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Two Stories You Missed

March 12th, 2010
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Story One: Hacking of Energizer Duo Battery Chargers. Energizer battery chargers made in China have been found to have “trojans” loaded onto them, so that when the devices are plugged into a computer via USB port, a backdoor is left on the machine that makes it possible for someone to hack it from afar. This sort of news of course raises questions like: Who is behind the malware, and why did they do it?

Marcus Sachs, a former National Security Council member and a member of the CSIS Commission on Cyber Security under the Obama administration, is downplaying the incident. In an article on CNET, he suggests that China may have once had problems with malware — back in the old days, meaning 2007? — but that things have changed. LOL moment: His suggestion that the malware is just a bit of shmootz, an issue with hygiene:

If the Trojan does date back to 2007, that is around the same time that there was a rash of products like digital photo frames hitting U.S. shelves infected with malware, said Marcus Sachs, director of the SANS Internet Storm Center. “This may simply be from that time frame when all the factories in China were not clean and many were putting malware onto stuff, not intentionally but because the hygiene wasn’t good…”

Story Two: Tainted Chinese Fluoride. A water works company in Massachusetts has been getting its fluoride from China, and it believes that what they’ve been receiving is actually a kind of counterfeit. From one report:

Department of Public Works Director Rob Desmarais said after he mixes the white powder with water, 40 percent of it will not dissolve. “I don’t know what it is,” Desmarais said. “It’s not soluble, and it doesn’t appear to be sodium fluoride. So we are not quite sure what it is.”

Desmarais said the residue clogs his machines and makes it difficult to get a consistent level of fluoride in the town’s water. Since April the fluoride pumps in Amesbury have been turned off and they will stay that way until Desmarais can find out what’s in the fluoride that’s imported from China.

Because this one affects public water supplies, some are suggesting it is a homeland security issue. I don’t know about the categorization, but I know that there are persistent quality problems out of China, and that these problems are often of the intentional variety.

I am more concerned about the fluoride case than the trojan case. The high level of game-playing in China manufacturing processes combined with a cultural inclination towards counterfeiting goods, mixed in with the nature of chemistry, suggests a high level of risk associated with chemical products in particular, one that is not appropriately being factored into the bilateral trade picture.


China’s Yawning Gap — And More

March 6th, 2010
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Weeks before China’s annual People’s Congress, I suggested that China would not announce a currency revaluation, despite predictions made by some. I gave partial reasoning, here:

Many in the U.S. believe “China is in a bubble.” This may be the case, but it is not a sentiment shared by average Chinese. In South China, compared with a couple of years ago, the buzz has gone, and people are no longer as optimistic as they once were. There’s more grumbling about corruption. Macroeconomic numbers suggest rocketing growth, but on the ground there’s this odd feeling that the air has been let out of the tire.

Looking into my crystal ball, I suggested that Premier Wen Jiabao would instead focus his address on the yawning gap between rich and poor in China. I had to do some looking around online, but here’s something that I picked up today from a news agency out of Latin America:

The speech touched on many issues, but on a number of occasions the premier spoke about the need to make China a fairer society. “We will not only make the ‘pie’ of social wealth bigger by developing the economy, but also distribute it well,” Mr Wen told about 3,000 delegates, returning to a theme that he has often spoken about during his premiership. “[We will] resolutely reverse the widening income gap,” he added later, in a speech that lasted more than two hours.

I would have preferred a quote, but there was no explicit mention of this aspect in their article, “China Premier Details Economic Plan. Now, what do we make of all that earlier commentary coming from the U.S. on a possible currency revaluation out of China? These weren’t predictions at all, it turns out, but are signs of desperation from an American economy that is in much worse shape than many of its leaders are willing to admit. Beijing knows this, by the way.


Best of 2009 Business Books — Library Journal

March 4th, 2010
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Library Journal just published its best business books of 2009 list, and we again made the cut. By way of background, Library Journal is the most widely circulated publication for librarians in the United States. The periodical was founded in the 19th century by Melvil Dewey, the guy who invented the Dewey Decimal System. Some of us are actually old enough to remember what this is, or what it was like to find a book using a card catalogue! I’ve spent more than my fair share of time in libraries, and so this latest piece of news is a bit of fun, as well.


