Insight Magazine Novemer 2012

INsIGht NOVEMBER 2012

the Journal of the american Chamber of Commerce in shanghai

AMCHAM SHANgHAI PRESIDENT

Brenda Foster VICE PRESIDENT OF PROgRAMS

scott Williams DIRECTORS

F e at u r e s

18 Bridges and Barriers

18

BusINess aND CuLture

By Linda Yu

Executives say language and cultural misunderstandings can often scuttle a deal or hurt company performance.

BUSINESS DEVELOPMENT & MARKETINg

Patsy Li

COMMITTEES

stefanie myers

EVENTS

Jessica Wu

22 What’s In a Name?

INDustrY INsIGht

22

26

DISNEy

David Basmajian

ISTOCKPHOTO

INSIgHT EDITOR-IN-CHIEF/ COMMUNICATIONS & PUBLICATIONS

By Meredith Rodriguez

Those picking a Chinese name may have some explaining to do if they ignore a set of strict principles.

FINANCE & ADMINISTRATION

helen ren

MEMBERSHIP & CVP

Linda X. Wang

INSIgHT MANAgINg EDITOR

Bryan Virasami SENIOR ASSOCIATE EDITOR

erika Wang

26 Mickey Takes Shanghai COVer stOrY

By Lauren Hilgers

Disney’s new theme park promises the real Disney experience – with Chinese characteristics.

SENIOR COMMUNICATIONS ASSOCIATE

ryan Balis DESIgN

alicia Beebe LAyOUT

tina tian PRINTINg

mickey Zhou Snap Printing, Inc.

INSIgHT SPONSORSHIP

34 China’s Aerospace Industry

Insight is a free monthly publication for the members of The American Chamber of Commerce in Shanghai. Editorial content and sponsors' announcements are independent and do not necessarily reflect the views of the governors, officers, members or staff of the Chamber. No part of this publication may be reproduced without written consent of the copyright holder.

By Erika Wang

Keith Crane of RAND Corporation talks about China’s evolving aerospace industry and whether the country will produce an indigenous aircraft.

(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact David Basmajian (86-21) 6279-7119 ext. 8066 david.basmajian@amcham-shanghai.org

34

INterVIeW

I N s I G h t s ta N D a r D s

5 News Briefs

17

DeaL OF the mONth

Medtronic Buys Supplier

50 Favorite Handheld Device eXeCutIVe GaDGets

INsIDe amCham Shanghai Centre, Suite 568 1376 Nanjing West Road Shanghai, 200040 China tel: (86-21) 6279-7119 fax: (86-21) 6279-7643 www.amcham-shanghai.org

40 From the Chair 41 Board of Governors meeting 44 amCham shanghai in Pictures

46 Government relations 49 Committee highlights

COVER ILLUSTRATION By TIAN CHI

Editor's note

L

David Basmajian editor-in-chief/ Director Communications & Publications

ocalization. It’s a trend all of us working here in China are familiar with as our companies become more and more integrated into the Chinese culture. For some, it’s a marketing priority and for others it’s a cost issue. But according to AmCham Shanghai’s 2011–2012 China Business Report, almost three-quarters of American companies in China are doing it.

In this month’s cover story, “Disney’s Road to Shanghai,” we learn what it takes to build a Magic Kingdom in Shanghai. Targeted for the end of 2015, Disney will open its newest Disneyland resort in Pudong and a top priority is to adapt well-established theme park and resort traditions to a “new and very different market.” While Mickey Mouse will always be Mickey Mouse, Murray King of Disney tells us: “We want to give the public an authentic Disney experience…The other part is that we want it to be distinctly Chinese.”

If Disney is as successful in Shanghai as they have been in other markets, expect the new resort to be a “how to” case study for integrating your business into the Chinese market. Check out Disney’s plans for its local work force, resort food and the layout of the park itself on page 26.

One item on Disney’s to-do list already checked is the creation of a Chinese name for their company.

Other MNCs have taken this on as well, some more successfully than others. In “What’s In a Name?” we learn why picking your company’s Chinese name is critical to your brand and how to go about it. The gold standard? Coca-Cola, or ke kou ke le (happy and tasty). A cautionary tale? Toyota’s Prado SUV. They travel with you everywhere and many of us can’t do without them. What am I talking about? Your favorite electronic device, of course!

(As I write this note, Apple has just launched its iPad Mini, likely the next must-have). This month, Insight asks executives about the gadget they hold most dear.

And finally, a friendly reminder. AmCham Shanghai’s yearly Business Climate Survey will be sent to all corporate members in early November.

The annual survey is critical to the Chamber’s ability to identify the challenges you face on a daily basis and our working to do something about them.

Please take a few minutes to complete the survey!

The China Business Report, which is based on the survey results, will launch in February.

News

n ne ew ws s b br r ii e ef fs s

CHINA BUSINESS

China car sales fall amid Japan tensions Sales of passenger cars in China fell 0.3% in September to 1.32 million vehicles year-on-year – its first monthly sales slump in nine months.

The China Association of Automobile Manufacturers attributed the drop on Chinese consumers angry over the recent territorial spat with Japan over the Diaoyu Islands in the East China Sea. Sales of Japanese passenger vehicles in September totaled 160,000 vehicles, down 30% from August, while their share of sales declined to 13.2% from 18.6%.

Domestic brands won an unexpected gain from the Japanese slump, with sales rising 27% in September from August to 561,900 vehicles. U.S. auto makers’ sales rose 12% to 168,200, while German auto sales fell slightly to 253,700.

Foxconn halts production after disputes Foxconn Technology, a key supplier of Apple Inc., halted production at its plant in Zhengzhou, central Henan Province, following a dispute on Oct. 5 over stricter quality inspections for the iPhone 5. Officials indicated that production resumed after one hour, but New York-based China Labor Watch said 3,000 to 4,000 workers went on strike, which lasted about 10 hours.

Foxconn denied a large-scale strike, saying the plant suffered only two small disputes on Oct. 1 and 2. The company has recently been embroiled in a series of disputes. On Sept. 24, Foxconn temporarily closed its plant in central Taiyuan, Shanxi province, after a riot erupted a day earlier. The same factory was the site of a brief strike during a pay dispute last March.

Shanghai NYU to begin classes NYU Shanghai, the first Sino-U.S. joint venture university, will soon begin admissions for its inaugural freshman class for the 2013 fall semester. The first intake will comprise 300 students, half of which will be Chinese applying through the national college entrance exam. The university plans to eventually enroll 3,000 undergraduate, graduate and professional students. Graduates will receive a double bachelor’s degree from both the local branch and the New York-based main campus.

Tuition for Chinese mainland students will be about RMB100,000 (US$15,948) a year, the highest on the Chinese mainland, but only about a third that of New York University’s. Overseas students will pay according to the tuition of New York University, while tuition for mainland students is reduced because it is a government-backed university. Though courses are taught in English, all the students must learn Mandarin, according to the university.

The campus in Lujiazui in the Pudong New Area is NYU’s second major international campus after Abu Dhabi in the United Arab Emirates.

China’s businesses expand Individually owned businesses grew steadily at 4.4% annually from 2002 to 2012, while private enterprises achieved an annual growth rate of 15.5%, according to data by the State Administration for Industry and Commerce (SAIC). Private enterprises account for more than 70% of

november 2012

China’s total enterprises and contribute to more than 60% of the country’s GDP together with individually owned businesses. Moreover, they provide 80% of jobs nationwide, with 90% of new jobs from the private sector, according to SAIC. Officials attributed the rapid and steady growth of the nation’s individual and private businesses during the past decade

insight

5

to the implementation of reforms designed to improve the market system and create a fair and competitive environment.

Banks report falling profits China’s top 10 listed banks saw slowing net profits in the first half of the year as bad loans increased, according to a report

by PricewaterhouseCoopers. The banks reported RMB513.2 billion (US$81.5 billion) of net profits during the first half, up 17% year-on-year, but the growth rate dropped from the 34% in the same period last year. The report attributed the slowing profit growth to the People’s Bank of China, the central bank, which cut interest rates twice this year while widening the interest rate bandwidth for loans and deposits. China’s top 10 banks, including the Industrial and Commercial Bank of China, China Merchants Bank and China CITIC Bank, reported total assets of RMB76 trillion as of the end of June, up 10.7% from the end of last year.

CORPORATE NEWS

Otis opens Chongqing plant Otis Elevator Company, a unit of United Technologies Corp., announced the opening of a new LEED Gold standard plant in Chongqing, southwest China.

The new facility has the capacity to manufacture more than 15,000 elevator units annually. This is the second factory opening for Xizi Otis, one of four brands under Otis China. The company said the facility’s LEED standards reinforce Otis’ environmental commitment, which spans all aspects of its business, ranging from manufacturing processes to company-wide operations. China currently accounts for half of global elevator sales. Otis said it plans to open three additional factories in Florence, South Carolina; Bangalore, India; and Sao Paolo, Brazil in 2013.

Citi to issue sole-branded credit cards Citibank (China) Co., Ltd. has unveiled

its new set of Citi China UnionPay, Visa and MasterCard credit cards, which can be used at merchant outlets across China and around the world. The move makes Citibank the first international bank to issue a sole-branded credit card in China. The bank is offering five cards across two categories, Premier Miles and Rewards, with different spending levels and preferences. The Citi credit cards are available across the 13 cities it operates in.

China is the 15th market in Asia where the bank now offers credit cards. Citi said it expects China to be the world’s largest credit card market by the end of the decade.

Kellogg inks China JV U.S. cereal maker Kellogg Co. has agreed to a Shanghai-based joint venture with Singapore agribusiness group Wilmar International Ltd. to expand its presence in China’s breakfast and snack foods market.

Kellogg said Wilmar will contribute infrastructure, supply chain scale and its sales and distribution network in China to the 50-50 joint venture, which will market the Kellogg’s and Pringles brands.

China’s snack-food market is expected to reach an estimated US$12 billion by year-end, up 44% from 2008, driven by a growing middle class consumer base and an increased desire for a wide range of packaged and branded foods, the company said. Kellogg had acquired a majority interest in Chinese cookies and crackers manufacturer Navigable Foods in 2008 but disposed its stake earlier this year due to operating losses.

MACROECONOMICS

China housing market remains cool China’s housing market in its peak sales months of September and October remained cool as consumers adopted a “wait-and-see” attitude amid the government’s efforts to curb property prices. In a poll by property website Soufun, 30% of respondents said they planned to buy a house during the two-

month period, while 51% said they would make a decision based on changes in house prices. Figures from 20 cities monitored by the China Index Academy showed that the number of weekly sales in the first half of September dropped by 12% to 13% from a month earlier. Despite growing downward pressure on the economy, experts believe China should and will continue to cool off the property market.

China’s services slows, manufacturing recovers China’s services sector grew at a nearly twoyear low in September while manufacturing activity improved for the first time since May, according to data by the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

The official purchasing managers’ index (PMI) for the service sector, slanted more toward big state-owned enterprises, fell to 53.7 in September from 56.3 in August. As a reading above 50 indicates expansion, the index signaled a continued growth in service activities, but at the slowest pace since November 2010. Meanwhile, the PMI for the manufacturing sector rose to 49.8 in September from 49.2 in August, though a reading below 50 suggests it remained in contraction.

ADB cuts China growth forecast The Asian Development Bank cut its GDP growth estimate for China to 7.7% from the previous 8.5%, warning that risks were likely to intensify in the short run given sluggish global demand and the uncertain outlook of its largest trading partners. The bank also cut its 2013 growth forecast for China from 8.7% to 8.1%. Despite the downward adjustments, the bank said it believed the country would still be able to achieve a soft economic landing given its strong fiscal position, receding inflation and expansionary policy measures. Manilabased ADB also cut its growth estimates for developing Asia from 6.9% to 6.1% for 2012 and from 7.3% to 6.7% for 2013,

november 2012

insight

7

attributing the euro zone’s sovereign debt crisis and U.S. fiscal concerns as the biggest risks to the region’s outlook.

U.S.-CHINA

China overtakes U.S. as top crop importer China passed the U.S. last year for the first time to become the largest importer of agricultural products, according to data by the World Trade Organization. Imports, including food and beverages, rose 34% year-on-year to US$144.7 billion in 2011, while exports gained 25% to US$64.6 billion. China had a net-import bill last year of US$80.1 billion, while the U.S. recorded US$31 billion in net exports.

Growth in the second-largest economy has boosted demand from soybeans and corn to powdered milk and sugar. Imports of rice jumped 58% from 2010 and sugar purchases gained 65%, according to China customs data.

Hanergy to buy U.S. solar start-up Miasole Miasole, among Silicon Valley’s hottest cleantech start-ups, has agreed to be sold to China’s Hanergy Holding Group for US$30 million. Miasole’s deal with Hanergy, China’s largest privately owned renewable energy provider, is the latest example of a U.S. solar start-up being bought by a larger Asian industrial manufacturer.

In the last year, HelioVolt and Ascent Solar Technologies Inc. have sold stakes to South Korea’s SK Group and China’s TFG Radiant Group, respectively. Solar manufacturers are struggling with a global glut of solar panels that has erased profits and hampered funding for new companies and technologies.

Chinese flock to GMATs One in five people who took the GMAT last year was from China, according to the Reston, VA-based Graduate Management Admission Council, which administers the business-school entrance exam globally.

8

insight

The number of tests taken by Chinese citizens rose 45% from last year to 58,196.

