Category: "Opinion and View"
Developing a Jobs Market In a Fast-Changing China
September 15th, 2006As chief executive of China's third-biggest online recruitment company, Liu Hao makes a living off the demand for talented people eager to prosper in the nation's dynamic economy.
Zhaopin.com Ltd. has 18 offices across the country and more than 1,000 employees. At any given time it typically posts 200,000 to 300,000 jobs, ranging from drivers to salespeople to senior executives. Mr. Liu says that is 10 times the number of offerings in 2002, when he took over Zhaopin, in which he was a major investor.
Both the company, whose name means "recruitment" in Chinese, and the industry are still small. Market-research firm iResearch estimates that China's online job-recruitment market was worth about 800 million yuan, or about $100 million, last year, and puts Zhaopin's 2005 revenue at 70 million yuan and its market share by registered users that year at 9.8%. Mr. Liu puts its market share by revenue at 20% to 25%.
But the industry is growing fast. And Zhaopin, which started up in 1994 and now counts such regular clients as the China units of Microsoft, Unilever, Alcatel, BMW and Hitachi, is growing with it. The online recruitment market was up 46% from 2004, iResearch reckons, and Mr. Liu says earnings, which he won't disclose, are, like his job postings, 10 times what they were in 2002. In April of last year, Monster.com, a major U.S. online recruitment company, spent $50 million to buy 40% of ChinaHR.com, one of Zhaopin's two larger rivals. (The other is 51job.com.)
Mr. Liu, 37 years old, takes pride in having propelled the company to its current position. His co-investors include the venture-capital arms of computer maker Lenovo Group and Taiwan's Acer Group. He says Zhaopin could go public, perhaps next year.
But Mr. Liu also takes pride in his own metamorphosis, from Beijing University physics major to Yale University law-school graduate and attorney at New York-based multinational law firm Davis Polk & Wardwell to California venture capitalist to entrepreneur, believing that in the end it's better to commit to one vision than to make a run at many projects.
Mr. Liu spoke from Beijing with Juying Qin in Hong Kong about that principle and about connecting China's leaders and workers with jobs in a fast-changing economy.
WSJ: How does Zhaopin.com mediate between prospective employer and job hunter?
Mr. Liu: We usually sign contracts with our clients or the employers. We check the veracity of the company as well as the job positions they want to post. Job hunters can put their own information into our database .
WSJ: Have you ever found your jobs online?
Mr. Liu: Well, no.
WSJ: What was your first job and what was the most important lesson you learned from it?
Mr. Liu: Practicing tax law. I was extremely impressed. The law firm is like a university or a learning machine, passing along knowledge to junior associate lawyers like me. Law students still tend to be less practical, especially Yale law students.
WSJ: Why did you turn from physics student to lawyer to venture capitalist and then to corporate executive?
Mr. Liu: Being a physicist was my childhood dream. But after a few years, I had a lot more discoveries about myself. I call this process rediscovery.
I went to law school not because I wanted to be a professional lawyer but because in law school, students could be exposed a lot more extensively to society. From a venture capitalist to the manager of this company was quite a natural choice for me. I was managing the company at the time as an investor, the company was not doing well, and I thought it was kind of an obligation for me to go in.
Most of my friends were against my choice, in part because they thought the risk was so high. Being a venture capitalist or being a lawyer is really kind of a cushy job. Lawyers do not really take that much risk. You do give advice to your clients, and you do have to make judgment calls, but those judgment calls do not eventually affect you.
To be a lawyer, you need to restrain your passion and be unemotional. To be a manager, you have to have some passion. If you don't have it, you can't do it.
Fundamentally I felt like were all kind of passive. In my life, I have always wanted to point to something that I really built.
WSJ: You didn't go to business school and had no real managing experience before. What made you so confident you could turn this company around?
Mr. Liu: I actually asked myself the same question when I took this position. But I think personality is the most important thing that leads to success. I was always able to manage the transitions well, from physicist to lawyer and then to venture capitalist, so I should be able to manage another transition well.
WSJ: In your industry, are there big differences between China and the rest of the world?
Mr. Liu: The American job market is more like a seller's market, while China, with a larger labor base, is more like a buyer's market. But the job market in China is nascent. Fundamentally, its problems reflect the problems stemming from the educational system.
Many fresh college graduates don't have the skills to cope with real work. They don't have enough career training. So it can be quite hard for them to find their niches in the first couple of years after graduation.
There are two main problems. First, some people, especially fresh college graduates, make fake résumés by exaggerating their experiences. Second, people change jobs very frequently.
WSJ: Can you describe China's leadership potential?
Mr. Liu: The quality of managers in China has been improving quite obviously in recent years, but there are still far fewer experienced managers than the market demands. Back in 2000 to 2002, people without much management experience could easily get around by carrying some master-of-business-administration degree from some big-name university like Harvard, although some were really not very capable.
WSJ: What is the most important piece of technology you use?
Mr. Liu: Basically I talk on the cellphone 24 hours a day. Sometimes people call me at 3 a.m., and they don't even ask whether I was asleep. If I didn't have a cellphone with me, I would start to worry about what I am missing. This really has become part of my body.
Large numbers of low quality talent hurt China
September 15th, 2006Source: CRI
09-14-2006 16:05
China needs to take action against the large number of poorly qualified and low quality professionals with university or college certification, Chinese Talents Society Vice President Wang Tongxun said.
China Youth Daily reports Wang Tongxun issued his warning at a forum on human resources development held recently in Beijing.
Record numbers of Chinese citizens have received higher education in recent years. Over 66.5 million people have college degrees or above and around 17% of high school graduates enrol at university. There were 2.8 million graduates in 2005, nearly 9 times the number of graduates in 1985.
But Wang Tongxun said that as universities and colleges grow from institutions that cater to an elite group of students to institutions that education the masses, several problems have been created.
Degrees and titles are easy to obtain in China. Some universities or colleges issue diplomas recklessly, even providing them to people who have not attended the university courses. The lack of a sound qualification system allows poorly skilled Chinese professionals to receive titles more easily than their foreign counterparts.
Wang Tongxun also said the academic research at Chinese universities and research institutes is often carried out in a poorly planned and impatient manner. The resulting papers are rarely cited by foreign researchers and rank below 120 in the world in terms of citations. As a result, most of the research has no value and can't be put into practice.
To compound the problem, the tendency for employers to value people according to their degrees rather than their talent and work experience has led to a culture of degree-hunting where people neglect to improve their talents in a measurable way.
Finally, Wang Tongxun said the phenomenon has led to a brain drain. Around 930,000 Chinese have traveled overseas to study since 1986, but only 230,000 have returned
Editor:Sun Luying
Recruiting Top Talent In China Takes a Boss Who Likes to Coach (WSJ)
August 29th, 2006SHANGHAI -- Any company that wants to succeed in China -- and the list grows longer every day -- needs to understand what matters even more than an understanding of distribution networks and good relationships with government officials: executives on the ground who truly enjoy coaching their employees.
Whether they work in Beijing, Shanghai or Guangzhou, executives at multinationals who stay behind closed doors and rarely offer performance feedback or advice are bound to fail. That's because the local hires they need to run their offices and plants will be seeking out bosses who will help them advance their careers.
With China's economy growing so rapidly, multinationals and private and state-run Chinese companies are competing fiercely for talent. Young, educated Chinese from top schools with a few years of work experience often have their pick of entry and midlevel jobs in sales, marketing, finance, government relations and manufacturing.
