China Update

Good friend Mr. Tony Tsai passes along great updates from China:  

Consumer Focus

McKinseys & Co.: China will become world's third largest consumer
According to a research report released by McKinseys & Co. on Aug. 21, China will become the world's third largest consumer by 2020, with over $2.5tr in personal consumer spending, just behind the US and Japan. The report pointed out that the Chinese government is adopting a series of policies to stimulate consumption and transfer the economic development focus from heavy industry and export to service and consumption.

Ministry of Commerce advises to cut import duties to boost high-end spending
Aug. 6, Vice Minister of Commerce Jiang Zengwei says that China should cut import duties on luxury goods, such as cosmetics and watches to encourage wealthy consumers in mainland China to buy such products at home rather than abroad. Lowering the duties will boost the imports of luxury goods and that will spur domestic retail sales. He adds that China should promote sales on credit to bolster domestic demand.

Ministry of Health publishes four new regulations to solicit public opinion
The Ministry of Health recently issued four new regulations, including health archives management, booking register in hospitals, complaints from patients and an electronic case history, to solicit public opinions within three days. It indicates that the Ministry of Health is pushing forward medical reform steadily, which will bring great benefits to ordinary people.

Global Business & Transparency

Wen Jiabao: China's economic development still lacks inner vitalityDuring an inspection tour in Jiangsu province, Chinese Premier Wen Jiabao said, "There are still a lot of unstable and uncertain factors ahead and the economic situation is still very grave, although both the world economy and the national economy are making positive changes." He said the country's economic performance showed increasingly positive signs, but stressed recovery was still "unstable", not consolidated and "unbalanced". He warned against blind optimism. He said, "The country's economic development still lacks inner vitality to counter the crisis, as policy support remains an important propellant of economic growth." Weakening external demand was also creating overcapacity in some sectors, which would be a big obstacle to a rebound in industrial and economic growth. He reiterated that the country should stick to its proactive fiscal policy and moderately easy monetary policy for a sustained growth.

Wen Jiabao: China's economy is at crucial juncture in recovery and government will not change policy direction
Sept. 1, Chinese Premier Wen Jiabao meets with visiting World Bank President Robert Zoellick. He says that China's economy is at a crucial juncture in its recovery and the government will not change its policy direction.

China's accounting standards will meet international standards within two years
Sept. 10, the Ministry of Finance issues the roadmap for the substantial convergence between China's Accounting Standards for Business Enterprises and International Financial Reporting Standards. The roadmap has set a deadline of 2011. Starting from 2012, all of China's large and medium-sized enterprises will adopt the revised accounting standards system for Chinese business enterprises which is equivalent to the International Financial Reporting Standards. It has been reported that the European Committee decided that during the transitional period from 2009 to 2010, the EU will allow Chinese enterprises to adopt Chinese accounting standards when entering the European market, so they do not have to adjust their financial statements in accordance with International Financial Reporting Standards used in the EU.

Reorganization and restructuring of enterprises can not neglect democratic decision-making
The All China Federation of Trade Unions recently issued a circular about further strengthening democratic management during the reorganization, restructuring, closure and bankruptcy of state-owned enterprises, in order to protect the legitimate rights and interests of employees.

Four hundred and eighty-six of the world's top 500 companies have set up presence in Beijing
According to statistics, foreign direct investment (FDI) in Beijing in the first half of this year rose 5% year-on-year. Yu Xiaofeng, vice director of the Department of Foreign Trade under the Ministry of Commerce, attends an investment forum in Beijing and lists the reasons why Beijing has become the first choice for investment by multinationals and well-known foreign companies.The reasons include preferential investment policies, a good investment environment, high-tech human resources, low labor costs and simplified procedures for examination and approval of investment projects. By the end of the first half of 2009, 486 of the world's top 500 companies had a presence in Beijing. Beijing's actual use of FDI totalled $3.5b. Most of the companies are from Hong Kong, the British Virgin lslands, Germany, the US and Singapore.

China's FDI rose 7% in Aug., first growth in 11 months
Sept. 15, Yao Jian, spokesman for the Ministry of Commerce, says that China received nearly $7.5b in foreign direct investment (FDI) in Aug., up 7% from a year earlier, the first growth in 11 months, since last Oct. He says that currently, China's FDI policies have already formed a complete framework, and are fair and impartial. However, they need adjustments and optimization to better support the country's economic restructuring and to create a resource-saving and environment-friendly society. He notes that the adjustment and optimization will focus on investment procedures. Foreign investment filing systems will replace the current examination and approval system.

