China Business Blog and Podcast

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As China’s over-heated stock markets started to take a bit of a dive early last year, Kent Kedl had a bit of an epiphany: For months, the market had been steadily rising, a China dot-com bubble of sorts in the making. People here were dumping everything into the stock market. Then, on February 27, 2007, Chinese stocks dropped about 9 percent after seeing a record close just the day before. The global reaction was crazy. The U.S. stock market dropped 3.3 percent, its worst close since the days following 9/11. Economic pundits were trying to guess “What does this mean?” and many were predicting a continued slide for all markets.

Journalists and pundits mostly predicted doom and gloom, maybe because it just played better in the press: If it bleeds, it leads, and the bleeding global markets sure led the news those days! However, after a few days, when things cooled down a bit and the foreign press actually started paying attention to the Chinese markets, they started saying, “Wow, we learned something there and we won’t overreact like that again!”

The current situation in China seems a perfect situation to test out this new-found skill in a measured response. While certainly not as explosive as a stock market tumble, the multiple changes happening in the Chinese economy over the past six months might add up to something of seismic importance. In particular, it seems that a number of forces are combining to cause prices to rise in China (both business and retail) and some new regulations are in place that, in some foreigner’s views, make China a less attractive place to do business.

What can we learn from what we are going through? Here are four things, all of which revolve around China’s relatively new role in the global economy:

1) Don’t over-react

The recent changes in China are not a death knell for global business. What is happening here are just the normal growing pains of a developing economy showing signs of budding maturity and the problems that go along with it.

2) Don’t under-react

China IS going to be a growing consuming market and it WILL suck up a lot of raw material and energy resources. And this WILL have an impact on other nations and economies by making these resources more expensive. It is a reality. It is happening. Sitting and complaining about it is NOT going to help. What emergency plans do you have that address potential future scenarios involving a growing China?

3) Don’t over or under-react, but DO REACT

Many a fortune cookie tells us, in some form, that in the midst of great chaos one may find great opportunity. Well, now seems a time of – if not GREAT chaos – then of some modicum of chaos in global markets. So how can you react and take advantage of it?

4) Look at all of your options

The lesson here is that companies should certainly consider their growth possibilities in China. It is (and will remain for some time) the most compelling market in the world. However, companies should not look at China at the cost of ignoring other markets. If the changes in China are motivating companies to consider all of their options, then I think this is possibly a good thing and is healthier for everyone involved.

RALEIGH, NC — February 5, 2008 — As an integral part of its global expansion, Tompkins Associates (Tompkins) has acquired Shanghai-based Technomic Asia. The acquisition enhances Tompkins’ ability to assist businesses to both establish operations in Asia and to improve their processes and performance as part of their overall supply chain strategies.

“The past 30 years have been a continuous evolution, and expansion in Asia is the next natural step for us,” says Jim Tompkins, President and CEO of Tompkins. “Technomic Asia has more than two decades of experience in helping clients to enter, expand and optimize their operations in China and throughout Asia, and we are excited to expand our Global Supply Chain Services.”

According to Steve Ganster, Technomic Asia’s Managing Director, there is a definite need for this type of fusion. “By merging with Tompkins, we have the opportunity to combine resources, experience, and knowledge and share the highest level of business strategy and global supply chain expertise with our clients.”

Tompkins’ Global Supply Chain Services help clients define and implement:

• Global business and supply chain strategies, supply chain transformations, and organization development.
• Global supply chain processes that improve efficiency, effectiveness, and business performance.
• Global trade and risk management strategies and processes.

A Global Integrated Business Solutions (GIBS) company, Tompkins is the leading provider of end-to-end business strategy and supply chain consulting services — from supplier’s suppliers to customer’s customers, as well as from planning through transformation and implementation. The company is headquartered in North Carolina with offices throughout North America, Europe and Asia.

Media Contact
E-mail Myra Schwartz or call 919-855-5533.

About Tompkins Associates
Tompkins Associates designs and integrates premier, global end-to-end solutions for companies that embrace supply chain excellence. For more than 30 years, Tompkins has evolved with the marketplace to become the leading provider of global supply chain services, distribution operations consulting, technology implementation, material handling integration, and benchmarking and best practices. The company is headquartered in Raleigh, NC. For more information, visit www.tompkinsinc.com.

