July 28, 2006

North Korean “Mass Games” and the curious shortage of girls

Filed under: Gaming,Retail — Administrator @ 4:10 pm

In the late 90s, I was an equity analyst with a bank in Hong Kong – my job was to cover listed companies in Southeast Asia – it was an interesting and tragic time thanks in large part to the Asia financial crisis and surging interest in technology/Internet related start-ups.

Around that time, famed global macro (hedge fund) trader Jim Rogers and his fiancée Paige set out on a three year 245,000 kilometer track around the world – aptly named The Millennium Adventure – Rogers & Co traversed the globe in search of blossoming macro trends and investment opportunities.

While mirroring Rogers’ keen investment sense has proven, well, very challenging, I’ve been fortune enough to retrace numerous segments of his Millennium Adventure – yet, of all the places I’ve been to, one locale has continued to elude me – Korea – specifically, Democratic Peoples Republic of Korea (loving known as North Korea). That was until this June when several of my friends from Hong Kong, Taiwan and Shanghai decided it was time to visit the boys in the North – the plan was to heading into DPRK first week in September 2006.

But, that was before last night, when we got word from Pyongyang that the 2006 Arirang performance (Mass Games) had been cancelled due to the recent large scale flooding (evidently, the flooding is considerably more serious than the outside world has been led to believe – humanitarian aid might be needed). The connection between this massive propaganda event and our visit is tied to our visa window – US citizens are allowed entry in to North Korea under the umbrella of attending the Mass Games – now that there is no more Mass Games there is no more visa. Drat!

This is totally disappointing – one of my favorite articles written by Rogers during his Millienium Adventure told of his observations in Korea – the article titled “The Curious Shortage of Girls” was written in June 1999. I am completely curious to see how his predictions have played out (and while much of what he has to say pertained to South Korea, Rogers seems convinced South and North shared very similar characteristics – viewing the two as a single entity). Below are some excerpts:

Women constitute nearly 40 percent of the labor force, about a third of whom work on family farms. The rest work in services, health care, and textile and electronics manufacture, whose work force is 70-90 percent female. What has most bowled over Paige and I about Korea is the shortage of girls.

This demographic shortfall is true all over Asia, in Japan, Taiwan, and other countries, the first time these civilizations have faced this particular problem. In Korea in 1993 there were 115.6 boys born for each 100 girl babies. In 1995 only 47.9% of primary school children were female, which meant an extra 200,000 6-to-11-year-old boys. Local sources estimate that by 2010 there will be 128 men to every 100 women in the 27-to-30 year cohort.

This presents a serious demographic problem. Oddly enough, a similar situation occurred in Europe just before the year 1000, when for similar reasons girl babies were killed. As a result, back then it wasn’t the bride’s father who paid a dowry, but the husband who paid the bride’s father to obtain his new wife.

Rogers goes on to conclude that not only will this shortage of females mean an Asian imbalance, but it will also mean more and more women would delay getting hitched, opting to remain in the work force longer and longer – translating into growing demand from everything a young woman might desire to set up her own household (e.g. kitchen appliances, furniture) to frozen food and other easy-to-prepare meals.

How is this playing out in China today?

In February 2006, China’s State Bureau of Statistics reported that China’s population grew by 8.1 million people in 2005 to 1.307 billion – whereby there were 119 boys born for each 100 girls (source: Family Planning Commission of China) – in practical terms, this translates into about 40 million Chinese mainland men who won’t be able to find spouses by 2020.

If you walk around the supermarkets, talk to “independent women” or just plain old “people watch” (no peeping tom here) you’ll find that more and more women are getting hitched later in life, and that, yes, in fact, frozen food and ready made meals are gaining in popularity. Furthermore, the number of fitness centers and spas catering (and offering exclusive services) to women have grown exponentially over the past couple of years – and, although the make-up of the clientele at my local gym, Fitness First, breaks evenly across the male-female line (about 51% to 49% according to Fitness First in Shanghai) – the trend is favoring a larger number new female members over new male members.

Where do we go from here?

