Ever since China allowed the first internet connection to be established 16 years ago, global attention has been focused on how the web is changing the country.
To those in the west who saw the internet as an inherently open and free medium, it would only be a matter of time before censorship and authoritarian control succumbed to the inevitable.
At the forefront was Google, the world's richest media and internet company. The company thought that its local search service would be one of the main forces breaking down barriers to the free flow of information.
Google was wrong...they tried to impose their vision of the web onto China and lost sight of cultural preferences and social structures. Therefore, Google has struggled in China.
Google's Goofs
If Google does decide to actually leave China, it will accelerate the online divergence between China and the rest of the world already taking place.
With 384 million internet users, the country already accounts for more than one-fifth of the 1.73 billion global internet population.
For large American multinational companies like Google, that means adapt or lose a substantiative market.
Other American internet companies have failed miserably in China, notably Yahoo and Ebay, so Google is not alone in its struggles.
If Google leaves China it will be because they fumbled the ball and did not adapt to the Chinese market and its competitors like Baidu and Tencent Holdings.
Google ARROGANTLY took years to find out even some basic facts about Baidu – its Chinese rival, which has nearly two-thirds of the domestic market in online search.
For example, Baidu offers a search box formatted in a way much better suited to Chinese characters than Google's...yes, Google, Chinese people search in their own language.
In addition, Google was slow to tackle one of Baidu's main strengths in attracting user traffic – its free music download...Google only began offering a similar service last year.
China's Cyberspace
US companies have simply taken far too long a time to realize that Chinese people use the internet differently than their counterparts in other markets.
Recent research by the McKinsey consultancy suggests Chinese users spend most of their time online on entertainment, much of it playing online games, while Europeans and Americans are more focused on work-related uses.
Behind this difference is the fact that Chinese internet users are younger, poorer and less educated than their counterparts in the west – a result of the fact that the country is moving online at the same rapid pace as it is expanding its economy.
According to China Internet Network Information Center, 61.5 per cent of users are below the age of 29, and only 12.1 per cent have a university degree. Additionally, 42.5 per cent have a monthly income of $146 or less.
But there are also cultural differences which Google took a long time to figure out.
Chinese internet users do not like to type...perhaps due to the fact that Mandarin has many thousands of characters.
They navigate almost entirely by using the mouse...most Chinese portals have reacted by filling their pages with hundreds of colorful links competing for attention.....
This may look cluttered and disorderly to an American, but it makes life easier for Chinese users.
Chinese web users are also more active participants...for instance, the amounts of comments posted per user in China is double that of other countries.
It is how consumers communicate with each other China, as they discuss places to buy food or clothing, etc.
According to McKinsey, consumers are increasingly using blogs and other user-generated consumer reporting when deciding what to buy.
In China, word of mouth is trusted much more than marketing or advertising campaigns...western companies planning to sell their goods in China should keep this in mind.
Instead of slick ad campaigns, their money may be better spent in inviting “key” Chinese bloggers to test their wares and then blog about the products.
Despite government censorship, the internet is still the "freest" space in Chinese society.
Raised on a diet of propaganda in real life, many Chinese are mesmerized by the feeling of authenticity and empowerment that comes with user-generated content.
And the internet has a greater importance in China than it does in other countries, where it is simply another communication or information tool.
In China, through blogs and social networks, the internet is a crucial source of information suppressed in China's traditional media sources.
Bottom line - Google completely misread the Chinese market and culture. The company thought it would impose its vision of the internet on the country. Now that it has failed, it is waving the American flag to cover its lack of success.
Saturday, June 26, 2010
Saturday, June 19, 2010
The BP Oil Spill and Higher Oil Prices
Common sense would dictate that the BP Gulf oil spill would wake up someone in this country concerning American energy policy. But it hasn't.....
All we see is political theatre and sleazy lawyers lining up to make BP stand for Big Payments. But America is about to get another sobering slap in the face. That slap will come in the form of much higher energy prices in the years ahead.
With the current talk in our nation's capital from our politicians, it looks like offshore drilling will be banned for a lot longer than the six month ban put in place by President Obama.
My best guess is that it will be at least a 3-year ban and perhaps a permanent ban.
The owners of the oil rigs are not going to let their multi-million dollar rigs sit idly. These rigs are already on the move - to western Africa, to Brazil, to offshore China.
