Thomas P.M. Barnett :: Weblog

OP-ED: “Capturing China’s Middle Market: When ‘good enough’ is best,” by Orit Gadlesh and Till Vestring, Wall Street Journal, 17-18 November 2007, p. 10.

Like the Jim Fallows post (China’s “a way” versus Japan’s “the way”), this piece speaks nicely to “good enough” products, much the way Steve DeAngelis and I speak of 1 or 2 Sigma solutions for the Gap.

Piece talks about Gillette buying a “good enough” battery builder in China so as to access bottom-of-the-pyramid production and sales (through its sub, Duracell). At the time (2002), Duracell held 6.5% of the Chinese and was losing ground. By buying “good enough” Nanfu, they access more than half the market overnight.

Similar strategies pursued by L’Oreal, Colgate-Palmolive and Anheuser-Busch: can’t compete on cost so buy lower-end competitor.

It’s an old trick inside our market: higher-end brands buy lower-end ones and keep the two separate. You go downmarket and the purchased new sub is allowed to go upmarket, so to speak.

SPECIAL REPORT: “High-tech hopefuls: A special report on technology in India and China,” by Simon Cox, The Economist, 10 November 2007, 22 pages.

Good bit: some say China and India will be center of global innovation, and others say the lack of national champions and the dependence on foreign tech means these economies are all broth and no noodle.

But here’s one interesting way to predict entry points: new ways of mixing existing technologies is also innovation, so sayeth The Economist.

GLOBAL BUSINESS: “The New Expatriates,” by Lisa Takeuchi Cullen, Time, 22 October 2007, 4 pages.

Key quote from Lin Chase, Accenture: “I come from a culture where people love a plan,” she says. “The plan is God.” Not in India. She would step away from meetings confident that a plan was in place and wait for its execution. And wait. And wait. “It happened so many times that finally I changed my whole style,” says Chase. “I talk to my team every day, ask them how it’s going. I spend a huge proportion of time chasing people for commitments they made to me, but now I see it less as chasing than as a relationship.”

I will tell you, that means emerging markets act more like start-up firms. You can’t just boss people around. It’s all about hands-on relationship building.

Go to an emerging market and immerse yourself in emerging cultures. To me, that’s why start-ups so naturally gravitate to the New Core markets. Just a comfort factor there. Also why it’s harder for established firms, unless they learn to change.

BEST COUNTRIES FOR BUSINESS: “China’s Drug Addiction: Beijing is bent on attracting world-class pharmaceutical R&D labs; the bait: cheap clinical trials,” by Kathleen Kingsbury, Time, 26 November 2007, p. 74.

U.S. #1. In fact, entire top ten are Old Core, save Singapore.

On the China article, the willingness to do cheap (and un-litigious) clinical trials gives China a big advantage on new drugs, as does the need there (think of all those smokers).

But as I pointed out in BFA: they take drugs and therapies too “risky” for us, try them at home, and once they get them down, what do they do? Come to America immediately to get a patent.

Cancer will be the huge new driver in Asia, as will heart disease. You move out of developing status and into developed country diseases

COMPANIES/INTERNATIONAL: “M&A Asia deals show tenfold increase,” by Sundeep Tucker, Financial Times 28 November 2007, p. 21.

Title says it all. These are mid-market M&As, so we’re seeing the beginning of the tsunami. It will move upward in size over time.

Companies will grow to exploit China’s big markets and to make efficiencies happen. The age of the robber barons is—in some ways—just beginning in China. The new behemoths are on the horizon, and they’ll have ambitions way beyond China.

ARTICLE: “China’s Long March to the Moon: Beijing Heats Up Space Race Against Japan This Week; Communist Party Pride,” by Gordon Fairclough, Wall Street Journal, 23 October 2007, p. B1.

Just watching Asians shoot for the moon should be interesting, because they’ll inevitably try to do it more cheaply and re-usably than we did.

ARTICLE: “A Hand For Bear In China: Citic Pact Could Buoy The Wall Street Firm,” by Kate Kelly and James T. Areddy, Wall Street Journal, 23 October 2007, p. C1.

Sure, Bear Stearns is accepting money because it screwed up in the subprime, so outsiders buy a chunk during distressed times. But that’s as American as apple pie. The new capital and the new thinking revives the frustrated organization, and if it comes from the right sources, it allows the existing org to tap into new markets, which Bears is obviously interested in doing with China’s fast-growing underwriting and trading markets.

SPECIAL REPORT: “Revving up: How globalisation and information technology are spurring faster innovation,” The Economist, 13 October 2007, p. 6.

FEATURE: “The Patient American: After toughing out Vietnam’s crackdowns on capitalism, investor Peter Ryder is reaping the rewards,” by Frederik Balfour, BusinessWeek, 22 October 2007, p. 060.

Basic argument of my column in the first piece, with a vignette in second about how one guy pulls this off in Vietnam.

Patience is a great virtue, perhaps the most important one for any strategist.

ARTICLE: “Chinese Maker to Sell $7,000 Cars in Mexico,” by Elisabeth Malkin, New York Times, 23 November 2007, p. C2.

Access the Chinese car market, access the bottom-of-the-pyramid sales to come.

SEOUL JOURNAL: “A New Lifestyle in South Korea: First Weekends, and Now Brunch,” by Su Hyun Lee, New York Times, 2 November 2007, p. A4.

More than Japan, I am guessing, South Korea is the Asian center of gravity in exploring what it means to have more disposable income—at least with more popular gusto.

It is said that South Korean soap operas are very popular in China.

Why?

It’s a way to learn how people with money behave—sort of an inverted “Beverly Hillbillies.”

ARTICLE: “Why Multiple Headquarters Multiply: As Firms Expand Globally, More Feel the Need to Call More Than One City Home,” by Phred Dvorak, Wall Street Journal, 19 November 2007, p. B1.

Accenture is a huge example of this. Interacting with them at the top is a fascinating exercise in time-and-space coordination, because their execs are literally spread across the planets.

ARTICLE: “China Deal Gives Lift to Nuclear Energy,” by John Tagliabue, New York Times, 27 November 2007, p. C1.

Areva’s deal with China not only helps it tap the world’s fastest growing nuke market, it may end up transforming the nuke market in the Old Core.

Great example of New Core setting the new rules, so to speak, using “rules” here to mean more the market (at first) than the technology (which will also change with things like pebble-beds).