Last week I posted about Android in China. I explained that I’m interested in mobile technology, and when that coincides with topics about China business, I get really excited. So… along these lines, I read articles in Engadget and GSMArena about HTC’s decision to sell phones in China under its own brand name.

Then I read this post in WSJ China Realtime Reports about this news article..

The article has several areas of ambiguity which should have been made more clear, so that readers can understand the significance of this business development. Just a sample…

Luckily for the Taiwanese company, Apple has been slow to launch its hot new products here, and has a relatively small presence with a 7.1% share of smartphone sales in the second quarter, according to Analysys International. Only a non-Wi-Fi version of the iPhone 3GS is officially available in China so far, and Apple hasn’t yet indicated when it might release a version with Wi-Fi or the iPhone 4… If HTC follows through on its promise to make an aggressive branding push, it could pose a bigger threat for Apple, analysts say. CK Cheng, an analyst at CLSA, said HTC is a key beneficiary of China’s carriers looking to offer handsets that can compete with the iPhone.

This overlooks that fact that iPhone has been a popular seller in China’s grey markets since it came out. As for posing a bigger threat to Apple because it is a “beneficiary of China’s carriers looking to offer handsets that can compete with the iPhone”, I would say this is true. As it is true for Samsung, Motorola, Lenovo, Huawei, Nokia, LG, and Sony. And some others probably.

However, my main question is…why does HTC now need to promote the HTC brand instead of its subsidiary brand Dopod, which has been in China for many years? Today HTC phones in China are grey-market smartphones with wifi. I presume that in the future, HTC will still make their branded phones in China (maybe in the Wuxi Dopod factory). But will the phones be any different? If not, then why re-brand?

I think of negative comparisons between HTC and Acer in 2000. Like HTC, Acer, makes technology and provides manufacturing services for other brand names, as well as promote their own brand. In 2001, Acer created BenQ, which sold computers and systems in China. I believe it was supposed to be the “China channel” for Acer. However, when I went into computer markets in Shanghai in 2003, I would see systems and components from both Acer and BenQ. Acer also had AOpen, which was supposed to provide components, but actually also made “white boxes”. In America, Acer bought the brands (and American manufacturing facilities) Gateway, Packard Bell, and eMachines. BenQ, meanwhile, bought Siemens mobile and produces mobile phones…as does Acer. Then Acer got rid of its remaining shares of BenQ. I’m pretty sure that today, Qisida (BenQ), Winstrom (Acer) and AUO (Acer) all make LCD panels and displays. Talk about sibling rivalry!

I studied Marketing in MBA school, but I don’t believe I’m a branding genius. On the other hand, I know obvious strategic level brand idiocy when I see it. I hope HTC does not make similar mistakes as Acer with big, seemingly meaningless brand positioning movements. On the other hand, maybe HTC plans to eliminate Dopod brand, so that it has one unified brand world-wide. If this is the strategy, I think it does make some sense.

(full disclosure: I used to work for Acer in the United States. I believe it is there that I developed an unhealthy prejudice against Taiwanese companies).

The headline is “Summer Intern is the Latest to Fall out“. I don’t need to go into details about what company’s dormitory the intern fell out off. Noted in the article was that the worker didn’t show up for work, was then fired, and the company was trying to arrange transport to the interns home town.

I have said this before on my blog and several others: if a young person decides to extinguish his light that shine for just a small moment in time in the void which is this universe, then the fault of the tragedy lies with himself. I’m not defending a really stupid company BTW. I just think that if we MUST place blame somewhere (and I don’t think this type of thing needs blame placement), then it must be with the individual who did this to himself.

In the Shanghaiist post, they point out to a quote in Caixin (I don’t know if its an editorial or quoting someone) and another source which say:

But Caixin points out that “this policy has actually sidelined Foxconn’s real need to dramatically improve its out of date business model…” Namely, that using human workers to do everything machines do in the West or Japan, and then running off when there’s cheaper labor to be had is eventually going to leave Foxconn with nowhere else to go. Or as China CSR noted on Twitter, “Foxconn biz model is polar opposite of responsible. Exploit local conditions. get caught. move.”