They can also command much higher salaries now than they could a few years ago, though they're still paid far less than expats. Money, though, isn't necessarily their top priority when weighing offers. In a recent study of several dozen Chinese managers placed by Korn Ferry, Grace Cheng, the managing director of the search firm's Beijing office, says she found that "money is a less important reason to change jobs than the potential to grow and have a close working relationship with an immediate boss."
James Rice, a Tyson Foods vice president and the company's general manager in China, understands this sentiment and has made mentoring part of his job. A 16-year veteran in China, he previously worked for Dannon and Kimberly Clark. One of his current sales managers first worked for him as a secretary at Dannon and, with Mr. Rice's coaching, advanced to management. He quit Dannon when Mr. Rice moved to Tyson last May. "I didn't want to poach [from Dannon] but he was going to take another job anyway, so I asked him to work for me again," says Mr. Rice.
A few weeks ago, he recruited a young manager with an MBA degree from the University of North Carolina by promising training and promotion. The manager was weighing another offer from a multinational, and Mr. Rice didn't have a specific opening for him. But he was determined not to lose the chance to hire him. "He's very smart and speaks perfect English, and we're growing by more than 20% a year so it makes sense to hire ahead," says Mr. Rice, who plans to expand Tyson's China-based operations through acquisitions. "I pitched him very heavily on what I'd do to work with him and help him grow his career. I told him that for the next 12 months, he'll be my assistant, going with me wherever I go -- and then he'll get a line position," Mr. Rice says.
Stella Hou, who manages the compensation measurement practice for Hewitt Associates in China, is often a personal counselor as well as a career coach to her 30 employees. In the U.S. and Europe, "managers don't feel they should trespass into employees' personal lives, but Chinese employees often expect their bosses to do that," she says. She spent hours listening to an employee vent anger and grief when her marriage fell apart.
Young recruits, many of them products of China's one-child policy, also often require coaching on how to gain independence from their parents. Mr. Rice has had to tell some prospective employees that their parents aren't welcome to sit in on job interviews. And when an intern in Ms. Hou's office talked constantly about how much his mother takes care of him, co-workers began counting the number of times he invoked his mother's name and then subtly suggested he change that habit. "He'd say, 'my Mommy bought me this shirt,' or 'my mommy made me this meal,' " says Ms. Hou. "One day he brought her up 25 times."
She prefers hiring employees whose parents live in provinces far from Shanghai or who went to boarding school at young ages. "They've been less pampered" than only children who have had their parents' and grandparents' undivided attention, she says.
For their part, Chinese employees, especially those in their 20s and 30s, don't want to stay in any one job for more than a few years. They are looking for training and frequent promotions, and they're willing to job hop to advance.
Among the companies that has benefited is Beijing-based Sohu.com, one of China's main Internet portals. Founded eight years ago, Sohu.com, which now has 1,400 employees, has wooed hundreds of upwardly mobile young Chinese from multinationals. Andy Zhao, a group leader in human resources at the company, formerly worked at McDonald's, where he advanced from trainee to store manager over a six-year period. But then he quit, because his boss, he says, "was too vague" about his chances for future promotions.
He says he likes Sohu.com's innovative culture and his "caring bosses," who encourage him to "make fast changes every day." But he adds that how long he stays there will depend on "whether I can keep growing and changing."
This is the first of several columns about managing in China.
China firms struggle to find top talent.
May 7th, 2006Increased FDI, the relatively small pool of locally-experienced talent and a growing trend in salary package inflation are the most common complaints of companies struggling to hire suitable staff in China, research by the recruitment group, Antal International has found.
More than half of the companies in China questioned are being held back by problems recruiting quality staff, according to the latest China Market Survey conducted by global recruitment firm, Antal International. Most of the 500 company managers who were questioned in the bi-annual survey believe their operation is being held back by a combination of increased competition for candidates caused by more new entrants to the market, fast-rising packages as companies offer more to attract staff and a concern at the size of the experienced talent market given the number of middle to senior vacancies on offer.
Academic qualifications are less of a concern; most candidates are highly educated with just ten percent of managers showing this as an area of concern. What mattered more to the overwhelming majority was the shortage of people with local market or regional experience as a reason for being unable to find the right person to fill a vacancy. “The fact that over 50% of companies in China are struggling to recruit using their own methods at the management level is a great concern to new market entrants and those players already here,” said Robert Parkinson, head of Antal’s Asia region. “There are so many other intellectual property, licensing, regulatory, cultural, and other important issues for business managers to deal with today that this adds greatly to their already crowded agenda” said Parkinson.
While over-fishing in the talent pool has exacerbated the shortage of experienced people, the competition for staff has led to increased wage inflation with people moving roles more frequently as increasingly higher packages are offered to tempt them. Added to this, the risks associated with hiring the wrong people; especially in a place like China make it a minefield, particularly at a time when growth and opportunity is at stake. Some companies are looking for Chinese staff in Europe, USA and wider Asia and bringing them back to fill the gaps. Having an international reach into other markets to cover domestic market issues like staffing is now a key aspect to success in China.
The research found that the Media & PR, Technology & Telecommunications and FMCG sectors were most affected by skills shortages, with 59% of companies reporting trouble finding suitable candidates without resorting to external solution providers such as Antal. This was followed by Shipping and Transport with 51% reporting hiring issues as their market expanded.
Functionally, experienced Marketing and Sales skills, across a broad range of industries, far outweighed the rest as the area with the most scarcity but was closely followed by Accountancy and Finance. In freight and transport, Chartering and broking skills were in high demand.
Geographically, businesses in the major cities reported the most difficulties with Shanghai and Guangzhou in third and fourth place. Beijing and nearby cities in the north were the worst hit, with 63% of companies saying they struggled to recruit adequately experienced staff on time without enlisting the help of external recruiters.
Robert Parkinson, who has seen his own business grow four fold in headcount in the last 12 months, sympathised with the findings. “It is difficult to find the right people on your own or using only a single sourcing methodology such as the web as it exposes you to those who may just be after an increase. It also has an effect on the amount of management time spent in sifting and hiring. This is why our clients use us as we can scour the market more thoroughly and use a combination of methods to find the best people for them. Additionally our in-depth screening and matching process identifies traits that might be a warning of candidates who job-hop from package to package.
Why Young Expats Are Heading to China - The Drifters
May 6th, 2006Young expats looking for adventure and opportunity are being drawn to China, where the economy is booming, rents are cheap and skills in short supply.
By Ralph Jennings
May 4, 2006 - Jeremy Goldkorn spent six years hanging out in Beijing, drifting from job to job. He taught English for a while. He rode his bike through Tibet. For a year he worked at Beijing Scene, an entertainment magazine, until it was shut down a year later. He bounced between Beijing and Silicon Valley for a high-tech company, until it went belly up. By 2001, he had resettled in Beijing to start a bilingual entertainment magazine, which became Time Out, but quit after nearly a year “mostly because I wanted to do my own thing,” says Goldkorn, a 34 year-old South African. In 2002, Goldkorn helped start Standards Group, a Beijing advertising, Web-site and corporate video agency that now boasts lucrative blue-chip clients. “China is a superb place if you want to get your teeth into different types of creative work,” he says.
