the blog of the guy who wrote

that book about china

Most of the time, when the rights of a brand are infringed upon in China, manufacturers have taken a familiar-sounding name and made only a slight variation. They try to keep the name as close to the original as possible. Sometimes the efforts of these bootleggers make for some good comedy. I recall buying a suit in Hong Kong several years ago and having the tailor try to sell me on a material produced not by Ermenegildo Zegna but by Mario Zegna — presumably a cousin of the Italian designer.

Others have written about Chinese efforts to rebrand popular Western trademarks. One that I found particularly amusing was a slight twist on the “Esprit” brand. Pictured at the top here, this backpack has a logo that mimics the original but uses a brand that looks a lot more like like “Spit.” Companies worry that counterfeiters will dilute their brand, and this sort of example drives home that point.

Sometimes copied names are not similar at all, though. Consider the second and third pictures here. One is of a ball carrying the logo for Wilson Sporting Goods. This other is for a Guangzhou-based sporting company called Menlow.

Wilson versus Menlow? Without looking at the pictures, you’d think that the two names are nothing alike, but consider what’s been done: The scripted “W” from Wilson has been turned upside down so that it becomes the “M” in Menlow. They’ve done something similar with the “N,” changing it into a “W.” They preserved the tall, scripted “L,” and the net effect is a logo that from a distance and without too much thought looks quite a lot like the original!

I’ve often passed a Menlow shop in Guangzhou and wondered what executives at Wilson would make of the logo. Do they even know that the logo or the copycat company exists? Would also be a little more than curious to see how a Chinese court would handle any claim of copyright infringement. My bet is that “Spit” might find trouble, but that Menlow would be allowed to carry on — even though its logo appears similar and it is also in the business of selling the same kinds of sporting goods.

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Several days ago, some suggested that China was on the verge of revaluing its currency. I proposed that it would not, that we should all look for another move instead:

China will announce a major shift in economic policy, and that shift will have little (or nothing) to do with the currency exchange rate. China’s economic policy shift will please the U.S. a little, while satisfying its own people more. Any new economic policy introduced will have far less to do with an attempt to rebalance the global economy. It will have instead more to do with an effort to reduce wealth disparity in China.

This is from a two-hour, online “town hall meeting” led by Premier Wen Jiabao. There’s a bit of “satisfying its own people” and “effort to reduce wealth disparity” here:

Turning to the yawning gap between rich and poor, Wen said Beijing would strive to boost wages and make it easier for migrant workers to settle with their families in smaller cities. ”If the wealth of a society is concentrated in the hands of a few people, then that’s unfair and that society is doomed to be unstable,” Wen said.

How do I do it? I honestly don’t know.

Anyway, it’s at least a bit interesting that Beijing is claiming to take an active role in increasing wages when market forces are more likely the cause. According to NYT, labor rates have been bid up as much as 20% in recent months. Seems to be happening all on its own.

**UPDATE: A number of local newspapers are pushing now for reform of the household registration system that has divided urban dwellers and rural folk, though Wen Jiabao’s government already hinted they were looking into making it easier for migrant workers to move about the country. Thought I would link to the relevant news event since this ties into new efforts to bridge the rich-poor gap in China.

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You don’t need a background in marketing to know that there is something a little weird about this campaign to tie together Australian red wine and cranberry juice (see pic). The packaging may say something about how unsophisticated the market in China really is. So many things are new to the Chinese, and so there is always the opportunity to introduce new concepts and pitch them as “accepted” in the West. On the other hand, this boxed up set may say something about those who market goods in China. If you’re working in an environment where you think consumers can be talked into just about anything, then you really can “play by your rules.”

I took this picture in South China 7-Eleven shop. For those who don’t know, it is not uncommon for Chinese to mix red wine with carbonated beverages like Sprite. You can probably imagine why they would want do so — soda adds sparkle. On this other mixture, though, I can’t guess why someone would want to combine wine with concentrated fruit juice, unless the point is only to dilute the alcoholic beverage. If it’s about sweetening the wine, perhaps wine makers could come up with a variety that is different for the Chinese market. If it’s about the magic of cranberries, then perhaps they could try fermenting that fruit instead.

