A bit of background: signese is the Chinese humour contained in public signs before they are translated to English. It is not Chinglish, it goes much deeper into our cultural differences, and it is funny because it shows an unexpected approach to life. Look at this sign below, it is a classic of toilet signese, a sign that hangs above millions of urinals in China, from the Summer Palace to the smallest alley in Shanghai:

A small step for man, A great leap for civilization

Approximately 50 million urinals carry this sign in the mainland. I wonder if somebody has told Neil Armstrong in his old age that his famous and well rehearsed line is remembered today by 1/5th of humanity as a hygienic measure for urinating gentlemen.

Bad aiming skills in the toilet is a common ill in all societies, any lady will tell you that. But in China the problem is most acute, and sub-urinal ponds are part of the landscape. Some ascribe it to the natural optimism common in most Chinese males. I prefer to think it is a matter of multi-tasking abilities: speaking on the phone while smoking a cigarette is not the best way to ensure full control.

In any case, the Ministry of Health prefers to not leave anything to chance, and already a tech startup is taking care of this:

Until this new product hits the market, please one step forward.

I just hope the developers are thoughtful enough to give it hands-free capabilities, ashtrays and Bluetooth.

PS. Speaking of technology, I know, if I am going to take blogging seriously I better get rid of this phone and get one that can take proper pics. The problem is I am torn between that and the best dictionary of Chinese in the World, that runs in my second hand Palm from Taobao.

“Who gets rich in China? The Chinese!”

I am afraid I don’t have a better answer now than I had then, but recently I’ve been talking business with some entrepreneurial friends, and one problem has come up so many times that I think it is worth a post. And I hope this is useful for foreign start-ups in China to avoid making a bad decision from day zero and ending up, a few years down the line, mumbling the bitter phrase. The problem I refer to is the market dilemma, otherwise called the expat trap.

The Expat Trap

The idea is simple. In China there are two completely different markets: the massive Chinese market and the tiny market (but strong in per capita spending power) of the foreigners stationed here. If you plan to sell something in China, you need to choose one, and usually there is only one good choice. Of course, most large companies are after the Chinese markets, and the question expats/locals never arises. But for small entrepreneurs planning to start a venture in China, it is an essential decision, and all too often they take the easy road.

The expats are rich, they are accessible, they speak the same language and they have lots of time to spend reading your website or speaking about your product. Who wants to dive into the complicated world of the Chinese, where competition is cut-throat and many consumers have the wrong tastes? For many first-time China entrepreneurs, expat is the obvious choice, and so they move on with their idea. And sometimes they make a good job of it and they build up a nice little company that becomes popular in the expat community. And then, they are in the trap.

Now, I don’t pretend to have a solution for everyone, and surely not all business ideas area applicable to the Chinese market. But the point is many startups don’t give enough consideration to the market question. Even businesses that were intrinsically meant for foreigners can find ways to appeal the Chinese public. Look, for example, at the popular Chinese teaching company ChinesePod, which is now looking to turn around its business with the new website: EnglishPod. Unfortunately, this change is often impossible for a company unless it has been looking at the Chinese consumer from the beginning.

The barriers are enormous to switch markets: the product positioning, the culture of the company, the pricing strategy, all things you can’t change without upsetting your existing customers. Language is also a big problem, especially in the case of internet companies with active content, which find translating a whole website into Chinese is an impossible task.  Finally, the company has not been learning about the Chinese all this time, and chances are somebody else has instead. By the time a successful start-up figures out it should be looking into the Chinese markets, there are already a bunch of Chinese copycats that have taken its place.

In most of the cases, starting a company focused on expats is just a bad decision. Some might argue: there are enough expats in China to run a successful business, and there is nothing wrong in staying small. Right, they might be the kind of pretzel-selling Marge Simpson who is contented with little, but normally this argument just hides frustration. If you came all the way to China to start a business it is because you had big ideas in mind, and the only big thing here that you don’t have in Europe is the Chinese market.