Goldkorn is not the only Western drifter to make good in Beijing. China seems to be awash in expats who seem content to drift from one job to another before landing something that catches their fancy. They are taking advantage of burgeoning demand for local-hire China hands with Mandarin-language skills in entertainment, media, finance, trading and other fields. At the same time, Western firms are looking to scale back on their longstanding practice of sending highly compensated expats to China with housing allowances and hardship pay. Instead, they’re turning to a labor pool of Westerners—estimated at 300,000—who have decided to settle in China, at least while the economy continues to grow and rents (one-bedroom apartments in Beijing start at $300 a month) stay cheap. “You’re in a market that’s growing at 10 percent a year, so there’s a market here for whatever you want to do,” says Kaiser Kuo, a musician and local magazine satirist who came here 10 years ago from the United States.
Until the late 1990s, China didn’t let foreigners stay long-term for much more than diplomacy, university study, or pre-arranged jobs with well-established foreign organizations. In the past five years, however, Beijing has relaxed visa restrictions in order to attract foreign investment and foreign staff for Chinese companies, from airlines to English-language newspapers. China’s liberalization of its so-called F visas—ostensibly for come-and-go foreign investors and company executives—has allowed more people to stay in China without formal jobs. Despite occasional rumblings of a crackdown on F-visa abuse, visa agents in Beijing say they can process the paperwork for six-month or one-year stays. Over the past five years, many cities have also scrapped rules requiring foreigners to live in designated high-end apartment complexes. As a result, the number of foreigners in China has increased fivefold, according to visa consultants and Chinese press reports. The biggest single group of expats are about 110,000 Americans, half of whom live in the two prime job centers of Beijing and Shanghai; the rest are scattered across the mainland.
Expats who speak Mandarin and offer specific technical skills are most likely to find work, according to Jim Leininger, general manager in the Beijing office of the human-resources consultancy Watson Wyatt Worldwide. They may land high-level finance jobs, which lack qualified Chinese applicants, or jobs in areas such as media and advertising that emphasize creativity and innovation, because the Chinese educational system has been “traditionally weak in these areas,” he says. Half the foreign companies in China plan to add expatriate staff, particularly specialists and middle managers, according to a study last year by Hewitt Associates, a British human-resources consulting firm. The maxim of many of these companies is “talent first, package later,” says the Hewitt report.
That's good news to people like Seattle native Perri Dong, 40, who was having trouble finding a job after the dot-com bust had put a damper on hiring in San Francisco. His wife had done some work in China, so in 2001 they made the move to Beijing. Because his wife held a stable job, Dong could afford to “put in a little bit of investment” in building connections. He wrote a cooking column for a monthly magazine and cofounded a wine and cheese tasting club in Beijing. Then in December, he got his break: the American-owned importer ASC Fine Wines hired Dong as North America brand manager in its Shanghai office. “In the end everything came together,” he says, “I got a job that pays pretty well, and it’s in an industry that’s consistent with what I know. All the stars seem to be in alignment right now,” says Dong.
Xuer Khawa Dang, 33, had good luck as well. A U.S. citizen, she moved to Beijing in 2003 because China had grabbed her attention when she joined a women’s talent show in Chengdu in 2001. She worked for several Chinese and joint-venture companies, then decided to run her own business to capitalize on her familiarity with both China and the United States. Dang realized that she could profit from her passion for swimming. She had been informally buying waterproof strap-on MP3 players for friends in Beijing, so last year it hit her to ask the gear maker, California swimwear company Finis Inc., for China distribution rights. She now earns a living from MP3 player sales and tutoring four children in English. “After living in Beijing for two and a half years, I have to admit that I’m very content with the current lifestyle I have,” Dang says.
First jobs often include editing for Chinese state media or a public-relations firm, processing visa applications at an embassy or doing freelance work for local magazines. Garage musicians may get a few yuan for mentoring a Chinese rock band. Other expats live in bars and out of backpacks on noncareer incomes plus savings from home. Most study Chinese in their down time. The classic starter job is teaching English, sometimes at top universities (for some 4,000 yuan per month, or about $500) but often on hourly wages at private schools that want white faces more than educators. Brian Gottlieb, 29, who moved to China in 2001 because he’d been inspired by a Chinese couple who stayed with his family in Washington, D.C., picked up whatever jobs he could find on the side, writing for local publications or copy-editing English-language documents for Chinese enterprises. After working for several traditionally autocratic Chinese companies, he took an internship with the American consultancy APCO, which led to a full-time job.
Western companies favor long-term expatriates over local Chinese for jobs that call for bilingual skills skewed toward English, cross-cultural communication ability and problem-solving instincts, said Teresa Woodland, founder of the Wudelan Partners consulting firm and a member of the board of governors of the American Chamber of Commerce in the People's Republic of China. She said local Chinese do not only always know how to talk with Western clients or have a “solution” mentality toward client queries. But Chinese hires are still cheaper. “The reason you’d want a foreigner is because they bring something different,” she said. Expat hires have increased with growth of overseas firms in China’s communication-intensive service sector, especially public relations, travel, moving and consulting, Woodland added. Ten percent of New York-based Ogilvy Public Relations Worldwide’s 120 Beijing employees are expatriates. Ogilvy hires foreigners who have found their own way to China, learned Chinese and want entry-level positions largely “because they want to be here,” said Scott Kronick, president of Ogilvy Public Relations China. The company still brings people into China for special expertise—the leader of its investor-relations team was brought in from the United States—but does not automatically pay them more than local-hire expatriates, he said.
The good times for expat drifters may not last forever. Chinese citizens returning from college educations overseas now have the English fluency, technical skills and low salary requirements required to fill jobs previously held by higher-paid expatriates. As with the dot-com phenom that propelled many expats here in the first place, the boom could end with a bust. For the time being, however, China is a good place to be an expat drifter.
© 2006 Newsweek, Inc.
Suppliers must move soon in China
April 26th, 2006April 4, 2006
BY JUSTIN HYDE
U.S. auto-parts makers struggling to survive in an industry clogged with bankrupt companies can find a foothold in the future in China -- but only if they act now.
That's the message several experts and supplier executives brought to suppliers Monday on the opening day of the Society of Automotive Engineers 2006 World Congress at Cobo Hall in Detroit.
Suppliers and automakers have been making multibillion-dollar moves into China, lured by the possibility of cutting their costs as much as 50%.
They also hope to snag a piece of the booming Chinese economy, which is on track to pass Japan as the world's second-largest market for new cars and trucks by the end of the decade.
"It's a market you ignore at your own peril," said Mustafa Mohatarem, General Motors' chief economist.
Jack Perkowski, CEO of ASIMCO International Technologies, a Beijing-based auto-parts maker, said it was not too late for suppliers to jump into China, but the door is closing as Chinese suppliers increase their own abilities.
"If you're not there by 2010, you're too late," Perkowski said. "The center of gravity for technological innovation is going to move to China. It's going to be the fastest-growing market in the world."
Last year, automakers in China built 6 million vehicles, a 20% increase. For the first time, China exported more cars and trucks than it imported.
Automakers have pushed suppliers to lower costs by building in China, and exports of Chinese-made parts to the United States have been rising at roughly 30% a year, heading toward $12.8 billion in 2007 according to PRTM Management Consultants.
Yet according to a survey of suppliers by the firm, most companies find it far more expensive to do business in China than they had planned. One big reason: Counterfeiting runs rampant in China for many goods including auto parts.
Andreas Mai, a consultant at PRTM, said companies should take several steps to protect their goods from copying, ranging from spreading contracts among several suppliers to keeping their key innovations out of the country entirely.
