the blog of the guy who wrote

that book about china

The Center For Media Research agrees with a point made in my last post, that there is a  connection between age and whether a consumer is looking to avoid products made in China. Their survey suggests 38% for those age 18-24 will be looking to avoid toys made in China, and the rate for those aged 55-64 is 70%.

In “Mattel: Knocked Down And Muzzled?“, I suggested consumers were saying one thing but doing another when it came to their insistence that they would avoid products made in China. Toy sales were expected to drop in the the third quarter, but Mattel’s profit was merely level and sales even showing an increase.

The big question for toy manufacturers this year is whether retail sales are going to be slowed by China product recalls. I spoke yesterday with someone in retail, and he couldn’t believe how slow his business was on “Black Friday“, the big shopping day that follows Thanksgiving. If the third quarter was any proof, it’s likely that product recalls will not affect sales much, but one thing that might happen this year is that purchase decisions will be pushed into later in the season.

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You just can’t make this stuff up! Alibaba has launched a new website - Alimama.com. This sister - spousal? - website is just further proof that the company doesn’t know what it’s doing. I’ve tried to figure out what the website is about and after two news pieces and some minutes on the website, I still don’t get it. It has something to do with selling advertising space to small websites and blogs?

“Alimama has signed up more than 150,000 small- and medium- sized web publishers and 135,000 personal blogs, covering more than 1 billion page views per day…Alimama is adding 4,000 small and medium sized websites and 10,000 personal blogs each day.

If they are really signing up 10,000 personal blogs each day, that’s 300,000 blogs a month. If that many are really blogging in China, someone should jump on the story.

One article has an Alibaba representative insisting that Alimama in no way competes with Yahoo’s advertising model, even though Yahoo’s primary income generation model relies upon online advertising. Whenever a company rep in China tells me not to worry, I tend to worry, and it sounds like Alibaba is very much moving into territory that Yahoo might have taken. Not bad enough Alibaba’s share price has languished following its high-profile IPO, its business model is now going to call into question Yahoo’s long-range income projections for China.

I went to “Wayback” to see what Alimama’s website looked like in the recent past. Alibaba claims to have been working on Alimama for some time, but just as recently as June the website was little more than a set of random net links. One offered: “Mama Mama Ringtone”.

There is little about the new business model that suggests it’s legit, and the biggest tip-off is Alimama’s logo - it’s a blatant rip off of Amazon’s. Even if you want to forgive copyright issues in China, this is not what you expect from a global company that is valued in the billions. We don’t expect Burger King ever to come out with a Burger Queen sub-brand, while borrowing a logo from a completely unrelated industry. And any number of consultants can explain to you why Coca-Cola never launched with Shmoka-Cola.

On the logo, I’m having problems loading up pictures here, but welcome to compare the logo in this link with the logo in this link. The Amazon logo shows an arrow that runs from “A” to the “Z” (Hint: We have it all “from A to Z”). In the Alimama logo, you have almost the exact same arrow, except it runs from “A” to “A”. That pretty much says everything to investors: In other words, if you’re lucky, we’ll get you right back to the share price we started out at for the IPO.

What Alibaba needs to do is take a solid portion of the billions it has raised and get on with some proper marketing. What they have just done with Alimama might work in China, but it is not up to the international standard, and its investor class is playing at that international level.

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In an effort to show she has foreign policy chops, Hillary Clinton is now trying to convince us that she’s tough on China. She was quoted today as saying : “I went to Beijing in 1995 and stood up to the Chinese government on human rights.”

Seriously, was that a joke? It was her own husband who in 1993 “delinked” America’s economic policy with efforts to advance human rights in China. We gave China favored trade status with no strings attached. Critics then and now recognize the lost opportunity, and there is no doubt that China has become unmanageable from a foreign policy perspective because of decisions made by the Clinton administration.

Even more disturbing is what has been going on between Hillary Clinton and some who were willing to break campaign contribution laws in order to see her get elected. Norman Hsu’s case has been effectively put on ice as a means of deferring controversy until after the election, and, even more troubling, the Los Angeles Times has reported widespread circumvention of campaign contribution laws by overzealous Chinatown residents who are doing what they can to get another Clinton back in office. If you haven’t heard of these stories, strong recommend to check the links.