By the way, the safety regulations regarding offshore deep water oil rigs in places like Brazil are much stricter than here in the United States. So the rigs drilling here in US waters may have to be modified a bit. But that only benefits companies like Keppel of Singapore which does such work.
Stopping deep water drilling will hurt US oil production...a full 20% of our oil is produced in our waters offshore. If the oil is not produced, that means only one thing. America will have to import even more oil - we already import 56% - from overseas.
And the United States will have to compete for that oil (and pay a hefty price) against the likes of China, India and the other emerging markets whose energy demand is just starting to ramp up.
And add to that the anti-foreigner rhetoric that has been hurled at BP. There has been a real fury in the British press about this and about America's wasteful energy habits.
Don't think that the other foreign oil companies like Royal Dutch Shell haven't noticed. Do not be surprised that if, within several years, all the foreign oil firms pull out and will refuse to do business in the United States.
With all these problems brewing, the United States still does NOT have a coherent energy policy coming out of Washington. We need a plan that emphasizes ALL forms of alternative energy including natural gas in addition to energy conservation.
But with the lack of leadership, particularly from Congress, do not be surprised if we see oil at well over $100 a barrel in the next few years.
All we see is political theatre and sleazy lawyers lining up to make BP stand for Big Payments. But America is about to get another sobering slap in the face. That slap will come in the form of much higher energy prices in the years ahead.
With the current talk in our nation's capital from our politicians, it looks like offshore drilling will be banned for a lot longer than the six month ban put in place by President Obama.
My best guess is that it will be at least a 3-year ban and perhaps a permanent ban.
The owners of the oil rigs are not going to let their multi-million dollar rigs sit idly. These rigs are already on the move - to western Africa, to Brazil, to offshore China.
By the way, the safety regulations regarding offshore deep water oil rigs in places like Brazil are much stricter than here in the United States. So the rigs drilling here in US waters may have to be modified a bit. But that only benefits companies like Keppel of Singapore which does such work.
Stopping deep water drilling will hurt US oil production...a full 20% of our oil is produced in our waters offshore. If the oil is not produced, that means only one thing. America will have to import even more oil - we already import 56% - from overseas.
And the United States will have to compete for that oil (and pay a hefty price) against the likes of China, India and the other emerging markets whose energy demand is just starting to ramp up.
And add to that the anti-foreigner rhetoric that has been hurled at BP. There has been a real fury in the British press about this and about America's wasteful energy habits.
Don't think that the other foreign oil companies like Royal Dutch Shell haven't noticed. Do not be surprised that if, within several years, all the foreign oil firms pull out and will refuse to do business in the United States.
With all these problems brewing, the United States still does NOT have a coherent energy policy coming out of Washington. We need a plan that emphasizes ALL forms of alternative energy including natural gas in addition to energy conservation.
But with the lack of leadership, particularly from Congress, do not be surprised if we see oil at well over $100 a barrel in the next few years.
Saturday, June 12, 2010
Investment Winds Blowing East
Debt troubles continue to plague Europe and it seems to be only a matter of time before global investors begin asking the leadership here in the United States the same questions that they are asking European leaders about their debt levels.
But half a world away, Asian economies have rarely looked in better shape and look like a great place for your investment dollars.
Asian states have rather different problems than Europe's nations...awash with cash and thundering along at a rapid pace.
Asian economies are, if anything, in danger of overheating. Asian leaders are worried about too much foreign investment capital coming into their country. This is in sharp contrast to Europe and the US where the problem is having capital leaving the country too quickly.
Yet most US investors are missing this shift in the global economy. Wall Street still tends to think of Asia as being closely hitched to the United States' shopping cart...but that is no longer true.
Much of the demand from the United States and Europe vanished overnight when credit markets froze at the end of 2008. Yet Asian economies barely drew breath before resuming their ascent.
Asia, ex-Japan, is likely to grow by 7.5 to 8 per cent this year...A year ago that would have seemed impossible.
Singapore will grow at more than 6 per cent this year, Malaysia will find at least 5.5 per cent in growth, even battered Thailand will grow by 5 per cent.
How has Asia done so well? One word – China.
Chinese Imports and Consumption
Despite the BS and the rhetoric from the United States, China – the world's biggest exporter – has emerged as a significant consumer.
Overall, China's import volumes are a fifth higher than its pre-financial crisis peak. Many Asian countries have more than doubled their exports to China since the depths of the recession in late 2008 and early 2009.