U.S.-based test takers accounted for the largest number for the 12 months through June, while students from India rounded out the top three. Many students rushed to take the exam before a new section, Integrated Reasoning, was introduced at the beginning of the summer. Factors that contributed to the jump in Chinese test takers include higher numbers of Chinese citizens completing college, and thus eligible to apply to graduate school, and institutions’ increased overseas recruitment efforts.

U.S. boosts tariffs on Chinese solar firms The U.S. Commerce Department adjusted tariffs on Chinese solar-panel makers in the range of 24% to nearly 36%. The department also set additional countervailing duties ranging from 15% to 16% to combat Chinese government subsidies. The department said Chinese solar-panel makers, including Suntech Power Holdings Co. and Trina Solar Ltd., have been selling panels at prices 18% to 250% below fair value. The U.S. has been collecting the tariffs on a provisional basis since a preliminary ruling in March. The duties will not be final unless the U.S. International Trade Commission finds, in a probe set to conclude in November, that U.S. companies were injured by the dumping. The U.S. imported about US$3.1 billion worth of solar cells and panels from China in 2011.

GOVERNMENT & POLICY

China rolls out new trade measures China announced new measures to stimulate trade that include axing certain fees for customs inspection as of Oct. 1 to lower clearance costs, promoting paperless categorized clearance and improving the 12360 service hotline.

However, analysts say the measures still fail to address the core problems of weak

NOVEMBER 2 0 1 2

external demand and tight credit. China has also said it would speed up payment of export tax rebates, provide more loans to exporters and extend export credit insurance coverage to smaller firms to boost disappointing economic data.

China’s foreign trade grew at 6.2% in the first eight months – well below the 10% target set for the year.

Suntech gets RMB200m loan from Wuxi China’s Suntech Power Holdings Co., Ltd. the world’s largest solar panel maker by capacity, has been granted an emergency funding package worth RMB200 million (US$31.7 million) from the government of Wuxi in east China’s Jiangsu province.

Suntech has the largest photovoltaic solar panel production base in China. The company’s debts totaled US$1.79 billion in the first quarter of 2012, and it still has about RMB1 billion worth of debt to pay back by the end of the year. Chinese media reported that China Development Bank plans to provide credit support to 12 domestic solar companies, including Yingli Green Energy Holdings Co., Ltd. and Trina Solar Ltd.

CPC probes 25 demolition cases The Communist Party of China (CPC) Central Commission for Discipline Inspection (CCDI) said it dealt with or supervised the processing of 25 cases involving demolition and land appropriation in 2011. According to official data released by the CPC and the Ministry of Supervision, disciplinary punishments were handed down to 45 people, and 83 people were handed over to judicial authorities for inappropriate behavior in land cases. Under China’s rapid urbanization, forced demolition has become a practice that has triggered protests and discontent among the public.

Also in 2011, the CCDI joined the Ministry of Supervision and the Ministry of Land and Resources in meting out disciplinary

penalties to 3,733 people and transferring 2,393 people to judicial authorities for irregularities concerning land use.

SHANGHAI BUSINESS

Shanghai increases incentives for MNCs Shanghai is offering more incentives and increased convenience to attract more multinational companies (MNCs) to locate or upgrade their regional headquarters in the city. MNCs that plan to set up headquarters at Asia level or above in Shanghai with more than 50 staff can receive RMB8 million (US$1.3 million) for the following three years, up from RMB5 million, while existing headquarters with more than 50 employees that are upgraded to Asia level or above can get RMB3 million. The Shanghai Commission of Commerce also said it would offer longer visas for company executives, increase quotas for headquarters to exchange foreign currencies or use the yuan, and allow more executives to apply for

foreign expert certificates. As of the end of September, 393 MNCs have regional headquarters in the city.

Baosteel closes Shanghai plant China’s biggest steelmaker, Baosteel Group, has closed a plant in Shanghai’s Luojing District to avoid mounting losses amid weak demand. The company did not disclose the capacity involved or when production may resume. However, a Baosteel source said the Luojing plant may eventually be relocated to regions with lower input costs. In July, Baosteel said that over the next five years it will transfer 30% of its steelmaking capacity in Shanghai to Guangdong province and the Xinjiang Uygur Autonomous Region. China’s steel industry, which accounts for about half of the world’s output, is struggling with weak demand, falling prices and rising costs.

Beijing’s imposed curbs on construction targeting the housing industry have further hurt domestic demand on steel.

The National Bureau of Statistics said profits for China industrial companies fell on average by 6.2% in August, up from a 5.4% decline in July.

Shanghai retains top spot for FDI Shanghai remains the top choice for foreign investment this year but its urban environment still lags behind other global cities, according to a report by PricewaterhouseCoopers and Partnership of New York City. Shanghai led 27 global cities in attracting foreign direct investment by number of projects and amount of capital invested. It placed No. 5 in terms of economic clout, after Beijing, Paris, London and New York, the report said. For business influence and opportunities, Shanghai ranked No. 19, two spots after Beijing, while New York and London topped the list. The report added that Shanghai needs to enhance its environment to attract more talent and foster innovative and forwardlooking enterprises.

CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

MIDDLE EAST

JAPAN: FamilyMart to reduce store openings in China FamilyMart Co. said it will reduce the number of outlet openings by the end of February from 1,227 to 1,161. The Japanese convenience store giant attributed the move to China’s slowing economy and not the recent Sino-Japanese territorial dispute over the Diaoyu Islands. It said it has not modified its plan to increase the number of stores to 4,500 by the end of February 2016.

FamilyMart temporarily suspended operations at four outlets in southwestern Chengdu, Sichuan Province, due to anti-Japanese riots. The stores have since resumed business.

ZIMBABWE: China opens first agricultural technology training course China has opened its first training course on agricultural machinery and equipment in Zimbabwe. The Chinese government donated the Agricultural Technology Demonstration Center at Gwebi College of Agriculture with the aim of transferring Chinese technology in agriculture and agricultural machinery while training local farmers, demonstrating cultivation skill and carrying out agronomy trials. The Chinese government has also provided Zimbabwe with agricultural machinery and equipment in the form of governmental aid and concessional loans of US$80 million. China has so far dispatched 15 senior agricultural experts to Zimbabwe, and 10 more are planned to go in the second half of the year.

AFRICA

ASIA-PACIFIC SIA PACIFIC EUROPE

DENMARK: Novo Nordisk boosts China R&D Danish pharmaceutical company Novo Nordisk cut the ribbon on a US$100 million expansion of its R&D complex in China. The company said the expansion would make room for 70 more scientists to be added to its ranks in Beijing. With a full range of protein research services in China, Novo Nordisk said it would soon have 200 investigators in Beijing, and additional space available for further expansion in the future. Many of the scientists will be working on diabetes drugs, a company specialty, and have access to a global R&D network that includes counterparts in Denmark and the U.S.

NORTH AMERICA

MIDDLE EAST EUROPE

MIDDLE EAST

UAE: Banks establish presence in China Two of the United Arab Emirates’ largest banks, the National Bank of Abu Dhabi (NBAD) and Emirates NBD, have launched their first representative offices in China. NBAD, which has more than 50 overseas business units located in 14 countries, set up operations in Shanghai, while Emirates NBD set up a Beijing office. NBAD’s location in Shanghai will operate as a representative office for two years in accordance with China Banking Regulatory Commission directives. The UAE is China’s second largest Middle East trading partner. Many Chinese companies are looking towards the Middle East for business opportunities, especially in infrastructure, transportation, building and construction-related industries.

AFRICA

NORTH AMERICA

SOUTH AMERICA MIDDLE EAST AFRICA

UNITED STATES: Lenovo expands in U.S. China’s Lenovo Group Ltd., the world’s second-largest personal-computer maker by shipments, announced plans to acquire U.S. software company Stoneware, which provides cloud-computing products. The deal, Lenovo’s first purchase of a software company, was for an undisclosed amount and is expected to close at the end of 2012. The acquisition will help Lenovo add new technologies and help it link its laptops and PCs with the tablet computers and TVs it has begun to make, the company said. The company will also start manufacturing PCs in the U.S. next year, with a production line being built in Whitsett, NC. The move will help raise Lenovo’s profile in the U.S., where it ranks fourth in market share by shipments at 8% after Hewlett-Packard Co., Dell Inc. and Apple Inc.

AFRICA ASIA-PACIFIC SIA PACIFIC NORTH AMERICA

SOUTH AMERICA

NORTH AMERICA EUROPE SOUTH AMERICA

ASIA-PACIFIC SIA PACIFIC

SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

COLOMBIA: Proexport identifies export products to China The Colombian government has identified agro-industry and manufacture as the sectors with better selling potential in the growing Chinese market. According to a study by the Latin American country’s Export Promoting Office (Proexport) on Colombian exporters’ view of the Chinese market, coffee, sugar, honey, dairy, processed fruits, vegetables, beverages, juices and vegetable extracts are the Colombian products that fare better in China. Other export opportunities in the Chinese market include live animals, decorative fish, beverages, rum and sugar-cane spirits, cocoa products, chocolates and candies. Colombian exports to China reached US$2 billion during the first half of 2012, according to the Colombian Ministry of Trade, Industry and Tourism.

10

insight

NOVEMBER 2 0 1 2

shanghai 2020 B y r ya n B a l i s

Shanghai 2020: Reaching for the Pearl Shanghai wants to become an International Financial Center but experts see challenges ahead

S

tep back to Shanghai circa 1930.

A regional metropolis, Shanghai had developed itself into the financial center of the Far East. At the time, the “Pearl of the East” boasted one of the world’s largest stock markets, nearly three dozen foreign banks, two dozen state-owned banks and more than 200 other financial institutions, according to historical accounts.

With an eye to its past, Shanghai today aims to develop the city into an International Financial Center (IFC) by 2020, leveraging its existing role as

12

insight

NOVEMBER 2012

China’s financial, commercial and industrial capital.

“Shanghai is planning to resume its original position as an IFC in the world,” says Frank Peng, an economics and finance professor at Tongji University in Shanghai. “Because Shanghai had been a very important IFC before 1949.”

The 2020 plan for Shanghai, hatched by the State Council in 2009, calls for the city to feature mature financial institutions, a wide range of modern financial products and services, steadily opening markets, a 24-hour stock exchange and

advanced tax, credit, regulatory and organization in Washington, D.C., legal systems to support its re l e a s e d a m aj or re p or t l a s t objective. summer that principally assesses The city possesses many S h ang h ai’s pro g re s s t ow ard s advantages that will aid its IFC developing an IFC by 2020 and development, including its hosting offers recommendations. many of the country’s key financial The report, Achieving 2020: An institutions, a digital ecosystem assessment of Shanghai's plan to considered the most advanced in become an international financial China, a growing services economy, center by 2020, was launched as well as a history of international at an AmCham Shanghai event in commercial activity dating back June in Shanghai. An expert panel of Download the full report some 200 years.

Shanghai-based financial by visiting www.AmChamShanghai, as well as China as a professionals highlighted many of Shanghai.org whole, stands to gain tremendously the areas necessary for development. as an IFC. Benefits range from generating large windfalls for Shanghai in the solid progress, yet challenges form of lucrative financial transactions to luring world-class financial professionals and businesses Shanghai is well on its way to building the to the city and increasing China’s prestige and necessary foundation to achieve its IFC goal. “soft power.”

As pointed out in Achieving 2020, the Shanghai But what are the prospects for Shanghai to Stock Exchange is the world’s fourth largest stock build a true IFC – that is, a financial center that exchange by value and sixth largest by market serves domestic, regional and global markets – in capitalization, facilitating nearly RMB24 trillion eight years on par with the world’s other global (US$3.8 billion) worth of transactions in 2011. centers of financial activity, namely New York and Shanghai’s debt, equity and derivative markets are London? steadily developing, which are key for the city to AmCham Shanghai and the Chamber’s offer the type of advanced financial products of a Financial Services Committee, in cooperation modern IFC. with the Brookings Institution, a research Similarly, a Shanghai Financial Prosperity Index

A panel to discuss Shanghai 2020 was held earlier this year

NOVEMBER 2012

insight

13

released in October 2012 by Munich, G e r m a ny - b as e d Roland Berger S t r a t e g y Consultants and the Shanghai Financial Association shows Shanghai’s financial Prof. Frank Peng sector continues to of Tongji University grow steadily. The index increased 9.4 percent overall through the first half of 2012 compared to the previous year with double-digit performance increases recorded on financial innovation and several financial market products. The index measures the progress of S h a n g h a i’s f i n a n c e s e c t or a c ro s s 2 5 6 performance indicators, using a 2006 baseline.

Shanghai’s achievements thus far are further reflected in its receiving a top-10 ranking among the world’s other financial centers.

The third Xinhua-Dow Jones International Financial Centers Development Index, released in September 2012, places Shanghai eighth among the world’s most influential financial centers, just behind Paris, Singapore and Frankfurt – cities that all enjoy well-established financial markets.

The survey ranked 45 cities across five primary aspects: financial markets, growth & development, i ndust r i a l supp or t , s e r v i c e s and ge ne r a l environment for business.