This next election: Vote Republican.

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Jackie Chan has to be a little pissed off these days. Ang Lee’s sexy film “Lust, Caution” has pulled in over US$11,000,000 playing in China in just two weeks, which is a lot of cash in this new market. Chan is a prolific talent, having made between “Rush Hour 1” and “Rush Hour 3” no fewer than 16 full features. His American co-star from the series, Chris Tucker, in the same period made only one other film - “Rush Hour 2″. And yet Chris Tucker signed onto “Rush Hour 3″ for a much better deal, getting 20% towards a max payout of $20mn, while Chan got only 15% towards $15mn. To balance things out, Chan was supposed to have distribution rights in China and Hong Kong, but the Chinese government nixed those plans when it refused to show “Rush Hour 3″ in theaters. The claim was that the film was rejected for commercial reasons, though everyone knows that Chan’s name on anything sells tickets. The real reason behind rejecting Chan was censorship.

Bear in mind that the steamy “Lust, Caution” had over 13 minutes removed by censors, and it still may not have been enough to clean up the movie as audiences reportedly rushed home to try exotic sexual positions introduced by the film. Even if Chan’s film had missed the mark, you have to wonder about the value of certain portrayals in this new film by Lee.

Rather than criticize the Chinese government for its nonsensical censorship policy, Chan’s response was curious. When his film was rejected, he railed against the Rush Hour series, saying that he had signed on only for the money, and that in the end he didn’t even get the humor. I don’t understand: Why attack the franchise when it was the Chinese government that ruined his day?

When we see American Hollywood stars getting behind a social cause, we roll our eyes, but here was a missed opportunity. A film star known for his on-screen heroism left us high and dry in real life. What he might have done was raise awareness on censorship and heavy-handed government policy in China. The lesson for those of us doing business in China are obvious: If your plans depend upon approval by whimsical government officials, be sure to make a proper assessment of the risks involved, and do not count chicks before they hatch.

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If you’re a fan of TheChinaGame.com, welcome to join our new fan page over at Facebook.com:

http://upenn.facebook.com/profile.php?id=21489570976

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Sports has been making a big push in China these weeks, with Major League Baseball (MLB) sending over Cal Ripken, Jr. to pitch to the kids. Recent weeks have also seen the “NBA China Games”, which was an exhibition match between two major teams broadcast to over 200 countries.

The Chinese are fantastic lovers of sports, and I find it curious the way China has embraced basketball while turning up its nose at baseball. You can’t suggest that it’s a Chinese thing since baseball is actually quite popular in Taiwan.

To give an indication just how much China has taken to basketball, look at all the nicknames they give to top American players: You have “Little Flying Mouse”, “Old Cat”, “Man in the Mask”, “Sweet Melon”, “Germany Race Car” and “Stone Buddha”. The list is worth a look - here.

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In addition to this one, we own TheChinaGames.com (with an “s”). Anyone in a position to develop should get in touch. Would make for a good site devoted to sports, or online gaming. - pm

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Last week, a reader of this website dropped a note to point out that Alibaba.com supports tobacco smugglers. Turns out the suggestion is true, and I wonder if this says something about the company’s business model.

In case you’re not aware, by the way, Alibaba’s stock price shot up on its initial public offering, but then the very next day after the IPO, the stock was down 17% on “profit taking” (this is a phrase favored by financial journalists to describe investors rushing out of a position in large numbers). Not so sure about short-term effects on the value of the stock, but as our reader has accurately pointed out - the long-term value of any business model that relies heavily on hustlers has to be called into question.

As mentioned here recently, cigarette smuggling is a problem for the world. An estimated one-third of all cigarettes smoked in Britain are counterfeit with over 80% of those fake cigarettes coming from China. That’s an incredible statistic.