Mai estimated that auto-parts companies building in China need to save at least 20% in costs to make up for the higher overhead of shipping, quality control and guarding their intellectual property.
With Delphi Corp. and other large U.S. auto parts makers in bankruptcy, some attendees asked what kind of future the U.S. industry could have when faced with such stiff competition.
"There will still be a very vibrant, active industry here ... it will just look different," Perkowski said, citing automakers' need for parts close to assembly plants. "Every one of the businesses here will have some sort of China strategy."
Tips for doing business in China
Some advice from experts for auto suppliers who want to set up shop in China:
Have a presence in China -- workers who can make decisions about the business. Trying to manage by remote control often leads to problems.
It takes a critical mass of business -- $10 million -- to generate real savings and an understanding of the country.
Avoid handing out unnecessary information that could be used to copy your products, and break up work among several suppliers.
Beware of logistical problems, such as bottlenecks at ports.
¡°China Rocks!¡± says Boeing¡¯s chief executive
April 26th, 2006Apr. 21, 2006 (China Knowledge) ¨C ¡°China Rocks!¡± said Boeing Commercial Airplanes Chief Executive Alan Mulally as he closed the proceedings of Chinese President Hu Jintao¡¯s speech at Boeing¡¯s Everett plant.
While Hu displayed goodwill of friendship and healthy working relation at Microsoft, the usually reserved president showed the affectionate side of him that amazed both Americans and his people at home.
Not only did Hu, in a celebrity-like gesture, put on a Boeing cap offered by one of Boeing¡¯s veteran staff Paul Dernier, he also gave the latter two hugs and several pats on the back as a sign of camaraderie and appreciation.
This came after a well-received speech from Hu. Commenting on Boeing¡¯s relations with China, Hu said, ¡°Boeing's cooperation with China is a living example of the mutually beneficial cooperation and win-win outcome that China and the United States have achieved from trade with each other."
"This clearly points to a bright tomorrow for future cooperation between Boeing and China," Hu added.
Although several other Boeing workers remain apprehensive about this ¡°bright tomorrow¡± which might threaten their employment as China rises in economic terms, Dernier, who received Hu¡¯s public display of affection said the close ties between Boeing and China ¡±helps keep our factory open¡±, according to Seattle Post-Intelligencer.
In his speech, Hu shared a way by which China can help to keep their factory open: ¡°I hope the American companies will seize opportunities, aggressively expand their share of China's market and continue to enhance their business ties with China."
Labor in China
April 19th, 2006According to recent front-page articles in the New York Times and the Financial Times Asia edition, wages have been steadily rising during the last several years throughout southern China, where the world's largest manufacturing base is located. Citing "double-digit" increases in Chinese labor costs, executives of the Li & Fung group, a $7 billion Hong Kong-based trade-sourcing company, told the Financial Times last month that the competitiveness of China's sprawling manufacturing industries seriously eroded last year. William Fung even went so far as to declare that China "is no longer the most cost-effective country in the region," an assertion that has been seriously challenged.
China's rising costs have generated recent price increases averaging 2 percent to 3 percent for its goods, Mr. Fung reported. Though relatively small in absolute terms, these price increases nonetheless represent a major reversal of a long-term trend marked by "severe deflation." That deflation, which reflects falling prices, was especially evident in many consumer durable goods, which are products expected to last three years or longer, such as furniture, household appliances and most electronic goods, all of which China produces in abundance.
The Commerce Department's price index for all consumer durable goods, for example, has declined by nearly 20 percent since 1995, while the price index for furniture and household equipment plunged more than 40 percent over the same period. The prices for clothing and shoes, nondurable goods in which China specializes, fell 14 percent over the last 10 years. U.S. consumers derived extraordinary purchasing-power benefits from these falling prices, whose anti-inflationary impact has had the added benefit of helping to keep long-term interest rates, including mortgage rates, well below historical levels for years.
The New York Times article attributed China's rapidly accelerating wages to "persistent labor shortages," noting that the rising wages were "swelling the ranks of the country's middle class." U.S. workers should view this as a welcome development because American exports become far more affordable to Chinese workers whose living standards are rising. However, while the recent upward trend in Chinese wages is indisputable, there is good reason to believe that the trend will not have the long-term impact that experts cited by the New York Times seem to believe. Specifically, it is highly unlikely that rising wages are causing the Chinese economy to undergo "a profound change that will ripple through the global market for manufactured goods."
Applying "the math of small numbers" to China's changing wage structure, Stephen Roach of Morgan Stanley recently explained why China and its 1.3 billion people are unlikely to lose their comparative advantage in the manufacture of goods. "Rapid wage inflation off a very low base does little to close the gap with higher-wage economies on a moderate inflation trajectory," Mr. Roach convincingly argued. Back-of-the-envelope calculations illustrate Mr. Roach's point. The New York Times reports that the wages paid by multinational corporations in their largest Chinese factories typically average between $100 and $200 a month. (Minimum wages are less than $80 per month.) Given that Chinese manufacturing employees customarily work 10 hours per day six days a week, the upper limit ($200 per month) of wages paid by multinationals translates into 77 cents an hour. By contrast, U.S. workers in goods-producing industries earn an average wage of $17.72 per hour. Now, assume the 77-cent wage increases by 20 percent for each of the next five years. (The 20 percent annual increase would represent a significant acceleration over the 12-percent annual average that has prevailed since 1999.) Next, assume that the average U.S. goods-producing wage increases over the next five years by the Blue Chip consensus inflation forecast of 2.5 percent per year. Five years from now, China's top wage would be $1.92 an hour, having increased by $1.15. America's average goods-producing wage would be $20.05 per hour, having increased by $2.33, an absolute rise that is more than twice the absolute increase in the Chinese wage. The U.S.-Chinese wage difference would increase from $16.95 today ($17.72 less 77 cents) to $18.13 five years from now.
Responding to the New York Times assertion that China's rising manufacturing wages are "threatening at some point to weaken China's competitiveness on world markets," Morgan Stanley's Mr. Roach notes that "[p]roductivity growth in China's industrial sector -- manufacturing, mining and construction -- surged at an average annual rate of nearly 20 percent over the 2000 to 2004 interval," which was "well in excess of the cost pressures implied by 12 percent gains in hourly compensation." Thus, unit labor costs probably declined over the past five years. At worst, they were very well contained. Mr. Roach finds the "labor shortage in China" argument to be "equally preposterous." He cites the 60 million workers that have been furloughed by China's state-sponsored enterprises since 1997. And he points to the fact that China's rural population totals nearly 750 million, "by far the largest pool of surplus labor in the world."
So, it is good news that China's growing middle class is experiencing sizable relative income gains, a trend (if it continues) that will make U.S. goods more affordable to the average worker in China. It is also good news that the combination of soaring Chinese productivity and the continuing large absolute difference between Chinese wages and developed-country wages is likely to keep low-priced, purchasing-power-enhancing Chinese products within easy reach of consumers everywhere.
Recruiting, developing, and retaining staff in China
April 7th, 2006As multinational corporations compete for a share of China’s burgeoning economy, they face various human resource issues, including how to recruit, develop and retain local staff. Paula Santonocito reports on these challenges.
When Google recently hired Kai-Fu Lee from Microsoft to head up its China operations, the story of a giant corporation vying for rights to an employee based on a non-compete agreement made headlines. Corporations will no doubt focus on the outcome of the legal wrangling, but the story raises another issue as well.
