Recruiting in China

9/16/2006 - Having received the first license for a foreign-owned company to resume direct sales of cosmetic products in China, Avon added more than 33,000 new sales staff to its workforce there last month, according to data from the Chinese Ministry of Commerce.

The data, which was cited by Morgan Stanley in a note to investors, stated that the 33,339 new representatives were added to the work force in the month of August, bringing the total number of representatives to 188,273.
The figures indicates that the company is recruiting at an even faster rate than it had originally expected. Back in July the company said that its China sales force had reached 114,000 and that it was hoping to recruit a further 31,000 new employees.

Avon received the go ahead to resume door-to-door sales back in January of this year. The move followed the government lifting a total ban on direct sales implemented in 1998 in an attempt to quash pyramid schemes and other scams that were being offered on a door-to-door basis in the country.

Morgan Stanley reiterated in its note to investors that China remains Avon's brightest hope for future growth at the moment, with the recruitment drive likely to boost sales for the second half of the year and helping to buoy the company's overall results in the Asia Pacific market.

Although the general trend in the company's global sales has been positive, the Asia Pacific region has proved particularly disappointing for the company as a whole. With the exception of China, the company reported a poor performance in other countries in the region, contributing to a 10 per cent drop in sales during the second quarter of the year.

But where other Asian markets are showing slow retail sales, the China market remains robust. Currently China is seeing some of the largest industry growth in the world, with almost all cosmetic and toiletry categories reporting sales growth well into double figures - figures that are in line with GDP that continues to exceed 10 per cent.

This growth could prove the key to getting Avon out of a difficult situation. Restructuring charges have hit the company hard of late, forcing investors to shy away from its shares. Following the announcement of its second quarter results at the beginning of August, the Avon share price fell over $5 to reach $27.40 on August 8. Since then the share price has leveled off and finished trading at $29.54 this week.

But the downward trend in the company's share price reflects a general loss of confidence. The company's latest results showed that sales had gone up, but underlying growth was below analyst's expectations, due mainly to the heavy restructuring charges the company incurred.

During its second quarter net income dropped 54 per cent to reach $150.9m on the back $2.1bn in sales, up 5 per cent on the same period last year.

This figure was impacted by a $49m charge, as part of its massive $500m restructuring program, introduced in the last quarter of 2005. The scheme has seen profits tumble by 54 per cent but eventually could save the company $100m a year.

The restructuring costs have included organizational realignments and a reduction in the workforce, particularly in its middle management that has seen the elimination of more than 25 per cent of its management positions and lowered the number of management tiers from 15 to eight.

To date the company has now eliminated 10 per cent of its 43,000 worldwide workforce, however the expansion into China is helping to reverse that trend, emphasizing just how important the upturn in the China market is to the company.

Kai-Fu Lee and company now have new office space available to them in China. Meanwhile, Google has begun searching for more engineers in Japan to work on new mobile technologies.

The People's Daily Online celebrated 85 years of the Communist Party of China with a banner atop the announcement of Google's new office space in Beijing. Commentary from the news organization stated Google moved into their new quarters on September 4th, having temporarily been housed at Xinhua Insurance Mansion and Tsinghua Science Mansion.

The report described a picture of one workspace as "easy to mistake the office for a personal study." I don't know how many personal studies have dual widescreen computer monitors on the desks and sheathed swords on the walls, but that must be more commonplace in China.

Another set of photos of Google's China staff at work and play shows them making sculptures out of a magnetic construction set and rocking out to Dance Dance Revolution. If they get hungry, there are plenty of snacks available.

Meanwhile in Japan, Google's Omid Kordestani addressed a conference in Tokyo. Reuters reported that Kordestani wants to grow the company's international sales from 42 percent of revenue to more than half.

They will recruit engineers in Japan to help accomplish this. Google already has a deal in place that delivers its mobile search and advertising to cellphones, and they want more from the market according to Kordestani:

"We hope to be much bigger in Japan," Omid Kordestani, Google's senior vice president in charge of global sales, told a conference in Tokyo. "We want more innovation in this market."

"The mobile search and ad in Japan has been very successful," Kordestani said. "It was developed by our engineers in Japan, New York and other locations."