China Marketing

February 27th, 2010
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2Most of the time, when the rights of a brand are infringed upon in China, manufacturers have taken a familiar-sounding name and made only a slight variation. They try to keep the name as close to the original as possible. Sometimes the efforts of these bootleggers make for some good comedy. I recall buying a suit in Hong Kong several years ago and having the tailor try to sell me on a material produced not by Ermenegildo Zegna but by Mario Zegna — presumably a cousin of the Italian designer.

Others have written about Chinese efforts to rebrand popular Western trademarks. One that I found particularly amusing was a slight twist on the “Esprit” brand. Pictured at the top here, this backpack has a logo that mimics the original but uses a brand that looks a lot more like like “Spit.” Companies worry that counterfeiters will dilute their brand, and this sort of example drives home that point.

Sometimes copied names are not similar at all, though. Consider the second and third pictures here. One is of a ball carrying the logo for Wilson Sporting Goods. This other is for a Guangzhou-based sporting company called Menlow.

wWilson versus Menlow? Without looking at the pictures, you’d think that the two names are nothing alike, but consider what’s been done: The scripted “W” from Wilson has been turned upside down so that it becomes the “M” in Menlow. They’ve done something similar with the “N,” changing it into a “W.” They preserved the tall, scripted “L,” and the net effect is a logo that from a distance and without too much thought looks quite a lot like the original!

5I’ve often passed a Menlow shop in Guangzhou and wondered what executives at Wilson would make of the logo. Do they even know that the logo or the copycat company exists? Would also be a little more than curious to see how a Chinese court would handle any claim of copyright infringement. My bet is that “Spit” might find trouble, but that Menlow would be allowed to carry on — even though its logo appears similar and it is also in the business of selling the same kinds of sporting goods.


China’s Yawning Gap

February 27th, 2010
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Several days ago, some suggested that China was on the verge of revaluing its currency. I proposed that it would not, that we should all look for another move instead:

China will announce a major shift in economic policy, and that shift will have little (or nothing) to do with the currency exchange rate. China’s economic policy shift will please the U.S. a little, while satisfying its own people more. Any new economic policy introduced will have far less to do with an attempt to rebalance the global economy. It will have instead more to do with an effort to reduce wealth disparity in China.

This is from a two-hour, online “town hall meeting” led by Premier Wen Jiabao. There’s a bit of “satisfying its own people” and “effort to reduce wealth disparity” here:

Turning to the yawning gap between rich and poor, Wen said Beijing would strive to boost wages and make it easier for migrant workers to settle with their families in smaller cities. “If the wealth of a society is concentrated in the hands of a few people, then that’s unfair and that society is doomed to be unstable,” Wen said.

How do I do it? I honestly don’t know.

Anyway, it’s at least a bit interesting that Beijing is claiming to take an active role in increasing wages when market forces are more likely the cause. According to NYT, labor rates have been bid up as much as 20% in recent months. Seems to be happening all on its own.

**UPDATE: A number of local newspapers are pushing now for reform of the household registration system that has divided urban dwellers and rural folk, though Wen Jiabao’s government already hinted they were looking into making it easier for migrant workers to move about the country. Thought I would link to the relevant news event since this ties into new efforts to bridge the rich-poor gap in China.


China Marketing

February 22nd, 2010
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wineYou don’t need a background in marketing to know that there is something a little weird about this campaign to tie together Australian red wine and cranberry juice (see pic). The packaging may say something about how unsophisticated the market in China really is. So many things are new to the Chinese, and so there is always the opportunity to introduce new concepts and pitch them as “accepted” in the West. On the other hand, this boxed up set may say something about those who market goods in China. If you’re working in an environment where you think consumers can be talked into just about anything, then you really can “play by your rules.”

I took this picture in South China 7-Eleven shop. For those who don’t know, it is not uncommon for Chinese to mix red wine with carbonated beverages like Sprite. You can probably imagine why they would want do so — soda adds sparkle. On this other mixture, though, I can’t guess why someone would want to combine wine with concentrated fruit juice, unless the point is only to dilute the alcoholic beverage. If it’s about sweetening the wine, perhaps wine makers could come up with a variety that is different for the Chinese market. If it’s about the magic of cranberries, then perhaps they could try fermenting that fruit instead.