I would like to ask a question to the person who wrote the content above. If companies used machines to do everything that people could do, then why would they need to manufacture in China? Yes the answer is obvious; they wouldn’t need to manufacture in China. But then what good is it for China if they are NOT here? And who should have the moral right to say that China would be better off without this development?

I have read quite a few other posts that had similar views about Foxconn and their business practices. From what I read, I do believe that they have labor management problems, just like many companies in China. But Foxconn’s business model is not different from most Chinese companies, and really not different at all from other CMS companies. Which is to say – focus on keeping every cost to down, systematize and standardize every possible transaction and operation, and don’t spend money on improving employees.

My bottom line is thus: lets give the big stupid evil company a break. After all, they are not different from all the other companies. They do not have an alternative China manufacturing business model which works. They make products which we all buy (so we share in their guilt). And they are not BP.

[even more unrelated side-point]
BTW, I love this cartoon:

Its on top of the Foxconn building. The sign says “Don’t jump! Jumping will hurt body health”. The man on the left says “We have already done all we can!”. The man on the right replies “Its still a problem of the fengshui.”

Taikongren's self-made Chinese Android graphic!

Not only interested in “China Business”, I am also interested in mobile technology. Before I moved to China, I was a Product Manager in charge of some mobile software solutions for “PDAs”. However, my interest in mobile technology is not an extension of my previous career choices, but rather an expectation of the day when petaflop-speed computing becomes a permanent augmentation of to my central nervous system. Until that day comes, I’ll settle for the coolest greatest smartphone on the market. So, this article in TechCrunch by Mr. Richard Yu about the future Android Market in China is really something for me to get excited about. (h/t Shanghaiist)

Richard’s main points are:
1. There are a lot of mobile internet users in China
2. In spite of the Google-China thang, which should have killed Android in China, Android – [actually OPhone] – is being adopted by the Chinese carriers
3. Chinese carriers will obtain 50% of the mobile app market revenue.
4. Google won’t get revenue from these Android devices (nor will they have a say in “information freedom” matters)
5.Big driver for this are low-cost chips and components, commonly found on the “bootleg” devices.

This is a cool article. However, there are parts which I believe are just wrong. In fact, its strange. I think the gist of the article is correct, but every point in it has a serious error which overlooks complexity of the real market trends.

Lets start out with the facts and figures for mobile internet users. The article says 957 million by 2014. I say “what’s a mobile internet user?” A “mobile internet user” who just checks the weather 3 times a month probably should not be classified as a user. In fact, a good definition could just describe those who subscribe to mobile data plans. If we use this definition, then unless China’s government enforces price controls on the carrier to make mobile internet very cheap, these plans will not become popular.

Next, lets look at the Google-China thing. I wrote about this too many times, but usually from the standpoint of business ethics and media criticism. I will now quote myself, on my first post about the Google issue, back in March:

I believe this has long-term implications to the development and success of Android. If most low-cost Chinese manufactures (and large ones) strip Google search/branding/services from their own version of Android OS, then eventually Google is going to ask, “what’s the point?” That in itself will not endanger Android… the danger is with OS branch fragmentation if Google does not take leadership.

Note that “China” has not tried to stop Gmail and Google’s “productivity apps”. The government is interested in regulating Google products that give access to- or allow publishing of – “mass information.” Which means search, social network, and blog platforms. But without the search and social networking “apps”, there is no profit for Google in Android.

Mr. Yu says:

Ophone OS from state-owned China Mobile. With the help of Lenovo, China’s tech darling, Ophone devices are moving full steam ahead with more Chinese integrated services like an app store, where China Mobile takes 50% of sales revenue.