There are probably some China marketing gurus who will say, “this is another example of a company that is localizing their product for the China market.” In the end, it was probably not a marketing decision, but a project that came about for business reasons. This campaign might merely be an example of what happens when finance directors play at marketing.

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Last month, I went on a small book tour that took me through a number of East Asian cities. It was an enjoyable trip, mostly because it gave me the chance to meet a number of interesting people with shared interests in business and China. I spoke at several chambers of commerce, gave talks at universities. One of the highlights of the journey was speaking to a full house at the Foreign Correspondents’ Club in Hong Kong. Been putting off posting the video they captured of the luncheon event on Jan 21, but at the insistence of a some others the link is here online.

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One day before a landmark trial in the case of bad drywall from China, the defense has bolted:

Less than 24 hours before a potentially historic tainted drywall case was to commence — one that will determine the procedures for fixing houses — the Chinese company that was to provide the manufacturers’ defense shocked participants by dropping out.

U.S. District Court Judge Eldon E. Fallon will proceed with the case, but with Chinese manufacturer Knauf Plasterboard Tianjin Ltd. Co. out of the picture, there will be no defense cross-examination and no defense witnesses. The witnesses lined up this week to testify for the company will be sent home.

The tainted drywall case is one of the more serious involving quality failures out of China. Total damages are estimated to run $15 billion to $25 billion, making it a “Katrina II” for the US Southeast.*

One of the problems associated with product failures out of China has been the difficulty with which victims are able to obtain justice through the courts. To date, there has been no definitive explanation for bad drywall, other than to suggest that it was “fake” drywall. Some have guessed that the product was manufactured with an organic substance in which bacteria could thrive.

While some are in denial and everyone waits for answers to questions and solutions to problems, some groups are doing what they can to help those affected. Palm Beach County property owners who’ve found themselves stuck can at least look forward to a 70% discount on their property taxes.

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* Hurricane Katrina damages were estimated at $125 billion.

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Many believe that China is on the verge of a major currency appreciation, and much has been made of comments by Jim O’Neil, chief economist at Goldman Sachs:

O’Neil thinks the Chinese could allow the yuan to strengthen by as much as 5%. “I have a strong opinion that they’re close to moving the exchange rate,” O’Neill said in a telephone interview from London after China’s central bank told lenders on Feb. 12 to set aside larger reserves. “Something’s brewing. It could happen anytime.”

Agreed that something is afoot, but I don’t believe it’s going to be a simple currency revaluation. Since I haven’t been wrong too often, maybe it’s time I went out on a limb. Here is what I expect: China will announce a major shift in economic policy, and that shift will have little (or nothing) to do with the currency exchange rate. China’s economic policy shift will please the U.S. a little, while satisfying its own people more. Any new economic policy introduced will have far less to do with an attempt to rebalance the global economy. It will have instead more to do with an effort to reduce wealth disparity in China.

Wish that I had the time here to go into a more detailed explanation, but suffice it to say that while the economic stimulus has led to fast GDP growth, too many of China’s laobaixing have been left out.  Many in the U.S. believe “China is in a bubble.” This may be the case, but it is not a sentiment shared by average Chinese. In South China, compared with a couple of years ago, the buzz has gone, and people are no longer as optimistic as they once were. There’s more grumbling about corruption. Macroeconomic numbers suggest rocketing growth, but on the ground there’s this odd feeling that the air has been let out of the tire.

The Chinese government has a sense of it I think, and official comments made just prior to Chinese New Year were probably meant to address this malaise. The big question is, what kind of economic policy will have the effect of lifting prospects for average Chinese? Currency appreciation is a too-blunt tool applied to a sophisticated problem. For a number of reasons, it was also the wrong time for the Obama administration to push for such a revaluation (and the way it was done, let’s not go there). America wants currency appreciation because it wants China to purchase more American goods. If that’s the case, the answer might actually lie in in getting more disposable income into the right Chinese hands.

Let’s see what China announces…

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Wall Street Journal published a piece I wrote for their Opinion Asia section. One of the points of the article is to provide a distinction between quality problems out of Japan and those from China.

Even as Toyota is getting much press for its problems with accelerator pedal assemblies, I find the melamine case far more disturbing, because (a) it involved an artful attempt to circumvent third party controls, (b) it was an activity practice by a large group of unscrupulous actors, and (c) because those who were engaged in the most recent milk powder cases knew precisely the harmful health effects of melamine.