Put it this way: you have moved across continents to have access to a market of 500,000* people at most, roughly the population of Luxembourg, and probably with a lower average income. Besides, these Luxembourgers are weird clients. They keep moving out all the time and a large part of them is replaced every year, which has a strong impact in their loyalty. Worse still, although their numbers are growing, the trends in expatriation policies indicate that their average income will be going down, as massive expat packages disappear from the scene and more locals are able to do the jobs expats used to do.

And the answer to the Question

Of course, the expat trap is only applicable to companies selling in China. Some business models are doing just the opposite, selling China to the World. Often they sell information, and their markets are far away, which makes them resistant to Chinese traps. Another possible exception might include businesses that manage to franchise their model to other expat cities around the World, or even run it back home. This is possible in theory, especially for internet companies, but I don’t know many start-ups around who have succeeded.

On the other hand, I know many companies in China that have seen the expat market work as a sweet bait, and then found themselves caught in a dead end. I was going to give some examples here, but I don’t like to hurt the image of companies that I know and admire in other ways. Instead, I can give a couple of examples of foreign entrepreneurs, like the ones behind Tudou, Neocha or DaD, who worked with Chinese partners and got their markets right from the outset.

So, in conclusion, if you are an entrepreneur and you plan to sell in China, beware of the dangers of the expat trap. And for the curious who scrolled down this way, this is and has always been the correct answer to the question above:

Who gets rich in China? Those who find their way to the Chinese market.

NOTES

* I am, of course, only considering Western expats. The large Korean and Japanese communities tend to have their own companies here, and are usually not a good customer base for Western companies. Other communities, like Russian workers, are also difficult for Westerners. Remind me to do a post about the number of foreigners in China.

Global Risks 2009: a new report from the World Economic Forum, identifies a deteriorating global economy, a hard landing in China…

In the report , which you can download here, they go on to speak of China 09 GDP of “6% or below”, a point which the international media is quick to report. How’s that for the confidence. Ouch, one 2 good points below the waistline of the CPC’s 8% , and right in the family jewels.

Mind you, I am not writing this to pick on Wen’s predictions. First of all, the WEF’s report is only making hypothesis, to see their possible impact on the World economy. Second, I think Wen would be as likely to get it right for China’s economy as the gurus of the WEF. After all, the CPC prepares its predictions with the advantage of insider information, and it suffers less distractions than the vedettes at the Convention of Dismalness.

On the other hand, it is a long time already since the Forum passed the heigh of its influence and it looks this year more irrelevant than ever. In the end, the important decisions for the World economy will be taken by Obama’s team and the CPC, and it is unclear how either of them will listen to the WEF. Most importantly, the role of the Forum as a brainstorming event has largely been taken over by the econobloggers, as we saw in this fascinating article you might remember from last month.

Inexplicably, we have not been invited to Davos this time, so we’ll hit the road in Shanghai instead and see how the faith and determination is doing, and whether there are signs of  faltering in the good old Shanghai shopping spirit. A big part of China’s economic Wall is made of the faith of its consumers, who are the ones supposed to make up for the lack of exports. Here’s how they are faring in Shanghai:

Nanjinglu: The usual mobs of shoppers and sellers in spite of the biting cold.

Xujiahui: It is difficult to walk the Street, the shops are as full as ever and the official sign on the Bridge reads: “Do Well Your Economic Survey, capture the situation and the strengths of the District, and promote the development of XuHui.” This district is also undergoing an economic survey, like the one done by these funny villagers, but hopefully using more standard statistical methods.

Sitting 牛: Hordes of consumers worship the goddess of consumption, the Sitting Cow.

We Hire – I got this last night right next to my place. I haven’t been keeping track of the changes these last weeks, but all I can say is that we still see many signs like this. The red character means: We hire.  1200RMB a month plus extras. Searched: waiters, shop manager, dish cleaners, etc.

So there you go, in Shanghai, in spite of some people getting worried and a few foreign startups having a hard time to meet ends, it looks like the F and D are still holding stong. Let’s hope they stay right up there throughout 2009, and we might avert this one of the Global Risks.