Kordestani also said that Google is seeking to develop new technologies for social network services (SNS.)

"Activities on SNS are bigger than any other activities on the Internet," the executive said. "We're looking to work more in this area."

By Brian Kelleher and Jack Reerink

BEIJING (Reuters) - Citigroup Inc. (C.N: Quote, Profile, Research), the world's most valuable bank, has applied to raise its Chinese securities investment quota as it seeks to strengthen its foothold in the mainland's developing capital markets.

Citigroup already has a Qualified Foreign Institutional Investor (QFII) quota of US$550 million to invest in Chinese stocks and bonds, and the bank is keen to raise that amount, China Chief Executive Richard Stanley told the Reuters China Century Summit in Beijing.

"The QFII business has been very successful. We have the second-largest quota right now, and we'd love to increase that," Stanley said, declining to give the application amount.

The New York-based financial services giant, which plans to add three China outlets in coming months for a total of 15 locations, also wants to play an active role in China's fledgling securities markets.

"I would look forward to the opportunity to participate in the domestic securities business," Stanley said when asked about the potential of setting up a securities joint venture, but he declined to go into further detail.

Goldman Sachs (GS.N: Quote, Profile, Research), Merrill Lynch (MER.N: Quote, Profile, Research) and UBS (UBSN.VX: Quote, Profile, Research) have struck partnerships in the mainland securities industry, but Beijing put a hold on granting any new licenses late last year.

Citigroup, which has a market value of US$244 billion, is part of a group including Credit Suisse (CSGN.VX: Quote, Profile, Research) and JPMorgan (JPM.N: Quote, Profile, Research) that does not want to be left out of the securities sector.

The bank, which will be allowed to sell local currency products to Chinese individuals when the market opens up under WTO obligations in December, has put high hopes on its retail banking operations, from mortgages and consumer loans to funds.

"All of this to a huge degree is dependent on the development of the capital markets," said Stanley, a New York native who has been in his current job since January 2005.

Indeed, as foreign banks prepare to target local consumers, their efforts are stymied by a lack of derivatives, corporate bonds and funds -- exactly the type of products people need to finance their retirement.

MASSIVE POTENTIAL

JPMorgan estimates that Chinese domestic stock listings will raise about $10 billion this year, which includes a simultaneous Hong Kong-Shanghai listing from Industrial & Commercial Bank of China (ICBC.UL: Quote, Profile, Research) that could be worth a total of $21 billion.

QFII and securities businesses will be parts of the broader China expansion strategy of Citigroup, which has more than 3,000 employees in the country and is hiring about 100 people a month.

Beijing began the QFII scheme about three years ago when it gave UBS the first quota. There are now more than 40 international banks and asset managers with quotas totaling more than $7 billion, which will eventually rise to $10 billion.

Stanley said that Citigroup is focused on growing its own business. But the bank is also leading a consortium bidding for a combined 80 percent stake in Guangdong Development Bank worth more than $3 billion, sources say.

It also has announced plans to increase its stake in Shanghai Pudong Development Bank (600000.SS: Quote, Profile, Research), its partner in a venture that has issued about 400,000 credit cards, to 19.9 percent from less than 5 percent.

Stanley declined to comment on both.

The bank, along with partners including top life insurer China Life Insurance Group (2628.HK: Quote, Profile, Research) (LFC.N: Quote, Profile, Research) and buyout firm Carlyle Group (CYL.UL: Quote, Profile, Research), is competing with France's Societe Generale (SOGN.PA: Quote, Profile, Research) for Guangdong Development Bank in a bidding that sources say may be resolved by the end of the month.

China is finalizing rules ahead of its WTO opening that may include requiring foreign banks to incorporate locally, pay higher taxes and put up an additional 1 billion yuan (US$126 million), proposals that have met with some controversy from overseas bankers.

But Stanley said Citigroup, which made only a small percentage of its $735 million in non-Japan Asian profits from China in the second quarter, has worked well with regulators.

"The process has been very open and consultative," he said.

(US$1=7.948 yuan)

Capital investment into deals totalled $480.1m in the second quarter of 2006, slightly more than double the amount invested in the same quarter of 2005 ($239.1m). Venture capital deal flow to companies headquartered in mainland China reached a high point with 54 deals occurring in Q2 2006, according to the inaugural China Quarterly Venture Capital Report released by Dow Jones VentureOne and Ernst & Young.