I say… Ophone is not Android if Google is not making money on it. OK. Better to say… Ophone is not Android unless it gets updated along with Android. Same thing really. UNLESS Ophone is just a skin, like HTC’s Sense UI and Samsung’s Touchwiz. If its a skin, then it will be easy to update Ophone with new versions of the software. If its a real fork in the OS, then the innovations which Google creates will not be included into Ophone. Then we have market fragmentation. And we have apps for Android more and more incompatible with Ophone (and vice-versa).

Another thing… Ophone apps marketplace will not take off without strong intellectual property protections. We are talking about China now. In fact, I’m pretty sure that even if the carriers enact copywrite protection for their app stores, Chinese consumers will bring their Ophone’s to the shop inorder to install hacked copies of Android.

Richard goes on to give these figures:

Cost of an iPhone 4 in China: $1,285
- Cost of a Bootleg iPhone 4 “HiPhone”: $100
- Cost of a Bootleg Nokia E71 with internet connectivity: $14

What will crack this nut wide open is Mediatek’s new Android chipset, which is slated to hit the market later this year. As Moore’s law applies itself to mobile devices, and sub-$100 Chinese-flavored Android 2.2+ phones are released, the over-$600 gray market iPhone will only occupy a niche of the market in China.

Mnnnnnn no. I have never seen a “Bootleg” iPhone4 or Nokia E71. There are many Shanzhai versions of these. Some of the main differences are:
a) Shanzhai iPhone and Nokia phones don’t really run the smartphone OS. They may look close to the real thing. But functionally vastly different.
b) Shanzhai phones are almost always technically far inferior. The iPhone (and most Android phones) uses capacitive screen technology, which helps gives the phone that “smooth” fluid feel. Shanzhai touchscreen phones use resistive touchscreen technology. Hence, you can tell the difference by simply pushing on the screen. If the screen “gives”, it cannot be hard glass capacitive.

Truth is, Chinese brands of phones can be cheaper. But to make an Android phone that will be attractive for Chinese to actually use will cost much more for the Chinese manufacturers than it does for, say, Samsung. Big manufacturers like Samsung can attain huge economies of scale, and have great, established supplier networks. A cheap Shanzhai Android phone will be not be any more attractive to Chinese people than the Shanzhai phones of today. It will probably be less attractive because Android has much greater hardware requirements than the Shanzhai phone OS’s that are in use today. Maybe there will be a “low-end” fork of Ophone. But again, that’s not Android.

(side point: The article says that MTK provides 85% of the chipsets on Chinese phones. I don’t believe that either. From iSupply: “Foreign handset makers had 56 percent of the China market a last year with Nokia leading the market, with a 37 percent market share.” ¹ )

All this being, I do believe that Android phones, and the Ophone spin-off, will be very popular platforms for Chinese manufacturers, simply because they are good systems, and they are free to use. No licensing fee and easy to hack. Therefore perfect for Chinese market. This does not guarantee success though. When looking at the future of the smartphone market, in the near term I think the the biggest issues are the following:

1. Will Android / OPhone still be attractive without the tight integration to Google? I’m not sure that it will be. I certainly do not want to own a Baidu phone. But that could change depending on what special services Baidu can create for the platform. (hint: as the file system is not locked down, it would be very easy to download music from a Baidu search directly to the phone). Anyway, the OPhone has not really “taken off” yet. No one knows how popular it will be if at all. I have never seen anyone actually using an OPhone, though I have seen many people with HTC (and Dopod) devices. No matter what, grey-market Android phones will continue to gain popularity because those are good phones made by Samsung, HTC, and Motorola, which have Wifi and are cheaper than the regular market counterparts.

2. What will be the reception of Windows Mobile 7, and how will Microsoft price the license? I’m pretty sure Microsoft is going to give away its newest mobile OS, AND Microsoft will throw a lot of money around (pocket change for MS really) to get Chinese developers to make WM7 software. This can have a big impact on the market. Furthermore, Microsoft is experienced in China and will very likely get some government support which will have some influence on the Chinese carriers.

So much for my China Smartphone market analysis. Anyone have other opinions?