Yet, despite showing impressive progress, Shanghai faces significant challenges to reaching its IFC goal by 2020 beyond the oft-cited example of strict capital control regulations. Specifically, Achieving 2020 focuses on the need for Shanghai to develop “a well defined, highly intermediated market and the ability to create financial products and ser vices,” and zeroes in on areas for development in Shanghai’s debt, equity and derivatives markets. “[T]here are several challenges consistent in all three markets and number one is regulatory transparency and a challenging approval process for financial service providers,” says Benjamin Kinnas, AmCham Shanghai’s Financial Services Committee Chair and Senior Vice President & General Manager for Wells Fargo Bank in Shanghai. “This is a recurring theme and one that

14

insight

NOVEMBER 2012

if addressed, will go a long way in helping Shanghai achieve its objectives.”

Experts also say Shanghai will need to further attract and retain tens of thousands of additional high-quality, experienced financial talents to work in the city, develop its legal-financial framework and enhance the quality of life in the city.

Peng points to the need for Shanghai to cultivate a culture of innovation, which may become more important for China’s economic development in the short-term amid a weak global economy and a domestic economy projected to slow to 7.5 percent in 2012.

“China right now advocates for innovation because innovation is the only way to restructure Shanghai’s economy, to restructure China’s economy even,” Peng says, adding that China can no longer rely on cheap labor, cheap land and other low-cost inputs to fuel the kind of growth needed to construct an IFC. Instead, emphasis should be placed on developing innovative thinking, and this begins in the classroom by “liberalizing students’ minds,” Peng says. “Independent, original, innovative thinking are key for students to work in IFCs.” a shanghai iFC In the years ahead, Shanghai is working to meet ambitious growth targets to achieve its IFC objective by 2020. One key metric is by 2015 the volume of financial transactions conducted in Shanghai is set to reach RMB1.015 trillion (US$162.3 billion), up from RMB418 billion recorded in 2011.

Progress is being made to steadily liberalize China’s tightly regulated financial markets. The China Securities Regulatory Commission (CSRC), for example, is increasing its approvals of Qualified Foreign Institutional Investor (QFII) licenses, which permits overseas institutions to buy yuandenominated securities, such as those on mainland exchanges. CSRC has approved QFII licenses for 53 foreign investment institutions wor th an investment quota of more than US$9 billion thus far in 2012, up from 29 approvals in 2011 worth US$1.92 billion in quotas.

What goes hand in hand with Shanghai’s IFC development is enhancing the international appeal,

use and availability of the yuan. A February 2012 National Development and Reform Committee (NDRC) and Shanghai Municipal Government joint report taps Shanghai to play a key role in advancing the yuan’s internationalization.

According to PricewaterhouseCoopers (PwC) analysis, the plan calls for Shanghai to boost its financial services capabilities by becoming the “global RMB innovation, trading, pricing and clearing centre by 2015.”

Meanwhile, Shanghai continues to encourage additional market participation by foreign firms, which already have a large presence in Shanghai – 173 of the 1,048 financial entities in Shanghai, according to PwC – and play a key role in providing know-how, technology, experience and more to help boost the city’s financial services development.

Such steps are welcome for further opening up Shanghai, which will offer additional opportunities for foreign financial providers. Observers are watching closely whether the city can move quick enough to meet its stated IFC objective in

eight years.

“There is so much to do and so little time left, but I think once the policymakers and the authorities in this country really put their mind behind it things will get done,” says Kinnas. He adds, “I don’t think we’re going to see a carbon copy of London or New York. We’re going to see Shanghai, and that’s what we want to see. We want to see Shanghai. But we want certainly a Shanghai that works for everyone.”

Tim Huang, Chief Operating Officer for Bank of America Merrill Lynch China, also is optimistic.

“I think Shanghai has the resources, has the economy behind it to become a financial center, it being regional or international,” he says. “I think the regulators and the government do need to look at opening up more on the market side, and there is plenty for both domestic and foreign players to gain in this market and everybody wins if you really open it up.”

Ryan Balis is Senior Communications Associate at AmCham Shanghai.

“

Progress is being made to steadily liberalize China’s tightly regulated financial markets…”

deal of the month B y E r i k a Wa n g

Medtronic Buys Implant Supplier

U

.S. medical device maker Medtronic Inc. said it has agreed to pay US$816 million in cash for orthopedic implant supplier China Kanghui Holdings Inc. The acquisition is among the year’s largest foreign-company investments in a Chinese healthcare business, worth US$755 million net of Kanghui’s cash and valuing NYSE-listed Kanghui at US$30.75 per American depositary share.

Expected to close in the next few months, the deal expands Medtronic’s offerings in orthopedic surgery and complements the company’s existing presence in spine, neurosurgery, neuromodulation, advanced energy and surgical navigation, the Minneapolis-based company said in a statement. It also brings Medtronic closer to its goal of making one-fifth of its sales in emerging markets by 2016, compared with less than 10 percent last year.

According to company executives, the move is expected to provide Medtronic sustainable a d v ant a g e s i n t h e f a s t - g row i ng C h i n e s e orthopedic segment, including access to local research and development, manufacturing operations and distribution networks, as well as a foothold in the emerging global value segment in orthopedics. Medtronic has spent more than US$2.6 billion on overseas acquisitions, including a US$221 million deal in 2007 for a 15 percent stake in Shandong Weigao Group Medical Polymer Co., China’s biggest maker of medical devices at the time. Medtronic said it expects the net impact from the transaction to be earningsneutral for fiscal years 2013 and 2014.

Kanghui, based in Changzhou in eastern Jiangsu province, was founded in 1997 and raised US$68.4 million in an August 2010 initial public offering. The company specializes in trauma and spine products, with orthopedic brands including Kanghui and Libeier. About 80 percent of

“

...80 percent of Kanghui’s sales are in China and 20 percent are in international emerging markets...”

Kanghui’s sales are in China and 20 percent are in international emerging markets. In 2011, Kanghui’s profit rose 21 percent to RMB121 million (US$19 million), according to Bloomberg.

For the first half of this year, the company reported revenues of RMB184 million, while net income came in at RMB64 million.

C h i n a’s or t h op e d i c s m a r k e t h a s b e e n undergoing rapid growth because of increasing healthcare expenditure fueled by reform in the sector, an aging population and an increasing number of orthopedic surgeons. The country is Asia’s second-largest user of medical devices, an industry that is expected to grow 39 percent to US$228 billion by 2015 in the world’s 10 biggest markets, according to market research firm MarketsandMarkets. A recent survey by Citigroup projects the Chinese medical devices sector will grow 12 percent annually.

NOVEMBER 2012

insight

17

B U s i n E s s & C U Lt U R E B y L i n DA y U

Bridges and Barriers Foreign executives say language and cultural misunderstandings can often scuttle a deal or hurt company performance Mike Diliberto, general manager of Lynx Innovation’s China arm says expressing yourself is important when talking to someone who speaks a different language.

S

triking a promising business deal requires time and preparation – especially in China.

Yet even the most seemingly secure of arrangements can collapse due to a last-minute hiccup. A mutually rewarding relationship cannot exist unless both sides understand each other – and that is not always as simple as it sounds.

A poorly mistranslated text that somehow goes unnoticed until it is time to sign, for example, has

18

insight

NOVEMBER 2012

the ability to topple well-fought negotiations in the blink of an eye. Similarly niggling errors in communication also pose threats of irreversible damage for foreign companies operating in the Chinese market.

Due to the past few decades of a larger foreign presence in China, the game has no doubt been refined. But, whether it is the newcomers looking for a piece of the pie or the veterans eyeing expansion in the market, foreign entities are still facing serious language barriers when doing

business with Chinese companies.

Today’s slip-ups are often the result of more subtle miscommunication between foreign and local Chinese parties, but the results are not necessarily any less serious.

“We take for granted the skills of a lot of our Chinese staff, especially their ability to speak English and understand what we say,” said Mike Diliberto, general manager of New Zealand retail design manufacturer Lynx Innovation’s China arm.

“There was a time when the U.S. office had mistyped the word “too” as “to” in a directive to our Chinese staff, which misled them to believe that the new dimensions for a major project needed ‘to be tightened’ instead of relaying the message that the dimensions were ‘too tight,’” he said. “The mistake managed to slip through the cracks, but in the end we caught the error, luckily, due to having made some prototypes before starting production.”

To p r e v e n t s o m e t h i n g a s s e e m i n g l y i n c ons e qu e nt i a l a s a c are l e s s t y p o f rom snowballing, the art of being able to speak to both sides is essential when working across borders, said Diliberto.

“One of our toughest barriers to overcome is being able to make sure that our teams in China

and the U.S. understand each other and what is meant when they communicate with one another, not just the words that are used during the interaction,” he said.

Indeed, the failure to misalign cultural assumption or sensitivity is dragging on company productivity and bottom lines, according to a recent Economist Intelligence Unit (EIU) study, Competing Across Borders: How Cultural and Communication Barriers Affect Business. The report showes that 43 percent of nearly 600 global executives admitted to incurring financial setbacks as a result of communication misunderstandings standing in the way of a major cross-border transaction.

Almost two-thirds of the respondents further identified differences in language and culture as challenges preventing them from securing their place in the market, while 90 percent of the executives felt that company profits, revenue and market share would climb if cross-border communication is improved.

As the economic downturn – combined with advances in technology and trade dynamics – compels companies to place bets outside their home markets, research indicates that many of them are also dangerously underestimating the role that communication skills play in

tips foR BREAking Down BARRiERs here is some advice from executives interviewed for the story.

Make time for one-on-one time with direct reports.

Company executives should not underestimate the importance of spending ample time with subordinates. Those who develop a weekly rapport are better positioned to gain a better understanding of how their employees operate, which helps to prevent confusion and improves the overall work flow.

Invest extra time into getting to know colleagues or relevant business partners outside of work.

“

Indeed, the failure to misalign cultural assumption or sensitivity is dragging on company productivity and bottom lines…”

Building trust and strengthening bonds place an added value on the relationship and ultimately create a more favorable working environment for the involved parties, which is beneficial for tense situations or when problems arise.

Have the relevant parties from both sides work with a qualified language and culture training instructor. Guidance in these areas, particularly sensitive ones, in terms of how they relate to the workplace, assists in facilitating a more comprehensive understanding of “the other,” paving the way to more efficient and effective avenues for communication.

NOVEMBER 2012

insight

19

ISTOCKPHOTO

global setting. U.S. companies, for instance, appear to be slightly better placed for cross-border e x p a n s i o n c o mp a r e d t o t h e i r Eu r o p e a n counterparts, particularly those from Spain, France and Italy, the EIU research suggests.

The point is also evident within the direction of development for China’s workforce, according to Kent Kedl, managing director (Greater China and North Asia) at global consultancy Control Risks.

“Chinese employees are speaking better English now than 10 to 15 years ago and more Western companies have Chinese-speaking people on their teams, so the language barriers are certainly not what they used to be,” he said.

“But they’re still a problem because people aren’t thinking about them, and that’s when ‘bam!,’

Don’t expect an interpreter to solve all language barriers at meetings, executives say

determining success on the global stage, said Abhik Sen, managing editor of EIU’s industry management research and also the editor of the report.

In general, smaller companies (with annual revenues of less than US$500 million) are having a tougher time managing such challenges, according to Sen. “O ver one-half, or 54 percent say that communication misunderstandings have stood in the way of a major cross-border transaction c o mp a r e d t o 4 6 p e r c e nt o f t h e i r l a r g e r counterparts (with annual revenues in excess of US$500 million),” he said. “The same proportions of small- to-medium sized companies (54 percent) say that cultural and linguistic diversity can make it difficult to collaborate internationally across borders with external partners.”

But whether small or large in size, companies from English-speaking nations are more inclined than others to benefit from an international environment since a majority of non-English speaking countries typically have little choice but to adopt English as their working language in the

20

insight

NOVEMBER 2012

Kent Kedl of Control Risks

things get missed, something happens – a key word is missed or a bad translation angers someone – and everything goes crazy,” he said.

For that reason, aside from the Tim Lamb of JLJ Group critical importance of bilingual fluency, the ability to operate within culturally accepted norms is crucial, and even more so during times of crises, he added.

“C r i s i s m an a ge m e nt i s w h e n We s te r n companies really need to be careful about how they work through things,” said Kedl. “If there is a labor issue at their factories, or a supplier is being threatening, then there’s increased risk of these situations quickly escalating and it can be quite nerve-wracking.”

“In the Chinese context, people tend to talk around the problem, so despite having a solid command of Mandarin, foreigners are still left with a lot to infer whereas Americans tend to be direct, and that can offend Chinese,” he said. “So, it really goes beyond just a language issue here and becomes one of cultural communications.”

Jack Sun, China country manager for English First, an international English language training school, which sponsored the EIU study, agreed that the situation is more complex than ever.

“Chinese customers or colleagues can speak quite good English now, but their expressions or presentations don’t suit the traditions of native Eng lish-l angu age sp e a kers, s o t he y can’t understand each other and that causes misunderstandings,” he said.

Sun asserted that the current situation calls for greater cultural understanding of one another.

“The major gaps in the use of English, for example, are not coming from the actual English skills, but more from the cultural differences between Chinese and foreigners, and that influences how they are able to make themselves understood or not,” he said.

A working knowledge of how cultural norms

apply to industry applications is another part of the mix that foreign companies working with Chinese need to be aware of. It may at least help to fill some of the more obvious gaps.

Such opportunities are best taken by ensuring that the required means of communication are fitting from the start, said Eddie Wang, president of New York-based property developer F&T Group.

“We’re at a point now where language barriers don’t re a l ly come into pl ay dur ing d ai ly conversations,” he said. “But take for instance, professional terms: the gai nian or concept is a very different word for Chinese firms than it is for U.S. companies.