"When a company hires a new president, China and its bigger rival launches a US lawsuit citing 'predatory hiring,' then you know that China is hot," says Mike Goldstone, founder and managing partner of Goldstone & Co., a Hong Kong-based firm specialising in executive search, board advisory, and human resource advisory.
In sharing his perceptions with Expatica, Goldstone points to what may be lesser known facts: Lee is not even a Mainland Chinese (he is Taiwanese), he is US-educated, and he has spent most of his career in the United States.
According to Goldstone, who has 12 years' experience hiring heads of China for Western multinationals, Lee’s background illustrates that the profile of a high-level executive, even one in demand, isn't necessarily obvious.
The competition for Lee also raises the question: Why is hiring senior executives in China so difficult?
Skills gap
With a population of 1.3 billion, it seems China would have an abundance of in-country talent. But Goldstone indicates this isn't the case.
"China suffers from a 'demographic Black Hole'," he tells Expatica. "Because of the closure of the Chinese universities during the Cultural Revolution, China did not produce any academically trained graduates between 1982 and 1996, and then only in small numbers for several years. So even today, statistically speaking, there are very few Mainland Chinese university graduates with more than 15 years work experience and almost none with more than 20."
Goldstone cites how 20 years from now this shouldn't be as problematic because Chinese universities have been pumping out large numbers of talented, self-motivated people.
But there is another factor, one that may not be so easily resolved.
"The Chinese economy is growing at such a rate that Mainland Chinese executives need to be able to manage an operation somewhere between 10 to 30 percent bigger and more complex every year just to stay on top of their existing jobs," Goldstone says.
These demands take a toll. "There is a lot of road-kill caused by this steamroller economy: executives, both local and foreign, who just can't raise their game quickly enough," Goldstone explains.
Communication and culture
Growth has also created another area of concern for executives struggling to keep up in China: demands of the corporation’s home country.
Goldstone points out that the China operations of many foreign companies have become large enough and strategic enough so that they now report directly to corporate headquarters, or at least have more direct communication with headquarters.
"This puts an added strain on Mainland Chinese executives to bridge the communication and culture gap, most of whom have no overseas experience and who lack the cultural understanding to manage, say, a boss in Seattle effectively," Goldstone says.
Choosing leaders
It's Goldstone's observation that in lieu of hiring local Mainland Chinese executives to oversee operations in China, a lot of US companies are hiring Mainland Chinese returnees. "The benefits are that many returnees have been in the U.S. long enough to understand the workings of typical US corporate culture and how to work it. The downsides are that many have been out of China too long to have effective informal networks or to understand modern day buying behaviours, employee motivators, etc.," he says.
Local staff are often sceptical about returnee leaders, Goldstone tells Expatica, noting there can also be resentment for the higher compensation returnees typically receive.
When seeking leadership, companies sometimes look within the organisation, turning to emerging market expatriates. The can-do attitude of trusted, results-oriented executives made them leaders of choice in the early to mid 1990s, Goldstone explains, indicating there is still a place for these individuals. However, attitude isn't everything. "In my view, an executive running China can't really be more than 30 percent effective unless they can at least speak Mandarin, and preferably read and write it as well," he says.
The fourth, and perhaps most desirable option, is hiring ethnic Chinese executives who originate from Hong Kong, Taiwan or Southeast Asia. Goldstone tells Expatica it's an approach that foreign companies have taken for the last 10 to 15 years. In general, these leaders have necessary advantages—including local language capability, familiarity with both local and Western cultures, an understanding of how to get the job done, and a global view. However, there simply aren’t enough leaders to meet demand. In fact, Goldstone indicates that informed observers generally cite the finite supply of these executives as the key constraint on China's ability to continue to increase manufacturing market share.
Managerial challenges
Going forward, Goldstone says there will be challenges for executives overseeing operations in China, regardless of their country of origin. "Without doubt, the biggest challenges are faced by those companies which are trying to build a large market within China rather than just to use a China as low-cost production base," he tells Expatica.
This is due in part to managerial challenges related to culture. Goldstone gives the area of sales as an example.
"Basically, Mainland Chinese like to buy on their own terms from their own country people. Companies that I have worked with find out very fast that the only effective sales force in China is a 100 percent local sales force—but the problem then becomes how to manage that sales force to corporate headquarters standards. That’s where the talent is required," he explains.
The situation is further compounded by the fact that sales people are in demand, and they're aware of their market value. Retention, therefore, becomes a key issue.
Coaching and developing local staff
One tool for retention is staff development. Kevin Ng, a partner with Deloitte in Tianjin, tells Expatica that even though executives overseeing operations in China may not have time, it’s important to coach the local staff.
Recruiting in China isn’t an issue for the global consulting and financial advisory firm, but retention is. After one or two years, employees in China tend to leave Deloitte for further study or to work for a competitor, Ng says.
The market keeps growing and there is a lot of temptation for employees, Ng explains, indicating that nowadays job hopping can lead to a paycheque increase of 50 percent.
"Companies need to know how to recruit and develop Chinese workers—and how to retain them," he says. Ng recommends that companies provide training, show concern for employees, and arrange for overseas assignments to increase international exposure and perspective.
Goldstone concurs with Ng that retention tools are paramount. He says China really is the land of opportunity for the current generation of university graduates aged 21 to 45. However, Goldstone notes that people are willing to stay put if they feel their current employer is actively investing in developing their skills and offering them the opportunity to test their newly developed skills in positions of increased responsibility.
"From a headhunter's point of view, the worst challenge in China is trying to hire talented mid-level general managers or functional people to new enterprises from well-respected multinationals which manage their HR well. In such cases, candidates tend to adopt a 'three strikes and you're out' approach with their current employer before they will accept even a patently better career step with another employer. That’s retention in any country," he says.
Going forward
As companies evaluate operations in China, human resource issues are getting closer scrutiny. Indeed, in the first of a series of webcasts focused on China, US-based manufacturing magazine IndustryWeek cites human capital as the single most important factor in achieving growth in China.
The web presentation, hosted by John Brandt, CEO of the Manufacturing Performance Institute and columnist for IndustryWeek, highlights the importance of hiring well, and then training and cross-training well. Skills to train for include technical, teaming, financial, and creativity, Brandt says.
Training and development is also the focus of a new initiative by Manpower, a world leader in the employment services industry. The firm recently launched the first in a series of international public-private partnerships in China. From its office in Shanghai, Manpower will develop human resource strategies and infrastructure to support China’s rapidly growing labour requirements. Projects include quantifying future vocational skills and training required in Shanghai, the installation of Internet-based assessment systems in local employment offices, and the design and provision of training and development programs, among other efforts.
Manpower's initiative illustrates a growing awareness of the importance of managing human resources in China. But the firm’s latest move is also indicative of a larger trend: aggressive expansion in China. Although Manpower entered the Chinese market in 1964 with an office in Hong Kong, today the firm and its subsidiaries have a network of 38 offices in China, including 17 in Mainland China.
There is no question that China is the global hot spot. Nevertheless, experts caution that operational challenges in China are unlike those in other locations, and that expansion will not necessarily lead to greater market share, a fact some companies are already discovering.
The most successful organisations will be those that understand the challenges specific to China and adapt accordingly, experts tell Expatica. At the top of the list is how to effectively recruit, develop, and retain local employees in order to create a solid base from which to grow and prosper.