Already, several foreign companies have picked up on this trend – thanks to data mining – and thus are truly marketing themselves to women (e.g. snack food/ice cream retailer Diary Queen’s core clientele are young women between age 15 and 35). However, the vast majority are still scratching their heads – trying to figure out what to do with a growing number of independent women actively engaged in the work force – that I ex-ladies social hour at the tea house segment.

But, maybe we need to take a step back – maybe we’re getting too far ahead of ourselves – perhaps we need to resolve the macro picture first before trucking down the segmentation highway – my general view is that Chinese companies/organizations/government bodies are still trying to figure out how to deal with needs of the overall population (talk about full circle)…

Here is what I’m talking about. This week, Chinese airlines reported first half 2006 (H106) combined loss of US$321 million on the back of what regulators from General Administration of Civil Aviation of China said where “higher fuel costs”. Okay, well, that makes sense – or does it? Not really – there has to be more to it than just fuel costs – especially, during the same period a vast majority of US based airlines that have reported earnings have posted profits –- some that were double Wall Street’s expectations.

Anyone who has flown in China (particularly between Beijing – Shanghai – Hong Kong over the past 12-months) will tell you that delays have not just skyrocketed, but are seemingly out of control. The number of people traveling in H106 ratcheted higher by 18% to 74.3 million people – a pace which is on track to reach analyst forecasts of over 100 million passengers by first quarter 2007.

I don’t see the profitability issue at all related to fuel costs – the problem (big picture) is all about efficiency – or rather the lack of efficiency and proper logistics in China’s airline industry – demand is stretching the limits of existing infrastructure and personnel – well beyond capacity. And, short of banning the number of air travelers, there really is no solution in sight…

China is unique to any other country I’ve ever visited – there are so many business opportunities and niches to exploit that an investor/entrepreneur could spend a lifetime in the trenches – and yet China is still trying to figure out how to connect the dots on some of the most basic services.

So, rather than coming up with yet another virtual wallet or video search engine maybe we should be focusing on the basics – like, entertaining people waiting in a long line or sitting in an airport lounge.

Interestingly enough the boys over at Mr. Softy (Microsoft) are catching on to this as well. Last Thursday, MS CEO Steve Ballmer said “…we’re trying to grow two new cores, one online and one in [digital] entertainment services…which should help…bore deeply into the emerging markets…”

Companies, such as MS (assuming they can pull it off) that offer services that address the needs of regular people – providing them with products/services (and there a lot more out there than simply casual gaming) that they can participate in through the places that already touch their lives – places they are familiar with, such as airport lounges – are going to be winners.

Of the winners, however, there will be a select few who rise to the top – these are the guys who are not just first to establish basic (comprehensive) services but also have the ability to rapidly scale/offer more specialized services/products – addressing the needs of, say, independent women…

July 20, 2006

How Failure Breeds Success

Filed under: Podcasting,Start-up First Aid — Administrator @ 10:47 am

Businessweek’s July 10, 2006, cover story “How Failure Breeds Success” by Jena McGregor is a must read for anyone striving for excellence in business – entrepreneurs and corporate soldiers alike.

There is a real nice quote by Scott Anthony, managing director at consulting firm Innosight where he discusses encouraging intelligent failures:

”Figuring out how to master this process of failing fast and failing cheap and fumbling toward success is probably the most important thing companies have to get good at.”

Anthony goes on to explain that “getting good” at failure doesn’t meaning creating anarchy out of organization but rather it means leaders need to create an environment safe for taking risks, and then reflect on those mistakes.

You can listen to McGregor provide some behind the story nuggets by listening to her podcast.

You might also want to listen to “Innovation Champions” a podcast with Michele Conlin where she talks about the new breed of managers and their radical cultures.

And, while you’re at it why not checkout how RSS champion, Feedburner, encourages innovation – Hackathon.

July 13, 2006

Used Cars in China: Part 3 – What do you get when you mix sake and baijiu?

Filed under: Automotive — Administrator @ 2:45 pm

The winning used car model in China is going to be a combination of an online/offline offering – this, I think, we all know. The question is who is going to be the first player to make this happen? The key to unlocking this secret is in fact not a key at all but rather an Apple.