“For the U.S., a concept is something that’s supposed to represent the ‘big picture,’ but for Chinese, they expect a lot of details, like the floor plan, quotations, land design, etc. – it can be a very different product for both sides,” he said. “If you cannot put the things on the table that are wanted then there’s going to be an automatic loss.”

What it boils down to is that expectations in China are working on a global basis these days.

With that comes the need for foreign companies to get around language barriers by not only clearly articulating expectations, but also developing appropriate channels to achieve them.

As increased foreign investment in China brings in more standardized modes of international operations, the local talent – and most notably, the mid-to-senior management – are being exposed to professional norms that international companies expect, said Tim Lamb, managing direc tor of g lobal consultanc y JLJ Group.

“But, where you see a significant gap is with junior staff and in particular recent graduates, who naturally lack experience with cross-border dealings, especially those that exist within a best corporate practices arena,” he said. “The way to set behavior in a company starts with recruitment and then led by solid training programs designed to coexist with operations.”

Linda Yu is a freelance writer based in Shanghai.

NOVEMBER 2012

insight

21

“

…90 percent of the executives felt that company profits, revenue and market share would climb, if cross-border communication is improved.”

inDustry insight

By MereDith roDriguez

What’s In a Name?

Foreign companies picking a Chinese name may have some explaining to do if they ignore a set of strict principles

Coca-Cola’s Chinese name is one of the best in the industry, many say

C

hoosing a name for the local market is a more difficult task in China’s character-based Mandarin than in most countries.

In Russian, for example, the shape of the letter will change, but it can still correspond to English one to one. Even Japan developed a new alphabet especially for foreign br an d i n g . In C h i n a , on t h e ot h e r h an d , alphabetical names must be transformed to fit into the confines of an ancient language.

“Because syllables are predetermined in China and are limite d, not e ver y s ound c an b e automatically mapped into Chinese. There is no automatic translation,” said Vladimir Djurovic, president of Shanghai-based branding company, Labbrand. “The Chinese language is the main language for communication in the most populated country, so the quality of the Chinese

22

insight

NOVEMBER 2012

name has a vast impact. If you don’t choose it well, you’re basically starting with a handicap.”

When choosing a Chinese name, companies face the primary challenge of expressing the company’s marketing position or core message in a language that can have varied connotations and associations. There is an equally great opportunity in the task, for those who are willing to go beyond a basic literal translation, and that is to redefine or deepen their brand’s position in the market.

In the case of Pepsi, for example, a name that in English might provoke vague mental references to bubbles or sparks, in Chinese – baishi – is an auspicious name, wishing 100 happy things.

“One of the wonderful things about Chinese naming is you get to tell another story,” said Jonathan Chajet, CEO of Dragon Rouge, a branding consulting firm based in Shanghai. “You get to rename yourself, which most companies

never get the chance to do.”

Coca-Cola, pronounced “ke kou ke le” in Mandarin, which includes characters for delicious and happy, is often mentioned as a gold standard for company names in China. Its Chinese name not only sounds similar to its English name, but holds a meaning in Chinese that complements the brand’s bright commercials of good-looking people cooling off in the sunshine after a pop and a fizz.

“It defines the categor y and has a close meaning to the positioning of Coca-Cola,” said Thomas Chen, managing director of the Shanghai of f i c e for Inte r br and, a g l ob a l br and i ng consultant. “That’s the most wanted method, but not always achievable.”

On the other hand is Apple and Microsoft, which literally translated their names into Chinese. Apple turned into pinguo and Microsoft into weiruan, the characters for “micro” and “soft.”

“They missed the opportunity to tell a bigger story,” Chajet said of Microsoft.

Double meanings No m e a n i n g , h ow e v e r, i s b e t t e r t h a n accidentally conveying the wrong meaning. Many companies have been recklessly creative, a

Thomas Chen of Interbrand

significant danger in a language where characters have deep and varied connotations and in a culture where people rarely miss a chance to tickle their funny bone with a play-on-words.

“One of the peculiarities of the Chinese language is that Chinese characters often have double meanings and are never used alone,” Chajet said. “When you put it with another word, you often get wonderful double-meanings and double entendres. It’s very suggestive of other things.”

China is a place where buildings exclude the floor level four, because the number, although a completely different character and tone, has the same phonetic sound as the word for “death” (si).

Microsoft found out the hard way that their

The Internet was abuzz after Toyota’a Prado announced the SUV’s Chinese name.

NOVEMBER 2012

insight

23

the process

McDonald’s Chinese name sounds similar to the English one

Chinese name for search engine Bing also sounds like “sickness” . Although the character Microsoft chose had a harmless meaning, Chinese mocked it.

Beyond public ridicule, companies face a greater risk, and that is one of offending. Chen recalled an incident four years ago with a vividness and emotion that illustrates just how disastrous it was.

In 2005, Toyota chose a naming method for the Prado SUV known as “creation.” They created a whole new name based on the line’s brand essence. They chose the name bao dao, which means “arrogant.” It was accompanied with the tagline: “Arrogant, so you can’t help but respect it.”

Rather than expressing a sense of class, however, in Chinese culture, it conveyed a base conceit.

The cultural foul was compounded by a print ad in which the Chinese stone feng shui lions that sit in front of most of the country’s financial buildings were pictured saluting to the “arrogant” Japanese car. Because of the military salute, people interpreted it as a throwback to the horrific China-Japan war during World War II, as if China was meant to be bowing down to Japan.

“People were offended big time,” Chen said while scrolling through a blog post that showed a mock-ad of the stone lions in turn crushing the car. “I think they should have known.”

Toyota veered to the safe side by renaming the car pu la do. They used another process of naming, which is just to create a name that sounds like the original English name but has no meaning, also known as literation.

“You have to be very careful,” Chen said.

“That’s why a market test is important, to make sure there is no negative association, in order to avoid a stupid mistake.”

24

insight

NOVEMBER 2012

Although advertising agencies can often create a name without using a branding consultancy, Chen said, this presents a risk. So he and others advise going the safe route.

“Just like when you name your baby, it’s tough,” Chajet said. “You need a system scientifically to determine what is best, not just a creative preference. That is dangerous.”

As for the process, there are many steps – strategic, creative and legal.

First, consultants are briefed on the state of the business and the target audience, Chajet said.

Then they study what their competitors are doing in the market.

Early on, companies must decide what their naming strategy will be. Depending on their brand, they will decide whether they want to sound like their English name, have a similar meaning to their original name or both, like Ikea’s yi jia ju or Carrefour’s jia le fu, both of which sound like their original names and include auspicious words for happiness and family.

BMW’s bao ma, or “treasured horse,” also fits into this gold standard and connects closely with the Chinese culture as the word comes from an ancient Chinese poem.

When marketing, many brands use their English names alongside their Chinese names, or use their English names primarily. Well-known brands like IBM as well as luxury brands like Gucci, for example, have Chinese names for legal purposes but use their English names for branding, as the original names already have strong, positive associations for Chinese.

According to most branding comp any methods, after the initial research and brainstorming stage, around 10 name options from various categories of naming are initially presented to the company, which are then narrowed down, through preliminary conflict checks and internal discussion, to three to five.

If two out of three of the characters are the same as another company in its category, for example, the name can’t be trademarked, according to Chinese law. Later, a deeper check might be conducted to see if a name might generate consumer confusion through associations with already established brands.

“For that part, it is a lot more difficult than

Jonathan Chajet, CEO of Dragon Rouge

naming your baby,” Chen said.

“You can only use a limited number of characters that are well-known, not too overcomplex and that people can recognize,” Djurovic said. “That can give you an idea that it’s pretty much a crowded space.”

Final narrowing might include a consumer check in which the company would ask their target audience to rate the top-choice names, asking questions like “Does it sound nice? Does it remind me of anything else? Does it fit the category?” Chajet said.

Another critical check is the language or dialect check. In China, dialects can create different meanings through dangerous play-onwords or improper associations based on how the term is used in various regions. Usually only

naMing strategies transliteration: similar sound and meaning to original name and brand Pro: Name is relevant to meaning as well as global and local positioning Con: Not as close to global brand as translation or literation examples: Coca-Cola - ke kou ke le - 可口可乐 -”easy to drink and drinking it will make you happy” Pepsi - bai shi ke le - 百事可乐 Tide - tai zi - 汰渍 - “gets rid of dirt” Reebok - rui bu - 锐步 - “quick steps”

major dialects like Shanghainese can be checked.

The dialect that presents the most difficulties is Cantonese.

“What might sound quite nice in Mandarin might not sound so nice in Cantonese or might sound like another brand in Cantonese,” Chajet said.

S om e c omp an i e s , e s p e c i a l ly f i n an c i a l companies, will also include a feng shui check on the name to make sure the strokes are balanced and auspicious. A deeper feng shui analysis would ensure the name aligns withwith the CEO’s birthday and birthplace. A company can do a basic feng shui check online or spend up to US$15,000 to consult a master from Hong Kong.

“Whether you believe in feng shui or not, there are a lot of people in China who do,” Chajet said.

“By doing it, it shows friendliness towards the market and avoids potential criticism later on.”

The final check comes down to the senior management of the company. Finding a name that makes every boss in the company happy often takes the longest time, Chajet and Chen said.

“It takes a little bit of art to present Chinese names to people who don’t speak Chinese at all,” Chajet said, “a bit of an art to helping nonChinese speakers understand the peculiarities of the Chinese language. CEOs are often proud that they created a Chinese name. It shows their commitment to the market.”

Colgate - gao lu jie - 高露洁 - “revealing superior cleanliness” Lays - le shi - 乐事 - “happy things” translation: same meaning Pro: Meaning matches global brand, easy to remember as it is in the real world Con: Not always catchy, easily copied example: Apple - ping guo - 苹果 - literally meaning apple literation: sounds similar to english name (each character will project some meaning but the characters together don’t

NOVEMBER 2012

project an integrated meaning) Pro: Brand is immediately recognized as international Con: Difficult to remember and doesn’t always deliver brand message examples: McDonald’s - mai dang lao - 麦当劳 KeeP english naMe: Don’t translate (only works for brands that are already well-known in China, like iBM) Luxury brands like Coach, Gucci, Ralph Lauren and Versace all have Chinese names but in communications rarely use them.

insight

25

DisnEY

This artist rendering shows the Shanghai Disney Resort

Mickey Takes Shanghai The Shanghai Disney Resort in Pudong is expected to open to the public in 2015 but long before the magical castle goes up, the project is triggering a boom in other types of theme parks across China

By Lauren HiLgers

A

fter 10 years of negotiations, of rumors in the media and speculation on where the theme park would land in Mainland China, Shanghai Disney Resort broke ground on a plot of land in Pudong District just over a year ago. The impending arrival of the Disney resort has heralded a theme park boom in China, with its center seemingly in Shanghai.

Campaign photos

26

insigHt

NOVEMBER 2012

The Shanghai Resort is intended to anchor a huge new tourism and resort zone in the city, reflecting Shanghai’s goal to be the most international city in China not just for business and finance, but for tourism and leisure. The city is home to a number of domestic theme parks and, in addition to Disney, Dreamworks recently announced plans to develop an entertainment zone in Puxi, where they will focus not on rides, but on live shows, a

C o v e r s to r y

Kung Fu Panda-style Pagoda, and what they promise will be the world’s largest IMAX Theater.

For Disney, the project is challenging the company to adapt deeply-engrained theme park and resort traditions to a new, and very Murray King different market. “This project is of Shanghai Disney turning us into a much more globalthinking company,” says Greg Morley, vice president of human resources at the Shanghai International Theme Park and Resort Management Company Limited. “It’s challenging the way we’re doing work globally.”

At the same time, the opening General Manager of the 3.9-square kilometer resort, Mike Crawford targeted to open at the end of 2015, promises to bring thousands of jobs to the area, anchoring what local officials envision to be an expansive tourism district and introducing Disney, and theme parks, to a whole new audience. “Studies from other resorts show that, for every job our resorts fill, it creates two jobs in the community,” says Murray King, the vice president of public affairs at Shanghai Disney Resort. “It’s a huge job creator both directly and indirectly.”

The success of Disney’s endeavor, everyone seems to agree, depends largely on how well Disney and China can adapt to each other. Disney culture has its own distinct quirks. Morley and King are speaking from a conference room at Disney’s

current headquarters in Pudong, surrounded by frosted glass embellished with what looks like scattered bubbles. If you look close, says Morley, you can find the “hidden Mickeys” in the design. Absent-mindedly, King draws his own Mickey Mouse on a sheet of paper as he speaks. The biggest challenge for the Disney team, they say, will be establishing a Disney presence in China that is distinctly local while at the same time preserving the identity and core values of the company.

“We want to give the public an authentic Disney experience,” says King. “We’ve done focus groups and individual surveys with our cast and people want the real Disney experience. The other part is that we want it to be distinctly Chinese.”

To strike this balance, Shanghai Disney is being developed with a heightened awareness of local expectations. Considerations such as food, recognition of Disney characters and China’s unique travel patterns are all being taken into consideration during every step of the development process. New hires are required to take a training course on the history and values of Disney. Community outreach and a series of publicity campaigns that are scheduled for the future are expected to increase awareness of the Disney brand.