Over time, I have learned to channel my frequently occuring negative emotions from my “issues” into areas that can give me strength in my professional and personal life. But, I’m still a fairly unstable person. I have a big ego and I have big mood swings. Also, I can be extremely insecure and I am constantly worried that something bad is going to happen to my children.

Cat Appocolypse!

Although I have “issues”, I feel that I should never take “medicine” for my problems, in part because doing so would reinforce the concept that I am a pre-programed biological robot living in a highly mechanical universe. Some of my friends say “of course you are a robot! We all are! Your often depressed because you don’t want to face reality, but you can still see what’s in front of you!”. Anyway, I prefer to have the illusion that I have free will, and hence, control over my destiny.

Wow. Enough mushy stuff about emotions. What does this have to do with China business anyway? Not much. Well, if the world ends, it ends for me in China too. I feel it would be best for me to see clearly how the world will end, and then see, within that overall disaster, where can I take control over my destiny.

The world will end in the following ways:

• Global warming is going to mess-up our world, and China is going to excellerate this
• We are all on the verge of the Trade War to End all Trade Wars.
• The drive to ever increasing efficiency is going to make human’s irrelevant.
• My existence in China (based on my ability to work and provide services as an expatriate) is threatened by the above.

OK. First of all is Global Warming. Because of the increasing demands of Chinese consumers, Greenhouse gases created in China (and…uh…everywhere else) will doom all chances of stopping global warming. Funny thing is, the more hot it gets, the more people will use air-conditioners (I know I am!) and so the more CO2 created. Because we humans are basically very stupid beings, and the inherent problem of the commons / “prisoner’s dilemma” nature of Global Warming, there is no chance of our governments cooperating to stop the disaster. At worst, the permafrost in the artic circle will melt, causing an exponential increase in CO2. The increased heat will cause the tropics to heat up, but at a certain point it won’t be able to heat up, so Ocean currents will stop, and then wind will stop, and then bad Oxygen eating microbes proliferate, and then we are all screwed. Geoengineering may be able to save us, but in the meantime, I am considering taking control of my destiny by buying land in cool Canada.

So, I have to overcome my character defects to make enough money to buy land in Canada. Not the most difficult of challenges really. However, I make my money by helping companies in China. That seems to be becoming more difficult.

As the GM of GE Jeffry Immelt said, “They won’t let us win!”. More on this here, and here. My favorite quote: “[China] is increasingly putting pressure on developing nations with large natural resources. Resource-rich nations don’t want to be ‘colonized’ by China”. Hmm. But said developing nations are OK about being colonized by the West? My goodness. Mr. Immelt is a schmuck. Of course, this has re-ignited that China-closed-to-Western business theme which I talked about before.

I tend to dismiss this “China closed for business theme. And so does my fellow alumni and “China business blogger” Rich Brubacker, at All Roads Lead to China. Rich points out these stories are often “emotionally charged”, and nowadays are backed by “data” which is really meant to show a particular biased view for political purposes, but only represents a small part of “reality on the ground”. His article really breaks down the main trends, which include: maturing, more competitive China market; effects of the economic downturn; and greed. But the point which really struck me was, “The anecdotes are driving the story.” In other words, the sky is falling for a few companies and industries, and they purposefully trying to make it seem that the sky is falling down on everyone.

I feel better to hear that the sky is not falling down on everyone. Except…maybe it really is. If we back up to the 30,000ft view of the world, we see Global Warming. We also see what may be the end of Capitalism as we know it. Robert Reich wrote (and here linking to Salon article because his blog seems to be blocked) in “The Vanishing American Consumer and the Coming Trade War”:

President Obama has vowed to double U.S. exports within the next five years. That’s because exports are critical for rebooting the American economy. …
….It’s not just that one out of four Americans is unemployed or underemployed (working part-time, overqualified, or at a lower wage than before). More significantly, the Great Recession burst the housing bubble that had let American consumers turn their homes into ATMs. Now the cash machines are closed.

So the administration figures foreign consumers will have to fill the gap.