I did a quick search at Alibaba.com to verify the cigarette claim, and, before I did, I checked first to see if you could still find counterfeit running shoes on Alibaba.com. There used to be so many who advertised Nike and Adidas right on their company profiles. It seems that the counterfeiters in this category have been chased off, but in the area of cigarettes, there is no apprehension. One company advertises on Alibaba.com:

Can provide you nearly all kinds of name brand cigarettes, such as Superkings, L&B, B&H, Marl and so on. We’re relying on superior quality, excellent service and competitive price. Guarantee competitive price, guarantee shipping & custom clean. We deal door-to-door service to UK, USA, and other countries. And for now, we even accept small quantity order.

It sounds legitimate and businesslike. I am guessing that “Marl” means “Marlboro” and that the name has been shortened to avoid unwanted attention from Philip Morris.

One of the things I found interesting was that a great many of these companies selling cigarettes are associated with athletic shoe companies in China, and many of these are located in Putian – that capital of counterfeit goods. Cigarette smugglers on Alibaba’s website have company names like “Putian City Risheng Shoes”, or “Putian Kaishun Shoes”.

This idea that Alibaba.com sorts out the good from the bad has been referenced as one of the company’s great value propositions. It’s a joke. The cigarette smugglers are listed as “Gold Suppliers” - as if these companies set the highest commercial standard. One acquaintance who is in trade dismisses the website as a meaningless business tool and suggests that the company ought to go by its fuller namesake – “Alibaba and the Forty Thieves”.

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Forget about this business with the Dalai Lama and what his appearance in China was supposed to say about Canadian resolve - the Chinese embassy in Canada has just succeeded in getting the Canadian Broadcast Company to stop the CBC from airing a program on Falun Gong.

Personally, I couldn’t care less about Falun Gong - for so many reasons. But what is interesting is watching Chinese diplomats succeed at manipulating the media in foreign countries. The way it went down, the embassy explained to the CBC, naturally, that they were merely worried about factual errors. The director of the program, Beyond the Red Wall, was notified only at the last moment that the program wouldn’t air, and that they would all be discussing edits. The director’s response:

“It’s rather surprising, because the film has been in production for about three years and was delivered to the CBC in March, so the authorities and the executives at the CBC signed off on the film quite some time ago.”

Another media company, Yahoo, has had its own recent experience with the Chinese government. The online portal aided the Chinese government by turning over information on dissident, Shi Tao. The company has apologized to U.S. Congress over the matter. Yahoo shares took an apparent beating as a result of the backpedaling. Western media companies need to give serious thought to their corporate policies regarding China.

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In July, I stopped by a Porsche dealership in Shanghai, and one of the sales people told me the company sold around 2,000 units in China last year. Today, I just ran across some comments made by the marketing chief at Porsche, and the company is estimating at least 3,500 units for China this year. Assuming the salesperson’s suggested figure for last year is close to accurate, that would be phenomenal growth.

Porsche stated this week that global sales are up only 3.5% over the previous year, so imagine how important the China market must be for the luxury car manufacturer. By my estimate, China is already one-fifth of the car company’s business this year. Within five years, according to Porsche, China will be the company’s largest market. Not bad for a developing economy.

The suggested growth at Porsche is mirrored over at Bentley Motors, which expects to double sales in China this year with 250 sold. One thing is for sure: China’s luxury car market looks pretty attractive.

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Chinese toy manufacturers are now looking to sue Mattel for damage done to the industry’s reputation. Should be loads of fun, but what struck me most was the perceived justification and emphasis on “percentages”:

Mattel recalled more than 21 million China-made toys from the market…but an investigation later showed 85% of the products were recalled because of design flaws.

Toy suppliers were only 15% at fault, you see. The balance of the blame is Mattel’s - and, therefore, Mattel owes something. Has no one thought to point out the difference between “on purpose” and “accident”. Design flaws are unintentional by nature. The use of lead-based paint, though, was a decision made by someone looking to widen profit margins on the China side.

Another percentage keeps coming up - this idea that 99% of China products are safe. The food industry had made the claim regarding its products for export, and just a couple of days ago Guangdong Province’s safety director also said that 99% of the province’s exports are safe. It is not a comforting statistic.

How many would get into a car knowing that they stood a one out of 100 chance of getting into a into a wreck? Or what if one out of 100 restaurant meals were contaminated? How much safety is enough - and when will China assure us of those higher levels? We hope officials won’t be so distracted by lawsuits that they can’t address the issue of improved safety.

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