China’s theme park boom Over the last decade, while Disney was negotiating the terms of its Shanghai arrival, the country’s increasingly affluent middle class has been learning about theme parks on its own. Mike Crawford, general manager, Shanghai Disney Resort, points out that an increase in wealth and disposable income leads to more DisnEY

Mickey Mouse at the groundbreaking for Shanghai Disney Resort earlier this year

NOVEMBER 2012

insigHt

27

imaginE China

travel and more demand for leisure destinations like a Disney resort. “It’s a country where Disney already has a number of businesses that continue to be critical for its long-term growth,” says Crawford. “Shanghai is the largest city in one of the world’s most dynamic and fast-growing economies.” This is a sentiment that Chris Yoshii, global director of consulting group AECOM, heartily agrees with. In fact, Yoshii says, theme parks are already a growing phenomenon in China.

“We are definitely seeing a growth in interest in visiting theme parks,” says Yoshii. According to Yoshii, visitation numbers at existing parks have been showing strong growth over the last few years and theme park managers have been investing in building better attractions. “The middle class market is growing and there are a growing number of tourists that are traveling around China,” he says. “One of the things they want to see are the different theme parks and different experiences that they don’t have in their home city.”

China’s theme parks, he says, have a few distinctions from theme parks that are more popular globally. “In China they don’t like the really thrilling coasters,” he says. “Here it’s much more about spectacle rather than thrills.” The Chinese audience leans toward shows, water features and live entertainment. This, says Yoshii, will be an advantage for Disney.

“Disney is much more about shows and themes than it is about thrills,” he says. At the same time, some domestic theme parks are catering to a Chinese audience in a way not available to Disney. A Ghengis Khan theme park, for example, is presenting the ancient warlord as an alternative to Mickey Mouse. In Beijing, a US$4.7 billion theme park showcasing Tibetan culture is also under way.

These home-grown parks will likely draw visitors, but will pose little threat to the success of Disney’s arrival. The Disney brand, Yoshii points out, is on the rise in China and the arrival of

Mickey and Minnie in traditional Chinese outfits

the resort is coupled with a number of other Disney endeavors.

Disney English has a growing presence in cities throughout China and, earlier this year, Disney announced plans to open up to 40 retail outlets in the country over the next 3 years. “I think 10 years ago very few people knew much about Disney,” he says.

“They’ve done a really good job educating people about what Disney is all about.” superlative country, superlative resort

imaginE China

DreamWorks will build a Kungfu Panda style pagoda in Shanghai

28

insigHt

NOVEMBER 2012

Although Yoshii expects Disney to be a success in China, he recognizes that the company faces some challenges. While Morley says Shanghai Disney is making its parent company more “global-thinking,” Disney Resorts has had a global presence since 1982, when Tokyo Disney opened its doors in Japan. Morley himself has worked at Disney’s resort in Paris as well as in the corporate division responsible for Disney’s global cruise line.

Disney’s international ventures have not always proceeded smoothly. When Disney opened its Paris-based theme park in 1992, the company famously banned wine from theme park restaurants. When Hong Kong Disney opened in 2005, the resort’s performance was disappointing and marred by a handful of cultural snafus. During Spring Festival, for example, the resort neglected to give days falling during the holiday special designation. As a result of the oversight, and with the park filling to capacity quickly, the park was forced to turn away visitors with valid tickets. The confrontation between ticket-holders and park security made it onto Hong Kong television.

“We learn lessons in every market we go into,” says King.

“There is no one-size, one-model fits all.” He points out that Hong Kong Disneyland has gone on to be successful and is

C o v e r s to r y

“

The resort is going to be huge.

At opening, it will include not only a theme park, Shanghai Disneyland, but a resort area that offers hotels, restaurants, shopping, an entertainment district and a lake.”

currently in the midst of a major new expansion. “At opening, I think one of our biggest challenges in Hong Kong was the scale,” he says. As Disney’s then newest resort, Hong Kong Disneyland started out smaller than other Disney resorts, though with the new expansion that is no longer an issue. “This is a region where everything is a superlative,” says King. “When you think about the scale of everything, particularly in this market, this is one of the things which matters most to mainland Chinese guests.”

Shanghai Disney seems poised not to repeat any of these past mistakes. The resort is going to be huge. At opening, it will include not only a theme park, Shanghai Disneyland, but a resort area that offers hotels, restaurants, shopping, an entertainment district and a lake. And there will be room for future expansion.

The theme park itself will be located to the northwest of the lake, and the entire complex will be reachable by subway and highway.

This artist rendering shows a winding staircase in the Enchanted Storybook Castle

istoCKphoto

A theme park celebrating the ancient warlord Genghis Khan is being built in Tianjin to compete with Mickey

Among other things, Shanghai Disney will be a transportation hub. “We need to make people feel that the resort is the newest and best that Disney can offer from a design and service perspective, and that it represents the global Disney standard,” King says. “And that it’s comfortable from a Chinese perspective.”

Shanghai Disney is the result of a joint venture between Disney and a state-owned enterprise under the Shanghai municipal government. The state-owned enterprise, Shanghai Shendi Group, owns a 57 percent stake in the joint venture, while The Walt Disney Company maintains 43 percent ownership. “For this market, having a great local partner supported by the Shanghai Municipal Government is important,” says King. “It creates a seamless interface between partners, the government and the local community.” Disney, however, is maintaining a controlling stake in the management company that will be responsible for operating the park.

As the resort continues to develop, Shanghai Disney Resort has been doing its best to gauge what its visitors expect of them. They have conducted focus groups, organized community activities and held online meetings that give locals an opportunity to

NOVEMBER 2012

insigHt

29

DisnEY

Disney executives and Chinese officials at the groundbreaking earlier this year in Shanghai

express their opinion on the resort. “People want the real Disney experience – they don’t want anything packaged or watered down,” says King.

To do that, Disney is focused on food, service and culture.

The most important differences, King says, will be in the details of how the resort operates. “Food and cultural traditions are key parts of making the park distinctly Chinese,” says King.

The theme park and the surrounding resort will offer a range of Chinese cuisine that is high-quality and familiar to visitors from all over the country. Local vendors will be incorporated into the resort. At the same time, Disney is planning to pay particular attention to local holidays, offering special shows and deals that correspond with Chinese traditional celebrations.

In addition, the Shanghai resort is going to be big.

Designers have changed the footprint of the park slightly from its global brothers and sisters. While Shanghai Disneyland will be a Magic Kingdom-style theme park, it will have no Main Street – found in every other Disneyland theme park in the world – to accommodate a new layout that Disney is yet to fully reveal. But one of the most distinct features of the Disney theme parks, the storybook castle, will be larger than ever in Shanghai. Chinese audiences like their attractions to be big, “superlative,” King says.

So Disney is giving them the biggest.

Building the cast When King mentions the details that will make Shanghai

30

insigHt

NOVEMBER 2012

Disney distinctly local, he is quick to point out Morley’s work.

“I’m sure you’ll see it walking around the office,” he says. “People working here are from the local community, and they reflect that in their work.”

The Disney park itself is only just starting to take shape. The first year of construction, King says, was spent sucking water out of the site and making sure the ground was level and stable. Similar technology was used to build the second runway at Shanghai’s Pudong Airport and the Shanghai F-1 track, but Disney had to dry out and flatten a much larger area. “When you’re going at a fantastic speed on some of the world’s most sophisticated ride systems, you want to make sure that that ground is hard, hard, hard,” says King. “It’s the largest scale project of its type anywhere in the world.”

While the construction site is still in its early stages and Disney is keeping the details of its resort under wraps, one of the most important projects of the past year has been hiring the core of Disney’s Shanghai-based team. “Every day we come into work and the workforce increases,” says King.

The challenges of hiring the right “Cast Members” in many ways reflects the challenges of creating the park experience itself.

Morley is tasked with building a team that is largely local, and making sure that his team understands what Disney theme parks are about. “The focus for us right now is building up the team of ‘Imagineers’ who are actually going to design and create the park,” he says. “We currently have about 200 Chinese Imagineers on staff and there are a number of people that will come from the

C o v e r s to r y

U.S. to provide a certain level of guidance, technical knowledge, Disney knowledge.”

The Shanghai Disney Resort leadership has worked to make sure that local Chinese designers have been involved from the beginning. In the early stages of designing the resort, King says, the team made sure that there were Chinese nationals working from their headquarters in Glendale, California. “We’re also

“

People want the real Disney experience – they don’t want anything packaged or watered down.”

market is that visitors and employees are not as familiar with Disney as their counterparts in other countries. Unlike France, Japan or Hong Kong, Mainland China has no Disney Channel.

Chinese tourists are also largely unfamiliar with the theme park experience. “Many of our employees don’t really know what the theme park experience is, because they’ve never been there,” says Morley. “So part of our job in HR is to educate the Cast Members and let them know what they’ve gotten themselves into.”

The presence of the alumni helps familiarize people with the spirit of Disney theme parks (this tactic is effective outside of the Disney offices, also. Eight hundred alumni have formed a group on Weibo that also helps inform the general public on the Disney experience). In addition, new employees are required to take a class. “‘Disney Traditions’ is a very ubiquitous Disney class,” says Morley. “We are already teaching it here in Mandarin.”

DisnEY

– Murray King, Shanghai Disney bringing in Chinese experts,” he says. “So when we come up with an idea, which is based on our interviews and surveys of the Chinese public, we can test the ideas on our experts.”

As the project has moved forward, Morley has headed the hiring efforts in China. The opening team for Shanghai Disney, he says, will be the most locally based of any opening team in Disney’s history. “We’ve been really heartened by the level of talent that we have in almost every role,” he says.

Two things have helped smooth the hiring process, Morley says. One is technology. “Now you can do work virtually much more effectively than you could in the past,” he explains. Experts that would have been imported to China a few years ago can now work from Glendale, helping to train and to review the work done by the local staff.

In addition, Morley says, Disney has a pool of what he calls “Disney alumni,” some of whom have joined the team in Shanghai. The “alumni” are a group of Chinese nationals – Morley estimates there are around 3,000 – who spent summers working at Disney in the United States over the last few years as part of an internship program.

Even those who haven’t joined the team, King adds, are helping spread the word about Disney and getting potential employees and potential visitors more familiar with what to expect from the Disney experience. One of the unique challenges of the Chinese

Snow White and friends at the groundbreaking

As the Disney project progresses, these education efforts are going to ramp up, both inside and outside the company, says King, as are the local partnerships, community outreach projects and other activities that will build awareness of Disney and give the company an increasingly local feel.

“We’re going to start to talk more and more about the project publically in the near future,” King says. “We want people, by the time we open the gates, to know the story, to know a lot about the resort and to understand what we built. We don’t want them to come in the gates and not know what they’re doing, or what Disney stands for, or what our theme parks are about. That will make a successful launch.”

Lauren Hilgers is a freelance writer.

NOVEMBER 2012

insigHt

31

Meet the Cast Several Shanghai Disney employees agreed to answer a few questions about working for one of the most well-known brands in the world. In their written responses to the questions, they talked about Disney, their jobs and what they do every day. Here are the excerpts.

vivian Chen Learning & Development Manager Start Time: September 2009 Insight: What did you know about Disney before you came to work at the company? Do you remember your first experience with a Disney character or movie? How old were you?

Chen: “When I joined Disney in 2009, I was most familiar with the Disney Parks and Resorts part of the company’s business.

Growing up in China, I always loved Disney films too – from the animated films to the action thrillers. I am also familiar with the Disney characters and enjoy purchasing Disney merchandise. My earliest Disney memory might have been when I was just a little girl 30 years ago. There was a famous TV series program featuring Mickey Mouse and Donald Duck.”

Insight: Why did you want to work for Disney?

Chen: “I first started working at Disney English, which was a new business in China. Having an opportunity to work at Disney felt like a dream come true, and the experience has been both fun and professionally rewarding. Especially being able to work with a group of people who are passionate, creative, fun, and inspiring. I am proud to tell others I work for Disney, and my kids are happy to say: ‘My mom works for Mickey Mouse.’”

Insight: How do you think the culture at Disney fits in with Chinese culture? Do you think Chinese people will find anything strange or unusual about Disney?

Chen: “There are many similarities between the two cultures.

32

insigHt

NOVEMBER 2012

Both cultures have a similar focus on family values, and Disney resorts are truly places for families to come together in a safe and friendly environment. In addition, Disney stories and Chinese stories both advocate optimistic outcomes, for example, with themes such as: love can overcome social barriers; the greatest beauty is found within; you can always count on true friends; the circle of life never ends; and those who are selfish, vain, or cruel never win. Our brand is about hope, aspiration and positive resolutions. Chinese individuals will have no trouble relating to these because of the values that they share.”

tina Dai Specialist, Development Support Start Time: November 2011 Insight: Why did you want to work for Disney?

Dai: “My experience at Walt Disney World’s International College Program 6 years ago made me realize the great service Disney provides to guests, and the management that goes on behind the magic. I worked on the frontline with Disney merchandise and not only interacted closely with guests, but also developed an understanding of the actual products we deliver. The training I received and the influence of my fellow Cast Members made me think of how great it would be to work with Disney as a lifetime career.”

Insight: What is your current role at the company? Could you describe a typical day?

Dai: “I am a development support specialist for the Project

C o v e r s to r y

Management Team of Walt Disney Imagineering Shanghai. My responsibility is to support our project management executive and creative executive as they communicate with our Chinese partners and local regulators. Each day is very different for me.

I spend most of my time translating documents, coordinating and interpreting meetings with our local partners.”

