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09_krispykreme_lg_l.jpgThe blogger at Silicon Hutong doesn't think so.

Krispy Kreme has announced it has plans to expand from it's Hong Kong location into mainland China, with Shenzhen being the first mainland city to host the rich donut-maker. The China Economic Review reports:

"We are negotiating with the franchisor but nothing has materialized yet," said Jim (Krispy Kreme's Hong Kong CEO). "Shenzhen is a migrant city, many are from the north, and the people are more receptive to fried products."

Silicon Hutong, a well-respected blog which follows Chinese business news, thinks the move into Shenzhen shows that Krispy Kreme isn't serious about expanding into the mainland Chinese market:

...if Krispy Kreme really understood the way into China, they would start someplace where there are a lot of people who already like donuts, can't get them, and will form long, slavering lines outside their door each morning. If you're afraid of Shanghai, go with Beijing. Call me crazy, but tens of thousands of American and Canadian businesspeople, students, diplomats, and families seem like a built-in market for a store or ten, better (especially initially) than a million or two migrant workers and their factory bosses.

Silicon Hutong, which is an excellent business blog, shows a misunderstanding of Shenzhen when it characterizes it as home only to "a million or two migrant workers and their factory bosses." While there's no doubt the foreign market is larger in Beijing and Shanghai, China's expat and thriving business communities are no longer located solely in these two locales.

Shenzhen is home to millions of dollars in foreign exhibitions and trade fairs each year, has one of China's most thriving and prestigious sailing clubs, some of the highest real estate prices in China, and is home to one of the country's major stock markets. Its proximity to Hong Kong, Macao, Guangzhou, and Zhuhai, which are overflowing with the kind of expats Silicon Hutong talks about, makes it just as logical as a place to begin as Beijing or Shanghai.

The blogger also writes that KFC, McDonald's, Starbucks, Papa John's, and Pizza Hut are all examples of foreign brands that did it right. It's ironic that each of these brands are already located in Shenzhen, and are thriving. In addition, Shenzhen supports luxury malls along the lines of Shanghai's Plaza 66 and Beijing's Shin Kong Place with Armani, Gucci, and Louis Vuitton stores.

To be fair, "the Hutong" notes that there are things that Krispy Kreme could do better, such as put people on the ground in mainland China and develop relationships with local governments, rather than run their franchises from Hong Kong. But the argument against opening first in Shenzhen is another example of the tunnel vision that seems to affect expat residents of Beijing and Shanghai. People in these two cities seem to assume that the rest of China remains backwards and undeveloped, and are unworthy or unsuitable for high-level foreign brands. This shows a lack of understanding of the development that has been occurring in China's second tier cities, and is unworthy of an otherwise excellent business blog.

Tomorrow marks a very interesting time politically for one of China's most important regional partners. Australian President Kevin Rudd will arrive here tomorrow to meet with his Chinese counterparts, the last leg of his first major international tour. Rudd and Hu.jpg And while the western media here is going to be focused on Rudd's thoughts on the torch relay and the situation in Tibet and the Chinese media is going to be focused on Rudd's support for the Olympics in China and his reiteration of support for the 'one-China policy,' one of the key challenges for the new Prime Minister, which is highly likely to go untalked about, is going to be the unsexy, but highly critical issue of Chinese investment in his country's resource sector.

I suspect that politically speaking, Mr. Rudd finds himself in a somewhat precarious situation when it comes to China right now thanks to natural resources. As most people are quite likely aware, Mr. Rudd - though new on the international political stage - is considered to be an old China hand. Given that he was a former diplomat here in China and speaks fluent Mandarin, there was quite a bit of buzz in China surrounding his election. As such, I suspect many people inside and out of government here in China are expecting Mr. Rudd to be somewhat pan-sympathetic to China's concerns on both a political and business front. And while he'll undoubtedly put on an impressive display in front of the cameras, say the right things and wow the Chinese media with his ability to take questions in Mandarin, behind the scenes is going to be a different story.

One must not forget that first and foremost, Mr. Rudd is an Australian politician that has to put both his country's interests, and his supporter's interests, ahead of what the Chinese government may be expecting of him. Though Mr. Rudd is considered somewhat on the right-side of the spectrum when it comes to his political leanings within his own party, Mr. Rudd was elected as the leader of a party which has strong union support within Australia, and is generally left-of-center. As such, if he wants to maintain his core support in Australia through his term in office, he's going to have to be cognizant of their concerns. And, undoubtedly, one of the issues concerning the union movement in Australia has to be China's recent moves toward acquiring more interests in Australian-based resource firms.

Mining.jpg The most recent example is Chinalco's February move to acquire a 9-percent stake in mining giant Rio Tinto. While 9-perecent might not seem like much, Chinalco has been making rumblings about acquiring more stake in the company. Perhaps this is why Australia's Resource Minister was quoted earlier this week as saying that his government had a responsibility "to maximize returns for Australia as a nation."


Everyone knows that China is sucking up energy and natural resources faster than an Auzzie can go through a jar of Vegemite. But if Beijing is expecting Mr. Rudd to open the flood gates when it comes to plucking his country's natural resources because he knows China, it may be in for a bit of a rude awakening.

I've been working on a fascinating episode of BizTraveler this week on outsourcing. It's not exactly a sexy topic by any stretch, but what is surprising (to me, an outsourcing ludddite) is how wide-spread this practice is, and how, as one executive told me, "Everything can be outsourced."