At the half-year point there were 85 deals and $757.9m invested in China, indicating investment in 2006 is likely to surpass the levels of both 2002 ($1.19bn invested in 145 deals) and 2004 ($630.4m invested in 103 deals).

Bob Partridge, China leader of Ernst & Young's Venture Capital Advisory Group, said, 'With China's emergence over the past several years as a source for new technology and services, investors from around the globe have taken notice and are demonstrating this by providing them with the economic support necessary to compete in the global marketplace.

'The increased early stage deal flow in China this quarter is also a sign that investors are ramping up investments in new enterprises. This substantial pipeline of companies lays the groundwork for continued investment in the region,' Partridge continued.

The increase in the second quarter was boosted by a significant level of activity and capital for first-round deals. As a percentage of the total activity, 54 per cent of the quarter's deals and 38 per cent of the quarter's capital went to first rounds. Second-round deals also rose substantially. However, despite the level of early stage investing, most of the venture capital-backed companies being financed in China are more mature, established businesses.

'We also are already seeing a broadening of the marketplace in China, with business services and other emerging segments now drawing investors' attention,' said Steve Harmston, director of global research for VentureOne. 'Information technology remains the beneficiary of the majority of investment activity in China, as it does in the US and Europe, but it is also interesting to see pockets of activity in business and consumer services, healthcare, and even in alternative energy occurring in China.'

Jake at Demo China has an important article on Google's market share in China with plenty of back-up links. Google continues to fall behind China's premiere search engine Baidu. Two research groups show about a 13% increase in Baidu search trsaffic and a 12.3% drop for Google searches in Beijing. The stats seem to be consistent with data mined in other parts of China.

The data does not surprise me as Google pays little attention to the unique needs of Chinese users. The sad part for Chinese users is: Baidu's top search results are pretty much bought and paid for by advertisers; so, the average netizen is not getting an honest cyber-portrait of the best site for his query. And expats and tourists to China are more likely (based on my personal un-scientific study involving 25 new visitors and 15 fossilized expats) to use Google to find services and businesses in their area. And they would get infinitely better results by using Google or Yahoo!: type in Embassy phone numbers China and none of the top 10 entries will get you to a consular officer. In contrast, Google gives you 7 official and unofficial sites that will help those in need of a bureaucrat.

And I think Baidu's numbers will mislead businesses that cater to foreigners. Advertising dollars that could bring them real traffic from customers with disposable income will likely be diverted to an ineffective Baidu. And Baidu is as expat friendly as Google is attractive to Chinese Nationals. Google spent a Googol last year on market research (100 times more than Baidu), but did it from the comfort of their California home. Baidu does not have to get off the couch as they have the confidence, whether worthy of it or not, of Chinese netizens and advertisers.

A funds manager in New York asked me last year asked me why I believed that Baidu would outdistance Google in China when it paid so little to understand the marketplace. I predicted that Google would flounder based on the ancient Chinese pronciple of Guanxi (literally: relationships, but far deeper in meaning) that so far, only Bill Gates has done a good job of understanding. According to Robert Buderi and Gregory Huang in Guanxi: The art of relationships: Microsoft went at the problem of opening up the China market in a way that was a departure for most Western companies. Instead of focusing on sales or cheap manufacturing possibilities, Bill Gates imagined tapping into China’s vast pool of talented computer science students and harnessing their energy in a way that would be mutually beneficial to Microsoft and China. He visited China’s top leaders repeatedly over the years, building a relationship and opening doors. He practiced Guanxi, a Chinese term that conveys trust and mutuality. Says Huang, the “most important principle is that relationships must be nurtured over time. They can’t be bought or rushed.”