Janice sindoni

Insight: What makes working at Disney different than working at other companies? What has surprised you most about working at Disney?

Sindoni: “Anyone will tell you this: what makes Disney different is its people. I have worked for several large companies with very good people, but Disney people are great! They are happy, helpful, kind, creative, intelligent and just fun to be around.

What has surprised me most is that after 15 years with the company, I still find this to be the case – now more than ever.”

Community Relations Manager Start Time: March 2012 at Shanghai Disney Resort project; held various roles at Disney since 1990s Insight: What did you know about Disney before you came to work at the company? Do you remember your first experience with a Disney character or movie? How old were you?

Sindoni: “I knew a great deal about Disney stories and Disney parks, but not very much about the company. Honestly, I don’t remember my first experience with a character or movie. Disney has been a part of my life for as long as I can remember, from enjoying Disney vacations and movies to having favorite Disney toys and clothes.”

Insight: What is your current role at the company? Could you describe a typical day?

Sindoni: “My current role with the company is Manager of Community Relations at Shanghai Disney Resort. I have the opportunity to develop partnerships and programs with local non-government organizations to address key community needs which align with Disney’s corporate social responsibility and philanthropy goals, focusing on compassion, creativity and conservation. It’s a real privilege to be able to work with organizations that are making such a positive difference here in Shanghai. So far, there has not been a single typical day – every day is an education, with new experiences and new opportunities.

Chris shi Project Director, Design Management Start Time: October 2010 Insight: What did you know about Disney before you came to work at the company? Do you remember your first experience with a Disney character or movie? How old were you?

Shi: “I had some knowledge about Disney films and Disney Parks and Resorts in America. My first experience with a Disney movie was 18 years ago when my first son was born in Vancouver, Canada. I took note of the Disney movies that my neighbor’s daughter was watching and started to watch them with my family.”

Insight: Why did you want to work for Disney?

Shi: “I was involved with the Hong Kong Disneyland Resort when I worked in Hong Kong. Initially, I was motivated to join the team because it was a large and well-known project. However, I soon became more interested in the project team because of the company culture. It is an open environment among professionals, and Cast Members are encouraged to express their opinions. In addition, I am drawn to the level of trust among the WDI (Walt Disney Imagineering) colleagues, which inspire me to bring more and better contributions to the project.”

NOVEMBER 2012

insigHt

33

a e r o s pa c e B y E r i k a Wa n g

Soaring to New Heights IMAGINE CHINA

Keith Crane of RAND Corporation talks about China’s evolving aerospace industry and whether the country will produce an indigenous aircraft Guests at a Comac fair

C

hina’s aerospace industr y has developed rapidly over the past decade due to factors including growing government support, increased foreign involvement and rising participation in the global aerospace market and supply chain.

China is the world’s second-largest national air travel market behind only the United States and is likely to keep growing at an accelerated rate in the next two decades. An estimated 4,000 new passenger aircraft are expected to be purchased by Chinese airlines in the next 20 years, according to a recent report on China’s aerospace industry by the RAND Corporation, a non-profit research and analysis institution.

Moreover, China has launched its own satellites

34

insight

NOVEMBER 2012

and also become the third country to put humans in space. Keith Crane, director of the Environment, Energy and Economic Development Program of the RAND Corporation, recently sat down with Insight to share his views on China’s aerospace industry.

Insight: What is the current status of China’s aerospace industry?

KC: “The structure of the domestic industry historically has been primarily a militar y equipment, weapons industry, so there’s a big focus on military aircraft. Now it’s under a different phase. This is the first time there has been a big push to create a civilian aircraft industry, so they set up Comac (Commercial Aircraft Corporation of China, Ltd.), which is

less than a decade old. They started with a regional jet (ARJ21) and now they’re moving towards a narrow-body jet (C919) to compete with Boeing’s 737 and the Airbus 320. For the r e g i o n a l j e t , t h e y ’re e x p e c t i n g t h e f i r s t commercial deliveries to take place by 2013.

The C919 is still under development and deliveries are not expected until at least the middle of the decade.

“Despite impressive advances, the aviation industry still remains very heavily Western in size and composition, and although China has made extraordinary strides in terms of technologies, it still has not become the supplier it has in some other industries. As opposed to some other high tech businesses, China has not dramatically expanded global market share in this particular industry over the past several years. In 1990, China had about 1 percent of global market share in terms of exports, and by 2010 it was at 1.7 percent.”

Insight: What are some of the business drivers for foreign companies entering the China aerospace market?

KC: “Everybody’s interested in China because this is the most important, most rapidly developing aviation market in the world. In the last decade, it has already surpassed both Japan and Germany in terms of passenger-kilometers traveled and growth has continued rapidly ever since. Boeing and Airbus are well-established here and they’re going to continue to aggressively seek to sell planes. The reason why American Airlines is larger than Lufthansa is because of domestic traffic in the States. And China is even more so that way. There are so many people here that the airlines in China will always primarily be domestic.

“From a business perspective, you have high quality labor here and you have some good skills, but you have to look at it very carefully when you try to satisfy the global supply chain. Foreign firms in China in aviation and aerospace development are here for a variety of reasons.

They’ve been important as direct suppliers for the C919 program. There’s been the growth and

development of companies that are supplying to the global chain toward civil aviation. There’s also been some strategic decisions like Airbus, which has set up an assembly operation in Tianjin and that has, for a variety of reasons, I would argue, helped them expand market share.”

Insight: There have been talks about China putting a man on the moon. Do you think this is possible?

KC: “I think so. The Chinese space program is probably the most ambitious program out there, to put a person on the moon again. Space programs are very much research and development and scientific exploration, and China is at the forefront of that.”

Insight: How can China overcome technology transfer problems?

KC: “I think the Chinese government has to change its policy. They have to take it seriously.

Not just for the aerospace industry but across the board. The question of IPR is an ongoing challenge. Many suppliers will keep pushing components manufacturing outside of China because there’s a real sense that at least they believe the core technology is being protected in part by not being manufactured here. But every corporation has to make its own decisions and decide whether it’s a risk or not.”

Insight: What challenges do you see for China’s aircraft manufacturing industry going forward?

KC: “The aircraft industry in China will have to compete much more head-to-head with rail than they do in the U.S. or elsewhere. Here, rail could very easily give air a run for its money. The question is if this rail program is really going to bring down the numbers pretty dramatically. We shall see. So far, ridership has been lower than hoped.

“The bigger problem I see with civilian aircraft is that it’s not just a product. I have very little doubt that China would be able to build an aircraft that would fly and fly well. The challenges for Comac would be to be able to compete against two very well-established companies [Boeing and

november 2 0 1 2

insight

35

Keith Crane

“

Everybody’s interested in China because this is the most important, most rapidly developing aviation market in the world…”

Airbus] that not only are providing a product but y o u’re a l s o c omp e t i n g a g a i n s t t w o v e r y sophisticated sales and financing companies. “ Yo u a l s o h a v e a p r o b l e m t h a t y o u r competition is not just Airbus or Boeing. It’s all these used aircraft that are all around the world.

The challenge that Comac is going to have is that so many of their buyers will have the option of buying used aircrafts, and in some cases at very low prices, so it’s going to be tough. It could be that the first round will be difficult for Comac to be commercially successful.”

Insight: Where do you see the industry heading and what implications does it hold for China?

KC: “I think we’re probably in a little better position than we have been for a long time. In a situation where we have a lot of rising incomes

36

insight

NOVEMBER 2012

around the world, especially in developing countries, the demand for air travel has gone up a lot. In some of the major markets like the U.S., quite a few aircraft are reaching the end of their service life and we also have some new models out there that are more energy efficient, and jet fuel prices are very expensive, so we’re in a period where there are a lot of factors that would sustain pretty healthy demand for aircraft.

“In the case of China, the types of economic variables and conditions that lead to a structural break and slowdown, they’re here. Statistics show industrial output is flat, exports flat, oil imports down. One would say that we’re on a slowdown period. From a longer perspective, that’s probably just a hiccup. China’s growth rate will continue but probably not at the rapid rates we’ve seen over the last few decades.”

inVestment B y D a n i e l h . R o s e n a n D t h i lo h a n e m a n n

A Gateway to the U.S.

C

hina has long been known as one of the world’s largest destinations for foreign direct investment (FDI).

China’s outward FDI was miniscule during the first three decades of reform, but is now growing fast. This year, China’s overseas FDI assets surpassed US$400 billion, up from less than US$100 billion in 2006. Between 2010 and 2020, this outbound FDI stock will grow to an estimated US$1 trillion to US$2 trillion.

As China’s economy matures, developed economies such as the United States are receiving a greater share of this investment. Before 2008, annual Chinese direct investment in the United States typically stood well below US$1 billion. Since then, Chinese investment has gained momentum, growing to nearly US$2 billion in 2009 and to a record US$5.8 billion in 2010. In the first three quarters of 2012, Chinese firms completed transactions worth US$6.3 billion, setting the stage for a new record year for Chinese investment in the United States.

California is at the forefront of China’s beginning investment boom in the United States. The Golden State has attracted 156 deals from 2000 to 2011, more than any other state, and accounts for more than one-quarter of all Chinese investments in the U.S. In terms of total investment value, California ranks fifth nationwide, with US$1.3 billion of consummated deals over the same period.

A new report released by the Asia Society and the Rhodium Group in October 2012, Chinese Direct Investment in California, analyzes the patterns and drivers of Chinese direct investment in California and discusses the right policy response to maximize benefits from this new trend.

the drivers Many analysts assume that China’s outward FDI boom is the result of top-down state policy.

However, although Beijing’s new “Going Out” policy stance is an important variable for growing outward investment, the growth of China’s outward FDI stems from changes in China’s growth model and marketplace rather than a political agenda.

The recent surge in Chinese OFDI in the United States was mostly driven by changing commercial realities at home, which are translating into pressure on firms to adjust their business model by moving up and down the value chain and to capture profits outside their traditional manufacturing focus.

Overseas investment is one way to achieve deeper market penetration, explore new service provision opportunities and buy assets that can give firms a competitive edge at home and abroad.

These new motives are leading Chinese investors to the industrialized world with great vigor.

Our analysis of past investment patterns shows why California is one of the top destinations for Chinese investment.

First, California has the largest state market in the country, and it is the principal gateway to the rest of the U.S. marketplace. China-based exporters to the United States are increasingly aware that competitors closer to American customers can provide better value, for the same reasons that U.S. firms in China do better than those that stay at home.

Second, California is world leading in highvalue-added manufacturing, and it is a national leader in many of the high-technology industries Chinese policy and firms target. With its clusters of

NOVEMBER 2012

insight

37

Chinese investment in California could reach US$60 billion by 2020, says new Asia Society report

Daniel H. Rosen

Thilo Hanemann

“

…California can proudly proclaim itself the most welcoming U.S. destination for China’s private and entrepreneurial businesses…”

capital, higher education, hard and soft intellectual property and production facilities, California is the place for Chinese firms to learn how to manage quality-intensive manufacturing processes that will distinguish them from their competition at home and abroad.

Third, advanced business service inputs are as underdeveloped in most of China as they are abundant and world-class in California, which is a major draw for Chinese interest. Fourth, the deep endowment of human talent available to join with foreign ventures and, moreover, the legacy of cultural familiarity and diversity in the state profoundly intersect China’s and California’s interests.

Finally, California’s quality of life is a significant attraction to Chinese investors. The Golden State has a reputation for its lifestyle, environmental quality, great public and private education, reliable legal protections and due process for property, as well as many other intangible assets. More than being just the biggest marketplace among American states, California can proudly proclaim

38

insight

NOVEMBER 2012

itself the most welcoming U.S. destination for China’s private and entrepreneurial businesses, which in the near future will clearly be seen as the main growth pool in China.

The benefits FDI generally increases the welfare of both producers and consumers. It allows firms to explore new markets and to operate more efficiently across borders, thereby reducing production costs, increasing economies of scale and promoting specialization. It is particularly important when serving overseas markets and requires an on-theground presence – such as in machinery or highend appliances.

FDI also means better prices for firms looking to divest assets, thanks to a bigger and more competitive pool of bidders. For consumers, foreign investment increases competition for buyers’ attention, leading to more choices, lower prices and innovation. By welcoming Chinese investment, the United States also encourages China to keep its

door open to American investment.

In local communities, foreign investment brings new jobs, tax revenue and knowledge spillovers from worker training, technology transfers and R&D activities. Analyzing almost 600 investments in the United States from 2000 to 2011, we find that Chinese FDI should in principle produce the same benefits as direct investment from other countries.

For example, we find that Chinese firms presently provide more than 27,000 jobs in the United States.

While this number is still small compared to the total U.S. workforce, other historical examples illustrate the potential for job creation. Prior to the 1980s, Japanese firms supported practically no jobs in the United States; today their U.S. affiliates employ almost 700,000 Americans.

Working together The report finds California is in a strong position to lead the nation in attracting Chinese investment in the decade to come. If current trends continue, the Asia Society/Rhodium Group study projects US$20 billion in new Chinese inflows between 2010 and 2020. If the state and private sector do a better job coordinating and attracting Chinese investment, inflows could reach as high as US$60 billion. Investment flows of these magnitudes would provide new jobs, generate new tax revenues and integrate California even more tightly into global production networks.

However, these benefits are not foreordained.

Other states and other nations are ramping up their efforts to attract Chinese firms. They could well out-compete California if the state fails to resolve its fiscal and political problems, to provide positive inducements to Chinese investors and to promote Chinese investment while also protecting legitimate issues of national security.