I sat down with the Vice-President of the China Sourcing website, and he gave me a quick tour of how it operates. The site works to link overseas buyers with local providers, and really, there is no project too small. Consider one buyer is looking for a simple list of all the swimming teams and clubs in the San Francisco bay area; why do it yourself when you can outsource?

In addition to my duties at BizTraveler, I've also been assisting one international IT outsourcing provider in China with their marketing, PR, and media placements. I knew very little to nothing about the industry before I started, and now I'm finding myself slowly following industry news and trends.

According to the Vice-President of the China Sourcing website, China drew just US $2 billion in revenues from outsourcing projects last year, compared to India's US $40 billion. But the industry here is on a strong upward trajectory, as a generation of Chinese emerge with strong English skills, university degrees, and western business experience.

I arrived in Dalian this afternoon to shoot two more segments of the show this week at the famous Dalian Software Park. It's my first visit to the city, and while I haven't been here long enough to draw any conclusions, the intial impressions are quite good.

I've been doing some Google searching of late to find any good restaurants or must-see sights while I'm in town. I'm sure many readers may be familliar with these already, but I thought I would jot them down for anyone else who happens to come up this way (the "Hong Kong" of the north as some call it, although I must say that's a stretch):

As mentioned, I got in early in the day but slept most of the afternoon (note to self: must get to bed earlier) so have only walked around a bit tonight. I can't wait to see more of the city, and also check out the software park.

If anybody who lives in Dalian has any suggestions for places to eat, drink, and be merry, then please let me know!

I've always been fascinated by the world of business. And living in China right now, there are no lack of interesting business stories to sift through. But this most recent story from the airline industry in this country strikes me as particularly interesting, given the nature of the situation.

Air China's parent company, China National Aviation Corporation - a state-run enterprise - put the state in a tough spot on the PR front. Allow me to explain:

Last September, Singapore Airlines announced that it was going to try to snap up a 24-percent stake in China Eastern Airlines. Nothing to surprising about this move, given that many analysts predict China's airline industry is ripe for investment and growth. And the State Council approved the move. All seemed to be running along smoothly until this week when CNAC announced that it wants China Eastern shareholders to reject the Singaporean bid and accept an offer of 5 HK dollars a share, instead of the 3.80 HKD Singapore Air is offering. So if, and when, the shareholders accept the Air China offer, CNAC will have put the government in a very difficult situation, and one that may prove to be none-too-appealing on the business PR front.

This government desperately wants to encourage foreign investment in key areas where China has been traditionally weak. One of these areas is the airline industry. The main reason is because they want to bring in foreign talent in the managerial sector given the strong growth potential in the sector. As such, it seemed a no-brainer for the government to green-light the Singapore Air investment in China Eastern. But now that Air China is making a move, the government's image in this situation has been irreparably tarnished. When it comes to business, particularly with the state-run organizations, the government wants to appear hands off because it sends a bad message to the market when the government has its stink on any transactions. But Air China wouldn't have made the offer to the China Eastern shareholders unless it had a pretty good indication that the government was going to green-light the deal. And what makes matters worse is that a number of analysts believe that the Singapore Air offer of 3.80 HKD per share is about right for the current financial situation. As such, it appears the government is undercutting foreign investment in favor of a financially inefficient 'local' offer.

So the question I have is how much consensus is there within government circles about what is actually going to happen in this situation? Is the leadership within the China National Aviation Corporation going against the government? Has the CNAC stepped where it shouldn't have? And what will the government ultimately do? Will it approve the deal or not? If I was a betting man, this would be my prediction: The government will allow the Air China offer to stand, saying that it wants the markets to dictate the outcome. However, don't be surprised in a few months if we suddenly see the head of CNAC suddenly 'retire.'

We'll keep you posted on the results.

Run your company, Mao style

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For years I've been told by my (admittedly political) Chinese friends that Mao Zedong Thought still underpins today's economic development. They believe Mao continues to guide China forward, and his teachings still help peasants, labourers, stock-brokers, middle-managers, and CEOs make decisions. I've sloughed this off off a few times, which is why I was surprised to see today's article in the Economist.

This article, called "Mao and the art of management," argues that Mao Zedong Thought might not only be useful for Chinese businessmen, but also western ones too.

It breaks Mao's lessons down into four segments:

  1. A powerful, mendacious slogan
  2. Ruthless media manipulation
  3. Sacrifice of friends and colleagues
  4. Activity substituting for achievement

Pertaining to the media, the Economist believes that western companies can control the media, just not to the same degree as Mao:

Chief executives are not in a position to crush the media as Mao did. Nevertheless, his handling of them offers some lessons. He talked only to sycophantic journalists and his appeal in the West came mainly from hagiographies written by reporters whose careers were built on the access they had to him.
The law constrains the modern chief executive's ability to imitate Mao's PR strategy. Publicly listed companies have to publish information, rather than hand it out selectively. But many, within bounds, emulate Mao's media management; others, determined to control information about them, are delisting. Burrow beneath laudatory headlines on business and political leaders, and it becomes clear that the strategy works.

The whole story is interesting, in a bizarre way. What a turn of events: western businessmen possibly taking advice from one of Communism's great heroes.

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