Asia Times: AmCham bullish on China
April 1st, 2006BEIJING - Intellectual property rights and power shortages are problems in both Shanghai and Beijing but the outlook for business in both cities remains overwhelmingly positive, says the "White Paper 2005 American Business in China" released September 1.
The white paper, the seventh annual report of its kind, was jointly prepared by the American Chamber of Commerce in China (AmCham) and the American Chamber of Commerce in Shanghai, and outlined the current state of business for a number of industries, ranging from manufacturing, trade and distribution to services. Released annually, the paper is the result of surveys and consultation among nearly 2000 member businesses of both chambers.
City-specific challenges for Beijing, Shanghai
It also points out a number of city-specific challenges faced by Beijing and Shanghai as they develop a more international business environment. Despite growing government attention, intellectual property rights protection remains a prominent problem in both cities. While progress has been made, AmCham says the lack of protection is forcing business to reconsider plans in both Shanghai and Beijing. A lack of enforcement by local governments was cited as a major issue.
Energy supply is also a concern. Both cities faced shortages this summer and had to "borrow" power from neighboring areas. The stop-gap measure kept both cities operating, but long-term solutions are needed, says AmCham.
Still, said James Green, AmCham Shanghai's director of government relations, the biggest challenge is human resources. "Finding, training and keeping management," Green said. "It's a hot, hot labor market and people are in high demand."
In Beijing, said AmCham, there has been progress in reducing red tape for businesses and transparency is better. There is, however, an acute lack of water and growing traffic woes that may hamper the city's ability to meet long-term goals. Air quality in the city is also a problem. The number of airborne particles rose last year and, the report points out, the Chinese Academy of Social Sciences ranked Beijing 14th among China's cities on that count.
Shanghai businesses tended to focus on the practical side of business and lifestyle. A stable supply of electricity was a concern alongside slow Internet connections, which make it difficult to do business online. One concern, which affects Beijing as well, is a lack of regulations for distribution companies: "... lack of progress on distribution rights is especially noteworthy in Shanghai."
As in Beijing, intellectual property rights are a concern but they may have a more direct impact in a city looking to attract high technology businesses to its 140 foreign-invested research and development centers. Many companies don't expand beyond a representative office "for fear of losing proprietary information and technology."
Other concerns for Shanghai businesses included daily-life issues. Health care was a top concern, as was traffic safety. Education for expatriates also posed a challenge: businesses said their employees had trouble finding spots in accredited foreign schools at reasonable fees. Ultimately, however, the outlook is positive, said AmCham Shanghai chairman Jeffrey Bernstein.
US firms upbeat
A huge majority of US businesses operating in China reported increases in annual revenues last year, according to the white paper. About 86% of respondents said they posted higher revenues in 2004 compared to the previous year; and 68% were "profitable" or "very profitable" last year.
The nationwide survey also showed that US companies had great confidence in China's business environment. "The vast majority of survey respondents, 93%, report that China's economic reforms have improved the climate for US businesses, and 92% said their five-year business outlook in China is 'optimistic' or 'cautiously optimistic'," the white paper said.
At the same time, US businesses are facing increasing competition from both local companies and foreign rivals. Profitability in 2004 was slightly lower that in the previous two years, indicating more challenges. "We attribute the leveling margin to both improved markets elsewhere and to US firms' financial performance in China more closely tracking their global performance as China revenues grow," the white paper said.
It explained that factors such as price pressure from major customers, as well as changes in market and commodity prices, and salaries, are driving down margins. But the white paper added this was minor compared to the continuity of higher profitability since China joined the World Trade Organization. Despite increasing challenges, most US companies said they would increase business activities in China.
Emory Williams, chairman of AmCham China, said the annual white paper made suggestions not only to the Chinese government but also to the US administration. For example, he said, the US government should relax restrictions on issuing visas to Chinese. According to the chamber's survey, visas issued to Chinese nationals were up 23% compared to the previous year, but still lower that the level before September 11, 2001.
Behind The Chinese Networking (GuanXi) Buzz
March 29th, 2006By Michael Connolly
Shanghai is abuzz with the murmur of networking. Every week in Shanghai, countless events are held for ambitious fortune seekers relentlessly practicing the art of handshaking, exchanging mingpian, and of course, building guanxi or "relationships." Many residents in Shanghai will testify that attending networking mixers is a great way to expand contacts, establish face-to-face exposure, and in general, meet some interesting people.
Social networking gatherings are still primarily a Western concept. In China one builds guanxi through introductions by family and friends, or by doing favors. The idea of holding public meetings for the purpose of making new connections and expanding relationships is still relatively new in China, but in today's dynamic business climate it has become essential to have a multitude of connections, while still managing them effectively.
Networking is nothing new, of course. Every salesperson knows that they need to develop a base of contacts, and every businessman in China understands that he needs guanxi. In China, everything of consequence gets done through a person's guanxi. The difference between Western-style social networking and Chinese-style guanxi has to do with the specific rules governing interaction in the social network. At some point, for a Western businessperson trying to reach a local Chinese business prospect, a cultural threshold must be crossed. Western business rules that dictate how to do things must eventually yield to the mysterious rule of Chinese guanxi. Still, the "Six Degrees" concept applies. The person seeking contact probably knows someone, who knows someone, who knows someone (and so on), who knows the prospect. This is a core concept in both Chinese guanxi-building, as well as in the Six Degees of Separation (or Small World) Theory.
Science is proving what we already know
In his seminal work, American sociologist Stanley Milgram advanced and empirically tested the theory of "six degrees of separation," which states that any randomly selected pair of perfect strangers could be associated through no more than six common acquaintances. In one of his tests, Milgram successfully built associations between test participants in two different cities and two other participants living in Boston. The procedure was done by asking the first participants to mail a brochure to the Bostonians, using no more information than a common set of acquaintances. Columbia University began to test the six degrees of separation theory in 2002 on the Internet. Initial findings suggest that the "will" to communication outweighs the "means" of communication.
The Steps to Developing Good Guanxi
So what does one do with the pile of business cards collected at these networking events? First, it is important to realize that each connection can have hidden value, so it is prudent to look at more than the immediate needs and instead to treat each contact as potentially valuable in your personal six degrees network. While the person may not look, at first impression, like a particularly appropriate business contact, the act of just following up might make enough of an impression to open the door to further opportunities. Collecting business cards and shaking hands is only the first step. At some point, each connection has to develop some level of substance.
The next step is to simply follow up. If a person is serious about strengthening connections from the first handshake and business card introduction, then they have to be organized in a systematic way. Making the new contact a part of one's social network is next. The savviest network builders may automate the tracking and maintenance of his/her addresses through an online tool, but such thoroughness requires the discipline to get the information from the collected business card into the software.
Is Guanxi about Quantity or Quality?
A management consultant and author, Patricia Durovy, has stated that success in business is directly related to the QUANTITY of communication that is sent out. Once a connection is made, each person needs to manage communications with the people in his or her network so that connections become stronger and continue to develop. It may require a bit more work, but with the technology tools available, having a good six degrees network is not difficult and will pay for the effort by making it easier to get things done.
Toyota in China: Full Speed Ahead
March 29th, 2006Toyota (TM) might be closing in on General Motors (NYSE: GM - news) (GM) as the world's largest carmaker, but in China the Japanese company has
plenty of catching up to do. Despite exporting cars to the mainland since the 1960s, Toyota's market share is just 3.5% in China, compared to 13% in the U.S. and more than 40% at home in Japan. Market leader GM sold more than 650,000 vehicles in China last year, while second-placed Volkswagen (Xetra: 766400 - news) , with sales of over 500,000, is also way ahead of Toyota's 179,000 units in 2005.
