Hey there! I'm Shanif - a young professional with a background in technology, analytics, startups, and even options trading. I've been developing software since 1997, working in startups since '08, and have dabbled (profitably) in options since '09.
I have a BS in Computer Science and Systems & Information Engineering, and recently earned my MBA, specializing in Quantitative Finance and Entrepreneurship & Innovation. These days, I'm working on helping Twitter integrate a mobile advertising platform that I helped build at TapCommerce, a startup I worked on after business school.
People, Places, Things - My Best Shots
Doing Business In China – Multinational Firms In China
If you were the CEO of a large, multinational company, and you heard the name “China,” what do you think would come to mind? 1.3 billion customers? A huge emerging middle class? Increased spending in luxury goods? All of the above? More?
Chances are, you’d start salivating at the thought of breaking into the “world’s largest market.” The thought of exponential sales growth may be so appealing that you may even fail to stop and think about your operational, marketing, and sales plans? Let’s hope this isn’t the case.
During my time in China, I received a lecture on corporate operations in China. More specifically, we discussed how large multinationals have tried to break in to the country, where they’ve succeeded, where they’ve failed, and how they compare to local companies. I probably don’t have to say it, but coming in to China as a Western firm and trying to operate is an extremely difficult prospect.
Let’s take a look at two case studies to illustrate the challenges that large corporations face. First off, we’ll look at Walmart – one of the largest, most successful retailers in the history of commerce. Walmart’s core successes in the US are due to a few key factors: their hub and spoke model, their power in the supply chain, and their IT capabilities, amongst others. These factors are extremely important to understand when comparing Walmart’s performance in the US to their performance in China. The hub and spoke model requires the existence of a large infrastructure of low-cost highways and the ability to create one distribution center for more than a hundred retail stores. Walmart’s power in the supply chain is important due to operational and logistical concerns, and its IT capabilities the company monitor and manage its inventory extremely closely. In addition, Walmart’s business model relies on certain buying behaviors – specifically, it assumes that customers will make one or two infrequent trips over the course of a few months, during which they will make many purchases.
In the 1990s, Walmart attempted to bring this business model to China. They calculated that they would need to open more than 75 stores per year in order to maintain operational sustainability. They started with one store in a rural province, and currently they have no more than 200 supercenters across the country. 200 stores in more than 15 years. That’s no where near the growth rate that they need to be successful. In fact, Walmart has never been profitable in China, yet it continues to remain in the country, slowly growing its presence in the hopes that one day it will be able to capture a larger share of the market. By current measures, its foray into the country has been a failure. What went wrong?
In summary, Walmart’s business model doesn’t work in China. First, we have to look at Chinese law and Walmart’s operational capabilities in the country. The hub and spoke model requires the opening of tens of stores simultaneously, and hundreds of stores per distribution center. In addition, it requires low cost roadways. First off, there is a law which prevents the opening of more than three stores from certain businesses in a given region. This alone would prevent Walmart from opening enough stores to support its operations. But in addition to that, there are several other issues. In order for Walmart to even consider opening up more stores, it would need to work with local governments to obtain permits and permission. This is a daunting task with a significant number of inefficiencies. In addition, Walmart would need to figure out a better way to transport its goods. Until recently, the Chinese highway system was severely lacking. These days it is significantly improved, and their system is poised to take over that of the US. But there’s one problem. On average, there is a tollbooth every 4.1 miles on a Chinese highway. The amount of tolls that Walmart truckers would have to pay in China would increase the cost of its goods by more than 10%, at the least. This lack of infrastructure, cultural familiarity, and the fact that Chinese customers tend to make very frequent, small-purchase trips to retail stores, have all proved to be incredibly difficult hurdles for Walmart to overcome. Walmart is still working to improve its standings in China, and it has a long way to go.
The case of Walmart shows us that the underlying assumptions on which a business model is formed in the US must be critically examined when a company tries to expand into China. A company’s management must closely understand both the political and economic situations in the country, and examine whether they pose a problem to the company’s operating model.
Now let’s take a look at our friend Google. A stalwart proponent of technological advancement, net neutrality, and “do no evil,” Google is the darling company of the US. It’s a testament to the American way. But man did it crash and burn in China. Google makes nearly all of its money on Internet advertising based off its capabilities as a leading search engine. In the US, it provides unfiltered, high quality search results to any query that a user can think to type into his search box, and they make a killing doing this.