No, not a Steve Jobs’ Apple but a Japanese Apple – namely Apple International Company Limited. Apple, one of Japan’s largest secondhand automotive dealers, not only operates over 290 nationwide franchised used car outlets but also exports secondhand automobiles to overseas markets, principally to Southeast Asian countries.

Back in September 2005, Apple Auto Network, a subsidiary of Apple International, teamed up with Beijing-based Yafei Cars and a leading Japanese conglomerate, Sojitz Company, to establish Beijing Taizhi Zixun Company. Aipu, as the joint venture has been come to be called, will purchase and sell used cars through a franchise network in China – Aipu looks to have 500 stores by year-end 2007 and 3,500 branches by 2010 (a bit ambitious, aren’t we?).

The last bit of public information I’ve been able to find on this relationship was from an April 2006 report in China Daily announcing the opening of Aipu’s flagship store in Beijing’s Changping district.

Right. So, how dominating is this venture going to be? I think the answer hovers somewhere between absolute domination to competitive (oh, yeah to complete bust, but let’s be glass is half-full people for just once).

And here is why – the core players (Apple and Yafei each own 40% of the JV) bring to the table three core attributes: (1) automotive related franchise experience in both domestic and international markets; (2) ability to readily source, control, replenish used car inventory; and (3) in-house technology expertise (e.g. infrastructure, auction, and sales management).

Apple International Company Limited

Apple International entered China in 2003 when it established A.I. Holdings in Hong Kong. Over the past three years, A.I. Holdings has established several subsidiaries and joint ventures in China and Hong Kong – and thus amassing the following four business line: (1) international car trading – buying/selling new and used cars; (2) car rental and leasing; (3) operates China-based automotive dealerships, selling both domestic (Jinbei, Dadi, Wuling, Hangtian, and Soyat) and foreign (Mercedes, Renault, Hyundai, Chrysler, Jeep and Mitsubishi) brands; and (4) global/regional exporter of Chinese made cars via its subsidiary China Automobile Exports.

The “amassing” kicked off in March 2004, when Apple International established a new joint venture in Hong Kong called Prime On Corporation which would focus on establishing a nationwide (China) chain of Mercedes dealerships. This was followed a couple months later, May 2004, with the creation of Yunnan Kubo Auto Trading Limited, an entity 90% owned by A.I. Automobile (China) used to purchase Xinglong Motor Group. Xinglong maintain franchise rights to sell Renault, Hyundai, Chuka, Chrysler and Jeep.

In April 2005, Apple entered the Shanghai market by establishing, China Automobile Exports (CAE). With showrooms in Shanghai, CAE has exclusive global distribution of Shenyang Jinbei (pick-up trucks and SUV), SAIC GM Wuling (mini-trucks and mini vans), and Wuxi Yuejin (sedans); CAE has exclusive regional (Africa, Australia, and part of Asia and Middle East) distribution rights of Baoding Dadi (pick-up trucks and SUV) and Shanghai Zhunti (min-bus).

Back in Japan, Apple was equally as active on the technology front. In February 2004, Apple International purchased 16% of Autobytel Japan. The Alliance was intended to build a web based auto marketing platform to serve customers in Japan, China and Southeast Asia to support Apple’s dealerships in China and Thailand – essentially, Apple wanted to develop Internet sales network to cover Asia Pacific region, leveraging Autobytel’s platform.

About a year later, January 2006, Apple liquidated its stake in Autobytel. I spoke with some individuals from Apple and from what I gather there are two key reasons for this liquidation: (1) public response – Apple had a shift in direction; and (2) internal response – there wasn’t enough demand for a web based platform outside of Japan (i.e. market immature).

Anyhow, back to 2004, specifically September 2004, Apple Auto Network (a subsidiary of Apple International) formed an alliance with i-Auc (a web based subsidiary of Aucnet, one of Japan’s largest used car auction networks) and established Apple Auction. The platform Apple Auction – based of i-Auc’s internet auction bidding service – is used nationwide by Apple Auto Networks’ 300 franchised used car outlets – Apple’s end game is to introduce the platform to China.

Yafei Qiche (Automotive) Chain Store

Founded in 1994, Yafei is one of China’s largest nationwide chain stores with 500 outlets in 240 cities across China – of which about 270 outlets have links with local banks and insurance companies to provide loans. Yafei also has ties to Century Automotive Club, an automotive rental/leasing company with a nationwide network consisting of about 50 branches.