Upsize Magazine, a business mag in Kent Kedl’s home state of Minnesota, features an interview with Kent discussing the opportunities China holds for small and midsized businesses.

Kent offers three key pieces of advice for getting started, including this important piece: Don’t but the tactic for entering the Chinese marketplace before the strategy. As Kent says, “That’s like my saying, ‘Where are you going on vacation?’ and you say, ‘I’m driving a Buick.’ “

In the most recent issue of Chamber Eye, the magazine published by the British Chamber Of Commerce in Guangdong, China, Technomic Asia’s Kent Kedl writes about the idea of “continuous market entry”:

For most foreign companies establishing a business in China, the phrase “China market entry” is a one-time process of market assessment, strategy planning and corporate structuring. Once the business license is issued, there is a palpable sense of relief among the management team – “Whew, market entry is done,” they say, maybe hoisting a few congratulatory pints between then, “Now bring in the implementation team to get things going!”

However, those that have been here for awhile understand that “China market entry” is not a one-time thing and that successful companies – i.e. those that are making money here – are continuously revisiting and refreshing their market penetration strategies.

You can read the rest of the article here (PDF).

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In today’s China Business Podcast, Kent Kedl discusses the idea of “continuous market entry.” He emphasizes the importance of looking at the Chinese market as if your company had never been here before. Much like the idea of a couple keeping their relationship fresh by not losing touch of the spark they had early on, companies in China must continue to capitalize on new opportunities presented by the constant change in that country.

And of course, capitalizing on opportunities is only part of the game. Companies need to avoid being left behind by this constant change, too. Hide your business plan, get your key sales and marketing staff together, and ask the tough questions about how your product is used — not how you want to sell it. Know that when you stop entering the market for the first time (continuously), it will be your last time.

Technomic Asia’s Kent Kedl was quoted in two recent Reuters news service articles on Western reaction to safety concerns over products manufactured in China.

The first, by Kirby Chien on July 12, discusses China’s regulatory environment in the wake of recent product safety concerns.

The lack of consistent and stable regulations enforced evenly throughout the vast country opens the door for unethical executives looking to cut costs and improve margins.

“There is product substitution, poor manufacturing methods, poor storage and a myriad of other problems that can result,” said Kent Kedl, the Shanghai head of Technomic Asia. Kedl’s company is a consultancy that helps firms such as chemical maker DuPont and Sara Lee to import into and source from China. New Chinese companies pop up literally overnight, trying to take advantage of new opportunities, but often lack proper supervision.

“Last year they were planting soy beans, and this year they are doing chemical processing,” said Kedl. “They can get loans and backing quickly but don’t have the proper level of expertise and sophistication,” he said.

And the most recent Reuters article discusses Mattel’s recall of 1.5 million Chinese-made toys worldwide because their paint may contain too much lead.

The recall comes amid heightened concern worldwide about the safety of China’s exports. Many of the previous problem products have involved smaller manufacturers, but now a major company in a sensitive sector has been hit.

“Nobody wants to face that PR nightmare,” said Kent Kedl, the Shanghai head of Technomic Asia, which advises companies sourcing out of China. “But the reality is that things slip through the cracks. And the cracks are a little bit bigger here in China.”

Read the full news story from Reuters.

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The Shanghai American Chamber conducted its annual China Trends conference in Shanghai earlier this month, aiming to update the business community on key trends in China’s economic, regulatory, political and business areas that will affect the operations of American and other foreign businesses in China.

Steven Ganster, managing director of China strategy consulting firm Technomic Asia and co-author (with Kent Kedl, the regular host of this podcast) of the business strategy book “The China Ready Company,” kicked off the event by outlining some key trends that will affect company strategy and business case development in China.

In today’s podcast, Ganster references his slides from that presentation. Those slides are available to view or download at www.technomicasia.com/AmChamShanghai2007.pdf.

“The pace of change in China is so rapid that we view business years in China like ‘dog years,’ ” Ganster said. “One year in China’s economy is like seven years in the West in terms of change.”