Yahoo and Maktoob - Social Web Growing Up in the Gulf

Yahoo will be acquiring Maktoob.com.  Click here for details.

About four years back, while working with Mr. Khurram Hamid who was leading digital mobile marketing for P&G out of Dubai, I met with Mr. Ahmed Nassef, GM of Maktoob (website here) to review their web and social network analytics capabilities.  Ahmed stated his goal of becoming the Yahoo of the MENA region.

Maktoob impressed me with what they were trying to build.  More importantly Maktoob Research (website here) was starting to develop deeper understanding and garner insights on the Arab consumer.  I had worked on the definition and concpet of the Muslim consumer for P&G and felt that Maktoob was leading the way in social networks and social media for the Arab populace of MENA.

Congratulations to Ahmed and Maktoob employees!

Governments and Innovation

I heard Jim Greenwood (bio here), President & CEO, Biotechnology Industry Organization state on CNBC:

"Government can spur innovation, it can incentivize innovation... but the government cannot innovate."

Asia Poised for Innovation

A chat with friend and advisor Mr. Martin Ertl, CIO Bombardier Transportation highlighted that the most recent patent applications for alternate energy and/or clean energy have been coming out of China and at a steady pace and massive rate.

The following article from the McKinsey Quarterly, "Asia and the elements of innovation" by Eric Drexler could not have been more apropos to my conversation with Mr. Ertl.  The article discusses some of the key differentiators of Weatern and Asian cultures and why Asia looks to take exponential lead in innovation.  The article states:

"To become a world-class center of technological innovation, a society must have three basic elements:
• drive—a culture that supports change and hungers for it
• human capital—the personal abilities that make world-class technology possible
• a capacity for mobilization—a society’s ability to pursue ambitious new goals"

Having personally experienced education in South Asia, I can attest to the following, though it is changing:

"Cultures differ radically in their attitudes toward education. In the rising societies of Asia, education is a top priority, far above, for example, sports. During national exam season, when students study for the test that will determine their future in higher education, I found that Indian newspapers carry science and mathematics quizzes that would stump most US college graduates. Recent physics tests given to US and Chinese students entering comparable technically oriented universities produced distributions of scores that had little overlap. In Chinese societies, scholarly students have a status among their peers like that of athletes in the United States and run little risk of being marginalized, ridiculed, or beaten. In India, I found that students chase after the autographs, not of entertainers, but of scientists."

Read the complete article here.

Stephen Roach: I'm starting to worry about China's economy

Via Mr. Tony Tsai, CEO – BHG Retail Innovation Institute and EVP Operations – The BJ Hualian Hypermarket Co.:

"This is an article written by Stephen Roach, chairman of Morgan Stanley Asia, which is posted on the website of the Financial Times. Its original title is "I've been an optimist on China. But I‘m starting to worry". On the surface, China appears to be leading the world from recession to recovery. After coming to a virtual standstill in late 2008, at least as measured quarter-to-quarter, economic growth accelerated sharply in spring 2009. A back-of-the envelope calculation suggests China may have accounted for as much as 2% of annualized growth in inflation-adjusted world output in the second quarter of 2009. With contractions moderating elsewhere, China's rebound may have been enough in and of itself to allow the global gross domestic product to eke out a small positive gain for the first time since last summer.That's the good news. The bad news is that China's recent growth spurt comes at a steep price. Fearful that its recent economic short- fall would deepen, Chinese policymakers have opted for quantity over quality in setting the macro-strategy, the centrepiece of which is an enormous surge in infrastructure spending funded by a burst of bank lending. A macro strategy that exacerbates troubling imbalances is ultimately a recipe for failure. In many respects, that's what the global crisis and the recession of 2008-09 are all about. China will not get special dispensation from the most critical lesson of this post-crisis era."

See the complete article here.

Consumer Value Shopping Driven Innovation in Retail

Andy Bond, CEO of ASDA talks with the Economist about the changes in consumer behavior and how ASDA continues to innovate and grow its revenue.

Consumer Insight - Alcohol Consumption and its Future Regulation

Dr. Ayesha Haroon sends along an article "Alcohol link to one in 25 deaths" here, discussing a study conducted at the University of Toronto.  Dr. Haroon highlighted that with the release of further details, the surgeon generals of the developed countries will have to reconsider their alcohol regulations while their governments will have to review policy towards alcohol sales and consumption.  Interesting fact about Europe in the article:

"Worldwide, average alcohol consumption is around 12 units a week - but in Europe that soars to 21.5. "

Alcohol in the form of consumer products have provided capitalism with exceptional wealth creation.  Perhaps too much of anything is bound to raise an eyebrow or two!