Early in 2000, Yafei looked to leverage the Internet by signing a deal with Sina.com in June 2000, to develop an online car sales and rental platform. The deal would later include provisions for an online auto lease lead generation platform.

Actually, Yafei was one of the earliest players in the auto leasing segment – this largely came as result of Chinese banks looking to spread their risk among several institutions. For example, Yafei formed a joint venture with department store chain Parkson and Shanghai Automobile Industry Sales Corporation to guarantee car loans. Unfortunately, this and other such relationships lead to a 2003 investigation by People’s Bank of China (central bank) into Yafei’s automotive finance business.

Some concluding thoughts

Offline, Aipu looks fairly well positioned to be a major threat in the used car space – the key is to observe how they plan to leverage the Internet. On one front, Apple is coming off a one year partnership with Autobytel while continuing to maintain its relationship i-Auc’s Internet based auction network – so, yeah, there is knowledge that can be transferred. On the other front, Yafei has shown they too are “somewhat” web savvy having forged a partnership, albeit unsuccessful one, with Sina five years ago (my guess is it was less about the offering and more about timing). It seems reasonable to assume Aipu has Internet opposable thumbs and therefore won’t completely muck up an Internet offering.

Yet in spite of this neither Apple nor Yafei has an existing footprint in China’s Internet space – and to be honest, if you want to hit the market hard and fast, you’re gonna need this footprint from day one (queue Conan the Barbarian: Crush your enemies. See them driven before you…).

And so, this seems like an excellent opportunity for a China based auto related Internet portal with zero resources to address the offline opportunity and start chatting Aipu up with the idea of owning Aipu’s online presence (perhaps, drawing some lessons learnt from Ebay’s hook-up with Manheim and AutoTrader).

As Sox fans say…cowboy up!

July 10, 2006

Three-part PBS series draws portrait of Warren Buffett

Filed under: Start-up First Aid — Administrator @ 7:20 pm

USA Today journalist Bruce Horovitz notes American based Public Broadcasting Service’s (PBS) Charlie Rose begins a three-part series about Warren Buffett that looks at all aspects of one of the world’s wealthiest men.

Says Rose, in a phone interview about the Buffett series:

“This is a man who has a passion for his work as deep as anyone I’ve ever seen. He is a living testament to the fact that the happiest among us are those who shape their lives in a way that satisfies their own values and passions.”

Those of us living in Asia and unable to access US public TV we’ll have to wait for someone to post the program on the web…

UPDATE (7/13/06)

You can view the Buffett interviews by clicking to Charlie Rose’s website but, again, for those of us living in Asia (China) you wil not be able to access the video clips as they are hosted on Google Videao and Google Video isn’t available to us:

Thanks for your interest in Google Video.
Currently, the playback feature of Google Video isn’t available in your country.
We hope to make this feature available more widely in the future, and we really appreciate your patience.

July 6, 2006

Dairy Queen stoking China’s franchise boom one blizzard at a time

Filed under: Automotive,Retail — Administrator @ 5:01 pm

Dairy Queen outlet – XuJiaHui, Shanghai

Earlier this week, I was playing rugby next to Shanghai stadium, contemplating why New Zealanders are so much better at this game than Americans, when out of the corner of my eye I spotted heaven on earth – Dairy Queen. For those in the know, DQ makes up a quarter of what we in America call our cultural soul (the remaining three quarters include, American Idol, any credit card, and Oprah).

After downing two Monster Cookie Blizzards, braving the associated (and excruciatingly painful) “brain freeze”, and finally, marveling at my new found little piece of haven, I headed off to do a little research on DQ in China.

And what I found was very interesting – DQ is a US$3 billion ice cream retailer based out of Minnesota and owned by Warren Buffets’ Berkshire-Hathaway – 99% of DQ’s revenues are generated via franchising. DQ has a franchisee in Beijing responsible for 41 outlets, a second deal with Shanghai-based RCS Group Co Ltd, and a third agreement with Guangdong Foison to open 14 DQ locations in China – DQ expects China to become its largest market in five years.