But don't expect Toyota to be lagging behind the pack for too long. Just as the auto maker has grown rapidly in the U.S. over the last decade, it's now gearing up for rapid expansion in China. In December, Toyota President Katsuaki Watanabe outlined plans to ramp up sales 60% during 2006, to 290,000. And ominously for rivals, by 2010, the company aims to triple its current share in China to 10% of the fast-growing market [see BW Online, 12/21/05, "Toyota: King of the Car World in '06?"].
To meet those stiff targets, Toyota is unleashing a host of new vehicles on the mainland. What's more, it's showing it isn't afraid to build its newest models in China through partnerships with First Auto Works and Guangzhou Auto. On Dec. 15, Toyota and FAW held a ceremony to herald local production of the Prius, which sells for about $36,000 and will be China's first hybrid.
CUTTHROAT COMPETITION.
Leading Toyota's rapid expansion in China is Yoshimi Inaba, who splits his time equally between Tokyo, Toyota City, and China. Inaba had only ever been to China once when he accepted the post last June, but brings immense know-how accumulated during various management roles at Toyota, including two spells in the 1990s at Toyota Motor Sales in the U.S., becoming president in 1999.
Inaba will need to draw on all his experience to make Toyota tick in China. Cutthroat competition has triggered a 28% fall since 2000 in the price for a compact on the mainland, and profit margins are falling. Most Chinese car buyers, meanwhile, might be new to car buying, but there are no easy sales [see BW Online, 3/9/06, "A Billion Tough Sells"].
On Mar. 7 in Toyko, Inaba addressed Toyota's China plans with BusinessWeek Tokyo correspondent Ian Rowley. Edited excerpts of their conversation follow:
Toyota plans to grow 60% in China this year. That sounds pretty aggressive. Is it?
At this stage of the development, percentage increases don't have so much meaning. We're starting up a new factory in Guangzhou with a different partner [Guangzhou Automotive]. A whole new factory will be added, hopefully increasing sales by about 50,000 to 60,000 units this year.
What's the impact of working with two partners?
With two partners -- the other is First Auto Works -- we have to have a totally separate sales networks. That's two different channels and two different franchises under the name Toyota. Our guys are working to set up a whole new sales network, and have already appointed 100 dealers [for the GA channel]. For FAW, we already have about 220 dealers in operation already. On top of that, we have Lexus, which is 100% our own operation.
How different is selling cars in China compared with other countries?
The first thing I looked at [when I took charge of China] was the pay scheme at the dealerships. This is very similar to the United States. It's predominantly commission-based sales, while the fixed salary is very small. That is very different from Japan or even Europe, and dictates the whole dealer network. We can apply many of the things we did in the U.S. to China.
The other thing is that the dealers are much younger and are mainly in the 30s and 40s. Some of the new powerful entrepreneurs in automobile retail are quite young, impressive, and have pretty much the same mentality as U.S. dealers. The whole strategy -- how to set up a network in China -- can be learned from our experience in the U.S. The dynamics of retail are quite similar. Japan is very different.
But is it difficult to find good people?
Actually, it's not. There are always 10 to 20 applications, and many of those are from multifranchise retailers already operating. Many of them started as brokers, importing and distributing. Others started as used-car traders.
What about Chinese consumers? How do they compare with other markets?
Many of them, 85% I'd estimate, are new, first-time buyers, whether they're young or old. That's quite different and probably the biggest difference I can see between China and other countries. The other thing is the element of status or expression or lifestyle shown in the cars people buy. You get that everywhere, but the sense of pride or showing off is still very, very strong in China. There's an element of emotion in China that's stronger than in other countries.
Will this continue?
I think so. But the Chinese market is changing so fast. Price will become increasingly important. My theory is that you still have to have a good emotional reason to buy a cheaper car or even an inexpensive car. It's always a question of the affordability vs. the emotions.
What about Toyota's brand image?
Well, we've been exporting to China -- officially or unofficially -- since the 1960s and, to my surprise, the Toyota brand is recognized. We should be very careful not to damage that image.
Is it strong relative to other Western auto makers?
Yes, and among Japanese auto makers as well. In China, Toyota is a very well-known brand.
Given that most buyers in China are first-time buyers, do you market differently?
I would not say that there's a very big difference in terms of our approach to customers. But one thing is that China is a very young market relative to the U.S. or Japan, so you have to tune your marketing approach to a younger generation of people. We also try to promote more customer test-driving experiences -- it's more about personal experiences rather than just image.
Is anti-Japanese hostility in China a problem?
We're very conscious of this, but it's not actually [a big problem] on the retail scene. As long as you offer good products, Chinese [will buy] Japanese products. The only area where we might [suffer] a little bit is when it comes to city government or state government purchases. They'd rather choose other brands than Japanese, but that's a very minor part of our business. Nevertheless, we're very careful about what we say and how we say it in terms of PR and advertising. We have to be 100% sure we don't stimulate any anti-Japanese sentiment.
How about the luxury sector? Can the Lexus do well in China?
There's tremendous potential for the Lexus. The rich [in China] are very rich and often younger guys. There's a lot of room for us to grow in the luxury segment. China is the only country where we're offering a product lineup as big as in the United States. We're offering everything that's available.
But is Lexus brand recognition a problem?
Recognition with the wider public is very low, but our targets are the [kind of] people who travel to the United States, and their recognition level is already quite high. [It's] not to the same extent as Mercedes and BMW (Xetra: 519000 - news) , but I think Chinese are now really looking at the U.S. quite a bit, so knowledge of the Lexus is quite common.
Are you still targeting 1 million cars by 2010?
That is a very visionary target, based on the assumption that the market would reach 10 million and that Toyota would take a 10% share. One million is something we can aim for, but maybe the 10 million figure was too aggressive. China has healthy growth -- 10%-plus growth for the total market. But [10% growth won't be enough for] 10 million by 2010. [It will] probably be 8 million or so.
Also, in China, about 50% of the market is very cheap, old-fashioned vehicles. There's no way we can compete there, so really we'd need to get 20% [to achieve our aim]. Whether we can do that in a short time, I doubt it. But it is still a good vision.
How will the Chinese market develop?
There will be changes in the fundamental structure of the market. The Chinese government will reshape their tax scheme, and that will change the demand structure quite a bit. The trend is going towards smaller, fuel-efficient cars. No segment will shrink, but there is potential for a fast-growing small-car segment.
At the same time, I think the Chinese government will institute emissions and safety controls, and many of the old-fashioned [car producers] will have to upgrade their technology, and prices will go up. Today, the best-selling category of cars in China is [priced] around $6,000 to $8,000. We will have to come down [in price], and they will have to come up. But there will be a shift in mix towards the lower end, that's for sure.
Who will be the biggest rivals for Toyota in China? Will it be local players?
China is a sizeable auto market, so it can have several local players. It seems to me that the pure, privately [funded manufacturers] like Geely or Chery are the ones to watch, and Hyundai [of Korea]. [The challenge] will be both international and local.
Are you concerned about profitability in China?
One thing in China is that there are no price increases for the near future -- it's always downwards. Everyone looks at China as a growing market, so they prepare more capacity. That means there's always some overcapacity somewhere and pressure on prices. China used to be a very profitable market for everybody, but now it's becoming like any other market.
But you're confident Toyota can succeed in China?