A few years ago, they decided to make a version of their site available to the Chinese public. This new version of their site would be a censored version, blocking out controversial results. Their main competitor was Baidu, which already held well over 60% of the market. From the start, Google’s entrance into China was riddled with problems. To start with, Google didn’t receive approval from the government until a year and a half after it first applied to operate in China. Admittedly, it did have rapid growth, however, the Chinese version of its site contributed less than 1% of the firm’s total revenues. Google faced stiff competition from Baidu, as well. First of all, Baidu focused specifically on developing the best Chinese search product that it could. It provided phonetic searches in Mandarin, and it also provided free links to download pirated music and entertainment from other websites. Google had to buy license fees to provide Chinese users access to these services at no cost to them, just to keep pace with Baidu.
On top of that, Google ran into significant problems with Chinese regulators. In January of 2009, Chinese regulators criticized all of the major search engines for providing access to porn. The Chinese search engines apologized profusely and removed this access. Google was much less apologetic. As punishment, regulators suspended Google’s ability to search through foreign websites and use its associative-word search capabilities. Later that year, Chinese authors sued Google for copyright infringement due to Google’s publishing of their works on Google Books. Then, in early 2010, Google was infiltrated by what appeared to be Chinese hackers. In response, they stopped filtering search results on their Chinese website, and in doing so, put the Chinese government’s back against the wall. For whatever reason, though, they reinstated the filters five days later with no explanation or media coverage. However, Google had previously announced, publicly, that the filtering issue would be resolved with the government within a matter of weeks.
This caused an issue, since the Chinese government would never allow Google to operate with unfiltered search results, and Google refused to operate in a censored environment. If the Chinese government had backed down and allowed Google to continue to operate with no filters, it would have lost face. However, if they had forced Google out of the country, they would have been seen as oppressors in the eyes of the public. So, in typical calculated fashion, they took the incredibly intelligent approach of remaining silent. It was Google that had proclaimed that the issue would be cleared up within a matter of weeks. The Chinese government did not promise a thing. So when enough time had passed and Google realized it would never win the battle, it capitulated and rerouted all traffic from its Chinese site to its site in Hong Kong. This allowed the government to save face without angering the public. Google effectively exited mainland China.
The case of Google again shows how important it is to understand the political and economic climate in China. Copying and pasting a proven Western business model will usually not work in China. Interestingly enough, I’ve heard rumors that Google wants to get back into the Chinese market. Let’s hope that this time around they think through all of the details beforehand.
These two examples show how difficult it is for Western firms to enter the Chinese market. But not all foreign ventures are failures. Though its true that most, if not all, greenfield attempts to enter the Chinese market have been failures, there are other ways to enter China, including mergers, joint ventures, franchising, and licenses. Each method has its own set of risks, and each method can only provide Western firms with a limited reward, but these methods are much more likely to be successful than a completely new venture into China.
There have been several foreign firms that have been successful in China. They’ve successfully navigated the Chinese legal, political, and economic systems in order to increase revenue and value to their shareholders. They have had to make concessions and sacrifices along the way, however, their ability to gain a foothold in the Chinese market will allow them to make greater strides in increasing their market share in the future.
Slowly, the Chinese are beginning to implement the protection of intellectual property, though they are doing it the way they see fit. They’re also making it easier for foreign companies to enter the Chinese market, through tax breaks and preferred status. At the same time, though, there are still certain industries that they’re trying to protect from foreign interests, so it’s not a completely rosy picture.
It seems that there’s no blueprint for success in China when it comes to multinational companies. There are a lot of obstacles, and life in China is pretty different when compared to life in Europe or the States. To top it off, the “Chinese market” isn’t really the “Chinese market.” Each province has different tastes. Cities on the eastern coast are significantly richer than those in the west. The disparity between the “haves” and the “have nots” makes the actual Chinese market much smaller than the 1.3 billion people that everyone first thinks about. It’s true that the Chinese market is heating up, and consumer spending is growing quickly, but in order for a multinational corporation to be successful in China, it has to be very careful about its operations, have a culturally sensitive and effective marketing plan, understand the local, regional, and central political environments, figure out if there’s a market for its products among the Chinese population, and be able to adapt quickly.