I haven’t looked at franchising plays in a long time – I think it was back in 1993 while I was a student at Nankai University in Tianjin that I first decided I wanted to rollout Subway outlets in China (Beijing’s railroad administration bested me in a franchisee battle royale) – maybe it is time to start reconsidering this model again?!

According to the U.S.-China Consulting Group in Beijing, China now has about 1,500 franchise companies – local and foreign concepts – with 70,000 franchisees. In 2003, sales from franchised stores increased 44% from the previous year, but franchising still makes up only 2% of all retail sales.

Compare China’s 2% to that of the United States where over 33% of all retail sales are from franchised stores – this US figure could climb as high as 50% by 2010, according to Naisbitt Group’s The Future of Franchising – we could be just a the beginning of something beautiful – this of course assumes Chinese consumers are as much interested in consumption as their American friends across the pound – anyhow, with the right blend of product, brand, and customer service we could see some spectacular growth from of this sector in the coming years.

For example, franchised used car dealerships…

July 4, 2006

China’s “Capitlist Roaders” go global – “Bandit, this is Snowman, what’s your twenty?”

Filed under: Automotive — Administrator @ 3:43 pm

Over the weekend, the New York Times weekend magazine ran an article written by Ted Conover titled “Capitalist Roaders“. (You’ll need to register online with the New York Times but it is free and worth the extra two minutes it takes to fill in your digits.)

Capitalist Roaders is not only a “docu-article” detailing Ted’s seven day “self-driving tour” with Beijing Target Auto Club but is also a glimpse at how an American might view China’s expanding/growing domestic automotive culture.

Some insights are accurate, for example:

But of course the story is not only about construction and production; car culture is taking root in China, and in many ways it looks like ours. City drivers, stuck in ever-growing jams, listen to traffic radio. They buy auto magazines with titles like The King of Cars, AutoStyle, China Auto Pictorial, Friends of Cars, Whaam (“The Car — The Street — The Travel — The Racing”). Two dozen titles now compete for space in kiosks. The McDonald’s Corporation said last month that it expects half of its new outlets in China to be drive-throughs. Whole zones of major cities, like the Asian Games Village area in Beijing, have been given over to car lots and showrooms.

Some insights are totally (sorry) off the mark, such as:

The astronomic growth of China’s car-manufacturing industry will soon hit home for Americans and Europeans as dirt-cheap Chinese automobiles start showing up for sale here over the next two or three years.

Raise your hand if you think US consumers will settle for dirt-cheap, unattractive, old-skool combustion engine Chinese made cars when they can have low cost, fuel efficient, stylish Japanese products instead? The answer is right in front of your face – U.S. sales fell for all three big American automakers in June, led by a 26 percent drop at General Motors Corp. (GM), while Japan’s Toyota Motor Corp. surged – this is on the back of US manufacturers virtually giving cars away for free.

But our hero, Ted, ultimately concludes his opus on a glorious note, accurately stating:

And, in heavy traffic at the end of a tiring trip, it was easy to worry that the Chinese, rather than charting an innovative, alternate route into the automotive era, were on their way down a road that looks a little too familiar.

I wonder how long it’s gonna take until China’s government bans all pure combustion engines (i.e. non-hybrid) from the market (for domestic sale)? I’d bet my little red book we’ll start seeing hints of new regulations within the next five years.

So what does this all mean, if anything?

Initially, I faded Ted’s article as yet another “I went to China and learned this” story. But something funny happened – over the past three days, I started getting a boat load of email from all these Americans, all well traveled, college educated, and completely ignorant to investing in China (i.e. no exposure to China) – sparking a thought, what does it mean that these guys are asking me whether or not they should consider investing in China’s automotive sector when these same guys never thought of lifting a figure to buy Baidu or Sina?

And moreover, what does it say about the interests of the notoriously fickle, often overly demanding NYT readers that seduced the magazine’s editor(s) to run an article about China’s car culture? Maybe it’s a desire to see fuzzy dice and CB radios make a comeback (…but I hope not).

Maybe we’re seeing the early signs of the next big big investment play out of China…and then again, maybe I’m just projecting…

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