Exports from neighboring Taiwan are up more than 160 per cent from the bottom, while Singapore has boosted its exports to China by more than 120 per cent and South Korea by nearly 100 per cent.
In absolute terms, nearly 30 per cent of Taiwan's exports, accounting for 15 per cent of its GDP, go to the mainland. A quarter of South Korea's exports, accounting for 10 per cent of its GDP, go to China.
For both of these countries, and others in Asia as well, China is more than twice as important as the United States in terms of exports.
Most American investors would probably to surprised to learn that last year, Chinese consumers bought more cars and mobile phones than did Americans.
The increase in Chinese and Asian consumption is a long-term shift. It is driven by a surge in sustainable and self-generating domestic demand on the back of economic growth. In fact, consumption has played the major role in Asia's economic recovery.
The effect is most dramatic in China where domestic demand increased by $180 billion in 2009. The consumption picture is similar in the rest of Asia. Excluding Japan, consumption in Asia is more than 7 per cent above September 2008 levels.
Shifting Trade Winds
Rapidly rising incomes in China are making its consumers look more and more like those in the developed world. Today investors need to keep in mind that just as the US consumer is key for Chinese exporters, so too is the Chinese consumer key as an export destination for the rest of Asia and the emerging world.
Just as once at the end of many global supply chains there was the American shopper dropping items into a shopping cart, now there is the Chinese consumer doing the same...or the Chinese government planning a new road or steel plant.
Trade patterns globally have begun to shift as China and Asia become both wealthier and seek alternative patterns of continued economic growth.
Commodity-producing economies – Brazil, Russia, Indonesia, Australia and Canada – and commodity-consuming countries such as China, South Korea and Japan are reinforcing each other. South Korea, for example, sells 70 per cent of its finished goods to emerging markets.
China is sucking in all sorts of commodities. That gives suppliers of those commodities more money to buy manufactured goods, many made in China itself.
Of course, China is not yet nearly big enough to carry the world on its shoulders. But it is big enough to carry parts of it. And it is those parts of the world where investors need to and must put at least some of their investment dollars.
But half a world away, Asian economies have rarely looked in better shape and look like a great place for your investment dollars.
Asian states have rather different problems than Europe's nations...awash with cash and thundering along at a rapid pace.
Asian economies are, if anything, in danger of overheating. Asian leaders are worried about too much foreign investment capital coming into their country. This is in sharp contrast to Europe and the US where the problem is having capital leaving the country too quickly.
Yet most US investors are missing this shift in the global economy. Wall Street still tends to think of Asia as being closely hitched to the United States' shopping cart...but that is no longer true.
Much of the demand from the United States and Europe vanished overnight when credit markets froze at the end of 2008. Yet Asian economies barely drew breath before resuming their ascent.
Asia, ex-Japan, is likely to grow by 7.5 to 8 per cent this year...A year ago that would have seemed impossible.
Singapore will grow at more than 6 per cent this year, Malaysia will find at least 5.5 per cent in growth, even battered Thailand will grow by 5 per cent.
How has Asia done so well? One word – China.
Chinese Imports and Consumption
Despite the BS and the rhetoric from the United States, China – the world's biggest exporter – has emerged as a significant consumer.
Overall, China's import volumes are a fifth higher than its pre-financial crisis peak. Many Asian countries have more than doubled their exports to China since the depths of the recession in late 2008 and early 2009.
Exports from neighboring Taiwan are up more than 160 per cent from the bottom, while Singapore has boosted its exports to China by more than 120 per cent and South Korea by nearly 100 per cent.
In absolute terms, nearly 30 per cent of Taiwan's exports, accounting for 15 per cent of its GDP, go to the mainland. A quarter of South Korea's exports, accounting for 10 per cent of its GDP, go to China.
For both of these countries, and others in Asia as well, China is more than twice as important as the United States in terms of exports.
Most American investors would probably to surprised to learn that last year, Chinese consumers bought more cars and mobile phones than did Americans.
The increase in Chinese and Asian consumption is a long-term shift. It is driven by a surge in sustainable and self-generating domestic demand on the back of economic growth. In fact, consumption has played the major role in Asia's economic recovery.
The effect is most dramatic in China where domestic demand increased by $180 billion in 2009. The consumption picture is similar in the rest of Asia. Excluding Japan, consumption in Asia is more than 7 per cent above September 2008 levels.
Shifting Trade Winds
Rapidly rising incomes in China are making its consumers look more and more like those in the developed world. Today investors need to keep in mind that just as the US consumer is key for Chinese exporters, so too is the Chinese consumer key as an export destination for the rest of Asia and the emerging world.