China may be the future, but in the present is where the most obstacles lie.View comments →
Why You Really Should Sleep On It
I’m not one for old wives’ tales. I rarely believe the stuff that my mom tells me. I never believe the stuff that my grandparents tell me. But when it comes to the adage of “sleeping on a problem,” I’m fully convinced.
It seems that whenever I’m able to sleep on a tough issue, regardless of the nature of that issue, I’m able to come up with a quick, efficient, and effective solution. Until recently, I’ve taken it as a given that sleeping over an issue can probably help solve that issue. As a programmer, I’ve witnessed this to be the case many a time. I can’t even count the number of times I ran into a coding or algorithmic issue that I had spent multiple hours on throughout the day, only to come back from a good night’s sleep and find the solution within 20 minutes. But regardless of my empirical, and albeit extremely unscientific observations, I never really knew whether getting a good night’s rest could actually help solve a problem, so I decided to do some quick research to look into it.
There have been several studies designed to study the effects of sleep on productivity. It seems that the essence of it comes down to two significant points. First, unconscious thought helps the brain create associations between disparate ideas – essentially, unconscious thought makes us more creative. Second, sleep can help the brain effectively organize and analyze information gathered during our waking hours. I’m also of the opinion that taking a step back from a problem can do wonders in helping your brain solve it later on. I suppose this relates back to the point about unconscious thought from above, but regardless of any other proven or unproven theories, we know for a fact that sleeping provides a defined break from time spent on a problem. That break in and of itself could significantly help in finding the answer to a complex problem.
There’s still a lot we don’t know about sleeping. Nobody can doubt that it’s not massively beneficial for us, and initial research seems to show that it serves a myriad of purposes. What’s interesting is that it seems like REM sleeping provides most, if not all, of the benefits of sleep. Apparently, even if you get a solid eight hours, if it’s all broken and unsettled, it may be worse for you than a quick nap that’s half as long but primarily composed of REM-time.
Ultimately, I don’t think that the benefits of sleep come as a surprise to anyone reading this, but the consequences of this whole idea of sleeping on a problem are very interesting. For example, I’m sure you’ve heard of married couples saying one of their secrets is that they “never go to sleep angry.” Personally, I’m not a huge fan of this saying. Not only do I think that trying to work out a problem late into the night with a significant other is unhealthy (because of lost sleep), but I also think it’s less effective than letting both parties take a step back, get some rest, and come back to the issue the following day. Of course, I could just be generalizing my own experiences here, so feel free to take that with a grain of salt.
Similarly, it’s probably more harmful to work through the night on a complex issue than allowing yourself enough time to look at a problem while you’re awake and then let your unconscious/subconscious mind take a stab at it while you’re sleeping. Some of the most creative and influential discoveries have been made after a good night’s rest.
So the next time you’re struggling with a tough analytical problem, or you’re looking for inspiration for your next masterpiece, or you’re even having a lovers’ spat, think about calling it quits, temporarily, and getting some rest. If experience is any guide, you’ll probably solve your problem the next day.
Image from http://www.flickr.com/photos/haoz/5319509248/sizes/l/in/photostream/
View comments →
Doing Business In China – Cultural Hierarchy And Education
In his teachings, Confucius proclaimed the virtues of the five main human relationships: ruler to ruled, father to son, husband to wife, elder brother to younger brother, and friend to friend. It’s easy to see that structured relationships form a key part of Chinese culture. These structures are the source of one of the most important concepts in Chinese culture – that of hierarchy.
During my nearly three weeks in China, I found a large number of instances in which the Chinese proclivity for defined hierarchy came to the forefront of discussion. One of the most interesting of these instances was in how the Chinese rank their cities in “tiers.” Particularly in class, discussion around the Chinese economy was often specified in terms of the first and second tier cities in China.
No one gave a definition of what constitues a first-tier or second-tier city, but somehow, everyone knows. Beijing, Shanghai, and Guangzho are clearly first-tier cities. Second-tier cities are those that still have some growing to do. Third-tier cities are likely those in the western part of the country and encompasses those that have seen relatively low economic development and widespread poverty.
For me, it was very interesting to see the Chinese classify their cities into “tiers,” as if some were better than others. They could have easily differentiated their cities based on economic development, or population size, or a variety of other factors. But the fact that they choose to distinguish between the different “tiers” of cities in their country is a tribute to the great need for general, over-arching hierarchy in Chinese culture.
