Business: April 2008 Archives

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.

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This page is a archive of entries in the Business category from April 2008.

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