Problem is, most other economies also relied on American consumers. Remember the trade gap? Americans used to be the world’s biggest and most reliable customers – sucking in high-tech gadgets assembled in China, car parts from Japan, shirts and shoes from Southeast Asia, and precision instruments from Germany….

…As of now China and India are still relying on net exports to fuel their growth. Even if you think their middle classes will eventually become so big and rich they can buy everything these nations will be able to produce, that doesn’t mean they’ll also buy what the rest of the world produces….Meanwhile, the productive capacities of China and India will continue to grow: More workers, more factories, more high-tech equipment, more offices. The buying power of their middle classes will have to expand rapidly just to catch up with what these nations will be able to produce.
…
When the world’s productive capacities exceed the buying power of the world’s consumers, every government wants to increase exports and discourage imports. That spells trade war.

Great. Trade war. My plan to escape Global Warming by moving to Canada is getting more difficult. It gets worse. Thanks to John Stranderfer at the Huffington Post, in his post “Where the Jobs Went“, he put the issue of the trade war into a higher perspective:

Those jobs [which US economy lost ]are no longer needed as almost every sector of our economy has figured out how to provide more and more products while relying on less and less people. Not only do we have the ability to make many times more of everything than we can possibly buy, but each item has more features and costs less than the previous year.

This trend is being amplified by newer companies like Amazon and NetFlix that are able to generate the same amount of revenue as Barnes & Noble and Blockbuster while only requiring a fraction of the number of employees.

These are structural changes that government programs cannot reverse. No amount of tax credits, investment incentives, or retraining programs is going allow companies to be able to remain competitive while employing the same number of people they did in the past. For better or worse, the world has changed and the traditional link has been broken between economic growth and employment growth.

The above reminded me of the Kurt Vonnegut book “Player Piano“¹. In his book, the upper classes of society manages the robots, while the obsolete lower classes lives off welfare. That is until Skynet takes over (which is not in the book, but one can extrapolate).

Basically, Capitalism is coming to the point where its going to start eating itself. At least, as far as the United States is concerned. There is too much production capacity. People are becoming less relevant an input into the production capacity. And producing will generate waste, hastening Global Warming.

On the plus side, I will look at the glass as, maybe not half full, but nonetheless has some drops of water in it. While China scrambles to find export markets for its over-capacity, and Westerners scramble to find more efficiency in their China operations, there will be plenty of opportunities for me. Maybe. I also feel I’m not too old to go and learn robotics.

So, to end this post I will quote lyrics: “Its the end of the world as we know it…and I feel fine”

My favorite online columnist Andrew Leonard wrote a post about GM selling their steering unit Nexteer Automotive to a Chinese SOE Pacific Century Motors, right after GM worked out a salary reduction deal with the union for this plant.

One commenter on the article noted her fury for all the management waste, greed, and incompetence which led to the fall of Nexter, which (from the commenter) used to be a Delphi company. Now I wonder, what will the new company be like with a Chinese SOE owner? Here are my predictions:

1. As the management team of Nexter will not change, they will be just as improperly mismanaged as before, only now the workers will make less money and be more pissed-off.

PCM said it planned to leave intact Nexteer’s management team, led by Bob Remenar, its president, and respect the company’s five-year labour agreement with the United Auto Workers Union.

2. The Chinese partner will take technology to China. However, most of that technology amounts to project specific modifications which will not really help the PCM make more, better products.

3. The Chinese partner will not close down the factory nor operations in America. Besides the bad press (Communist SOE lays off American Workers!), this is just not their strategy. The stakeholders on the Chinese side are investing in platforms to protect their business should the US become more protectionist.

4. The SOE partner will manage Nexter very loosely, in a hands-off way. They will realize they know nothing about managing a factory in America. However, the share-holders of PCM are basically the municipal government of Beijing and some other SOE groups. Like other SOE shareholders, they will manage the factory in a very “bottom line” manner, with strong pressure to make tight financial goals. This, combined with communication problems with the new shareholders, quite possibly will force out the current management team. Which may be a good thing for the workers.

Anyway, this is how I see this will play out. Anyone have different predictions?