There are probably some China marketing gurus who will say, “this is another example of a company that is localizing their product for the China market.” In the end, it was probably not a marketing decision, but a project that came about for business reasons. This campaign might merely be an example of what happens when finance directors play at marketing.


Missing Defense

February 19th, 2010
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One day before a landmark trial in the case of bad drywall from China, the defense has bolted:

Less than 24 hours before a potentially historic tainted drywall case was to commence — one that will determine the procedures for fixing houses — the Chinese company that was to provide the manufacturers’ defense shocked participants by dropping out.

U.S. District Court Judge Eldon E. Fallon will proceed with the case, but with Chinese manufacturer Knauf Plasterboard Tianjin Ltd. Co. out of the picture, there will be no defense cross-examination and no defense witnesses. The witnesses lined up this week to testify for the company will be sent home.

The tainted drywall case is one of the more serious involving quality failures out of China. Total damages are estimated to run $15 billion to $25 billion, making it a “Katrina II” for the US Southeast.*

One of the problems associated with product failures out of China has been the difficulty with which victims are able to obtain justice through the courts. To date, there has been no definitive explanation for bad drywall, other than to suggest that it was “fake” drywall. Some have guessed that the product was manufactured with an organic substance in which bacteria could thrive.

While some are in denial and everyone waits for answers to questions and solutions to problems, some groups are doing what they can to help those affected. Palm Beach County property owners who’ve found themselves stuck can at least look forward to a 70% discount on their property taxes.


* Hurricane Katrina damages were estimated at $125 billion.


WSJ Oped

February 9th, 2010
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Wall Street Journal published a piece I wrote for their Opinion Asia section. One of the points of the article is to provide a distinction between quality problems out of Japan and those from China.

Even as Toyota is getting much press for its problems with accelerator pedal assemblies, I find the melamine case far more disturbing, because (a) it involved an artful attempt to circumvent third party controls, (b) it was an activity practice by a large group of unscrupulous actors, and (c) because those who were engaged in the most recent milk powder cases knew precisely the harmful health effects of melamine.

Making matters worse has been the government’s wrongheaded response. Beijing reacted to this year’s melamine scandal with a heavy-handed cover-up. Chinese journalists have been warned not to report details surrounding milk cases. Parents of children sickened by melamine-tainted products who have attempted to organize themselves to protest or seek compensation risk being sent to jail for “social disruption.”

China’s state-directed legal system has failed to provide justice to victims. The government meted out severe punishment to only a small number of perpetrators engaged in the distribution and production of poisoned milk—two were executed—and a far greater number were let off the hook. China’s response to past scandals has been to protect industry with a government shield, so no one should be surprised when fraud recurs in such an environment.

At this time, many are looking at what’s happening to Toyota and saying, “Japan has problems, too.” The suggestion in this article is that such a view is misguided. Even with Toyota’s major recall, Japan ought to be seen as an example for all that China might accomplish in the next few years, and here I am thinking about a culture that values quality for its own sake and an incredible attention to detail, an economy that values building market share and long-range opportunities over get-rich-quick schemes.


Two More Lists

December 12th, 2009
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iInc. just published their list of “Best Books for Business Owners of 2009.” Poorly Made in China was selected and turned up alongside some great books, including Outliers: The Story of Success by Malcolm Gladwell, How the Mighty Fall by Jim Collins, and I Love You More Than My Dog by Jeanne Bliss.

This is the third time that the title has made a best-books list for the year. The Economist was the first, and the second appearance was at Investopedia, which is owned by Forbes.


Book List

December 9th, 2009
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econ2The Economist just published its “Best Books of 2009,” and a certain small book on China has made the list.

Poorly Made in China is in excellent company. The three other titles in the economics and business section of the list include Too Big to Fail by Andrew Ross Sorkin, Lords of Finance by Liaquat Ahamed, and How Markets Fail by John Cassidy.

It is a wonderful distinction. Thanks to all who offered notes of congratulation.