Sharing is free, support my work:

]]> http://chinayouren-free.com/2009/01/15/1236/feed 6 http://chinayouren-free.com/2008/11/24/469 http://chinayouren-free.com/2008/11/24/469#comments Mon, 24 Nov 2008 19:54:41 +0000 Julen Madariaga http://chinayouren-free.com/?p=469 Last night I was out for a little dance with one of my Shanghai friends. My performance must have been pretty good, because as we were leaving she invited me to join Kaixinwang, and added that she would buy me straight away if I bought her.

Now, I didn’t know what to make of all this. But I was quite curious, as I had read about all these Chinese Facebooks recently on Danwei. So, as soon as I got home I thought I might as well open an account and let myself be bought. A bit of a hassle to deal with all those Chinese characters on a Sunday night, but anyway, it’s not like you can say no to a Shanghai girl.

So I went and googled Kaixinwang and opened an account and tried to find my friend there, only to find out that I was in the WRONG kaixinwang. And I had to start the whole process again. Further googling confirmed that there are 3 different kaixinwangs, apparently unrelated except that they bear the same name: kaixinwang, kaixinwang and kaixinwang. In the same time, I also found out that there are at least 2 other Facebooks: Xiaonei and Zhanzuo

So, what is up with all these Chinese Facebooks?

There seems to be a fierce struggle for power among them. Like the links above show, they are all almost exact copies of the original Facebook, but over time they have been introducing some Chinese characteristics to appeal the local users. Still not the Chinese “Wall of Characters” format, but definitely doing their best to cover up the blank spaces that Chinese users seem to hate so much. See above my (wrong) kaixinwang account.

I remember when I was in Business School, one of my classmates did a Business Plan with the title: “How to beat Ikea in 3 years”. It was a good laugh for the teacher, and my friend got extra points for “audacity”. But it is amazing to think that now for any random Chinese entrepreneur it is possible to do “Beat Facebook in 3 years”, and they don’t even need a BPlan. Is this the land of opportunity or not?

In case you think I am exaggerating, see what I got from Alexa global, with 2 of the kaixinwangs taking a huge leap in less than 6 months:

OK, probably Facebook will stay at the top because of its worldwide support. But in the Chinese market it doesn’t stand a chance. The Kaixinwangs have started and will continue to adapt the concept to Chinese preferences, and Facebook, unlike other global companies, has not moved in this direction. Perhaps Mark Zuckerberg might have had a chance if he thought of selling  “sweet and sour Facebook” before.

To be fair, it is true that the Chinese censors are doing a good job at slowing down Facebook here, while not affording any protection of Intellectual Property. And the same rumours that spread in the West about the Book – giving data to the CIA, etc- are very present among the young and nationalistic Chinese internet users, and surely not discouraged by the local competition.

Now, let’s see the key points for future developments:

1. The lack of IP protection in China means that all these startups can just copy the essential from Facebook, and concentrate instead on adding some extra games and gadgets that appeal the Chinese. In fact, for this very reason it doesn’t make sense for Kaixinwangs to innovate. Wasting resources in coming up with a new platform is a loser move, when any newcomer can just copy.
2. This seems to be an unregulated network market, which usually evolves into a Winner-Take-All situation. So it is to be expected that pretty soon one of the Kaixinwangs will take the whole pie.
3. Only at that point, with the local market secured, the winning Kaixinwang will find a reason to start developing some really new stuff.
4. This is a phenomenon that applies to many industries in China. They are in a race to capture markets while the economy grows, and can’t afford to stop and rethink right now. This is what I mean when I say the fast pace of Chinese economy for the last 30 years has left many holes behind.

From the selfish point of view of an expat in Shanghai: I can’t wait for all this kaixinwang competition to get  settled and every Chinese to get an account in the Champion of the KaixinWangs. (开心网王）

For many Westerners here Facebook has become part of our social reflexes. When we meet someone new – which happens everyday in Shanghai- it is the easiest way to keep track. With the Chinese, the simple social question: “what is your Facebook?”  results in a complicated discussion, often involving the CIA, James Bond and Her whole Majesty’s Secret Service. In the end, you always end up stuck with another fancy visit card that quickly gets lost in the overflowing 名片drawer.