In the same way that the Chinese classify cities into tiers, they similarly differentiate between the different ranks of universities, politicians, companies, and everything else in Chinese culture using a “tiered” or ranking system. One of the interesting consequences of this ranking lies in the educational system in China. Recently, China Central Television (the government-controlled news program) aired an interview with the Richard Levin, the president of Yale University, on the topic of improving education in China. During the interview, they asked him how China can improve its educational system. His response was very interesting.
He commented that the Chinese need to begin encouraging their students to think more critically in class, rather than take everything that their professors say as dogma. He noted how universities in the US are much more comfortable with students actively questioning their professors and taking part in classrom discussions than their Chinese counterparts. He noted that this practice can be traced back to the traditional practice of “respect for one’s superiors.” Much as the ruled should respect their ruler, and a son should respect his father, students should respect their professors by not questioning what they say. Thus, the hierarchy that I talked about earlier in this post eminates itself in the classroom.
Unfortunately, this may stifle Chinese learning. One of the biggest advantages that students in western universities have is their ability to think critically, to take a hypothesis and analyze its underlying assumptions and the arguments in favor and against its validity. This ability to think critically leads to innovation, invention, and the ability to develop creative solutions to problems. The Chinese, on the other hand, lack this skill. They are very good at taking instructions and executing them effectively, but when it comes to true innovation, they need to “think outside the box.” This truly starts in the schools and universities that mold the minds of the younger generation. As China progresses, there is no doubt that this practice will slowly become more prevalent in class, yet, whether or not it permeates into the larger culture remains to be seen.View comments →
Doing Business In China – Understanding Values
One particular fall evening, many hundreds of years ago, an emperor of China was walking through his palacial gardens with one of his most trusted ministers. In fact, this particular minister had even been employed by this emperor’s father, making him one of the longest standing members of the royal court. During the course of the walk, the emperor took out a fan with the minister’s name written on it and handed it to the minister. The minister accepted the fan, examined it, and the two continued their walk silently forward.
The next day, the minister stood up in front of the entire court and emphatically announced, “emperor, I feel I have served this court well and to the best of my abilities. I served your father, and I served you. Now I am getting old, and I ask your permission to retire so that I may spend the last of my days with my family in my home town.” The emperor immediately agreed, allowing the minister to retire in peace.
As a Westerner, one could read this story and wonder what the heck is going on. The emperor gave a thoughtful gift to his oldest confidant and mentor and the very next day he retires? It doesn’t make sense.
Here, as in all of China, the devil is in the details. The key thing to note is that the emperor gave his minister a fan, with the minister’s name on it, in the fall. The weather was cool, and a fan was unnecessary. Because the fan had the minister’s name on it, the emperor was implying that, like the fan, the minister was also unnecessary. But instead of firing him flat out, the emperor gave the minister a chance to “save face”, a very important aspect of Chinese culture, by allowing him to retire.
This anecdote actually illustrates many of the key nuances of Chinese culture that I’ve been exposed to during my time here in China. Over the past two weeks, I’ve been taking part in lectures, classes, presentations, corporate visits, and, of course, the requisite tourism, all as part of Stern’s “Doing Business In China” program.
Over the course of the next few weeks, I hope to write several posts on a variety of topics that I’ve learned about while on this trip. This first one corresponds to the first lecture I received on Chinese culture. It was given by professor Li Ma, who is part of the Department of Organizational Management at Peking University, China’s premier educational institution.
During the course of his lecture, he discussed the value systems and incentive structures that Chinese workers, and the Chinese population as a whole, live by. One of the key concepts was that of saving face, which relates to the more general concept of living in a harmonious, de-individualized, respect-based culture. The Chinese are very group-oriented. They thrive on having high social status within their immediate social, professional, and familial lives. They value having close relationships and value relationships within their immediate circle, almost at the expense of relationships with those that are farther away.
For example, the Chinese will do almost anything for close friends, and usually consider them honorary family members. However, they’ll readily bump, shove, and push their way past other Chinese people that they see on the street. Similarly, they’re more favorable to giving jobs, favors, and money to those that they’re close to at the expense of strangers. This reliance on close relationships is known as “guanxi”, and is a common force in everyday business in China.
