google’s departure; 3) Monetization up to high causing lower ROI for advertisers and hence losing customers to competitors; 4) Emerging competitors Tencent, Taobao, and Alibaba.com, among other domestic search engines; 5) A hard landing in the Chinese economy.

Had SFC taken the time to elaborate on each of these and explain exactly why they were risks, I am not certain the company could have justified its target quite so persuasively to its readers.

What is more, there are significant risks that SFC failed to enumerate, including:

6. Advertiser abandonment of search in favor of other means of digital advertising;

7. User backlash against Baidu for mixing paid results with natural search, and for blocking results of the competitors of its advertisers;

8. Creative recovery by Google from Hong Kong that allows Google to continue narrowing the gap with Baidu on the mainland;

9. Continued failure of the company to stabilize its leadership team, hampering its progress in addressing the significant challenges in its core business.

10. Fragmentation of management attention and engineering resources caused by pursuing too many divergent opportunities at once.

All of which is to say that the risks Baidu and its investors face deserve more attention than they are getting, certainly from the investors, and possibly from management as well.

(Full disclosure: I own 5 shares of Google common.)

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