Just as once at the end of many global supply chains there was the American shopper dropping items into a shopping cart, now there is the Chinese consumer doing the same...or the Chinese government planning a new road or steel plant.
Trade patterns globally have begun to shift as China and Asia become both wealthier and seek alternative patterns of continued economic growth.
Commodity-producing economies – Brazil, Russia, Indonesia, Australia and Canada – and commodity-consuming countries such as China, South Korea and Japan are reinforcing each other. South Korea, for example, sells 70 per cent of its finished goods to emerging markets.
China is sucking in all sorts of commodities. That gives suppliers of those commodities more money to buy manufactured goods, many made in China itself.
Of course, China is not yet nearly big enough to carry the world on its shoulders. But it is big enough to carry parts of it. And it is those parts of the world where investors need to and must put at least some of their investment dollars.
Saturday, June 5, 2010
Invest in Emerging Markets
Wall Street continues to gyrate wildly as it grapples with a litany of problems. These problems include the Euro and European debt, the BP oil spill, continued weakness in US employment and disasters still hiding inside US financial institutions.
However, there is one thing which never ceases to amaze me about the behavior of both individual and institutional investors in the United States during these times of stock market volatility.....
And that is, that at any sign of trouble in the stock market the first stocks that are jettisoned are those located in the emerging markets. Emerging markets have felt the most pain in the recent sell-off.
Investing in "emerging markets" sounds risky, but I wonder how risky it really is and compared with what.
The United States, for instance, is hardly a safe haven anymore. The line that separates the United States from the emerging markets may be less than most investors suppose.
The bottom line is that American investors seem to be holding views about emerging markets which are simply outdated.....
First of all, unlike the United States and Europe, most major emerging markets like China are not burdened by debt. In fact, they have surpluses.
Secondly, these emerging economies continue to grow very rapidly. The IMF (International Monetary Fund) sees the emerging economies growing at an average of 6.3 per cent this year, led by China and India. Europe and the US are growing...barely.
Some investors are aware of the term BRIC, which stands for the countries of Brazil, Russia, India and China. The BRIC economies are already larger than the developed economies of Europe.
But what is really surprising is that the other emerging economies - the smaller non-BRIC countries - are now larger than the United States economy!
Investing in emerging economies, like China, now is like investing into the United States about a century ago.....
About that time, the US was considered to be an "emerging market" (although that term did not exist then) and a very dangerous place for those "smart" European investors to put their money.
So most European investors stayed out of the US. We all know how well that turned out!
Yes, there will be lots of ups and downs in all of the emerging markets. But my advice is stay the course and dollar-cost average into emerging market investments. It is a once-in-a-generation opportunity, much like the United States was a century ago.
However, there is one thing which never ceases to amaze me about the behavior of both individual and institutional investors in the United States during these times of stock market volatility.....
And that is, that at any sign of trouble in the stock market the first stocks that are jettisoned are those located in the emerging markets. Emerging markets have felt the most pain in the recent sell-off.
Investing in "emerging markets" sounds risky, but I wonder how risky it really is and compared with what.
The United States, for instance, is hardly a safe haven anymore. The line that separates the United States from the emerging markets may be less than most investors suppose.
The bottom line is that American investors seem to be holding views about emerging markets which are simply outdated.....
First of all, unlike the United States and Europe, most major emerging markets like China are not burdened by debt. In fact, they have surpluses.
Secondly, these emerging economies continue to grow very rapidly. The IMF (International Monetary Fund) sees the emerging economies growing at an average of 6.3 per cent this year, led by China and India. Europe and the US are growing...barely.
Some investors are aware of the term BRIC, which stands for the countries of Brazil, Russia, India and China. The BRIC economies are already larger than the developed economies of Europe.
But what is really surprising is that the other emerging economies - the smaller non-BRIC countries - are now larger than the United States economy!
Investing in emerging economies, like China, now is like investing into the United States about a century ago.....
About that time, the US was considered to be an "emerging market" (although that term did not exist then) and a very dangerous place for those "smart" European investors to put their money.
So most European investors stayed out of the US. We all know how well that turned out!
Yes, there will be lots of ups and downs in all of the emerging markets. But my advice is stay the course and dollar-cost average into emerging market investments. It is a once-in-a-generation opportunity, much like the United States was a century ago.
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