We're a minor player in the China market, with a 3.5% share, but we're one of the few manufacturers where demand exceeds supply. Even though we see big potential for growth, we will make sure we're not in a position of overcapacity. That will be a very key element. And as long as you retain the quality, treat dealers as partners, and avoid oversupply, the results will come. The race for the Chinese market is just around the first corner.
The Venture Investor's Guide to China
March 29th, 2006Seven steps to succeed in the world's largest market
The flow of venture capital into China is on the rise. Despite challenges and regulatory uncertainty, venture capital and private equity firms are finding opportunities, according to the latest report by Deloitte Research, "Seven Disciplines for Venturing In China." With this initial investment come some early lessons on to proceed and profit in this growing economy.
"Venture capital and private equity firms are transforming Chinese enterprises by helping them to tap into innovative practices, global, commercial, and capital markets," says Ajit Kambil, firm director in Deloitte Services. "In addition to creating companies with modern corporate practices and high value jobs, venture capital and private equity also create a new guanxi by connecting the world economy to opportunities for growth in China. But unlike investing in developed markets, investing in China is substantially different in all aspects of the deal, from sourcing to management through exit."
Seven strategies for success:
* Develop guanxi of social capital networks to access information and to establish and maintain business relationships. Guanxi is a highly personalized Chinese system of social capital enabling mutual, preferential favors based upon trust or mutual benefit. It is a widespread practice.
* Implement corporate governance and shareholder rights initiatives. One key role of the investor may be to educate the Chinese entrepreneur on the differences in opportunities with each form of capital, governance requirements, and the rights of shareholders.
* Manage intellectual property. Protecting intellectual property can involve a change of thinking for some Chinese entrepreneurs. Culturally, copying is not always a crime, but sometimes is homage to past masters.
* Adapt foreign business models to local Chinese contexts. For example, many Chinese do not have credit cards or if they do, prefer not to use them in online commerce. To adapt, some companies allow Chinese customers to buy online, but pay over the phone or by cash on delivery.
* Understand the value added. More than just financial investments, a venture investor can add value in other ways, including screening and recruiting management team members and installing and maintaining financial controls.
* Establish a clear exit pathway. Look to innovative legal and financial constructs that are a mix of Chinese and Western practices.
* Create opportunity from regulations. The political and regulatory climate in China is constantly changing. Instead of viewing this as a barrier, look for ways to leverage regulatory hurdles. Licensing requirements, for example, can create barriers to entry for competitors.
Automotive Competition: Is China the Next Japan? (GM, F, TM, HMC)
March 29th, 2006By Evelyn Rubin on Douglas McIntyre
Douglas McIntyre submits: Chinese automotive manufacturers Geely (in photo) and Chery have begun to show their cars at the auto shows and are starting to make the rounds of U.S. dealers. According to MSNBC, Malcolm Bricklin, who helped Subaru and Yugo get footholds in America, is working with Chery to line up retail outlets.
No one seems worried. Maybe the American automotive industry should not be. Maybe the Chinese automotive threat is still too far off.
The Chinese automotive industry is growing at an astonishing pace. According to the People’s Daily, in February, China produced over 528,000 cars and sold 480,000. The Chinese Ministry of Commerce says both figures are increases of more than 50% over the same period a year earlier.
Granted, General Motors Corp. (NYSE: GM), Ford Motor (NYSE: F), Toyota Motor Corp. (NYSE: TM), Honda Motor Co. Ltd. (NYSE: HMC) and others are doing well in China along side the local manufacturers. And, they should. In the U.S. there are more cars that households. In China, there is still only about one vehicle for every 100 households.
The demand for cars and light trucks in China over the next decade will drive down production costs and raise unit sales in a way the industry has not seen since the early part of the 20th Century in the U.S.
It would be foolish to think that the Chinese will not be aggressive exporters as their manufacturing cost efficiencies rise with unit sales.
It’s a good bet that U.S. consumers will be driving Chinese-made cars in the next two or three years. The question is, will these new models go the way of the Yugo, or will they take share the way Subaru and others have?
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He has also been president of Switchboard.com, which was at the time the 10th most visited site on the web, according to MediaMetrix. He has also been on the boards of TheStreet.com and Edgar Online.
how returned overseas chinese viewed by locals?
March 25th, 2006Post from blog.bcchinese.net
received a mail:
I'm a chinese girl who was born and raised in *** (an european country). I'm coming this *** to work in Shanghai, and I'd like to know how chinese people consider people like me, I mean huoqiao ren. Are we considered as strangers, even if we look like asian, and talk chinese ?
returned overseas chinese are still regarded as "chinese" and therefore a "zi ji ren" (people of our side), no matter what passport they hold. however there are some changes in recent years. overseas chinese are no longer seen to hold those advantages over the local chinese in fields such as language, skills or working experiences, in fact, the trend is that many executive search firms favor local talents over those returned from overseas because of their extensive experiences and knowledge of china.
interestingly, the chances are greater that local chinese got frustracted in socializing with overseas chinese than with foreigners. i don't understand why. but in general, returned overseas chinese can fit into shanghai quite well, and they are viewed as a member of shanghai and chinese community.
good luck to you!
http://blog.bcchinese.net/bingfeng/archive/2005/08/16/32031.aspx
Talent Shortage in China v.s. Do You Feel?
March 4th, 2006I found this piece "Talent Shortage in China" on AESE web site and compare to the blog "Which Countries Feel the Pain of a Talent Shortage" I read yesterday on Teleo.
The AESE article pointed out that shortage in China was real and a serious issue. But the survey on Taleo told me that not many hiring manager were aware this (only about 20% surveyed admitted shortage).
"There is a management gap that will take 10 years to fill," said Paul Reilly, the chairman and chief executive of executive recruiter Korn/Ferry International. "There is a huge shortage."
"China produces 10,000 MBAs a year, but the problem is experience," Reilly adds.
My experience tells me that there is really a shortage of talent at very top level, because not so serious at middle level. Top level talent may take more than 20 years to develop, while China's reform didn't start until late 80's. That explains the talent gap in China
Monster in China - where are the billion people?
March 1st, 2006I found today that chinahr.com officially added monster.com link to its front page. This maybe a very natural thing after chinahr.com's majority shares were aquired by Monster.com last year. I checked Monster.com homepage and found china and korea are added to the geo choices.
This move is still a very interesting thing to me:
1) It seems to me that both China and Korea monster sites are now established by acquiring local job board. Other Asian monster sites including HK, Singapore and India - all of them are English sites and bear same look and feel as rest of Monster sites. Language seems still a barriar even to the big player like Monster, so buying an establish local job sites seems much easier and cheaper than building them from scrach.
2) While the 2 new added sites (China and Korea) seems still using their own databases and can not directly link to the rest Monster databases worldwide. So I still have to buy seperate corporate accounts as an agent if I REALLY want to seach cross regions. I don't know how Monster gonna solve the problem.
e.g. If I purchase a HK monster account including region - 'China', but the problem is it does not include new Monster China'd databases. The HK (or all Englissh Monster) database only has candidates registering directly to English Monster sites. While you are thinking buying a potential billion names, you can instead only access a few thousands people in that region. Crazy to think - where are the billion people? :)
I was excited initially to assume that I can now consolidate my job board accounts, but it seems that I have to maintain both accounts for a while. Converting two databases with different structures is no easy thing if not impossible. I will see how Monster will come up with any better idea to consolidate them.
TZ