Making matters worse has been the government’s wrongheaded response. Beijing reacted to this year’s melamine scandal with a heavy-handed cover-up. Chinese journalists have been warned not to report details surrounding milk cases. Parents of children sickened by melamine-tainted products who have attempted to organize themselves to protest or seek compensation risk being sent to jail for “social disruption.”

China’s state-directed legal system has failed to provide justice to victims. The government meted out severe punishment to only a small number of perpetrators engaged in the distribution and production of poisoned milk—two were executed—and a far greater number were let off the hook. China’s response to past scandals has been to protect industry with a government shield, so no one should be surprised when fraud recurs in such an environment.

At this time, many are looking at what’s happening to Toyota and saying, “Japan has problems, too.” The suggestion in this article is that such a view is misguided. Even with Toyota’s major recall, Japan ought to be seen as an example for all that China might accomplish in the next few years, and here I am thinking about a culture that values quality for its own sake and an incredible attention to detail, an economy that values building market share and long-range opportunities over get-rich-quick schemes.

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Toyota’s recent recall of 4.2 million vehicles has been pretty dramatic, and the media has pitched this story as one that highlights quality problems outside of China. This recall is going to tarnish Japan’s image as a producer of quality products, they say. China is not alone, Japan is having its own quality control crisis!

The company responsible for sourcing the faulty accelerator pedals, CTS Corporation, is American, which suggests an American quality crisis, not one that is Japanese. It made me wonder anyway when the media was going to connect the dots by telling us whether CTS was sourcing the product overseas. I’ve been waiting for days for this information: Where were those accelerator pedals actually made?

My suspicion – not yet confirmed – is that the accelerator pedals were “Made in China.” One reason for guessing this is that the recall directly affected cars produced in China. It seems unlikely that the United States would make a part like this and ship it to China, a low-cost producer. It seems somewhat more likely that an auto assembly plant in China would want to source the component close to home (given the price advantage, and proximity) – and that if China were a place to source accelerator pedals, then these components were likely shipped to auto plants around the world.

And then there was the list of 200+ pedal accelerator suppliers that I found on Alibaba.com this morning. On its own, not a compelling piece of evidence, perhaps, but at least a suggestion that China does in fact produce such assemblies in great volumes. And here’s another detail: CTS Corporation’s largest manufacturing facility outside of the United States is located in China.

More than anything, what’s convinced me is the media spin. Too many in the press have taken the opportunity to jump on Japan’s case. And what really set off an alarm has been the way in which Chinese officials commended Toyota on a fine job of “handling the crisis.” Here’s a piece of advice you can put in your pocket: Anytime you see Chinese government officials praising the Japanese when they have the opportunity to slam them, be on guard.

China on Friday welcomed moves by Japanese auto giant Toyota and Ford of the United States to recall or suspend production of some cars due to safety risks…China itself has been criticized worldwide for a raft of product safety scandals in recent years involving dangerous foods, and toys with its manufacturing industry being blamed as poorly regulated and corrupted.

Don’t know why China is sweet on Japan when it tends to be tough, but here is a press release, available at CTS Corporation’s website, which points to the geographical source of the accelerator pedals:

CTS Corporation (NYSE: CTS) today announced that CTS Automotive Products has been awarded a $22 million production program for its Electronic Throttle Control (ETC) Accelerator Pedal Modules from a major Japanese vehicle manufacturer…CTS recently won the North American business for this same platform of this popular model and is working towards penetrating additional wins for this platform in Europe. The pedal modules will be manufactured in Zhongshan, China with the first deliveries starting in 2011.  Revenues from this award are expected to reach approximately $22 million over the five-year life of the program.

Japan has built a strong reputation for quality that is well deserved, and it is unfair that the press has taken the position that the accelerator modules are a “Japanese problem.” We don’t know yet whether the faulty parts originated in China, but it seems likely.

Toyota is facing its fifth auto recall in China, and I now wonder how many of these cases are really a “boomerang effect” involving China-made parts. It raises an interesting question anyway: If Japanese companies are incapable of ensuring the quality of products they have made in China, then can anyone else be expected to do so?

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