The University of Texas Executive MBA program invited Steve Papermaster to speak for the final class session before the students embarked on a two week trip to China. Steve covered an array of topics with the group, and we wanted to share some of the material from the Q&A session. You say there are a lot of misconceptions about China. Which news sources could we get reliable information from to get a better picture of what’s happening over there?
I like using the “whale eating the plankton” analogy here. My advice is to read a little bit of everything to get a good taste of what’s going on. If you want a really good perspective here, try to read news that comes out of China such as the South China Morning Post out of Hong Kong, and Baidu, China's Google . I also recommend the Wall Street Journal and Financial Times's China or Asia division. It’s good practice to remember that every country’s news sources are a little biased, so using this process you’ll find a better sense of the truth.
Do the Chinese have a preference of domestic brands over foreign brands?
High-end foreign brands were strongly preferred by Chinese consumers over the past 20 years. More recently in the last 6 years, since the Beijing Olympics, there has been a rising sense of Chinese pride, which can result in the favoring of Chinese brands – but only those perceived as high quality and strong. So while leading Western brands are still perceived as “cool”, they would do well to also incorporate Chinese tastes and look and feel into their style.
What’s your opinion of the growth trends that will take place in the next five years?
Practically everything in China has been in mass expansion mode for many years. They have the largest automotive industry in the world with millions of first time buyers entering the market. There’s a rapidly growing middle class with double the spending power of their parents, when their parents were their age. Although the growth rate itself is currently slowing, China’s growth overall is still advancing more than anywhere else in the world. Luxury brands are growing more popular. China has major urbanization plans around the country. There is a lot of big news around mobile internet and mobile financial services from huge Chinese companies like Tencent, Baidu, and Alibaba. China's international travel is up. We also see the country’s growing interest and necessity to become a cleaner environment. There's also major movement from investment and export led growth, to a push to be more consumption driven.
Why would American democratic process be bad for China?
In the long term it might be fine, but the recent history of the Soviet Union is very instructive. After breaking apart, the former Soviet bloc countries tried to adopt pure democracy as a process but yielded generally poor results. You might also argue that the American political bickering between parties could consume China and stunt growth for it’s 1.3 billion people.
From your entrepreneurial perspective, what should entrepreneurs look for as far as opportunities in China?
My advice is just to keep your eyes open and be aware and on the lookout for anything. You might feel that you’re at a disadvantage because you aren’t as familiar with the country, but having the ability to see things with a fresh perspective can really give you an advantage point. My son Jacob was in China for an internship and played semi pro sports, when he had a business idea for luxury imports. He’s started the company with some friends and they’ve already made a jump in the market to get a first mover advantage. It can happen for anyone as long as you stay observant and have the courage to go out there and make things happen. It also is almost necessary to have a local partner to aid in your growth, so make those connections and don't go it alone.
Is China a “sinking ship”? Is there a severe economic slowdown?
Now is a great time to be a worrier of everything in general, if you want to worry. Even with a slowing rate of growth, China has the largest sustainable economy of any developed country in the world and it won’t collapse any time soon.
Stay tuned or subscribe to receive the rest of this blog post series about China over the next few weeks. We’ll blog about: the biggest misconceptions of China, how Powershift venture, Appconomy, developed a Chinese/American expat program, interview with the most recent Powershift venture’s recent deal with Dulce Vita Tequila to take over the spirits market in China, and more.