UPDATE: I found another 2 kaixinwangs just now: kaixinwang and kaixinwang. There must be dozens of them out there if I can find these 5 so easily on the first page of google results. What a mess! It reminds me of the times when WangDonalds flourished right next to the real place. Perhaps the Chinese Net Nanny should spend her time trying to sort this out instead of wasting it with us.

One of the things that makes Shanghai such an interesting place to live is her magnetic properties that attract all sorts of enrepreneurial metal from around the world. One can read a lot about succesful startups in well informed China blogs dealing with business, but that is just the tip of the iceberg. Unless you live here, you can not even start to imagine the thousands of starting business ventures swarming the city. Even in the most modest of social events you will meet a good handful of CEOs in their 20s, always rich with ideas, and typically trying to figure out how to monetize them.

Most of these adventuruos foreigners struggle for a long time before eventually giving up and moving to new horizons. Others manage to run a sustainable business. Very few ever become rich.

But an unusually large number of them are actually going bust right now as a consequence of the Crisis. In the last few months since the summer, already three acquaintances have said farewell to me and to Shanghai, with their dreams broken and their companies bankrupt.

Now, it is probable that for Chinese economy, these bankrupcies won’t have the same impact as the ones on the Pearl River, but they do provide some colourful and very typically Shanghainese tales:

For example. I think of my friend who went to work one Monday to find out that there was no computer, and no chair and table, and no company at all, because the struggling Dutch owner and founder of the startup had been busy over the weekend trying to get the best value off the remaining assets before he disappeared out of the country. Fortunately, this girl was only doing an internship in Shanghai and, as last survivor of the company, she had the difficult task of assessing her own performance and grading herself before taking 2 extra free months to travel in China.

Some recent developments of this new trend can be seen also in this article by CER, which warns us against company-sponsored trips and team builidng events. Does your boss sound suddenly generous in the midst of financial turmoil?  Does it seem a bit odd that you have been invited to this expensive Team Building week up on the pastures of Heilongjiang? Don’t go. Chances are when you are back to Shanghai there is no accounting department left to submit your expenses claims. Or to pay your 2 months due of salary for that matter.

And all this makes me wonder: are we coming back to the good old times of the concessions? The times when only in Shanghai there were dozens of different national jurisdictions where crooks and adventurers of all sorts found the folds where they could flourish; when thousands of foreigners flowed into Shanghai with the most diverse schemes to get rich, usually involving, as Carl Crow would put it: “mixing other peoples money with their own”. Perhaps we never really left that period.

And this leads me straight to the Big Question, which foreigners in Shanghai have been asking themselves for the last hundred years, and which is still a recurrent subject of conversation here: Is it possible to get rich in China?

This is definitely a subject I will be blogging about soon. In the meantime, I strongly recommend that you read this book: “Foreign Devils in the Flowery Kingdom”, by Carl Crow. Among many other things, you will see how little has changed, and how expats in Old Sahnghai answered to exactly the same questions as we ask ourselves today.

One last quote from the book that might help shed some light on the Question above:

Every foreigner went to China with a consciousness of his own [...] mental superiority and a smug satisfaction in the belief that there were many things he could teach the chinese.

To be fair, there are more and more foreigners, especially of the younger generations, coming in today with a serious disposition to learn what the chinese have to teach before they add their own grain of sand. But there are still too many left with the Old China Hand attitude who feel the need to enlighen the locals with their wisdom.

So, here is the first big clue to answer the Big Question: in 2008, just like in 1908, the (few) foreigners who get rich have taken the time first to learn from the country. See the Standard Oil back in the time, or Tudou’s Marc van Der Chijs today.

PS. If you are even slightly interested in China – and if you are reading this blog you probably are – do yourself a favour and get this book immediately from the Shanghai Foreign Language Library or from here.

PPS. If you are my personal friend or relative – and if you are reading this blog you probably are – then just give me a call and come over to my place, I will lend you the book.