In his opening presentation, Ganster covered:
– Determining a company’s addressable market – “where you can make money”
– Changes in competitive structure in China
– Developments in strategy alternatives, including acquisition
– Movement to strategic sourcing

In addition to Ganster, presentations were made by other premier China advisors and practitioners such as AC Nielsen, ChinaVest, Baker & McKenzie, Mercer Consulting, the deputy director of Shanghai World Expo, and a panelist of award winning journalists from the Wall Street Journal and the BBC.

“The need to develop a sound and dynamic business case has never been greater,” Ganster said. “China’s markets are slowly maturing and becoming increasingly competitive. If your value proposition is not accurately aligned with your market target, you just can’t make money.”

Ganster also spoke about the emergence of acquisition as a strategy to accelerate growth.

“The early to mid ’90s was the era of the 50-50 joint venture,” Ganster said. “After many failed ventures and a loosening in foreign ownership restrictions, companies quickly shifted to wholly-owned investment strategies. But limitations in this approach are leading to acquisition as a way to achieve the best of both strategies.”

Minnesota Technology magazine has a great article that digs into “the China issue” and the opportunities that country offers Western businesses.

Kent Kedl, executive director of Technomic Asia, a St. Paul-based market strategy consultancy, expresses the same idea a bit more colorfully. “I gave a speech a while ago about how everybody thought that, ‘Well, that ship has sailed — anybody who was going to come to China has already come to China,’ ” he says. “The title of the speech was ‘Late to the Party but Better Dressed.’ Honestly, things are just beginning to mature here.”

The article also features Kent’s advice on “the top five things you need to think about before launching your company’s China strategy.” Read the full story for more info on China strategy.

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This is second of two parts of my presentation from a recent event hosted by the Minnesota Trade Office. The first part, which you can find here, covers an introduction to China strategy and a discussion of the first step –- analyzing your “China readiness.”

As we continue today with “The Six Steps to Building a China Strategy,” we start with Step 2: finding your addressable market. In China, as with any other market, focus is a key to success. Step 3 involves doing competitive intelligence, identifying your competition. Always keep in mind that your markets and competitors at home are not the same markets competitors you’ll find in China.

Step 4 is to identify where you will fit in the value chain. Your China strategy will be determined by where in the value chain you will play. In Step 5 we look at which assets to localize. There are a broad range of options for how deeply a company can participate in China. The key lesson is, don’t do more than you have to! A company’s participation mode is determined by best “match” of external requirements, internal resources and a risk profile. How “local” do you need to be? Identify the key assets you will need on the ground in China.

Step 6 covers entry structure: Build it or buy it? Based on what assets you will need to localize, you can begin thinking about how to localize them, either by building them yourself or “buy” them by partnering. These decisions determine your “build it” strategy or form the selection criteria to find appropriate China partners.

In China, understanding and managing relationships is fundamental to supporting a successful business. Everything flows from an opportunity within a relationship.

More on these topics at www.chinareadycompany.com. Also, be sure to enter the drawing for an iPod nano by filling out our survey.

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Today’s podcast is from a presentation I gave recently at an event for the Minnesota Trade Office, its 2007 China Practicum. I spoke at the first China Practicum, too, ten years ago. As you might have guessed, things have changed a bit since then.

In this seminar, I laid out the basic principles to guide China strategy development, especially helping business leaders analyze their organizational preparedness to do business in or with China.

Western businesses face many challenges in China, and understanding and balancing risks and opportunities is critical. A solid China strategy is built on a deep understanding of the market conditions in which you will work and the range of responses you can have to those conditions.

In this presentation, we cover the six steps to establishing a solid, effective China strategy. Step one is to identify your “China readiness.” China is a high-risk place to do business, and companies must be sure they are ready to face the inevitable challenges. China readiness is measured in two key dimensions: motivations to go to China and the level of organizational preparedness to go to China.

Today’s podcast is part one of my presentation, which covers an introduction to China strategy and this important first step, evaluation China readiness. In a few days, I’ll post part two, which covers the remaining five steps to developing an effective China strategy.

For more on China readiness, check out www.chinareadycompany.com.