I have not agreed with Google or Yahoo's policies since they came to China, but along MSN, I rely on their accuracy in reporting. But, if they are going to stop the economic bleeding they had better find a vendor of Guanxi fast and take a double dose just for good measure. And Baidu had better wise up before someone actually tries marketing a home-grown engine with a touch of honesty.

by Lonnie Hodge

YOU KNOW YOU HAVE BEEN AN EXPAT IN CHINA TOO LONG WHEN:

- You find yourself crying over a menu in a western restaurant because they
serve potato salad
- You eat every kind of meat off the bone, and then spit those bones on the table
- Squatters make you dizzy, but you now believe, despite the smell, they are cleaner than western toilets
-You are tired of explaining that Africa is a Continent, not a country.
- You see nothing wrong with standing on a white stripe in the middle of a
highway while cars whiz past you at 90kph
- You don't blink an eye when a complete stranger wants to take a photo of
you with his family
- You actually put some thought into which live snake you want cooked for
your meal
- You eat soup with chopsticks
- you use Kleenex for table napkins
- You drink warm sodas and find them refreshing
- You are accustomed to seeing people's heads popping up and down in the VCD
you are watching
- You no longer use articles when you speak
- you bargain with the grocer over the cost of a head of lettuce
- You no longer check the expiration date on the milk you just bought.
- You buy a movie that hasn't been released theatrically yet at home.
- You comment that the pollution "isn't really that bad..."
- You start wearing a face mask on windy days and wonder at the "silly
foreigners" who don't do the same
- You complain about that price difference of DVDs/VCDs/CDs bought in the
stores and on the streets
- You start to wonder if the chocolate ice cream you find in the store is
even chocolate... sure it is brown, but...
- You can't find face lotion or cleanser that does not bleach your skin
whiter....
You have a collection of Umbrellas
-You have actually gone shopping in your pajamas
-You give a beggar a handful of fen and he gives them back
- You have trouble sleeping when you go home for a visit because it's just
too darn quiet
- You point out foreigners to your Chinese friends even though you're
foreign yourself.
- You know words in Chinese for which you don't know the translation in
English
- You answer 'China' when people ask where you're from
- You pick your nose, burp, fart, and scratch so much even your Chinese
friends get embarrassed
- You get a discount if you speak English, but you pay more for Putonghua (Mandarin)
- You call home and your family tell you to speak faster and stop correcting
their grammar
- You eat cake with chopsticks
- You constantly wonder if everything has been boiled long enough.
- You answer 'So is mine.' when people say their English is so poor
- You answer 'Into what?' when people say China is developing
- You convince yourself that it doesn't matter how dirty the cooks' hands
are, cooking will fix it
- If there are only 4 screaming children running around the classroom, you
consider it a good primary class.
- If there are only 4 students sleeping, you consider it a good middle
school class.
- If there are only 4 cell phone addicted college students messaging its a good class.
- You love tofu because there's nothing to spit out and it doesn't have any
taste
- You start saying things like:' 'I very like'
- You hold hands with others of the same sex and think nothing of it
- You avoid touching those of opposite sex like they have bird flu
- You've got a pre-paid ticket with a reserved seat on a train or
plane, but you still run like mad to to the get there first
- You forget that vegetable soup is actually pesticide broth
- Smoking is doing less harm to your lungs than breathing
- You're beginning to like fruit salad and mayonnaise
-- Everyone wants to be your friend - all you have to do is teach them
English for free
- Everyone wants to teach you Chinese by speaking to you in English
- Your Chinese lessons consist of 50 words your teacher wants to know in
English
- You tell people you don't understand, so they write it for you - in
Chinese.
- Your boss thinks you're a stupid foreigner if you let him cheat you, but
thinks you're a bad foreigner if you don't
- Your boss speaks really good English until you ask for more money
- You have no qualms that someone who thinks you're stupid and gullible has
total control over your life.
- You too think that the ugliest western man always has a beautiful Chinese girlfriend.
- A hike up a mountain calls for a plastic grocery bag full of junk food.
-- The more you listen to the news, the more uninformed you are
- It fascinates you that when the national news is on, your forty TV channels magically become the
same channel.
- Absolutely everything that can possibly be eaten is in some way good for
your health.
- Only five minutes of prep time for a unannounced class no longer fazes you
-- Your housekeeper throws out the chicken breast you have marinating in
garlic and olive oil but organizes your empty beer bottles and cans and you understand
- You leave your laundry hanging up for more than a day its dirtier than it
was before you washed it
And my favorite:
- You actually believe you're here to teach English