Sunday, March 30, 2008

Thoughts on Business in China

Just jotted down a few thoughts here as it’s been a hectic few weeks. I’ve been in Guangzhou doing a mini-consulting assignment for a high-fashion brand called Exception de Mixmind.

• Exception itself is quite a remarkable company. It is a philosophy-based fashion brand that is able to compete with the likes of Louis Vuitton, Burberry, Max Mara and the other international glamour brands in the US. It has built up to nearly $50 million USD in revenue without ever doing any commercial marketing. Instead, they use word of mouth through their best customers, and do a lot of cross over promotions with other artistic endeavors. Many of their strategies seem counterintuitive at first, but make a lot of sense given the nature of Chinese business. Their strategy is not one that a bunch of MBAs would sit down and put in a business plan. Confidentiality doesn’t allow me to delve much deeper, but I’ve learned a lot about fashion, entrepreneurship in China and artistic integrity this week.

• Generally speaking one of the biggest insights of the weeks is that innovation is different in an environment like the one in China. Counterfeiting and poor intellectual property protection are thought of as a strong barriers to innovation. After spending a week here, I see that Chinese companies are in some cases innovating faster (albeit in a highly different manner) because of the business environment. In order to command a premium for their brands, they must continually offer something that cannot easily and rapidly duplicated by counterfeiters. For instance, this may mean finding unique and hard to source materials that are appealing to consumers in the fashion industry.

• I’m impressed by the quality of the students we met in the Lingnan College International MBA program that we worked with on this consulting project (MIT China Lab). They demonstrated very strong business knowledge, highly organized strategic thinking and strong leadership skills. I gained a lot from working with them.

• I’m surprised to the degree which MIT has allowed some of the partner school in China to use their name in branding. For instance, the Chinese students from Lingnan, Tsinghua and Fudan have the MIT Sloan logo on their business cards. I think I’d have more mixed feelings about this if I knew about before I met all these students. They’re actually quite impressive.

• Also surprising is that they source much of their curriculum through MIT. We walked into Lingnan and we saw them reading the Appex case (which is honestly one of the more painful ones). I hope they didn’t force the awful $150 accounting book on them.

• Guangzhou as a city is far cleaner than it was when I visited five years ago. It’s actually become quite a pleasant place to be, especially along the Pearl River. Taking a taxi is still one of the most frightening experiences you could imagine though. Some suspect the cleanup is partially because of the Olympics, while others think that Guangzhou has been kept extra clean this winter because the Chinese government is trying to managed a hushed flu breakout across the south of China. At least this is the belief amongst many in Hong Kong. You read into what you will.

• However, the environmental degradation across China is just awful. The entire countryside is littered with garbage. Recycling is just starting to ramp up, but it will be decades before all the garbage is cleaned up from the roadsides and waterways. How people can do what the Chinese are doing to their own water supplies is beyond me. How the government can permit it is simply dumbfounding. Although I believe what great environmental reporters like Mara Hvistendahl who are on the ground in China about some high level initiatives, he stark visual evidence makes it hard to believe any the Chinese propaganda machine is pumping out about improvements in the management of their environment.

• If they really want to stop flu pandemics, the Chinese should seriously considering health checks in restaurants. Restrooms are still filthy and many don’t even soap. I don’t see how something this basic could be overlooked.

• Smoking in restaurants is horrid, but it’s even worse when people have no courtesy about it. Go to Guangzhou and you’ll understand what I mean.

• Getting away from my public health and contingency planning interests and back to more fun stuff, we went to some sort of imperial Karaoke palace yesterday. I can’t even begin to describe it. One of the MIT people, Reena Bhatia, compared it to being in Las Vegas. That was pretty accurate, right down to the buffet.

• Best food I’ve found so far in Guangzhou, where food is cheap and high quality. A unique type of stewed fish in a spicy, flavorful broth with leeks, bean sprouts and lots of other good stuff. Fantastic garlicky frog at Hunan Home, along with a plethora of other really good spicy dishes. Delicious congee every morning in the Gold Coast Marina Club Hotel we’re staying at. Team lunches at Exception have been great – very authentic Southern Chinese home cooking, with a healthy soup served with every meal. They really have treated us wonderfully here.

• Tipping isn’t expected in Guangzhou. So when you do tip, you get treated like a god. Gave a buck to the guy making congee the first day, and every day since he’s been bringing me fresh cooked vegetables, and omelets, and pastries right when they come out of the oven. Makes me think what a stupid system we have in the US where tipping feels mandatory, even when you get crappy service.

• Had my first Chinese red wine last night. Might be my last. They have a long way to go in this area. Interesting that they had this win in 3 different vintages. I don’t think they’ve figured out that lousy wine doesn’t get better with age.

And that’s it. Apologies for the stream of consciousness, but at least I topped Joyce and put it in bullets.