Food and Farms

""According to our laws and our policy, foreigners or foreign companies are not allowed to rent or buy land to grow rice or any kind of food, including raising any livestock in Thailand," Deputy Commerce Minister Alonkorn Pollabutr told reporters."

Reports Maktoob Business here.  I have written previously about the consumer choices for farm commodities and products in regions where the ability to produce either is minimal or difficult, and the results of it.  Collectively, the GCC states currently lead the world in land acquisition and/or leasing of farms.  Yet the above may be a small set back for now.

The Economist writes an excellent article on the subject here.  The article states:

"It is not just Gulf states that are buying up farms. China secured the right to grow palm oil for biofuel on 2.8m hectares of Congo, which would be the world’s largest palm-oil plantation. It is negotiating to grow biofuels on 2m hectares in Zambia, a country where Chinese farms are said to produce a quarter of the eggs sold in the capital, Lusaka. According to one estimate, 1m Chinese farm labourers will be working in Africa this year, a number one African leader called “catastrophic”."

Below is a revealing data diagram highlighting investment and deal structure from the Economist.

(Click to enlarge)

A bit of hype and herd (crowd) mentality is shown in the following statistics followed by of course pullback - "Between the start of 2007 and the middle of 2008, The Economist index of food prices rose 78%; soyabeans and rice both soared more than 130%. Meanwhile, food stocks slumped. In the five largest grain exporters, the ratio of stocks to consumption-plus-exports fell to 11% in 2009, below its ten-year average of over 15%."

Yet, all this activity is termed as "neocolonialist" as the article states - "The head of the UN’s Food and Agriculture Organisation, Jacques Diouf, dubs some projects “neocolonialist”."

As the need continues to grow for food, the agri-focused economics will gain from it.  Will the results be similar to oil economics?

US Gov.'s Consumer - The Citizen - Insight

The Economist discusses "Americans have grown slightly more receptive to the idea of an activist government."  Read complete article here.

The US citizen is the consumer of the US government.  From the consumer insight perspective, I found this graph of value.

Changes in Consumer Decision Making

The McKinsey Quarterly publishes a thought provoking look at the "consumer decision journey" here.  The article developed the new approach to the decision journey:

"... by examining the purchase decisions of almost 20,000 consumers across five industries and three continents. Our research showed that the proliferation of media and products requires marketers to find new ways to get their brands included in the initial-consideration set that consumers develop as they begin their decision journey. We also found that because of the shift away from one-way communication—from marketers to consumers—toward a two-way conversation, marketers need a more systematic way to satisfy customer demands and manage word-of-mouth. In addition, the research identified two different types of customer loyalty, challenging companies to reinvigorate their loyalty programs and the way they manage the customer experience."

There is a link to a good interactive animation titled "The consumer decision journey" with audio that discusses the changes today's consumer has incorporated vs. the traditional funnel used by marketers to define touch points for their messaging.

Asian Airports Delight Their Customers

Six of the top 10 airports in the world are Asian - according to Skytrax's study using 8.6m passengers reviewing 196 airports worldwide. These are 1. Incheon (Seoul) 2. Hong Kong 3. Singapore Changi 4. Zurich 5. Munich 6. Kansai 7. Kuala Lumpur 8. Amsterdam 9. Centrair Nagoya 10. Auckland.

Incheon International Airport, Seoul, South Korea

Comments from a user on the Economist's website discussing the top 10 airports here is particularly good:

"If you look at the airports listed in the top ten and analyze their success, you will find that in most cases they are planned to provide convenience for the travelling public and that making a buck is not their raison d'etre."

See details on here.

See my post on the world's best airlines here.

Power of Communities of Choice

I continue here with sharing examples of what communities of choice are capable of versus the mystifying term called - wisdom of the crowds.  Please see various examples in my blog on this subject.

The Wired just published an article in their Danger Room that shares methods for internet users who are interested in speaking and acting against the current Iranian regime.  The user can employ simple methods to attack the Iranian governments websites.  See details here.

I find this fascinating - at the same time I see the self organization of such communities of choice to be driving us towards new paradigms of "choice", refining the perception versus reality debate of marketing.  In a perfect world... one would not have to choose!