Building on this analysis, the new study identifies four crucial steps to sustain long-term investment from China in California.

• Understand California’s value to China. The state’s economy is the largest in the United States.

It has strong competitive advantages in high-tech sectors like software, IT, electronics and cleantech.

California has long ties with China and possesses one of the most highly educated, multi-cultural workforces in the world.

• Target the right Chinese firms. Hightech firms in China seek what their California counterparts have: technology, know-how and market experience. This is also true for high-value services in China seeking to move up the value chain. The Chinese government has identified exactly these areas as priorities for future economic growth.

• Step up the state’s investment promotion efforts. Competition from other states and nations is intensifying, and the traditional hands-off approach is outdated and inadequate. The new GOBiz program, located in the California Governor’s Office, is an encouraging development, and more must be done to support innovative local initiatives such as ChinaSF in San Francisco.

• Lead the way to help resolve national anxieties over China. Growth in China’s direct investment into the United States has rekindled old arguments about foreign firms and the national interest.

While security screening for foreign investments is both necessary and legitimate, concerns can be politicized for protectionist ends. California has more self-interest than any other state to step up and contribute to solutions based on its experience with successful, and failed, deals and a sophisticated understanding of cutting-edge industries.

While the recent growth is impressive, many chapters in the story of Chinese overseas investment have yet to be written. Securing the proper policy response is crucial, given the potential for future investment flows and China’s role as test case for a wider range of emerging market investors in the future.

Daniel H. Rosen is co-founder and China Practice Leader of Rhodium Group, an economic research firm based in New York (www.rhgroup.net). Thilo Hanemann is Research Director at Rhodium Group. Download the full report of Chinese Direct Investment in California at www.AsiaSociety.org/ ChinaCAInvestment.

NOVEMBER 2012

insight

39

inside amcham from the chair

Shanghai Doorknocks

A

lt houg h most AmC ham Shanghai members associate the word “d o o r k n o c k ” w i t h t h e Chamber’s annual trip to Washington, D.C., I was reminded recently that the Washington Doorknock is just one type of doorknock. Another variety is the frequent knockings on the Chamber door right here in Shanghai.

This point came home during a recent lunch with the executive vice mayor of a major city in Jiangsu province. Together with President Brenda Foster and board Vice Chair Bob Theleen, we enjoyed the hospitality of this senior municipal official who asked to meet with us during his visit to Shanghai. In this case, the vice mayor was joined by a successful entrepreneur and the manager of a national-level high-tech development zone. The ensuing discussion focused on the city’s investment priorities – both inbound and outbound – and the important role that AmCham Shanghai could play in developing commercial ties between U.S. companies and the city. The informal brainstorming that took place across the lunch table resulted in some tangible ideas for cooperation. Our host was pleased and so were we.

This is a simple story, but worth retelling because it highlights some important points about AmCham Shanghai. First, there is the power of our brand. Over the years the Chamber has grown in stature – not just in Washington but also in China. Provincial and municipal leaders from across China seek out our organization on a regular basis when looking to partner with U.S. business.

Second, there is the role the Chamber plays as a facilitator and multiplier. Our large membership and ties to trade and

Kenneth Jarrett Chair of the Board of Governors

40

insight

NOVEMBER 2012

investment agencies at the state and federal level in the United States are powerful attractions for Chinese government leaders.

Our SME Center will only enhance those capabilities. Third, there is our proven track record. With our active calendar of events and regular provincial visits, we are able to help make business contacts and facilitate business opportunities.

The Chamber’s Yangtze River Delta initiative is another response to this local knocking on our door, as was the decision to hold this year’s manufacturing conference in Suzhou. The appetite from local Chinese governments for this type of outreach has no limits, which is a challenge in itself, but we will be deliberate in our decisions as we expand the YRD initiative.

This year’s conference in Suzhou gave a strong boost to the initiative and I offer congratulations to the many people who helped make the conference a success.

F i n a l l y, a f e w p o i n t s a b o u t o u r upcoming calendar. As this issue of Insight goes to print, election suspense grows day by day. Naturally, I am referring to the outcome of the Chamber election for the 2013 Board of Governors. Thanks to the candidates for their commitment to the Chamber and to those members who have cast their vote. AmCham Shanghai is a membership-driven organization and we rely on your active participation to make sure we serve your needs. Finally, our Government Appreciation Dinner will take place December 3, right here in Shanghai.

This is always a highlight of the year and a good opportunity for members to meet a wide range of government officials. We look forward to a full ballroom to welcome Ambassador Gary Locke and our many Shanghai government guests.

inside amcham B OARD o f g o v e r n o r s b r i e f i n g

Highlights from the October 2012 Board of Governors Meeting 2012 Washington, D.C. Doorknock Ken Jarrett, chair of the AmCham Shanghai Board, reported on the 2012 Washington, D.C. Doorknock and thanked the Chamber staff and the member delegates for making the trip a success. Ken reported that the Doorknock delegates were well received on Capitol Hill despite the distractions of the presidential election and impending recess. Administration meetings were also a success and the delegation met with top U.S. officials in the Commerce, State and Treasury departments and also met with officials from the White House and other Administration agencies.

Ken also provided an overview of the successful SME roundtable hosted by AmCham Shanghai on the last day of the trip. The roundtable was attended by federal, state and local government officials including Undersecretary of State Robert Hormats and Undersecretary of Commerce Francisco Sanchez. The roundtable provided an opportunity for delegates to provide feedback to U.S. officials on the challenges and opportunities for U.S. SMEs in China and for roundtable attendees to discuss ways to improve the competitiveness of U.S. SMEs in China. AmCham Shanghai’s SME Center, to open on November 6, 2012, was highlighted.

Nominations and Elections Committee (NEC) Report Eddy Chan, 2012 chair of the NEC, reported that the NEC members are charged with reviewing nominations and developing a slate of candidates for the 2012 Chair and Board of Governors election. The NEC interviewed 17 candidates in September and NEC members were very pleased with the quality of candidates, approving all 17 nominations. The Committee also received useful feedback from the candidates on areas that AmCham Shanghai should focus on moving forward.

Candidates were particularly supportive of the Chamber’s geographic expansion and of the SME Center.

In Attendance Governors: Andrew Au, William Brekke, Eddy Chan, Lienjing Chen, Kenneth Jarrett (Chair), Marie Kissel, Dan Krassenstein, Jim Rice, Peter Sykes, Robert Theleen, Eric Zheng Apologies: Jim Mullinax, Ted Hornbein Attendees: Brenda Foster (President), David Basmajian, Steven Chan, Kirt Greenburg, Patsy Li, Helen Ren, Jonathan Shyu, Scott Williams, Jessica Wu

The AmCham Shanghai 2012 Board of Governors Governors

Chair

Andrew Au Citibank China

Eddy Chan FedEx Express

Chen Lienjing Pratt & Whitney

Ted Hornbein Richco

Marie Kissel Baxter Asia-Pacific

Daniel M. Krassenstein Procon Pacific

James Rice CSM nv China

Peter Sykes Dow Chemical

Eric Zheng Chartis Insurance

Kenneth Jarrett APCO Worldwide

Vice Chair

Robert Theleen ChinaVest

november 2 0 1 2

insight

41

AmCham Shanghai New Members U.S. Corporate Membership

Small Business Membership

J.C. Steele & Sons, Asia (Changzhou) Machinery, LLC PLUM Mark

Micro Benefits Financial Consulting (Suzhou) Co., Ltd. LYMAN Tyler

Shanghai Kenexa Human Resource Consulting SHEN David

Rplus Business Consulting (Shanghai) Co., Ltd. JIA Jack

Sealed Air Packaging (Shanghai) Co., Ltd. ZHANG Alan

Shanghai American School THIERRY Lindsay

Shanghai Xin Er Fu Business Management Co., Ltd. WANG Zane T&S Brass and Bronze Works (Shanghai) Co., Ltd. LYERLY Keith Hudgens Tsar Enterprise Management Consulting (Shanghai) LIimited LEVEILLE Larry Yanfeng Visteon Electronics Technology (Shanghai) Co., Ltd. DAI Yushu

U.S. Associated Corporate Membership Beijing Warburg Pincus Investment Consulting Co., Ltd., Shanghai Branch HE Maggie Rexel China Management Co., Ltd. WILLIAMS Mitchell

Corporate Int’l Affiliate Membership

Associate Membership American Bureau of Shipping, Shanghai Rep. Office HUANG Yan-Min Baxter (China) Investment Co., Ltd. ELEGANT Victoria Bureau Veritas Consulting (Shanghai) Co., Ltd. WANG Rachel Chart Cryogenic Engineering Systems (Changzhou) Co., Ltd. CHEN Jiawei Chrysler Asia Pacific Investment Co., Ltd. DECRICK Robert

Moore Stephens Consulting KRIVOKOPICH Scott Orbit (Shanghai) Irrigation Tech Consulting Co., Ltd. NEWMAN Tom Plainvim Int’l Kunshan Modern Industrial Park Co., Ltd. PAN Yan Poyry (Beijing) Consulting Co., Ltd., Shanghai Branch KONG Johnson Shanghai Snap Printing Co., Ltd. HOENIG Magan Veolia Water Solutions & Technologies (Shanghai) Co., Ltd. CUNY Laurent

Thermo Fisher Scientific (China) Co., Ltd. ZHOU Fox TRW Asia Pacific Co., Ltd. LU Jing Tsar Enterprise Management Consulting (Shanghai) LIimited PAN Qunhua Veolia Water Solutions & Technologies (Shanghai) Co., Ltd. WANG Lu

Corning China (Shanghai) Regional Headquarter MA Yufeng Ethan

Individual U.S. Citizen Membership

Eastman (Shanghai) Chemical Commercial Co., Ltd. Jingan Branch LI Jian Ferro (Suzhou) Performance Materials Co., Ltd. REINHERZ Barry Harvard Center (Shanghai) Co., Ltd. KRISHNA Palepu HSBC Bank (China) Co., Ltd. CHENG Stacy HSBC Bank (China) Co., Ltd. YANG Mike NAI Communication Technology (Suzhou) Co., Ltd. NI Shirley Nordson (China) Co., Ltd. TIAN Ying Otis Elevator Management (Shanghai) Co., Ltd. RICAPITO Jeffrey

Non-Resident Corporate Membership

Parametric Technology (Shanghai) Software Co., Ltd. JOSEPH Paula

CCube Limited DE LA HOSSERAYE Chuan

PricewaterhouseCoopers CANVIN Stuart

insight

Thermo Fisher Scientific (China) Co., Ltd. CHENG Michael

Yuancheng Logistics Incorporation Limited SHEN Jason

Yuancheng Logistics Incorporation Limited LUO Alice

42

Sealed Air Packaging (Shanghai) Co., Ltd. YAN Vince

Continental Automotive Asia Pacific Co., Ltd. Shanghai WRIGHT Dennis

Dresser Shanghai Software Development Center REN Daqi

Kingsmen Shanghai Co., Ltd. ANG Daniel

Sealed Air Packaging (Shanghai) Co., Ltd. OU Michael

NOVEMBER 2012

Airmedia Group Inc. NEANDER Christopher Capital Safety Group HUANG Bryan Cathaya Capital LU-HILL Douglas General Biologic FRAGER John Risk Management China NICHOLS Ed Risk Management China STEELE Hector Solar Ear China LYTLE Richard CRONOPULOS John JOHNSTON BLOECHLINGER Maureen KENT Alexander

Individual Int’l Affiliate Memberhsip Alto-Shaam International MARTIN Yannick Manhattan Associates CHAN Shelton

Do you want to share more information about your company? Contact Sophia Chen at (86 21) 6279-7119 ext. 5667 or sophia.chen@amcham-shanghai.org for a “Standout Listing” opportunity in the New Members Section.

november 2 0 1 2

insight

43

AmCham Shanghai A participant asks a question during the Women in Business event “Women Matter: An Asian Perspective�

Women in Business panel

Here is a selection of snapshots captured in recent weeks during AmCham Shanghai events.

Paul French, chief China markets strategist for Mintel during a Food Service Subcommittee Roundtable on Food Tastes in China

Panelists at a Human Resources Committee event 44

insight

NOVEMBER 2012

Participants at a Real Estate Comm

in Pictures

mittee event at Hongqiao CBD

Participants at the 2012 AmCham Shanghai Regional Manufacturing Conference in Suzhou, Jiangsu Province

Attendees watch the third U.S. Presidential Debate at the AmCham Shanghai Conference Center

Guests at October’s Monthly Member Briefing NOVEMBER 2012

insight

45

GoverNment Relations Jiangsu Officials Address CCPIT Healthcare Roundtable

AmCham Shanghai president Brenda Foster and CCPIT Jiangsu Vice Chair Qiu Xiaoping after signing a letter of cooperation

AmCham Shanghai and the China Council for the Promotion of International Trade (CCPIT) co-hosted an industry roundtable on healthcare on October 22 in Suzhou. AmCham Shanghai president Brenda Foster delivered opening remarks and highlighted the Chamber’s strong partnerships with CCPIT and the important role U.S. companies continue to play in China’s and Jiangsu’s economic development. Deputy Director General of Jiangsu’s Health Bureau and Director General of Jiangsu’s Food and Drug Administration Hu Xiaoshu delivered the keynote speech in which he identifed healthcare opportunities in Jiangsu’s Five-Year Plan in new drug development, manufacturing of medical devices, medical retail and shipping and exporting Chinese traditional medicines. CCPIT Jiangsu Vice Chair Madam Qiu Xiaoping and Principal Commercial Officer William Brekke at the U.S. Consulate in Shanghai also delivered remarks at the event.