Many businesses here will leverage their guanxi with government and private sector officials to increase their customer base, find new clients, develop exclusive sales contracts, and hire employees. In fact, at some points, it begins to border on what Westerners would call corruption and bribery. But to the Chinese, guanxi is anything but. It’s a way of life. It is the epiphone of what Chinese culture is all about – extremely strong close relationships and much weaker relationships with those outside of one’s “circle of trust.”
This leads to a very interesting way of life in Chinese culture. Oftentimes, Chinese people will do anything to maintain harmony, even when this could lead to potential problems down the road. For insance, one of the examples that professor Li gave us was that a spoken “yes” by a Chinese person can mean “yes”, “maybe”, “I don’t know”, “if you say so”, or “I hope I have said this unenthusiastically enough for you to understand that I mean no.”
As you can guess, this leads to a culture that is very high context, where details matter, and where what’s spoken is hardly what’s meant. When it comes to business, this still plays a role, but is slowly changing. Chinese workers will usually do what their boss tells them with no hesitation. Managers will often exert significant influence over those below them, but will usually not provide any push back to their own bosses. They’ll often seek to please others at their own expense, and at the expense of productivity and, possibly, good business. Interpersonal relationships, perceptions of fairness, and social standing all play a huge part in Chinese business.
This is slowly changing, as new Chinese employees are much more materialistic than previous generations. They’ll usually spend more than their parents, and they work hard to one up their friends and colleagues with the newest products. With that said, they’re still Chinese, and the concepts of harmony and social order are still important to them.
In general, the average Chinese person will work very hard to please others around them. They’ll bend over backwards to make life easier for their friends, family, and guests, often to the point of inefficiency and inconvenience for the very same people they try to please. Understanding this, and being respectful of it, is the first step in doing business in Chinese culture. So the next time you’re in China, trying to close a multi-million dollar deal, and your hosts spend all of their time trying to wine and dine you and none of their time in the meeting room, take it as a good sign. You’re building guanxi with them, and once you start negotiating, it will be a much more smooth operation.View comments →
The True Cost Of An MBA: Passing The 200K Mark
Total as of 6/2/2011: $203,223.38
In the past, I’ve periodically written articles detailing the true costs of business school from my point of view as a current business school student.
Whenever I incur a cost that is related to school (and yes, I realize that assessing whether a cost is related to school is subjective), I record it in a spreadsheet that keeps a running tally of what I’ve spent. Eventually, I’ll add in the positive cash flows that have resulted from my attendance at school, but seeing as how I don’t have any of those yet, we’ll just ignore them for now.
This post is not only a follow on to the series of posts I mentioned above, but it’s also a special post because of a significant milestone that I just reached. As of June 2, 2011, just 11 days shy of the two year anniversary of my first b-school-related expense, I’ve broken the $200,000 mark. First off, I have to say that I can’t believe 2 years have already gone by since I started planning this whole experience. Has it been worth it? For me, yes. I’m a completely different person now than I was when I started this journey. I’ve experienced so much. On the one hand, it’s hard to imagine that two whole years have passed. Time has flown. Everything I’ve seen and done has kept me so active and busy that I never had the chance to see how much time was going by. I still very distinctly remember the process I went through in deciding to apply to school (I also very clearly remember the series of events that led up to it). It seems like that time was so recent, nowhere near two years ago.
At the same time, I can barely remember all of the little details and daily activities of life two years ago. My life now is in New York, doing what I really love, around people that consistently motivate me and teach me new things, in a city where I feel like anything is possible. And in that environment, those two years actually represent a lifetime.
With respect to the costs, I have to reiterate that the total amount I listed above includes the opportunity cost of not working. In fact, that cost represents more than half of the total cost that I listed. So no, I didn’t actually pay $200,000 out of my pocket, but if you were to take a look at my true net worth had I not gone to business school, that’s the number that would represent the difference (more or less).
Obviously, this isn’t entirely accurate. There are a lot of subjective costs I choose to include or leave out, and had I not gone to business school, I know for a fact that I would have ended up doing something different than what I was doing at the time. But in recording these costs, I’m not trying to partake in an exercise of complete accuracy. I’m trying to find out the true magnitude of what it costs to attend business school. But feel free to judge my numbers as you wish. I’ve shared my spreadsheet for everyone to see, and if you want to take a look, just click the link below.View comments →
- Name: Shanif Dhanani
- Address: New York, NY, USA
- E-mail: email@example.com