During the roundtable, Chinese and U.S. companies participated in two panel discussions. The first session focused on investment opportunities in Jiangsu’s healthcare sector featuring Xu Zhoufang, Changzhou Siyao Pharmaceuticals; He Wenzhao, Suzhou Hengxiang Import & Export Co.; Emery Brautigan, Shanghai United Family Hospitals and Clinics and Jamie Shen of APCO Worldwide. The second session explored resources and financing options available for investment opportunities featuring Tang Liming, Nanjing Jinling Hospital; Yu Jinghui, Suzhou Ke Er Medical Instrument Company and Robert Theleen, ChinaVest, Ltd. AmCham Shanghai and CCPIT also signed a Letter of Cooperation with the Jiangsu CCPIT Jiangsu during the event. The letter symbolizes the American business community’s deepening commitment to Jiangsu province and formalizes a long-term, strategic and cooperative partnership between Jiangsu CCPIT and AmCham Shanghai to support U.S. investment in Jiangsu.

Diverse representatives from U.S. and Chinese healthcare companies in the pharmaceutical, medical device and healthcare service sectors also participated in the roundtable discussions.

46

insight

NOVEMBER 2012

Nanjing Mayor’s Forum AmCham Shanghai President Brenda Foster co-led a business delegation with William Brekke, principal commercial officer at the U.S. Consulate in Shanghai, for the 2012 Mayor's Forum in Nanjing. The two-day forum, from September 5–6, focused on sustainability and creative urban planning as Nanjing is gearing up to host the 2013 Youth Asian Games and the 2014 Youth Olympics.

Foster participated in the opening reception and dinner, a private breakfast meeting with Nanjing Deputy Mayor Zheng Zheguang and U.S. Consul General Robert Griffiths, a VIP meeting with Nanjing Mayor Ji Jianye and other forum panel sessions. Also participating in the forum were more than 50 mayors from cities in China and elsewhere around the world, including San Antonio, Melbourne, Frankfurt, Krakow, Rome, Ningbo and Harbin.

U.S. Trade Representative Panel AmCham Shanghai and the US-China Business Council co-hosted a breakfast panel discussion with U.S. Trade Representative (USTR) General Counsel Timothy Reif and a USTR delegation, including USTR Deputy General Counsel and Director of the International Trade Enforcement Center (ITEC) Bradford Ward and Assistant USTR for China Claire Reade and USTR Chief Counsel for China Katherine Tai. AmCham Shanghai Government Relations Director Steven Chan and USCBC Chief Representative Julie Walton moderated the panel discussion on the delegation’s recent meetings with Chinese Government officials in Beijing, ITEC and trade enforcement, the U.S.-China Joint Commission on Commerce and Trade and other regulatory issues.

Reif highlighted USTR’s three approaches on engagement with China: address core regulatory and industrial policies, respond to China’s trade remedy actions against U.S. companies and work closely with ITEC to defend U.S. trade remedy laws. Reif moreover encouraged Chamber members to continue to engage USTR on trade and regulatory issues.

Event highlights

i n s i d e amc h am

October Member Briefing AmCham Shanghai’s Monthly Member Briefing held October 9 at the Four Seasons Hotel featured Tongji University Professor of Economics and Finance Frank Peng, who discussed the progress of Shanghai’s goal to become an international financial center and shared details about the city’s plan and opportunities for financial service providers.

Peng said the decision by China’s government to make Shanghai an international financial center by 2020 marked a new and defining phase in China’s economic development. “Shanghai was designated as a financial center not just for the financial sector itself but for the safety and development of the whole economy,” he said, noting that this distinction is often misunderstood by many people, including Chinese high-level managers and leaders.

Among the city’s competitive advantages, Peng pointed out Shanghai’s prime geographic location at the juncture of the Yangtze River in the east coast, where the Chinese economy traditionally developed along. Shanghai is also a “city of brain,” he said, stressing the importance of training local talent to change China’s growth pattern from cheap labor to innovation.

Noting that China’s economy today is restructuring and moving from fast to slower and steady growth, Peng said economic security is the country's first priority in establishing itself as a major international financial center. He further urged for economic integration and effective use of global resources in today’s highly interdependent world economy.

AmCham Shanghai Representatives Join U.S. Government Delegation to Fall JCCT Members of AmCham Shanghai, along with Healthcare Committee Chair Tineke Zuurbier and Co-chair Rebecca Liu, joined a delegation of the U.S. Commerce Department, U.S. Trade Representative and other industry associations from September 17–19 to meet with Chinese administrators for the fall preparatory meeting of the Joint Commission on Commerce and Trade (JCCT) Healthcare Subgroup.

During the meeting, members of each side addressed areas of concern in the pharmaceutical and medical device sectors in China and decided on topics for further negotiation at the annual top-level JCCT meeting in December. Long-term items of discussion in these sectors have been digital monitoring of bulk chemicals for drugs, country of origin requirements for medical devices and risk classification for clinical trials. Following the discussions were several information-sharing workshops, in which industry experts from China and around the world discussed data exclusivity of new chemical compounds and standards for medical devices. The JCCT is an annual cooperative dialogue between China and the U.S. to negotiate regulatory and market access issues across a number of different industries.

november 2 0 1 2

insight

47

Committee highlights

i n s i d e amc h am

AmCham Shanghai Gets New BD Director Patsy Li, a veteran of the serviced office industry in Greater China and Asia Pacific, has been appointed AmCham Shanghai’s new Business Development Director. Prior to joining AmCham Shanghai, Li was director of conference sales for The Executive Centre Group based in Hong Kong.

She has a wealth of experience in the serviced office industry, having implemented The Executive Centre’s service standards and quality service platform for the past 13 years.

During this period, she oversaw sales, operations and project management in Hong Kong, Shanghai, Beijing, Taipei and Tianjin. She also handled key accounts of several major U.S. companies, including Morgan Stanley, Citibank, Google, IBM, Oracle and General Motors.

Li is multilingual with extensive cross-cultural experience. Her expertise includes developing new business channels across varied organizational demographics and segments, client relationship building, business promotion, sales management and new systems and services implementation.

“Shanghai is the most dynamic and exhilarating city in China and offers invaluable business resources to enhance the U.S.-China commercial relationship,” Li said. “I look forward to applying my experience and enthusiasm in creating unique sponsorship and marketing programs for our members.”

Aerospace Committee Discussion on China’s Aerospace Industry Although China relies on foreign firms and joint ventures for aircraft manufacturing, trends are changing, noted Keith Crane, director of the Environment, Energy and Economic Development Program at the RAND Corporation, a non-profit research and analysis institution. Crane said that a few foreign manufacturers have established a presence in China for sourcing purposes, while there have also been acquisitions of foreign firms by Chinese firms.

He also pointed out that while China flies more passenger-kilometers than Germany or Japan, it is still heavily reliant on its domestic market, which is dominated by three Chinese carriers – Air China, China Southern Airlines and China Eastern Airlines.

Projections for the next 20 years in the Chinese aviation market are robust, especially in terms of aircraft purchases from both Airbus and Boeing, Crane said during a discussion on the state of China’s aerospace manufacturing industry hosted by AmCham Shanghai’s Aerospace Committee on September 26 at the Portman Ritz-Carlton Hotel.

But for purchase projections to remain on track, Crane noted that the airline industry has to rely on increasing income levels and conquer competition from rail-based transportation. There is also still a need for a technology “jump” for local production, he added.

During the event, Crane also presented key findings from the report Ready for Takeoff, including China’s commercial aviation manufacturing capabilities, Chinese government encouragement of foreign participation and technology transfer issues. The report is sponsored by the U.S.-China Economic and Security Review Commission.

48

insight

NOVEMBER 2012

Committee highlights

i n s i d e amc h am

Food, Agriculture & Beverage Committee Roundtable: Food Tastes in China, Today and Tomorrow Packaging has emerged as an important factor when selling products in China, partly because consumers look to packaging to give them a sense of safety in an industry rife with food safety scandals, said Paul French, chief China markets strategist for Mintel, during a recent AmCham Shanghai Food, Agriculture & Beverage Committee roundtable on food service trends in urban, middle class Chinese populations.

French discussed changing consumer tastes and, based on Mintel’s most recent research, where the industry could be heading. Findings revealed that China’s urban consumers are adopting a more varied palate and diet, with women more adventurous than men when trying new food and also more health-conscious. Breakfast was identified as an important meal for Western fast food chain expansion, as is a varied and rotating beverage menu. And when it comes to beverages, findings revealed that lemon/lime is the fastest growing flavor, and consumers increasingly demand healthier soft drinks.

In light of recent food scares, consumers are protecting themselves by trusting organized chain retailers and supermarkets, looking more at labels and even moving towards organic foodstuffs. Another way consumers are protecting themselves is by rejecting domestic brands for foreign ones perceived to be of higher quality and therefore safe to eat.

The event, held October 12 at the AmCham Shanghai Conference Center, was the first one to be hosted by the Food Service Subcommittee, a group within the Food, Agriculture & Beverage Committee that is targeted to suppliers, restaurateurs and service providers in Shanghai’s food service industry.

Human Resources Committee Effectively Transitioning Industry and Business Functions in China In China, top locations for shared service centers (SSC) include Beijing, Shanghai, Guangzhou, Shenzhen, Dalian, Chengdu and Nanjing; however, with rising costs of living and labor, many companies are increasingly looking towards second- and third-tier cities such as Chongqing, Wuhan, Xi’an and Suzhou.

These were some of the issues raised during AmCham Shanghai’s Human Resources Committee discussion on effective transitioning of shared services in China at the Four Seasons Hotel on October 11.

The session focused on strategies for transferring business functions to second- and third-tier cities, what parts of business functions are transferred, as well as factors for consideration when choosing a shared service location. Industry analysis and case studies were presented by Carlos Zhou, service management director for Diageo’s Business Shared Services in the Asia Pacific region; Mark Gilbraith, partner, Products and Services Consulting at PwC; and Michael Ye, vice president of Dalian Software Park.

When considering a move to an SSC, speakers agreed that companies must consider several factors, including number of qualified employees, labor costs, proximity to regional or core location, infrastructure, quality of life and government policies. Although one size does not fit all in terms of how to select a SSC, presenters also concurred on the importance of identifying and retaining talent, especially in second- and third-tier cities.

Reporting by Julia Bakutis, Ryan Balis, Kimberly Chang, Matthew Garner, Eric Meng, Lindsay Ross and Erika Wang

november 2 0 1 2

insight

49

EXECUTIVE GADGETS What’s your favorite handheld gadget?

This month, we asked executives to tell us about their favorite smartphone and other handheld gadgets they can’t do without. Here’s what some of them told us.

Joe Hinrichs, President, Ford Asia Pacific and Africa Devices: BlackBerry Bold,

iPhone 4S

Remarks: “I use a Blackberry Bold for emails, iPhone 4S for phone calls and mobile Internet and two iPads–one for business email and one for personal music/photos/Internet. I use the Blackberry because I can respond to emails easiest due to the keyboard and my familiarity with it over 10 years of use. Also, the Blackberry is better at looking at encrypted emails. The iPhone is the easiest to use for phone calls due to its slightly longer length and touch screens, plus I have music on the device. The iPads are much smaller and lighter to carry instead of a notebook computer, and they start up so much more quickly. Typing all this on my Blackberry from the New Delhi airport...”

Tony Su, President, DuPont Greater China Device: BlackBerry Bold Remarks: “It’s reliable and easy to type and send messages.”

Julien Bares, General Manager, 2K Games China Co. Device: iPhone, BlackBerry Remarks: “I use both an iPhone for travelling and keeping contact with familly and friends and a Blackberry for the corporate email since the keyboard is still necessary for long emails.”

Gilber t Hu, Chairman of the Board, AltiGen Communications Device: Samsung

Galaxy Note I-9220

Swen Neufeldt, Vice President, Hormel Foods International, General Manager Hormel Foods China

Remarks: “Frankly the only reason I like the I-9220 over other Smartphones is its large screen which makes browsing the Net more enjoyable, and of course it’s also easier on my aging eyes.”

Device: iPhone 4S Remarks: “I am an iPhone devotee.

I have a 4S and it means that I can re a d my g l o b a l n e w s i n t h e morning, keep up on email and most importantly, say good night to my kids with FaceTime when I am on the road.”

50

insight

NOVEMBER 2012

Growing somewhere?

Count on our EPCM services to get you there.

As a U.S. engineering, procurement, and construction management firm, SSOE Group offers global expertise and experience that allow us to make promises other firms won’t.

We’ll deliver better quality with significant savings. And we’ll quantify and document these savings on your project.

What enables us to deliver greater value: • Over 60 years experience with Fortune 500 firms globally • More than 20 offices worldwide including Shanghai, Beijing, and Tianjin • China design license (in-house engineering) • Green design expertise: global LEED ® AP staff • Experts in cost reduction approaches including BIM and Lean Manufacturing • ISO 9001:2008 certified Contact John Thompson at jthompson@ssoe.com.cn or go to www.ssoe.com/china

making clients successful by saving them time, trouble, and money

You can't beat the views from this window.

Find our great fares at www.aircanada.com/cn/zh